Dumontet v. UBS Financial Services, Inc.

Background

Christian Dumontet, a UBS client, opened an account in August 2017 to participate in UBS’s Yield Enhancement Strategy (YES) program. The program used short-term S&P 500 index options and charged a flat fee based on the amount of Dumontet’s investment portfolio designated as collateral for the account.

Before Dumontet opened the account, four members of UBS’s YES team had begun a confidential Financial Industry Regulatory Authority (FINRA) arbitration against their former employer, Credit Suisse. Credit Suisse filed counterclaims alleging, among other things, that the individuals had taken confidential business and client information for use at UBS. Dumontet alleged that UBS and the individual defendants failed to disclose the arbitration and counterclaims to him and other YES clients. He claimed that the omissions were material to his decision to open a YES account, entrust assets to the defendants, and pay the YES fees.

Dumontet asserted three New York-law claims: breach of fiduciary duty, aiding and abetting breach of fiduciary duty, and unjust enrichment. He sought a constructive trust, restitution, disgorgement, interest, fees, and costs. Defendants moved to dismiss under Federal Rule of Civil Procedure 12(b)(1), which concerns subject-matter jurisdiction, and Rule 12(b)(6), which concerns whether a complaint states a legally sufficient claim.

Securities Litigation Uniform Standards Act

The court applied SLUSA, the Securities Litigation Uniform Standards Act, to determine whether the proposed class action could proceed. SLUSA precludes a covered class action based on state-law claims when the action alleges a material misrepresentation or omission connected to the purchase or sale of covered securities.

The parties did not dispute that the action was a covered class action based on state-law claims involving covered securities. The dispute was whether the claims alleged material omissions connected to the acquisition of covered securities. The court examined each claim separately and concluded that the allegations’ substance—not the labels attached to the claims—controlled.

Breach of fiduciary duty

The court held that the breach-of-fiduciary-duty claim was precluded by SLUSA. Dumontet alleged that the defendants’ failure to disclose the FINRA arbitration and counterclaims was a misleading omission, that the information was material to his decision to open the YES account, and that the omission caused him to choose the account and the defendants’ services. Because the claim depended on alleged misleading conduct connected to his acquisition of covered securities, the claim fell within SLUSA.

The court rejected Dumontet’s argument that the claim was based on an independent, duty-based obligation rather than fraud. The court explained that a plaintiff cannot avoid SLUSA by describing a claim as a fiduciary-duty claim when proving the claim would require showing conduct specified by SLUSA.

Aiding and abetting breach of fiduciary duty

The court held that the aiding-and-abetting claim was also precluded. That claim relied on the same alleged misleading omissions as the breach-of-fiduciary-duty claim and alleged that the defendants induced or substantially participated in the fiduciary-duty breaches.

Unjust enrichment

The court held that the unjust-enrichment claim was precluded for the same reason: it was based on the alleged fiduciary-duty violations, which in turn depended on the misleading omissions connected to Dumontet’s opening of the YES account.

The court separately ruled that the unjust-enrichment claim was duplicative. Dumontet offered no additional or different factual basis for that claim; he relied on the same alleged fiduciary-duty breach to argue that defendants were unjustly enriched by retaining the YES fees.

Statute of limitations

The court declined to resolve defendants’ statute-of-limitations defense at the motion-to-dismiss stage. It determined that the requested relief was monetary in substance, even though Dumontet described it using equitable terms such as restitution, disgorgement, and a constructive trust. As a result, the court concluded that a three-year limitations period governed the fiduciary-duty and aiding-and-abetting claims.

However, the complaint did not clearly establish when those claims accrued. The court therefore could not determine from the complaint that the three-year period had expired. It also did not address Dumontet’s equitable-estoppel argument because the claims did not appear untimely on the face of the complaint.

Disposition and amendment

Judge Gregory H. Woods granted defendants’ motion to dismiss without prejudice. The court granted Dumontet 21 days to file a third amended complaint. It explained that he could attempt to avoid SLUSA preclusion, for example, by no longer asserting claims on behalf of a proposed class. The court did not conclude that amendment would necessarily be futile because the statute-of-limitations defense could not be resolved from the complaint.