UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
IN RE: CREDIT DEFAULT SWAPS
ANTITRUST LITIGATION
CASE NO. 1:13-MD-02476-DLC
ECF CASE
This Document Relates To:
ALL ACTIONS
RESPONSE IN OPPOSITION TO (1) APPLICATION TO APPOINT QUINN
EMANUEL URQUHART & SULLIVAN, LLP INTERIM LEAD CLASS COUNSEL;
(2) THE CDS INSTITUTIONAL INVESTOR GROUP’S APPLICATION FOR
APPOINTMENT AS LEAD PLAINTIFF AND APPOINTMENT OF ENTWISTLE &
CAPPUCCI LLP AND KAPLAN FOX & KILSHEIMER LLP AS INTERIM CO-
LEAD COUNSEL; AND (3) LOS ANGELES COUNTY EMPLOYEES RETIREMENT
ASSOCIATION’S APPLICATION FOR APPOINTMENT OF PEARSON, SIMON &
WARSHAW, LLP AS INTERIM LEAD COUNSEL
Case 1:13-md-02476-DLC Document 172 Filed 11/22/13 Page 1 of 23
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TABLE OF CONTENTS
I. INTRODUCTION ...............................................................................................................1
II. PROPOSED INTERIM CO-LEAD COUNSEL’S EX EFFORTS
DEMONSTRATE THEIR SUPERIOR ABILITY TO REPRESENT THE CLASS ..........2
III. QUINN POSSESSES SIGNFICANT DEFECTS WHICH PRECLUDE ITS
SELECTION AS INTERIM CLASS COUNSEL ...............................................................6
A. Quinn’s Ongoing Representation of Defendant Morgan Stanley Is an
Impediment that Threatens the Class .......................................................................6
B. Salix’s Relationship with Morgan Stanley Also Threatens the Class ......................8
C. Quinn’s Representation of the Class Is Inherently Inadequate ..............................10
D. Salix Cannot Waive Quinn’s Conflict on Behalf of the Class ...............................12
E. As a Purported Assignee of Claims Assigned from FrontPoint, a Morgan
Stanley Subsidiary During the Class Period, Salix Is an Inadequate Class
Representative ........................................................................................................14
IV. SALIX, VALUE RECOVERY FUND, AND FUND LIQUIDATION
HOLDINGS DO NOT HAVE STANDING BECAUSE THEIR CLAIMS ARE
NOT ASSIGNABLE UNDER THE ISDA MASTER AGREEMENT .............................15
V. CONCLUSION ..................................................................................................................16
Case 1:13-md-02476-DLC Document 172 Filed 11/22/13 Page 2 of 23
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TABLE OF AUTHORITIES
Page(s)
CASES
All Star Carts & Vehicles, Inc. v. BFI Canada Income Fund,
No. CV 08-1816, 2010 U.S. Dist. LEXIS 53290 (E.D.N.Y. May 31, 2010)...........................12
Chateau de Ville Productions, Inc. v. Tams-Witmark Music Library, Inc.,
474 F. Supp. 223 (S.D.N.Y. 1979)...........................................................................................12
Cinema 5, Ltd. v. Cinerama, Inc.,
528 F.2d 1384 (2d Cir. 1976)...................................................................................................11
Cohen v. Strouch,
No. 10 Civ. 7828 (DLC), 2011 WL 1143062 (S.D.N.Y. Mar. 24, 2011) ................................10
Davis v. Kraft Foods N. Am.,
No. Civ. A. 03-6060, 2006 WL 237512 (E.D. Pa. Jan. 31, 2006) ...........................................13
Deangelis v. Corzine,
286 F.R.D. 220 (S.D.N.Y. 2012) .............................................................................................10
In re Air Cargo Shipping Servs. Antitrust Litig.,
240 F.R.D. 56 (E.D.N.Y. 2006) .................................................................................................3
In re Ditropan XL Antitrust Litig.,
No. M:06-cv-01761, 2007 WL 2978329 (N.D. Cal. Oct. 11, 2007)........................................16
In re Dresser Indus., Inc.,
972 F.2d 540 (5th Cir. 1992) ...................................................................................................13
In re Katrina Canal Breaches Consol. Litig.,
C.A. No. 08-4182, 2008 U.S. Dist. LEXIS 118674 (E.D. La. Aug. 13, 2008) ........................13
In re Mun. Deriv. Antitrust Litig.,
252 F.R.D. 184 (S.D.N.Y 2008) ................................................................................................2
In re Terazosin Hydrochloride Antitrust Litig.,
223 F.R.D. 666 (S.D. Fla. 2004) ..............................................................................................13
Lewis v. Nat’l Football League,
146 F.R.D. 5 (D.D.C. 1992) .....................................................................................................10
Madison 92nd St. Assocs., LLC v. Marriott Int’l, Inc.,
No. 13 Civ. 291 (CM), 2013 WL 5913382 (S.D.N.Y. Oct. 31, 2013) ....................................11
Case 1:13-md-02476-DLC Document 172 Filed 11/22/13 Page 3 of 23
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McCauley v. Family Dollar, Inc.,
No. 3:10:cv-363, 2010 U.S. Dist. LEXIS 116636 (W.D. Ky. Oct. 29, 2010) .........................13
Moreno v. Autozone, Inc.,
No. C05-04432, 2007 WL 4287517 (N.D. Cal. Dec. 6, 2007) ................................................13
Palumbo v. Tele-Communications, Inc.,
157 F.R.D. 129 (D.D.C. 1994) .................................................................................................13
Sharp v. Next Entm’t, Inc.,
163 Cal. App. 4th 410 (2008) ............................................................................................13, 14
Standard Fire Ins. Co. v. Knowles,
133 S. Ct. 1345 (2013) .............................................................................................................12
United Int’l Holdings, Inc. v. Wharf (Holdings), Ltd.,
988 F. Supp. 367 (S.D.N.Y. 1997)...........................................................................................15
STATUTES, RULES AND REGULATIONS
Federal Rules of Civil Procedure
