Opinion
Civil Action 19 Civ. 9193 (PGG) (SLC)
12-21-2022
MONTEREY BAY MILITARY HOUSING, LLC, MONTEREY BAY LAND, LLC, MEADE COMMUNITIES LLC, FORT BLISS/WHITE SANDS MISSILE RANGE HOUSING LP, RILEY COMMUNITIES LLC, FORT LEAVENWORTH FRONTIER HERITAGE COMMUNITIES, I, LLC, FORT LEAVENWORTH FRONTIER HERITAGE COMMUNITIES, II, LLC, CARLISLE/PICATINNY FAMILY HOUSING LP, BRAGG COMMUNITIES LLC, FORT DETRICK/WALTER REED ARMY MEDICAL CENTER LLC, PICERNE-FORT POLK FUNDING, LLC, RUCKER COMMUNITIES, LLC, STEWART HUNTER HOUSING LLC, SILL HOUSING, LLC, AETC HOUSING LP, AMC WEST HOUSING LP, LACKLAND FAMILY HOUSING, LLC, and VANDENBERG HOUSING LP, Plaintiffs, v. AMBAC ASSURANCE CORPORATION, JEFFERIES MORTGAGE FINANCE, INC., JEFFERIES & COMPANY INC., JEFFERIES L.L.C., JEFFERIES GROUP LLC, DANNY RAY, and CHETAN MARFATIA, Defendants.
OPINION AND ORDER
SARAH L. CAVE, UNITED STATES MAGISTRATE JUDGE.
I. INTRODUCTION
Before the Court is Plaintiffs'motion to reconsider the Court's denial of their motion to compel Jefferiesto produce documents concerning a 2014 non-prosecution agreement (ECF No. 491-1 (the “NPA”)). (ECF No. 529 (the “Motion”)). At the conclusion of the December 19, 2022 conference with parties, the Court denied the Motion, and indicated that this Opinion and Order setting forth the Court's reasoning would follow. (ECF No. 580 at 2).
Plaintiffs are Monterey Bay Military Housing, LLC, Monterey Bay Land, LLC, Meade Communities LLC, Fort Bliss/White Sands Missile Range Housing LP, Riley Communities LLC, Fort Leavenworth Frontier Heritage Communities I, LLC, Fort Leavenworth Frontier Heritage Communities, II, LLC, Carlisle/Picatinny Family Housing LP, Bragg Communities LLC, Fort Detrick/Walter Reed Army Medical Center LLC, Picerne Fort Polk Funding LLC, Rucker Communities LLC, Stewart Hunter Housing LLC, Sill Housing, LLC, AETC Housing LP, AMC West Housing LP, Lackland Family Housing, LLC, and Vandenberg Housing LP. (ECF No. 256 ¶¶ 37-54).
“Jefferies” refers collectively to Jefferies Mortgage, Jefferies & Co., Jefferies LLC, and Jefferies Group LLC. (ECF No. 554 at 4 n.1).
II. BACKGROUND
A. Factual Background
1. Plaintiffs' claims
The factual background of this action is set out in detail in prior decisions issued by the Honorable Paul G. Gardephe and the undersigned. See Monterey Bay Mil. Hous., LLC v. Ambac Assurance Corp., No. 19 Civ. 9193 (PGG) (SLC), 2021 WL 4173929 (S.D.N.Y. Sept. 14, 2021) “Monterey Bay II”); Monterey Bay Mil. Hous., LLC v. Ambac Assurance Corp., 531 F.Supp.3d 673 (S.D.N.Y. 2021) (“Monterey Bay I”). The Court incorporates those factual summaries, and all defined terms.
Very briefly, Plaintiffs are 18 “project entities” that operate, pursuant to the Military Housing Privatization Initiative of 1996 (“MHPI”), 16 privatized military housing projects (the “MHPI Projects”) at 20 military bases throughout the United States. Monterey Bay I, 531 F.Supp.3d at 685. The MHPI Projects “‘collectively needed billions of dollars of long-term financing' for development and construction.” Id. (quoting ECF No. 256 ¶ 4). Each of the MHPI Projects was a “partnership” between one of the United States Armed Forces (Army, Air Force, or Navy) and “one of four private developers,” Corvias, Clark, BBC, and Michaels. (ECF No. 256 ¶¶ 86-88, 97, 102, 107, 111, 116, 121, 125, 130).
