On December 15, 2022, the U.S. Court of Appeals for the Fifth Circuit reversed the pleading-stage dismissal, as time-barred, of a case against Bank of New York Mellon by defrauded investors in the Allen Stanford Ponzi scheme. The scheme, involving Stanford’s sale of certificates of deposit with “extraordinary high return rates,” was revealed through SEC action in 2009. In 2014, documents produced in a related FINRA arbitration against the Bank’s subsidiary allegedly showed that the Bank itself was complicit in the Ponzi scheme. In March 2019, based on that information, Stanford investors filed a putative class action in U.S. District Court for the Northern District of Texas against the Bank, alleging claims for aiding and abetting fraud and a breach of fiduciary duty.
The Bank moved to dismiss the complaint, asserting (among other things) that the claims were barred by New Jersey’s six-year statute of limitations. The investors asserted that New Jersey’s discovery rule tolled the limitations period until they learned of the Bank’s involvement in the scheme (in 2014). The district court found that the investors had sufficient information about their financial injury before March 2013 such that they could have commenced a lawsuit against “some third party” (but not, specifically, the Bank) and so dismissed the action as untimely.
On appeal, the Fifth Circuit held that, on a motion to dismiss, where plaintiffs alleged that they were unaware of the Bank’s involvement in the Ponzi scheme until 2014, dismissal was inappropriate. Noting that the case turned on the difference between when the investors had sufficient information to file a lawsuit against “some third party” and when they had sufficient information to file a lawsuit against the Bank, the court found that claims against different defendants can accrue at different times: it is not enough, the court held, that a plaintiff has sufficient information to commence a lawsuit against “some third party” if it does not know who that “third party” is. Because the investors alleged they were unaware of the Bank’s involvement in the scheme until 2014, the complaint should not have been dismissed. The Fifth Circuit specifically stated, however, that its decision has no bearing on whether the lawsuit was, in fact, time barred if subsequently developed facts gathered through discovery demonstrate that was so.
The case is Mogollon v. Bank of New York Mellon, No. 21-11212 (5th Cir. Dec. 15, 2022). The investor plaintiffs are represented by Criden & Love, P.A. and Carella Byrne Cecchi Olstein Brody & Agnello. The Bank of New York Mellon is represented by McGuireWoods LLP. The opinion is available here.