Rule 23 .......................................................................................................................................2
Rule 23(a)(4) ............................................................................................................................10
Rule 23(g) ............................................................................................................................1, 14
Rule 23(g)(1)(A)(i) ....................................................................................................................2
Rule 23(g)(2) ............................................................................................................................16
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I. INTRODUCTION
Scott+Scott, Attorneys at Law, LLP (“Scott+Scott”), Robbins Geller Rudman & Dowd
LLP (“Robbins Geller”), and Korein Tillery, LLC (“Korein Tillery”) (collectively, “Proposed
Interim Co-Lead Counsel”) satisfy the criteria set forth in Fed. R. Civ. P. 23(g) and are most
qualified to be appointed interim class counsel in this case. The Court should appoint Proposed
Interim Co-Lead Counsel as interim class counsel because:
Proposed Interim Co-Lead Counsel’s investigation into the claims in this MDL is
unequaled (see Opening Memo, ECF No. 88 at 7-16);
Proposed Interim Co-Lead Counsel’s appointment is supported by the majority of
plaintiffs’ counsel, including firms with outstanding antitrust credentials and the
proven ability to lead cases of this magnitude (see id. at 22);
Proposed Interim Co-Lead Counsel have proven their ability to successfully lead
similarly large and complex litigation efficiently and effectively (see id. at 17-21);
and
Proposed Interim Co-Lead Counsel bring a deep bench and unsurpassed resources
to this MDL (see id. at 22).
Proposed Interim Co-Lead Counsel have the requisite experience and have handled complex
antitrust and securities cases, including trials. Indeed, their combined and individual expertise in
antitrust and securities cases is unsurpassed, and Scott+Scott, Robbins Geller, and Korein Tillery
possess the appropriate resources for the effective representation of the putative class.
Counsel for the other plaintiffs should not be appointed lead counsel in this case for
several reasons. First, as the opening applications make clear, there is a significant gap between
the thorough investigations conducted by Proposed Interim Co-Lead Counsel and the efforts of
counsel representing other plaintiffs. Entwistle & Cappucci LLP (“Entwistle & Cappucci”) and
Pearson, Simon & Warshaw, LLP (“Pearson, Simon”) reviewed publicly available information
and their clients’ trading data, and Quinn Emanuel Urquhart & Sullivan, LLP (“Quinn”), counsel
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for Salix Capital US Inc. (“Salix”), says it spoke with market participants, conducted market
research, and retained a consulting firm, but those efforts are far surpassed by the nature and
breadth of Proposed Interim Co-Lead Counsel’s efforts to date. See Opening Memo at 7-16.
Second, issues related to Quinn’s long-standing attorney-client relationship with defendant
Morgan Stanley, as well as disqualification issues raised by defendant ISDA,1 preclude Quinn’s
appointment as interim class counsel. Even the appearance of such conflicts undermines the
confidence of absent class members as to the adequacy and vigor of the representation. Finally,
the competing movants also suffer from debilitating assignment and standing defects, which not
only preclude their participation in this action as representative parties, but also subject them to
unique defenses that would undoubtedly harm the class. For these reasons, the Quinn, Entwistle
& Cappucci, and Pearson, Simon applications should be denied.
II. PROPOSED INTERIM CO-LEAD COUNSEL’S EXTRAORDINARY EFFORTS
DEMONSTRATE THEIR SUPERIOR ABILITY TO REPRESENT THE CLASS
Rule 23 expressly requires that the Court first consider counsel’s work “in identifying or
investigating potential claims in the action.” Fed. R. Civ. P. 23(g)(1)(A)(i). Courts have
recognized the importance of this criterion and have appointed as interim class counsel the firms
that expended substantially more effort and resources, and obtained more substantial and more
valuable information. See In re Mun. Deriv. Antitrust Litig., 252 F.R.D. 184, 196 (S.D.N.Y
1 Submitted herewith as Exhibit 1 to the Declaration of Christopher M. Burke in Support of
Response in Opposition to (1) Application to Appoint Quinn Emanuel Urquhart & Sullivan, LLP
Interim Lead Class Counsel; (2) The CDS Institutional Investor Group’s Application for
Appointment as Lead Plaintiff and Appointment of Entwistle & Cappucci LLP and Kaplan Fox
& Kilsheimer LLP as Interim Co-Lead Counsel; and (3) Los Angeles County Employees
Retirement Association’s Application for Appointment of Pearson, Simon & Warshaw, LLP as
Application for Appointment of Pearson, Simon & Warshaw, LLP as Interim Lead Counsel
(“Burke Decl.”) is the Expert Declaration of Professor Roy D. Simon, Jr., which addresses the
disqualification issue and casts doubt on the efficacy and viability of any ethical screens or walls
Quinn erects to negate the conflict of interest it has acknowledged.
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2008). Indeed, the class suffers when counsel that performed the most substantial and
comprehensive investigation are not appointed to represent the class. See In re Air Cargo
Shipping Servs. Antitrust Litig., 240 F.R.D. 56, 58 (E.D.N.Y. 2006). This factor overwhelmingly
supports appointing Proposed Interim Co-Lead Counsel to represent the class.
