Judgment for Connecticut Community Bank in Madoff-Related Cases
Federal judge grants judgment on the pleadings in two cases brought by more than fifty plaintiffs
New Haven - Wiggin and Dana garnered a major victory for client Connecticut Community Bank (CCB) when Judge Peter Dorsey granted judgment on the pleadings to CCB in two consolidated federal cases, together brought by more than fifty plaintiffs. Judge Dorsey vindicated CCB's position that the state-law allegations brought in the suits were precluded by the federal Securities Litigation Uniform Standards Act, or SLUSA. See Backus v. Connecticut Community Bank, N.A., No. 3:10-cv-798, Dkt. No. 45 (Mar. 29, 2011; entered Mar. 30, 2011).
CCB served as a custodian for clients who chose to invest their retirement money with Bernard L. Madoff Investment Securities (BLMIS). Following the revelation of Madoff's massive Ponzi scheme, plaintiffs filed a federal putative class action and several multiple-plaintiff suits in both state and federal court. Two of the state court cases, together representing more than fifty plaintiffs, asserted nearly identical claims and were brought by the same plaintiff's lawyer. Wiggin and Dana successfully moved the cases to the state's complex litigation docket, successfully consolidated the cases, removed them to federal court under SLUSA, and moved for judgment on the pleadings.
The plaintiffs argued that the court should remand their cases, and not grant judgment, for two reasons. First, they said their claims did not run afoul of the SLUSA prohibition on state-law claims alleging fraud or misrepresentation in connection with the purchase or sale of a covered security. Second, they claimed that there were fewer than fifty plaintiffs. CCB prevailed on both points. Judge Dorsey held that the plaintiffs' claims – including claims of contractual breach and negligence – ultimately amounted to claims that CCB had made misrepresentations in connection with Madoff's expected purchase and sale of securities. And he rejected the plaintiffs' argument that pension plan beneficiaries should not count towards the total number of plaintiffs. He thus granted judgment to CCB and closed the case.
Judge Dorsey's ruling is a reminder that plaintiffs cannot evade SLUSA by sharp pleading in state court. Congress has concluded that an alleged securities fraud affecting more than fifty people must be pleaded as federal securities law fraud claims, and that federal law precludes state-law claims based on that activity.
The Wiggin and Dana litigation team was led by partners Jonathan Freiman and Scott Corrigan, with associates Joseph Merschman and Jenny Chou.