Among the financial institutions that provided loan origination services for the MHPI Projects was non-party GMAC, of which Defendant Ray was a managing director. Monterey Bay I, 531 F.Supp.3d at 685-86. “Ray chose Defendant Ambac, an AAA-rated insurance company, to insure, or ‘credit enhance,' the loan for the Fort Meade Project, thereby permitting GMAC to syndicate the loan by selling AAA-rated bonds.” Id. at 686. Defendant Chetan Marfatia (“Marfatia”) was managing director of Ambac. Id. at 684. In 2009, Defendant Jefferies Mortgage “purchased Ray's military housing business from GMAC's successor,” non-party Capmark, and Defendant Jefferies & Co. hired Ray and his team to continue the business. Id. at 691.
Plaintiffs assert claims under RICO and other state law theories, arising out of alleged fraud the Defendantscommitted in connection with financing the development and renovation of military housing projects. See Monterey Bay II, 2021 WL 4173929, at *1. (See also ECF No. 353 at 7; see generally ECF No. 256). Plaintiffs claim that, among other things, Defendants set “above-market credit spread on Project loans” that enabled them to “realiz[e] secret profits based on that above-market interest rate,” “manipulated the ‘shadow ratings'” that Ray, GMAC, Ambac, and Marfatia “claimed were necessary for the Projects' credit enhancement[,]” misrepresented that the ratings agencies required bond insurance and a surety bond on the Projects' loans, entered into “stealth” credit enhancement agreements with Ambac, and required the Projects to accept an OID, even though there was “no economic purpose” for doing so, thereby enabling “Ray and GMAC to make millions in profits on [] pre-closing bond sales.” Monterey Bay I, 531 F.Supp.3d at 688-89, 691.
“Defendants” refers to Ambac, Ray, Marfatia, and the Jefferies Defendants.
2. The NPA
On January 29, 2014, Jefferies LLC, formerly Jefferies & Co., entered into the NPA with the United States Department of Justice (“DOJ”), pursuant to which DOJ agreed not to criminally prosecute Jefferies LLC “for any actions related to Jefferies' employees' purchase and sale of residential mortgage-backed securities (‘RMBS') . . . as described in” the statement of facts appended to the NPA and admitted by Jefferies LLC. (ECF No. 491-1 at 2). As is relevant to the Motion, Jefferies LLC admitted that:
18. Beginning in approximately 2009, on certain occasions, certain employees in Jefferies' Mortgage and Asset-Backed Securities Trading group fraudulently increased the profitability of certain RMBS trades for Jefferies in various ways, including:
a. In certain order and bid-list transactions:
i. where the buying victim-customer had agreed upon a specified amount of compensation “on-top” of the price that Jefferies had negotiated with the seller of a RMBS bond, Jefferies' employees misrepresented to the buyer the price Jefferies had paid or agreed to pay the seller, providing Jefferies with an undisclosed extra and unearned profit at the victim-customer's expense; and
ii. where the selling victim-customer had agreed upon a specified amount of compensation to be deducted from the price at which Jefferies had negotiated to sell a RMBS bond, Jefferies' employees misrepresented to the seller the price the buyer had paid or agreed to pay to Jefferies, providing
Jefferies with an undisclosed extra and unearned profit at the selling victim-customer's expense.
b. In certain sales of bonds from Jefferies' inventory, Jefferies' employees misrepresented to the buying victim-customer that the transaction was an order or bid list trade requiring “on-top” compensation, providing Jefferies with an undisclosed extra and unearned profit at the buying victim-customer's expense.(Id. at 10).
