In re Lifetrade Litigation

Background

The court’s September 25, 2023 opinion had ruled on three motions: Wells Fargo’s early motion for summary judgment concerning the statute of limitations and derivative standing; plaintiffs’ cross-motion for partial summary judgment seeking to strike Wells Fargo’s affirmative defenses; and John Marcum’s motion to dismiss Wells Fargo’s third-party complaint. The court had denied Wells Fargo’s summary-judgment motion, granted plaintiffs’ partial-summary-judgment motion, and denied Marcum’s motion to dismiss.

Wells Fargo moved for reconsideration and clarification of the rulings concerning its summary-judgment motion and plaintiffs’ partial-summary-judgment motion. Reconsideration permits a court to revisit an earlier interlocutory ruling in limited circumstances, such as an intervening change in controlling law, new evidence, clear error, or manifest injustice. Federal Rule of Civil Procedure 60(a), also invoked by Wells Fargo, allows correction of clerical mistakes but not changes that alter an order’s original legal or factual meaning.

Derivative Standing and Choice of Law

Wells Fargo argued that the court should reconsider its conclusion that domestic law, rather than Curaçao or British Virgin Islands law, governed whether plaintiffs had derivative standing to sue Wells Fargo. The court had previously concluded that the internal affairs doctrine did not apply to plaintiffs’ claims against Wells Fargo, an entity that was not and had never been an officer or director of Lifetrade. The court also had concluded that, even if the doctrine applied, New York’s flexible interest analysis pointed to domestic law because Wells Fargo’s conduct occurred within the United States. In addition, the court had found that Wells Fargo was judicially estopped from taking the position that Curaçao or British Virgin Islands law controlled after previously taking a contrary position concerning New York or Delaware law.

The court declined to change those conclusions. It explained that Wells Fargo had misunderstood the earlier use of a New York appellate decision concerning the internal affairs doctrine. The court had relied on that decision for the proposition that the doctrine applied to officers and directors of the funds, not for the proposition that it applied only to current officers and directors at the time of suit. The court also noted that authorities differ on whether the doctrine applies to aiding-and-abetting claims against outside entities, and Wells Fargo had not identified controlling authority conclusively resolving that question in its favor.

The court further rejected Wells Fargo’s argument that New York’s flexible approach was outdated. Under that approach, the place of incorporation is one factor, not an automatic rule, and the law of the jurisdiction with the greatest interest governs. The court maintained that the interest analysis pointed to domestic law. It also rejected Wells Fargo’s characterization of its earlier position, explaining that Wells Fargo had previously argued that New York or Delaware law applied and that plaintiffs’ state-law claims could therefore be asserted only derivatively.

The court did, however, reconsider part of its earlier ruling. To the extent the earlier opinion granted plaintiffs’ affirmative motion to strike Wells Fargo’s standing defense, the court held that ruling was erroneous because the motion to strike on those grounds was improper. Wells Fargo therefore retained the right to challenge derivative standing under New York or Delaware law. The court also stated that all defendants retained the right to argue about the law governing plaintiffs’ derivative claims against Smith and Marcum, including derivative standing for those claims.

Statute of Limitations

Wells Fargo argued that the choice-of-law analysis concerning Smith and Marcum affected the applicable limitations periods. The court had previously recognized a six-year period under New York Civil Practice Law and Rules section 213(7) for plaintiffs’ derivative claims against Smith and Marcum and had held that plaintiffs’ aiding-and-abetting claim received the same limitations period as the underlying tort.

The court stated that Wells Fargo retained the right to argue that Curaçao or British Virgin Islands law governed the claims against Smith and Marcum and that plaintiffs lacked derivative standing under that law. Wells Fargo also retained the right to argue that, if the fiduciary-duty claim could proceed only directly, the aiding-and-abetting claim would be subject to a different New York limitations provision. In addition, Wells Fargo could make timeliness arguments concerning the aiding-and-abetting claim under the six-year period, and it could raise arguments concerning the timeliness of the unconscionability claim.

Disposition

The court granted in part and denied in part Wells Fargo’s motion for reconsideration and clarification. The court did not alter its conclusion that domestic law applied to the derivative-standing issue or its related judicial-estoppel ruling. It did reconsider the portion of the prior ruling that granted plaintiffs’ motion to strike Wells Fargo’s standing defense, leaving Wells Fargo able to challenge derivative standing under New York or Delaware law. The clerk was directed to close the motion at ECF No. 1167.