Proposed Interim Co-Lead Counsel’s multi-year investigation into defendants’
anticompetitive conduct, and its effect on the CDS market, has been far more comprehensive
than the other firms seeking to be lead. See Opening Memo at 7-16. Indeed, over the course of
several years, Proposed Interim Co-Lead Counsel spent thousands of hours identifying and
investigating the claims brought on behalf of the class. Id. And the investigation yielded more
timely results, with the first of the plaintiffs, Sheet Metal Workers Local No. 33 Cleveland
District Pension Plan, filing its complaint before the European Commission’s Statement of
Objections and over two months prior to the complaint filed by Entwistle & Cappucci, almost
four months prior to that filed by Quinn, and six months prior to the complaint filed by Pearson
Simon.
Only Proposed Interim Co-Lead Counsel has done the work to identify, contact, and
interview witnesses that are supportive of the class’s case. Proposed Interim Co-Lead Counsel
interviewed significantly more witnesses with knowledge of the CDS market, defendants’
anticompetitive conduct, and the impact on bid-ask spreads incurred by the class than counsel for
any other plaintiff. These witnesses – diverse, knowledgeable, and critical to the class’s case –
include industry insiders and CDS market participants at multi-national hedge funds, mid-sized
broker dealers, CDS trading desks, interdealer brokers, third-party investment managers, other
buy-side CDS trading firms, government officials, existing and aspiring CDS dealers that were
boycotted by defendant dealers, and personnel of CDS clearinghouses that were shut out of CDS
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clearing by defendants. In addition, Proposed Interim Co-Lead Counsel interviewed persons
with knowledge of defendant dealers’ use of a New York Federal Reserve Bank committee to
avoid changes in the CDS market, the drafting of the ISDA Master Agreement, defendant
dealers’ use of the Agreement to restrict access to the CDS market, and the formation of ICE
Trust and acquisition of the Clearing Corporation to exclude competition in the CDS market.
See Opening Memo at 7-16. The evidence obtained from these interviews will prove invaluable
in the prosecution of this case. The witnesses provided first-hand knowledge of how the CDS
market operates, including defendant dealers’ trading and pricing practices, the structural
impediments in the CDS market that resulted in inflated bid-ask spreads, defendant dealers’
conduct to control trading and pricing information gateways, and the impact an electronic
exchange would have had on making the CDS market more transparent.
Further, unlike the experts retained by the self-styled CDS Institutional Investor Group
and Salix, who focused on damages models, ECF No. 94 at 11; ECF No. 81 at 8, or the experts
retained by LACERA, who only consulted generally on “the CDS trading market,” ECF No. 85
at 15, Proposed Interim Co-Lead Counsel have consulted experts on all critical aspects of the
case. See Opening Memo at 9, 11, 13.
Proposed Interim Co-Lead Counsel have also analyzed the ISDA Master Agreement,
documentation, policies, and procedures because they understand that the dealers used the ISDA
documentation to restrict access to the CDS market. Proposed Interim Co-Lead Counsel also
researched defendants’ efforts to restrict technologies that CDS traders were attempting to
implement to circumvent defendants’ control over CDS pricing and information and analyzed the
organizational and risk structures, admission policies, and governance procedures of ICE Trust,
which defendant dealers used as their captive clearinghouse. Finally, in order to assess potential
Case 1:13-md-02476-DLC Document 172 Filed 11/22/13 Page 8 of 23
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damages, Proposed Interim Co-Lead Counsel and their experts analyzed literature examining the
impact of defendants’ anticompetitive conduct, including the Bank for International Settlements
and Office of the Comptroller of the Currency derivatives reports and historical bid-ask spreads
on corporate bonds relative to those on corresponding CDS. See Opening Memo at 12-16.
The depth, detail, and completeness of Proposed Interim Co-Lead Counsel’s investigation
cannot be matched by the other attorneys seeking leadership roles in this case. Not only is this
information more ably used by the attorneys who developed it, but much of the information is
from confidential sources who were only willing to come forward because of their relationship
with Proposed Interim Co-Lead Counsel. This information goes directly to the prevention of a
CDS exchange, including the pressuring of the CME not to develop an exchange.
Quinn’s investigation, on behalf of Salix, pales by comparison. See ECF No. 81 at 7.
The scope of Quinn’s investigation, spanning just “several months,” ECF No. 81 at 7, suggests
that it was not as extensive as that of Proposed Interim Co-Lead Counsel’s. Quinn spoke with
fewer market participants and conducted more limited market research. See ECF No. 81 at 7.
Proposed Interim Co-Lead Counsel’s investigation also began before that of counsel for
the CDS Institutional Investor Group (Entwistle & Cappucci) and Los Angeles County
Employees Retirement Association (“LACERA”) (Pearson, Simon), which each claim to have
investigated the claims beginning in 2011, when the European Commission announced it was
conducting a probe of defendants’ conduct in the CDS market. The scope of their investigations,
described in very summary terms, does not compare to the lengthy and detailed description of
Proposed Interim Co-Lead Counsel’s investigation. See Opening Memo at 7-16. And, the
LACERA complaint reveals its lack of depth by completely missing the significance of
defendants’ efforts to kill the CMDX exchange – the linchpin of the conspiracy to maintain
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anticompetitive spreads. In fact, LACERA’s complaint contains no allegations of defendants’
exclusion of CMDX, which, but for defendants’ collusion, would have brought exchange trading
to the CDS market.2
III. QUINN POSSESSES SIGNFICANT DEFECTS WHICH PRECLUDE ITS
SELECTION AS INTERIM CLASS COUNSEL
A. Quinn’s Ongoing Representation of Defendant Morgan Stanley Is an
Impediment that Threatens the Class
Quinn’s close relationship with, and ongoing representation of, the firm’s long-standing
client, defendant Morgan Stanley, precludes Quinn from vigorously and effectively representing
the class. Quinn does not deny this relationship. While Quinn boasts throughout its application
that its clients are the “largest and most sophisticated financial investment entities in the world,”
ECF No. 81 at 2, Quinn scarcely mentions its current and prior representation of Morgan
Stanley, only revealing (reluctantly) at the end of its application that the firm has from “time to
time represented Morgan Stanley.” ECF No. 81 at 20 n.13.