The Jefferies Defendants identify this admission as involving the conduct of Jesse Litvak (“Litvak”) (ECF No. 554 at 5-6), a securities broker and trader whom DOJ charged, in January 2013, with eleven counts of securities fraud, one count of fraud against the United States, and four counts of making false statements. United States v. Litvak, 808 F.3d 160, 166 (2d Cir. 2015) (“Litvak I”). The indictment charged that Litvak made three types of fraudulent misrepresentations “to several of Jefferies['] counterparties, some of which were Public[-]Private Investment Funds (‘PPIFs'), in order to covertly reap excess profit for Jefferies in the course of transacting [RMBS].” Id. The three types of misrepresentations were: (1) “Litvak fraudulently misrepresented to purchasing counterparties the costs to Jefferies of acquiring certain RMBS”; (2) “Litvak fraudulently misrepresented to selling counterparties the price at which Jefferies had negotiated to resell certain RMBS”; and (3) “Litvak fraudulently misrepresented to purchasing counterparties that Jefferies was functioning as an intermediary between the purchasing counterparty and an unnamed third-party seller, where in fact Jefferies owned the RMBS and no third-party seller was extant.” Id. Following a fourteen-day trial, the jury convicted Litvak of all but one of the counts described above. Id. at 166-69. On appeal, the Second Circuit reversed the District Court's judgment of conviction as to the counts of fraud against the United States and making false statements, and vacated the judgment of conviction and remanded for a new trial as to the securities fraud charges. Id. at 190. Following a second trial, Litvak was convicted of a single count of securities fraud, but on appeal, the Second Circuit again vacated the judgment of conviction. United States v. Litvak, 889 F.3d 56, 59, 72 (2d Cir. 2018) (“Litvak II”). The securities fraud charge in the second trial was based on Litvak's statements in connection with a “bids-wanted-in-competition” (“BWIC”) trade, which “involves an auction in which a putative seller sends a bid-list to multiple broker-dealers.” Id. at 60; see id. at 62-63.
“Count Seven (a securities fraud charge), [] was dismissed on the government's motion the day before trial commenced.” Litvak I, 808 F.3d at 166-67.
In the SAC, first filed in January 2019, (see ECF No. 220), Plaintiffs referenced the NPA in support of their assertion that “the Jefferies business unit that diligenced and eventually employed Ray's MHPI team, the Mortgage and Asset Backed Securities Group . . . embraced Ray's bond-related scheme because it too accepted, practiced, and operated based on misleading bond trading practices.” (ECF No. 256 ¶ 25). Plaintiffs pointed to the NPA as an example of one of “various criminal investigations that involved the very Jefferies executives who diligenced and approved of Ray's MHPI transactional practices[.]” (Id.)
B. Procedural Background
On August 28, 2017, Plaintiffs filed the original complaint in this action in the Northern District of California. (ECF No. 1). See Monterey Bay I, 531 F.Supp.3d at 693-94. On September 21, 2017, Ambac filed the Transfer Motion, in which Marfatia and the Jefferies Defendants joined. Monterey Bay II, 2021 WL 4173929, at *3. While the Transfer Motion was pending, Plaintiffs filed the FAC, which the Defendants moved to dismiss. (ECF Nos. 60; 62-64; 66; 71). On January 2, 2018, the Honorable Beth Labson Freeman of the United States District for the Northern District of California denied the Transfer Motion. (ECF No. 108). On July 17, 2018, Judge Freeman granted Defendants' Motions to Dismiss for lack of personal jurisdiction, except as to the Monterey Bay Plaintiffs' claims against Ambac. (ECF No. 147 at 6-11). Judge Freeman also held, under Fed.R.Civ.P. 12(b)(6), that Plaintiffs failed to state a RICO claim, and granted Plaintiffs leave to amend. (Id. at 11-24).
