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In a new amicus brief in Bank of America Corp v. Fund Liquidation Holdings LLC, House attorneys for Latham & Watkins told the Supreme Court that the U.S. 2nd Court of Appeals opened the door to abusive donor tactics when it authorized liquidation of funds. Holdings to trade as plaintiff in a benchmark rate manipulation class action against a host of international banks.

The Chamber’s assertion requires some explanation. The class action lawsuit addressed in the Circuit 2 decision was originally filed by two disbanded Cayman Islands hedge funds that had ceded their litigation rights to Fund Liquidation Holdings. Their initial class action complaint did not reveal that they had already given up their rights – or that they no longer actually existed.

It wasn’t until their second amended complaint, after an intense briefing and a first ruling on the bank’s layoff motions, that the Cayman Funds revealed their dissolution. And it wasn’t until a briefing on a defense motion to dismiss the amended complaint that the banks learned that Fund Liquidation Holdings was the real interested party – and that it had been leading the litigation from the start. .

The trial judge, U.S. District Judge Alvin Hellerstein of Manhattan, ultimately ruled that the Cayman funds that brought the lawsuit did not have Article III standing because they had sued. dissolved. Hellerstein refused to allow Fund Liquidation Holdings to trade as a replacement plaintiff under Rule 17 of the Federal Rules of Civil Procedure, arguing that the entire class action was void because it was filed by applicants not having standing to prosecute.

Fund Liquidation Holdings, which then had no time to file a new complaint on its own behalf, appealed. In March 2021, 2nd Circuit Judges Richard Sullivan, Michael Park and William Nardini concluded that the initial filing on behalf of the plaintiffs without standing under Article III was not the death knell for all of the case, because Fund Liquidation Holding had a constitutional claim at the time. was filed and had surfaced in time to assert this claim. Practically speaking, the appeals court said, it made no sense to force claimants to spend time and money on a new complaint just to correct a “technical error” in the original filing.

“We now believe that Article III is satisfied as long as a party with standing to pursue the specific claim in question exists at the time argument is filed,” Sullivan wrote in the panel notice. “If that party (the real interested party) is not named in the complaint, then it must ratify, join or be substituted for the action within a reasonable time. It is only if the genuine interested party does not materialize or does not have standing that the case is dismissed for lack of jurisdiction ratione materiae. “

In the banks’ petition for Supreme Court review, their official attorney for Akin Gump Strauss Hauer & Feld focused on the recognized split of the 2nd Circuit from the 2002 6th Circuit ruling in Zurich Insurance Co v. Logitrans Inc. In this case, the 6th Circuit ruled that Zurich, which had mistakenly filed a subrogation action to recover money paid to an insured after a warehouse fire, could not exchange the insurer who was in owns the subrogation request because the original Zurich deposit was zero.

Even the 2nd Circuit, the banks argued, admitted that its reasoning “is not a point of view adopted by many courts.” The banks told the Supreme Court that the DCs, 4th and 5th Circuits have all ruled that while the plaintiff who initially filed a complaint lacks standing (usually because the plaintiff is deceased), rule 17 does not allow a new claimant to simply take on the old case.

I bet the appeal attorneys for Fund Liquidation Holdings at Goldstein & Russell, who declined to provide me with a statement, will argue in their opposition brief that the division of the circuit is narrower and more technical than the description of banks. This brief is expected on December 10.

The Chamber’s amicus brief, meanwhile, wants judges to consider the implications of Circuit 2’s acceptance of Fund Liquidation Holdings’ behind-the-scenes review of disputes filed on behalf of non-existent plaintiffs.

“For four years, the only party pulling the strings in this case has not come under scrutiny by the defendants or the court,” the amicus brief said. The 2nd Circuit rule would allow funders to avoid statute of limitations by filing substitution lawsuits while they search for viable plaintiffs. Donors could also covertly advance political or personal interests, the chamber said, hiding behind bogus complainants without fear of consequences.

“Under the 2nd Circuit rule, a party can choose to remain anonymous and free from scrutiny while controlling all aspects of a dispute, as there is no actual complainant,” said the memory. “Indeed, that is precisely what happened below.”

The 2nd Circuit explicitly stated in its opinion that its approach “would not result in uncontrolled abusive practices” because trial judges retained discretion to prosecute if they believed that the replacement claimants had misnamed them. parties in the original pleadings for “harmful reasons”. The Chamber said this was clearly not an adequate control over potential abuse, as the appeals court itself had “rewarded” Fund Liquidation Holdings for hiding behind non-existent plaintiffs.

The pet peeve of the House, as always, is the secrecy that often surrounds donor involvement in business. His campaign on multiple fronts to force disclosure won a big victory in June, when federal courts in New Jersey passed a litigation funding disclosure rule. At the very least, the Supreme Court’s latest brief gave the House a new hearing for an old argument.

The opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the principles of trust, is committed to respecting integrity, independence and freedom from bias.

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