Despite Quinn’s attempts to marginalize its relationship with Morgan Stanley, the firm’s
existing engagements for Morgan Stanley, promotional materials, and press reports tell a far
different story. For example, Quinn’s website is replete with references to the firm’s work for
Morgan Stanley, prominently highlighting the firm’s retention by Morgan Stanley in the
Perelman case:
2 In addition, Pearson, Simon’s application to be appointed as sole lead counsel should be
rejected because the firm lacks the resources to lead this litigation. Pearson, Simon is a firm of
12 attorneys, all based in California. The Pearson, Simon Application is supported solely by
LACERA and two small San Francisco law firms that jointly represent LACERA. ECF No. 85
at 2-4, 9. The appointment of Pearson, Simon as sole interim lead counsel would be contrary to
the best interests of the class and is unreasonable based on the firm’s size and the resources it has
already committed to other cases. See Declaration of Bruce L. Simon, ECF No. 86, Exhibit B at
11 (current cases).
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Perhaps the best evidence of our reputation for delivering results is our recent
engagements. Morgan Stanley, for example, retained us to retry the $1.6 billion
Perelman case in Florida, if it is ever retried. That is an example of a very
sophisticated company, engaging our firm to defend it in its biggest case, in a
jurisdiction where we do not even have an office.3
(Emphasis added). As one legal publication reported:
With its record of suing major financial institutions, Quinn Emanuel doesn’t have
a lot of friends and clients at the big banks.
But Morgan Stanley is the exception; Quinn Emanuel has long had a special
relationship with its management.4
Given the breadth of work Quinn continues to perform for Morgan Stanley, it is not
surprising that at least 16 of its attorneys chose to feature Morgan Stanley in their résumés.5
Several of these featured litigations involve the very subject matter in this litigation – credit
default swaps.6 And Quinn’s new attorneys are, at least in part, recruited to the firm with the
promise of working “on exciting cases involving complex legal issues for . . . companies such as
. . . Morgan Stanley.”7
3 http://www.quinnemanuel.com/why-quinn/our-results.aspx (last accessed Nov. 20, 2013);
see also http://www.quinnemanuel.com/clients/morgan-stanley-senior-funding.aspx (last
accessed Nov. 20, 2013).
4 Andrew Longstreth, Citigroup Sues Morgan Stanley over $245 Million Credit Default
Swap Agreement, THE AM LAW LITIGATION DAILY, Sept. 28, 2009, available at
http://amlawdaily.typepad.com/amlawdaily/2009/09/citigroup-sues-morgan-stanley-over-245-
million-credit-default-swap-agreement.html.
5 http://www.quinnemanuel.com/attorneys.aspx (résumés of Jennifer J. Barrett, Deborah K.
Brown, Michael B. Carlinsky, Andrew R. Dunlap, Richard East, Faith E. Gay, Maria Ginzburg,
John S. Gordon, Robert C. Juman, Isaac Nesser, Jonathan B. Oblak, Jonathan E. Pickhardt, John
M. Pierce, Kevin S. Reed, Judd Spray, and Bruce E. Van Dalsem) (last accessed Nov. 17, 2013).
6 http://www.quinnemanuel.com/attorneys/carlinsky-michael-b.aspx (last accessed Nov.
20, 2013).
7 http://www.quinnemanuel.com/work-at-quinn/the-firm/talent-mandatory-suit-
optional/why-work-here.aspx (last accessed Nov. 20, 2013).
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Acknowledging the existence of an actual conflict of interest, Quinn states it obtained
conflict waivers from its clients, Morgan Stanley and Salix. ECF No. 81 at 20 n.13. Morgan
Stanley’s agreement reflects its self-interest. Its liability in this case is potentially in the billions
of dollars, and Morgan Stanley would benefit from having a law firm with whom it has a long-
standing relationship on the other side of the case. Indeed, it is quite remarkable that Morgan
Stanley would waive this conflict and permit Quinn, which has been “recognized as one of just
four U.S. firms that in-house counsel fear most,” ECF No. 81 at 1, to prosecute this case against
it.
B. Salix’s Relationship with Morgan Stanley Also Threatens the Class
In addition to Quinn’s conflict, Quinn’s client, Salix, also has a relationship with Morgan
Stanley, which was, during the class period, the majority owner of FrontPoint Partners,8 a multi-
billion dollar hedge fund that shuttered most of its funds in 2011 due to insider trading scandals.9
Here, Salix purports to have acquired its antitrust claims by assignment from FrontPoint. ECF
No. 81 at 5. Like Morgan Stanley, however, Salix has nothing to lose by executing a conflict
waiver; as an assignee of FrontPoint’s trades, it is merely an investor in this action.
By its dual representations and assignments, Quinn has managed to have its long-
standing client, Morgan Stanley, allow itself to be sued on its former subsidiaries’ claims for
trades made during the class period. Thus, any claims FrontPoint may have were once those of
Morgan Stanley. And, because the class is defined, as is customary, to exclude defendants’
8 Azam Ahmed, Morgan Stanley Completes Spinoff of FrontPoint, N.Y. TIMES, March 1,
2011, available at: http://dealbook.nytimes.com/2011/03/01/morgan-stanley-completes-
frontpoint-spinoff/.