On January 16, 2019, Plaintiffs filed the SAC (ECF No. 220; see ECF No. 256), seeking, in addition to compensatory and treble damages, equitable relief in the form of “[r]elieving [them], in whole or in part, from a continuing obligation to make payments to Ambac or its bond insurers[,]” “[d]eclaring any purported disclaimer by Jefferies Mortgage of its fiduciary duty to the Sill and Bliss Projects null and void[,]” and “[d]isgorgement of all profits and fees, both disclosed and undisclosed[.]” (ECF Nos. 220 at 85; 353 at 14). On February 15, 2019, Defendants renewed their Motions to Dismiss. (ECF Nos. 223-28). On September 26, 2019, Judge Freeman denied the renewed Motions to Dismiss and transferred the action to this Court. (See generally ECF No. 261). On arriving in this District, Defendants filed the Reconsideration Motions. (ECF Nos. 268; 269; 271; 273).
On March 31, 2021, Judge Gardephe issued Monterey Bay I, granting the Reconsideration Motions only “to the extent that (1) Plaintiffs' breach of fiduciary duty claims against Defendants Ambac and Marfatia [were] dismissed; (2) aiding and abetting breach of fiduciary duty claims premised on Defendants Ambac and Marfatia's breach of fiduciary duty [were] dismissed; and (3) Plaintiffs Sill Housing LLC and Lackland Family Housing LLC's RICO claims against Defendants Ambac and Marfatia [were] dismissed.” 531 F.Supp.3d at 731.
In April 2021, Defendants filed answers to the SAC. (ECF Nos. 323-26). On September 14, 2021, the Court denied Plaintiffs' motion to strike the unclean hands defense asserted by Ambac, Jefferies, and Ray, and granted Jefferies' cross-motion to file an amended answer to the SAC. Monterey Bay II, 2021 WL 4173929, at *6, *8.
Despite being aware of the NPA since at least early 2019, not until April 2022 did Plaintiffs request from Jefferies any documents concerning the NPA. (ECF Nos. 459 at 21; 493-1). Plaintiffs demanded that Jefferies produce documents concerning Jefferies “bond trading practices that were the subject of” the NPA (the “NPA Documents”), which Jefferies declined to do. (ECF No. 447 at 2).
The Court addressed-the first of four occasions-Plaintiffs' request for the NPA Documents during a conference on April 29, 2022, at which time the Court cautioned Plaintiffs' counsel that their request was “a real long shot[,]” denied the request without prejudice, and “strongly discourage[d]” them from raising it again. (ECF No. 459 at 21-25).
Undeterred, Plaintiffs raised the issue a second time on September 6, 2022, filing a letter motion to compel Jefferies' production of the NPA Documents on the ground that the NPA involved “similar, parallel fraudulent conduct to the claims in this action” and “the same people in the MBS Trading Group who consented to judgment in 2014 recruited Ray's business to Jefferies with knowledge of his fraudulent practices[.]” (ECF No. 491 at 1 (the “Motion to Compel”)). Plaintiffs pressed their demand for the NPA Documents at the next conference, on September 29, 2022, but conceded, as they must that, this case doesn't “have to do with” RMBS, but “has to do with the acquisition by [the Jefferies Defendants] of the military housing” the “book of business” for which “was specifically placed in the same RMBS group that ultimately was subject to this NPA.” (ECF No. 503 at 8). In support of the Motion to Compel, Plaintiffs pointed to the role of Johan Eveland (“Mr. Eveland”), former co-head of Jefferies mortgage and global fixed income groups, as having been involved in the decision to “acquire Mr. Ray's practice[.]” (Id.) In opposing the Motion to Compel, Jefferies did not dispute that Litvak's trading started in 2009, the same year that Jefferies purchased the Capmark business (see ECF No. 256 ¶ 4 n.1), but pointed out that the military housing business was run out of Colorado while Mr. Eveland was in New York. (ECF No. 503 at 15-16). The Court reminded Plaintiffs that they were “not entitled to every possible . . . type of wrongdoing that might have gone on at Jefferies just because . . . it happened.” (Id. at 18-19). The Court found that “whatever the alleged wrongdoing in this case, it doesn't have to deal with the trading in the bonds, and that's what Mr. Litvak's . . . had to do with was the trading, and that's not what we're talking about here. We're talking about several, several steps before that.” (Id. at 19). The Court reserved decision on the Motion to Compel. (Id. at 33).
