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Lillie v. Stanford Trust Co.

United States District Court, M.D. Louisiana

July 9, 2019

TROY LILLIE ET AL.
v.
STANFORD TRUST CO. ET AL. TROY LILLIE ET AL.
v.
STANFORD TRUST CO. ET AL.

          RULING AND ORDER

          BRIAN A. JACKSON JUDGE.

         Before the Court are two motions: the Motion for Summary Judgment (Doc. 127) by SEI[1] and the Motion for Dismissal of Summary Judgment or a Continuance (Doc. 130) by Plaintiffs. For the reasons that follow, SEI's Motion (Doc. 127) is GRANTED and Plaintiffs' Motion (Doc. 130) is DENIED.

         I. BACKGROUND

         At issue in this long-running litigation is SEI's liability under the control-person provision of the Louisiana Securities Law. See La. Rev. STAT. § 51:714(B). That liability turns on one question: Did SEI "control" Stanford Trust Company's primary violations of the Louisiana Securities Law? The undisputed facts show that it did not.

         A. The Scheme

         This securities dispute arises from R. Allen Stanford's well-known Ponzi scheme. See Janvey v. Brown, 767 F.3d 430, 433-34 (5th Cir. 2014) (describing the scheme). Stanford sold fraudulent certificates of deposit (CDs) through his Antigua-based Stanford International Bank Ltd. (SIBL). Id. at 433. He promised investors the proceeds would be placed in low-risk, high-return investments. Id. He instead used the proceeds to pay earlier investors the promised returns. Id. All told, his scheme bilked investors of $7 billion. Id.

         B. The History

         Plaintiffs are a Louisiana-based group of SIBL CD holders who lost their investments. (Docs. 128 at p. 12, ¶ 13; 141-1 at p. 6, ¶ 13). SEI is a provider of "trust processing and reporting services." (Doc. 250-2 at p. 72). In 1998, SEI contracted to provide those services-including its Trust 3000 system-to Stanford Trust Company, an entity R Allen Stanford used to sell SIBL CDs.[2] (Doc. 28-5 at ¶¶ 4-6).

         The contract describes SEI as an "independent contractor." (Doc. 250-2 at p. 72). It grants Stanford Trust Company (but not SEI) the right to issue "instructions." (Id. at pp. 77, 80). It grants Stanford Trust Company (but not SEI) the right to price non-marketable securities, like the SIBL CDs. (Id. at p. 89). And it makes Stanford Trust Company "solely responsible for the accuracy and completeness of any data" provided to SEI under the contract. (Id. at p. 74).

         Plaintiffs bought or renewed SIBL CDs from Stanford Trust Company. (Docs. 128 at ¶ 13; 141-1 at p. 6, ¶ 13). They lost their investments when the Ponzi scheme collapsed. (Doc. 28-5 at ¶¶ 4-21). In 2009, they sued SEI in Louisiana state court, alleging that SEI violated the Louisiana Securities Law. See La. Rev. Stat. §§ 51:712(D), 51:714(A), 51:714(B). The state court certified a class of all persons who bought or renewed SIBL CDs in Louisiana between January 1, 2007 and February 13, 2009. (Doc. 25-6).

         According to Plaintiffs, SEI contracted with Stanford Trust Company to "provide monthly and quarterly reports" on the value of Stanford Trust Company's SIBL CDs. (Doc. 28-5 at ¶ 9). But the CDs were actually "highly speculative debt instruments," part of a "a massive Ponzi scheme." (Id. at ¶¶ 6-7). SEI "played a vital and substantial role" in Stanford Trust Company's sale of the SIBL CDs by "providing the platform and expertise ... to implement the deceptive scheme." (Id. at ¶ 10). Specifically, SEI "fail[ed] to properly report the value" of the SIBL CDs in "monthly and quarterly" reports to Plaintiffs. (Id. at ¶¶ 21, 34).

         In 2013, Plaintiffs amended their petition to assert direct-action claims under LA. REV. Stat. § 22:1269 against SEI's insurers: Allied World Assurance Company (U.S.) Inc., Continental Casualty Company, Arch Insurance Company, Indian Harbor Insurance Company, Nutmeg Insurance Company, and Certain Underwriters at Lloyd's of London subscribing to policy nos. FD0805144, FD0805145, FD0805146, FD0805149 (collectively, the "Insurer Defendants"). (Doc. 28-5).

         The Insurer Defendants removed the case to this Court under the Class Action Fairness Act. See 28 U.S.C. §§ 1332(d)(2) & 1453(b). Five months later, the United States Judicial Panel on Multidistrict Litigation transferred Plaintiffs' claims against SEI and the Insurer Defendants to MDL No. 2099, In re: Stanford Entities Securities Litigation, before Judge David. C. Godbey of the United States District Court for the Northern District of Texas.[3] (Doc. 94).

         In the Northern District of Texas, SEI obtained on-the-pleadings dismissals of Plaintiffs' claims under Sections 712(D) and 714(A) of the Louisiana Securities Law. (Docs. 198 & 199 in N.D. Tex. No. 3:13-CV-3127-N). So the only remaining claim against SEI is a control-person claim under Section 714(B) of the Louisiana Securities Law. See La. Rev. Stat. § 51:714(B).

         The case remained in the Northern District of Texas for five years. (Docs. 94, 104). It returned to this Court in January 2019, when the JPML entered a conditional remand order. (Doc. 104). At the time of remand, two motions were pending: SEI's motion for summary judgment and Plaintiffs' motion for a continuance under Federal Rule of Civil Procedure 56(d). (Docs. 127, 130).[4] The Court considers each in turn.

         C. The Motion for Summary Judgment

         SEI moves for summary judgment on the ground that Plaintiffs cannot prove the control element of their Section 714(B) control-person claim. (Doc. 127). SEI contends that the contract defined its relationship with Stanford Trust Company, and the terms of that contract confirm that it did not control the liability-creating conduct of Stanford Trust Company. (Doc. 128). Plaintiffs disagree. (Docs. 129, 130, 141).

         In Plaintiffs' view, summary judgment is premature. (Doc. 129). Plaintiffs assert that "no substantive document production or substantive depositions have occurred . . . other than the 30(b)(6) deposition of SEI[.]" (Id.). And Plaintiffs assert that they "are unable to fully present facts essential to [their] opposition" because they "have not been permitted to conduct substantive discovery." (Id.).

         D. The Motion for a Rule ...


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