9 Peter Lattman & Azam Ahmed, FrontPoint to Shut Most Funds After Insider Trading
Charges, N.Y. TIMES, May 19, 2011, available at: http://dealbook.nytimes.com/2011/05/19/
frontpoint-to-shut-most-funds-after-insider-charges/.
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affiliates, as well as interdealer trades, such as those between Morgan Stanley and a fellow CDS
dealer, Salix is neither a class member, nor the assignee of a class member
Quinn’s efforts to obfuscate Salix’s relationship with Morgan Stanley are evident in a
comparison of the Salix LIBOR complaint10 with Salix’s amended complaint filed in this
action,11 both of which are premised on assignments from FrontPoint – the latter of which
omitted its affiliation with Morgan Stanley:
LIBOR COMPLAINT CDS COMPLAINT
(a) FrontPoint Relative Value Opportunities
Fund, L.P. (“FRV”), formerly known as
FrontPoint Fixed Income Opportunities Fund,
L.P. (“FIO”), is a limited partnership organized
under the laws of Delaware with its principal
place of business in Greenwich, Connecticut.
Its general partner is FrontPoint Relative Value
Opportunities Fund GP, LLC, a limited
liability company organized under the laws of
Delaware and,
until March 1, 2011, an indirect wholly
owned subsidiary of Morgan Stanley.
(a) FrontPoint Relative Value Opportunities
Fund, L.P. (“FRY”), formerly known as
FrontPoint Fixed Income Opportunities Fund,
L.P. (“FIO”), is a limited partnership organized
under the laws of Delaware with its principal
place of business in Greenwich, Connecticut.
Its general partner is FrontPoint Relative Value
Opportunities Fund GP, LLC, a limited
liability company organized under the laws of
Delaware and,
until March 1, 2011, an indirect wholly
owned subsidiary of Morgan Stanley.
(b) FrontPoint Volatility Opportunities Fund,
L.P. (“FVO”) was a limited partnership
organized under the laws of the Cayman
Islands with its principal place of business in
Greenwich, Connecticut. Its general partner
was FrontPoint Volatility Opportunities Fund
GP, LLC, a limited liability company
organized under the laws of Delaware and,
until March 1, 2011, an indirect wholly
owned subsidiary of Morgan Stanley.
(b) FrontPoint Volatility Opportunities Fund,
L.P. (“FVO”) was a limited partnership
organized under the laws of the Cayman
Islands with its principal place of business in
Greenwich, Connecticut. Its general partner
was FrontPoint Volatility Opportunities Fund
GP, LLC, a limited liability company
organized under the laws of Delaware and,
until March 1, 2011, an indirect wholly
owned subsidiary of Morgan Stanley.
(c) FrontPoint Volatility Opportunities Fund (c) FrontPoint Volatility Opportunities Fund
10 Amended Complaint, Salix LIBOR, Case No. 1:13-cv-04018-NRB, ECF No. 27, ¶15.
11 Amended Complaint, Salix Credit Default Swaps, Case No. 1:13-cv-06116-UA, ECF No.
8, ¶27.
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LIBOR COMPLAINT CDS COMPLAINT
GP, L.P. (“FVO GP”) was a limited
partnership organized under the laws of
Delaware with its principal place of business in
Greenwich, Connecticut. Its general partner
was FrontPoint Volatility Opportunities Fund
GP, LLC, a limited liability company
organized under the laws of Delaware and,
until March 1, 2011, indirect wholly owned
subsidiary of Morgan Stanley.
GP, L.P. (“FVO GP”) was a limited
partnership organized under the laws of
Delaware with its principal place of business in
Greenwich, Connecticut. Its general partner
was FrontPoint Volatility Opportunities Fund
GP, LLC, a limited liability company
organized under the laws of Delaware and,
until March 1, 2011, indirect wholly owned
subsidiary of Morgan Stanley.
(d) FrontPoint Partners, L.P. (“FPP”) was a
limited partnership organized under the laws of
Delaware with its principal place of business in
Greenwich, Connecticut. Its general partner
was FrontPoint Partners LLC (“FrontPoint
Partners”), a limited liability company
organized under the laws of Delaware and,
until March 1, 2011, an indirect wholly-
owned subsidiary of Morgan Stanley.
(d) FrontPoint Partners, L.P. (“FPP”) was a
limited partnership organized under the laws of
Delaware with its principal place of business in
Greenwich, Connecticut. Its general partner
was FrontPoint Partners LLC (“FrontPoint
Partners”), a limited liability company
organized under the laws of Delaware and,
until March 1, 2011, an indirect wholly-
owned subsidiary of Morgan Stanley.
C. Quinn’s Representation of the Class Is Inherently Inadequate
Where “there are multiple lead counsel applicants . . . ‘the court must appoint the
applicant best able to represent the interests of the class.’” Deangelis v. Corzine, 286 F.R.D.
220, 223 (S.D.N.Y. 2012) (quoting Fed. R. Civ. P. 23(g)(2)). Counsel is “adequate” under Rule
23(a)(4) only if it can satisfy the Court that its representation will be conflict-free. Lewis v. Nat’l
Football League, 146 F.R.D. 5, 10 (D.D.C. 1992) (citing In re Fine Paper Antitrust Litig., 617
F.2d 22, 27 (3d Cir. 1980)) (“an attorney’s conflicting or divided loyalty could constitute
inadequate representation”).