At the November 14, 2022 conference, the Court gave Plaintiffs yet a third opportunity to demonstrate how the NPA Documents were relevant to their claims. (ECF No. 532-2 at 6-7). The Court concluded, however, that “additional documents relating to the NPA are not relevant and do not need to be produced. The NPA is focused on trading and the way that . . . Jefferies' traders were buying and selling things that they were saying or not saying to the customers, that's not at issue in this case. This case is about financing and very complicated transactions that precede the creation of the R[M]BS. Based on that, I think the additional documents would really be a detour from what we're focused on in this case. And so for that reason I'm going to deny the [P]laintiffs' motion to compel production of those documents.” (Id. at 7-8; see ECF No. 525 at 6-7).
On November 28, 2022, Plaintiffs filed the Motion. (ECF No. 529). On December 12, 2022, Jefferies filed an opposition to the Motion, and on December 14, 2022, Plaintiffs filed a reply. (ECF Nos. 554; 571). During a conference with the parties on December 19, 2022, the Court heard argument from the parties on the Motion, and at the conclusion of the conference, denied the Motion, noting that this Opinion and Order would follow. (ECF No. 580; see ECF Min. Entry Dec. 19, 2022).
III. DISCUSSION
A. Legal Standard
Local Civil Rule 6.3 and Federal Rule of Civil Procedure 60(b) govern motions for reconsideration. See Neal v. Peerless Elec., 149 Fed.Appx. 37, 38 (2d Cir. 2005). Local Civil Rule 6.3 specifies timing, giving the moving party fourteen days after an entry of judgment to file a motion for reconsideration. See Local Civ. R. 6.3. Rule 60(b) provides,
On motion and just terms, the court may relieve a party or its legal representative from a final judgment, order, or proceeding for the following reasons: (1) mistake, inadvertence, surprise, or excusable neglect; (2) newly discovered evidence that, with reasonable diligence, could not have been discovered in time to move for a new trial under Rule 59(b); (3) fraud (whether previously called intrinsic or extrinsic), misrepresentation, or misconduct by an opposing party; (4) the judgment is void; (5) the judgment has been satisfied, released, or discharged; it is based on an earlier judgment that has been reversed or vacated; or applying it prospectively is no longer equitable; or (6) any other reason that justifies relief.Fed. R. Civ. P. 60(b).
Rule 60(b) affords “‘extraordinary judicial relief'” that “can be granted ‘only upon a showing of exceptional circumstances.'” Kubicek v. Westchester Cnty., No. 08 Civ. 372 (ER), 2014 WL 4898479, at *1 (S.D.N.Y. Sept. 30, 2014) (quoting Nemaizer v. Baker, 793 F.2d 58, 61 (2d Cir. 1986)). The reconsideration standard “is strict,” and reconsideration is generally only granted upon a showing of “controlling decisions or data that the court overlooked-matters, in other words, that might reasonably be expected to alter the conclusion reached by the court.” Shrader v. CSX Transp., Inc., 70 F.3d 255, 257 (2d Cir. 1995).
A motion for reconsideration is not “an occasion for repeating old arguments previously rejected nor an opportunity for making new arguments that could have been previously advanced[.]” Associated Press v. U.S. Dep't of Def., 395 F.Supp.2d 17, 19 (S.D.N.Y. 2005). It is not a way to “advance new facts, issues or arguments not previously presented to the Court.” Polsby v. St. Martin's Press, Inc., No. 97 Civ. 960 (MBM), 2000 WL 98057, at *1 (S.D.N.Y. Jan. 18, 2000) (internal citation omitted). “The moving party bears the burden of proof.” Freedom, N.Y., Inc. v. United States, 438 F.Supp.2d 457, 462 (S.D.N.Y. 2006) (citing United States v. Int'l Bhd. of Teamsters, 247 F.3d 370, 391 (2d Cir. 2001)).
