Paul, Weiss Obtains Vacatur of Class Certification Order for Citco

Paul, Weiss achieved a major victory for our client Citco and several affiliated entities when the Second Circuit vacated an order of the Southern District of New York (Marrero) certifying a class of investors in four funds managed by the Fairfield Greenwich Group (Fairfield) that invested substantially all of the funds' assets with Bernard Madoff and remanded the matter to the district court.

In the aftermath of the revelation of Madoff's Ponzi scheme, the Fairfield fund investors filed a putative class action against Fairfield and associated entities as managers of the funds, several Citco entities in their capacity as administrators and custodians for the funds, and the funds' outside auditor, PricewaterhouseCoopers (PwC). The plaintiffs asserted several federal securities law and common-law claims against the various defendants, essentially alleging that the defendants knew, or should have known, that Madoff was running a Ponzi scheme. In February 2013, Citco replaced its former counsel with Paul, Weiss just as Judge Marrero entered an order certifying the class in substantial part. Paul, Weiss filed a Rule 23(f) petition on Citco's behalf seeking interlocutory review of the class certification order, identifying two principal grounds for reversal. First, Citco argued that plaintiffs could not prove reliance by common evidence and therefore could not satisfy the predominance requirement of Rule 23(b)(3). Second, Citco argued that plaintiffs' common-law "holder" claims, to the extent recognized under New York law, were derivative, not direct, and therefore that a class action asserting direct claims was not a "superior" method of adjudication within the meaning of Rule 23(b)(3). PwC also filed a Rule 23(f) petition. The Second Circuit granted both petitions, ordered briefing and heard oral argument in May 2014.

The Second Circuit vacated the class certification order. In its ruling, the court concluded that the district court's order did not provide "sufficient factual findings as to how Rule 23(b)'s requirements are satisfied." In particular, the court found that the order did not indicate how common evidence could show the existence of a duty of care or reliance by the class on Citco's alleged misrepresentations. Accordingly, the court remanded for the district court to make additional findings on a more developed record.

The Paul, Weiss team included litigation partners Walter Rieman, who argued the appeal, Brad Karp, Les Fagen, Allan Arffa, Andrew Gordon and Marc Falcone.