Burdened by significant actual conflicts, Quinn must demonstrate that the conflicts would
not diminish its representation of the class. ‘“Because concurrent representation is prima facie
improper, it is incumbent upon the attorney to show, at the very least, that there will be no actual
or apparent conflict in loyalties or diminution in the vigor of his representation. [The Second
Case 1:13-md-02476-DLC Document 172 Filed 11/22/13 Page 14 of 23
11
Circuit, has] noted that this is a burden so heavy that it will rarely be met.’” Cohen v. Strouch,
No. 10 Civ. 7828 (DLC), 2011 WL 1143062 (S.D.N.Y. Mar. 24, 2011) (quoting GSI Commerce
Solutions, Inc. v. BabyCenter L.L.C., 618 F.3d 204, 209 (2d Cir. 2010)) (emphasis and alteration
in original). Likewise, “the lawyer who would sue his own client, asserting in justification the
lack of ‘substantial relationship’ between the litigation and the work he has undertaken to
perform for that client, is leaning on a slender reed indeed.” Cinema 5, Ltd. v. Cinerama, Inc.,
528 F.2d 1384, 1386-87 (2d Cir. 1976).
Quinn’s loyalties are already inherently divided, irrespective of any ethical wall it erected
or conflict waiver it obtained. Morgan Stanley is a repeat, and very substantial, client of
Quinn’s. Given the diversity and number of matters it handles for Morgan Stanley, Quinn
cannot simply “turn off” its obligation to its long-standing client. Moreover, class members
cannot be confident that Quinn will prosecute their claims against Morgan Stanley with the same
vigor as against other defendants. See Lubet Decl., ¶¶25-28, 32-33.12 “This is not ethical rocket
science.” Madison 92nd St. Assocs., LLC v. Marriott Int’l, Inc., No. 13 Civ. 291 (CM), 2013 WL
5913382 (S.D.N.Y. Oct. 31, 2013), at *1, 5 (“A clearer conflict of interest cannot be imagined.
A first year law student on day one of an ethics course should be able to spot it.”). Id.
Quinn’s divided loyalty between the class and Morgan Stanley poses significant practical
problems as well. See Lubet Decl., ¶¶25-28, 32-33. For example, should Quinn settle this case
with Morgan Stanley, the terms would undoubtedly be questioned by class members. Real or
imaginary, the appearance of impropriety would cast a shadow of doubt over any of Quinn’s
12 Submitted herewith as Exhibit 2 to the Burke Decl. is the Report of Professor Steven
Lubet (“Lubet Decl.”), a professor of law at the Northwestern University School of Law.
Professor Lubet opines on the conflict of interest created by Quinn’s concurrent representation of
the proposed plaintiff class and defendant Morgan Stanley.
Case 1:13-md-02476-DLC Document 172 Filed 11/22/13 Page 15 of 23
12
dealings with Morgan Stanley. Id., ¶32. Moreover, if Quinn represents the class, objectors could
delay, reduce, or even prevent class recovery on adequacy grounds. Id., ¶33. Such objections
would not apply to Proposed Interim Co-Lead Counsel. There is also the possibility that Morgan
Stanley’s co-defendants will seek conflict-related discovery of Salix, FrontPoint, and Quinn, an
additional issue that would create extra and unnecessary expense and delay, borne ultimately by
the class. Throughout the course of this litigation, interim class counsel will make scores of
discretionary strategy decisions affecting Morgan Stanley, which will compound the present
issue throughout the litigation. See id., ¶20. Ultimately, it is simply unfair to the class that a law
firm seeking to represent it in this significant and complex matter is concurrently representing
defendant Morgan Stanley. For these reasons, Quinn is not the best applicant to represent the
class.
D. Salix Cannot Waive Quinn’s Conflict on Behalf of the Class
The viability of Quinn’s application is, at least in the first instance, contingent on the
efficacy of the conflict waivers purportedly obtained from Salix and Morgan Stanley. However,
a class representative’s conflict waiver is not binding on the class under these circumstances.13
Lubet Decl., ¶¶18-22. Indeed, Salix’s pre-certification waiver only binds Salix. Standard Fire
Ins. Co. v. Knowles, 133 S. Ct. 1345, 1349 (2013). This is because “a plaintiff who files a
proposed class action cannot legally bind members of the proposed class before the class is
certified.” Id. While Quinn contends that the waiver frees it of any “limitation on our ability to
represent the class,” ECF No. 81 at 20, n.13, the great weight of authority holds that “in the class
13 Although Quinn states it obtained Salix’s conflict waiver, Quinn does not have a written
waiver from any, much less all, of the other named plaintiffs. Prior to filing its application,
Quinn did not request a conflict waiver from any other plaintiff. Nor has Quinn provided a copy
of the conflict waiver to counsel for any other plaintiff.
Case 1:13-md-02476-DLC Document 172 Filed 11/22/13 Page 16 of 23
13
action context, a conflict of interest cannot be waived.” All Star Carts & Vehicles, Inc. v. BFI
Canada Income Fund, No. CV 08-1816, 2010 U.S. Dist. LEXIS 53290, at *24 (E.D.N.Y. May
31, 2010).
The law of this District is in accord with the majority view that named plaintiffs cannot
waive conflicts on behalf of the class. For example, in Chateau de Ville Productions, Inc. v.
Tams-Witmark Music Library, Inc., 474 F. Supp. 223, 227 (S.D.N.Y. 1979), the Court held that
“since plaintiffs still seek to proceed on behalf of a class, the consent of all would be required,
and this, of course, is not a practical possibility.” And, Palumbo v. Tele-Communications, Inc.,
157 F.R.D. 129, 132-33 (D.D.C. 1994), explains:
If [the attorney] were representing only an individual plaintiff, he could
conceivably seek a written waiver of conflict of interest. But in this case, [he]
seeks to represent a large, unenumerated and as yet unidentified class of plaintiffs.
Unidentified class members cannot waive a potential conflict of interest. In the
class action context, the Court has an obligation to closely scrutinize the
qualifications of counsel to assure that all interests, including those of as yet
unnamed plaintiffs are adequately represented.
