In re Lifetrade Litigation

Background

The court considered three motions: Wells Fargo’s early motion for summary judgment on the statute of limitations and Plaintiffs’ derivative standing; Plaintiffs’ early motion for partial summary judgment seeking to strike Wells Fargo’s affirmative defenses concerning timeliness and standing; and John Marcum’s motion under Rule 12(b)(6) to dismiss Wells Fargo’s third-party complaint. A Rule 12(b)(6) motion tests whether a complaint states a legally plausible claim based on its allegations.

Statute of Limitations

The court held that Plaintiffs’ derivative claim against Wells Fargo for aiding and abetting Smith and Marcum’s breach of fiduciary duty was subject to New York’s six-year limitations period under New York Civil Practice Law and Rules § 213(7). The court relied on its earlier determination that Plaintiffs’ derivative fiduciary-breach claims against Smith and Marcum were subject to that six-year period, and on New York authority providing that an aiding-and-abetting claim generally follows the limitations period for the underlying tort. The claim was therefore not time-barred.

Derivative Standing

Wells Fargo argued that New York’s internal-affairs doctrine required applying the law of the jurisdictions where the funds were incorporated and defeated Plaintiffs’ ability to bring derivative claims. The court rejected that argument. It concluded that the doctrine did not apply because Wells Fargo was not a current officer, director, or shareholder. The court also concluded that, under an interest-based choice-of-law analysis, U.S. law applied because Wells Fargo’s conduct occurred entirely within the United States.

The court additionally held that Wells Fargo was judicially estopped, meaning it could not take a position inconsistent with one it had previously used to obtain an advantage in the same litigation. Wells Fargo had earlier argued that New York or Delaware law applied and that Plaintiffs’ state-law claims could be brought only derivatively. The court had treated the aiding-and-abetting and unconscionability claims as purely derivative. Wells Fargo later argued that the law of Curaçao and the British Virgin Islands governed the direct-versus-derivative question. The court barred Wells Fargo from adopting that contradictory position.

Third-Party Contribution Claim

The court denied Marcum’s motion to dismiss Wells Fargo’s third-party complaint. It held that the complaint plausibly alleged a contribution claim because it arose from the same underlying facts as Plaintiffs’ claims against Wells Fargo and alleged that any Wells Fargo liability would result from Marcum’s acts, omissions, or violations. The court also noted that Plaintiffs could not succeed on their aiding-and-abetting claim against Wells Fargo without proving underlying misconduct by Marcum.

The court rejected Marcum’s argument that the Limited Recourse provision in the 2012 Settlement Agreement released him from liability. The court found that the provision did not contain an explicit, unequivocal release of Marcum’s personal liability. It also stated that the provision might expressly exclude the Lifetrade Fund or an affiliate from the group protected by the provision. At minimum, the court found the provision ambiguous, and an ambiguous release could not support dismissal at the pleading stage.

The court also rejected Marcum’s laches argument, which asserted that Wells Fargo waited too long to bring the third-party complaint and that the delay prejudiced him. The court found that Marcum had remained involved in the litigation, produced his documents, agreed to a deposition, and anticipated substantial involvement through trial. It further concluded that resolving liability and contribution in the same action was more efficient and appropriate. Finally, the court rejected Marcum’s argument that Wells Fargo waived its contribution claim by not objecting to his earlier dismissal, noting that Wells Fargo had brought the claim before the limitations period expired, impleaded Marcum before any finding of liability, and previously asserted contribution as an affirmative defense.

Disposition

The court denied Wells Fargo’s early motion for summary judgment on the statute of limitations and lack of derivative standing; granted Plaintiffs’ early motion for partial summary judgment striking Wells Fargo’s affirmative defenses concerning timeliness and standing; and denied John Marcum’s motion to dismiss Wells Fargo’s third-party complaint. The clerk was directed to close Docket Numbers 951, 972, and 982.