Id.14
14 See also In re Dresser Indus., Inc., 972 F.2d 540, 545 n.11 (5th Cir. 1992) (“We note that
there is a limited utility to seeking the consent of the client in a class action. In class actions, the
court must independently determine whether the lawyer for the class can fairly represent all of
the members of the class, and a lawyer’s conflicts with the defense may forbid such
representation.”); McCauley v. Family Dollar, Inc., No. 3:10:cv-363, 2010 U.S. Dist. LEXIS
116636, at *9-10 (W.D. Ky. Oct. 29, 2010) (“named plaintiffs in this putative class action may
not waive the conflict on behalf of the unnamed class members”); Moreno v. Autozone, Inc., No.
C05-04432, 2007 WL 4287517, at *7 (N.D. Cal. Dec. 6, 2007) (plaintiff “can not obtain written
waiver of the actual conflicts of interest that exist from the absent class members”); Davis v.
Kraft Foods N. Am., No. Civ. A. 03-6060, 2006 WL 237512, at *13 (E.D. Pa. Jan. 31, 2006)
(“Even assuming Ms. Davis has knowingly and intelligently waived a conflict on her own behalf,
I do not believe she can waive any conflict on the class's behalf.”); In re Terazosin
Hydrochloride Antitrust Litig., 223 F.R.D. 666, 677 (S.D. Fla. 2004) (doubting whether
“representative [class] members can waive any actual or potential conflicts for the remaining . . .
members of the defined proposed class.”).
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14
The two out-of-district cases Quinn cites to support its contention express the minority
view, are distinguishable, and do not otherwise bind this Court. In re Katrina Canal Breaches
Consol. Litig., C.A. No. 08-4182, 2008 U.S. Dist. LEXIS 118674, at *6 (E.D. La. Aug. 13, 2008)
concerned a motion to disqualify lead counsel in the midst of litigation. The court allowed the
waiver for practical reasons: “Finding replacement counsel capable of handling litigation of this
size and complexity will significantly, if not fatally, stall the class suit.” This case is in an
entirely different procedural posture and is at its inception, and unlike Katrina Canal, qualified
class counsel are readily available. Similarly, while the Court in Sharp v. Next Entm’t, Inc., 163
Cal. App. 4th 410 (2008), allowed a waiver by a named plaintiff to save its lawyer from
disqualification, the court was careful to avoid holding that a class representative could waive on
behalf of a certified class. Id. at 436. The Sharp court, we submit, incorrectly reasoned that
prior to certification, a counsel’s loyalty extended to the named plaintiff only. Notably, the court
did not perform a Rule 23(g) analysis. Even the Sharp court recognized, however, that not all
pre-certification waivers are valid, reserving the ability to reject a conflict waiver where, as here,
there is an “actual conflict that may affect [the] integrity of the proceedings.” Id.
E. As a Purported Assignee of Claims Assigned from FrontPoint, a Morgan
Stanley Subsidiary During the Class Period, Salix Is an Inadequate Class
Representative
Quinn’s client, Salix, also has an irreconcilable conflict. The Salix CDS trades
purportedly owned by Salix were assigned from FrontPoint – a subsidiary of Morgan Stanley
during the class period. Thus, if Salix is the class representative, Quinn will be required to bring
forth evidence that Morgan Stanley, as a dealer defendant, conspired to artificially increase the
bid-ask spread on CDS trades made between Morgan Stanley and Morgan Stanley-owned
FrontPoint. This unique factor renders Salix at odds with the class, or at the very least, subject
to unique defenses. Salix cannot adequately represent the class where its claims were effectively
Case 1:13-md-02476-DLC Document 172 Filed 11/22/13 Page 18 of 23
15
assigned from one of the defendants. The class should not be burdened with navigating around
Salix’s unique set of problems.15
IV. SALIX, VALUE RECOVERY FUND, AND FUND LIQUIDATION HOLDINGS
DO NOT HAVE STANDING BECAUSE THEIR CLAIMS ARE NOT
ASSIGNABLE UNDER THE ISDA MASTER AGREEMENT
Plaintiffs Salix, Value Recovery Fund, and Fund Liquidation Holdings16 admit, as they
must, that they did not make any of the CDS trades at issue in this litigation.17 They allege that
the claims on which they have brought suit were assigned to them.18
CDS contracts are governed by the ISDA Master Agreement. Section 7 of the ISDA
Master Agreement provides that no “interest or obligation in or under this Agreement may be
transferred (whether by way of security or otherwise) by either party without the prior written
15 It is anticipated that other plaintiffs will suggest that Plaintiff MF Global Capital LLC is
an inadequate lead plaintiff because of the MF Global bankruptcy and associated allegations of
wrongdoing. However, MF Global Capital LLC has not been accused of wrongdoing by any
private litigant, regulatory agency, or in any investigative report during any of the MF Global
bankruptcy proceedings or the private litigation and regulatory enforcement actions that followed
the bankruptcy. MF Global Capital LLC was a wholly-owned subsidiary of MF Global Holdings
Ltd. and conducted primarily over-the-counter foreign exchange, prime brokerage, and energy
commodity and CDS brokerage services. The Commodity Futures Trading Commission action
relates solely to the futures commission merchant activity of MF Global Inc., and includes
allegations relating to the use of and controls over MF Global Inc.’s customer segregated funds,
while the private litigation relates primarily to such activity and, with respect to certain
securities-related litigation, to disclosures by MF Global Holdings Ltd. as an issuer and public
reporting company.
16 Value Recovery Fund and Fund Liquidation Holdings are two of the CDS Institutional
Investor Group movants.
17 Value Recovery Fund First Amended Complaint, No. 1:13-cv-04928, ECF No. 14, ¶10
(Value Recovery Fund); ECF No. 94 at 7 (Fund Liquidation Holdings); ECF No. 81 at 5 (Salix).
18 Value Recovery Fund has never disclosed the assignor of its claims and none of the
assignee plaintiffs have furnished the assignment, which may also call into question their
standing to litigate this case.
Case 1:13-md-02476-DLC Document 172 Filed 11/22/13 Page 19 of 23
16
consent of the other party.” Wolson Decl., ¶13.19 Section 7, thus, is a “non-assignment clause.”
United Int’l Holdings, Inc. v. Wharf (Holdings), Ltd., 988 F. Supp. 367, 370-71 (S.D.N.Y. 1997).
To be valid, any assignment of claims to Salix, Value Recovery Fund, or Fund Liquidation
Holdings, therefore, would require the prior written consent of the assignors’ counterparties.
Wolson Decl., ¶14. There is no allegation that any of the assignors obtained any such written
consent from any defendant with which it transacted during the class period, much less all of
them for each transaction during the class period. The non-assignment clause, thus, could impact
the standing of Salix, Value Recovery Fund, and Fund Liquidation Holdings. Id., ¶20; see also
In re Ditropan XL Antitrust Litig., No. M:06-cv-01761, 2007 WL 2978329, at *2 (N.D. Cal. Oct.
11, 2007).
V. CONCLUSION
Scott+Scott, Robbins Geller, and Korein Tillery are “best able to represent the interests of
the class.” Fed. R. Civ. P. 23(g)(2). Accordingly, all other motions for appointment of interim
class counsel should be denied.
DATED: November 22, 2013 Respectfully submitted,
SCOTT+SCOTT, ATTORNEYS AT LAW, LLP
/s/ Christopher M. Burke
CHRISTOPHER M. BURKE (admitted pro hac vice)
WALTER W. NOSS
KRISTEN M. ANDERSON
707 Broadway, Suite 1000
San Diego, CA 92101
19 Submitted herewith as Exhibit 3 to the Burke Decl. is the Expert Declaration of Craig A.
Wolson (“Wolson Decl.”). Wolson was involved in the promulgation of ISDA’s Master
Agreement forms and offers opinions on the inability of counterparties to assign claims under
Section 7 of that Agreement.
Case 1:13-md-02476-DLC Document 172 Filed 11/22/13 Page 20 of 23
17
Telephone: 619-233-4565
Facsimile: 619-233-0508
SCOTT+SCOTT, ATTORNEYS AT LAW, LLP
DAVID R. SCOTT
156 South Main Street
P.O. Box 192
Colchester, CT 06415
Telephone: 860-537-5537
Facsimile: 860-537-4432
SCOTT+SCOTT, ATTORNEYS AT LAW, LLP
JOSEPH P. GUGLIELMO
DONALD A. BROGGI
MAX SCHWARTZ
The Chrysler Building
405 Lexington Avenue, 40th Floor
New York, NY 10174-4099
Telephone: 212-223-6444
Facsimile: 212-223-6334
ROBBINS GELLER RUDMAN
& DOWD LLP
SAMUEL H. RUDMAN
58 South Service Road, Suite 200
Melville, NY 11747
Telephone: 631-367-7100
Facsimile: 631-367-1173
srudman@rgrdlaw.com
ROBBINS GELLER RUDMAN
& DOWD LLP
DARREN J. ROBBINS
PATRICK J. COUGHLIN
DAVID W. MITCHELL
BRIAN O. O’MARA
655 West Broadway, Suite 1900
San Diego, CA 92101
Telephone: 619-231-1058
Facsimile: 619-231-7423
darrenr@rgrdlaw.com
patc@rgrdlaw.com
davidm@rgrdlaw.com
bomara@rgrdlaw.com
Case 1:13-md-02476-DLC Document 172 Filed 11/22/13 Page 21 of 23
18
KOREIN TILLERY LLC
GEORGE A. ZELCS
205 North Michigan Plaza
Suite 1950
Chicago, IL 60601
Telephone: 312-641-9750
Facsimile: 312-641-9751
gzelcs@koreintillery.com
KOREIN TILLERY LLC
STEVEN M. TILLERY
ROBERT KING
GIUSEPPE S. GIARDINA
One U.S. Bank Plaza
505 N. 7th Street, Suite 3600
St. Louis, MO 63101-1625
Telephone: 314-241-4844
Facsimile: 314-241-3525
stillery@koreintillery.com
rking@koreintillery.com
ggiardina@koreintillery.com
Proposed Interim Co-Lead Counsel
Case 1:13-md-02476-DLC Document 172 Filed 11/22/13 Page 22 of 23
19
CERTIFICATE OF SERVICE
I hereby certify that on November 22, 2013, I caused the foregoing to be electronically
filed with the Clerk of the Court using the CM/ECF system which will send notification of such
filing to the email addresses denoted on the Electronic Mail Notice List, and I hereby certify that
I caused the foregoing document or paper to be mailed via the United States Postal Service to the
non-CM/ECF participants indicated on the Manual Notice List.
I certify under penalty of perjury under the laws of the United States of America that the
foregoing is true and correct. Executed on November 22, 2013.
/s/ Christopher M. Burke
CHRISTOPHER M. BURKE
SCOTT+SCOTT, ATTORNEYS AT LAW, LLP
707 Broadway, Suite 1000
San Diego, CA 92101
Telephone: 619-233-4565
Fax: 619-233-0508
E-mail: cburke@scott-scott.com
Case 1:13-md-02476-DLC Document 172 Filed 11/22/13 Page 23 of 23