The decision to grant or deny a motion for reconsideration is “within ‘the sound discretion of the district court.'” Premium Sports Inc. v. Connell, No. 10 Civ. 3753 (KBF), 2012 WL 2878085, at *1 (S.D.N.Y. July 11, 2012) (quoting Aczel v. Labonia, 584 F.3d 52, 61 (2d Cir. 2009)).
B. Application
In the Motion, Plaintiffs cite as “[n]ew evidence” supporting reconsideration of the denial of the Motion to Compel the November 23, 2022 deposition testimony of Mr. Eveland, the. (ECF No. 530 at 4). Plaintiffs claim that Mr. Eveland's testimony establishes that: (1) “the same mechanism used to misrepresent market prices to clients in connection with the sale of RMBS securities were used to defraud Plaintiffs in connection with the financing of the MHPI loans at issue[,]” (2) “the two schemes were executed by many of the same individuals and both were executed by the same group that he supervised[,]” (3) “both the fraudulent RMBS trading practices and the fraud alleged in the [SAC] arise from misrepresentations and wrongdoing in connection with the sale of securities.” (Id. at 4-5). Jefferies opposes the Motion on the grounds that Plaintiffs have not identified “new evidence” to support reconsideration, and seek to relitigate arguments that the Court has considered and rejected. (ECF No. 554 at 12-13).
The Court finds that Plaintiffs have failed to show the requisite exceptional circumstances to warrant reconsideration.
First, as is apparent from the Court's summary of the procedural history, Plaintiffs' current motion for reconsideration is their fourth bite at the apple on the question of the NPA Documents and repeats old arguments the Court considered and rejected thrice previously. That alone is grounds for denying the Motion. See Walczak v. Pratt & Whitney, No. 18 Civ. 563 (VAB), 2020 WL 3129377, at *4 (D. Conn. June 12, 2020).
Second, Plaintiffs use the guise of Mr. Eveland's testimony to try to wedge their way into the “newly discovered evidence” prong of the reconsideration standard. See Fed.R.Civ.P. 60(b)(2). But Mr. Eveland's testimony-the testimony itself, not Plaintiffs' mischaracterization of it in the Motion-does not tell the Court anything it did not already know about the NPA. Mr. Eveland did not testify about any alleged misrepresentations that Ray or his team made in the timing or pricing of bond sales relating to the MHPI projects. Rather, Mr. Eveland testified that he had not read the NPA and declined to adopt any of Plaintiffs' counsel's attempts to mischaracterize the NPA. (ECF No. 555-1 at 10-11). As a result, none of Mr. Eveland's testimony “should have come as a surprise to” Plaintiffs, which warrants denial of the Motion. Amtrust N. Am., Inc. v. Safebuilt Ins. Servs., Inc., No. 14 Civ. 09494 (CM), 2015 WL 9480080, at *2 (S.D.N.Y. Dec. 22, 2015). Indeed, Plaintiffs admit that Mr. Eveland's testimony “confirm[ed]” what they already asserted in the Motion to Compel. (ECF No. 530 at 9). The Court has compared the Motion with the Motion to Compel (ECF No. 491), and finds that they make the same arguments about the composition of the RMBS group, and the supposed parallels between Litvak's conduct and Ray's conduct that the Court considered and rejected in denying the Motion to Compel. For example, in the Motion to Compel, Plaintiffs argued that the NPA established that the RMBS trading group misrepresented to sellers the price buyers agreed to pay Jefferies, (see ECF No. 491 at 2), and in the Motion, repeat the same point, the only difference being the addition of a citation to Mr. Eveland's testimony. (ECF No. 530 at 9-10). Therefore, Mr. Eveland's testimony does not provide “new evidence” that warrants reconsideration, but rather represents Plaintiffs' attempt to get a fourth, unwarranted, bite at the apple.
Third, once again, Plaintiffs have not shown that the NPA Documents are relevant. This case involves claims by MHPI Projects, which are public-private partnerships to finance military housing, the financing of which was allegedly a RICO conspiracy through which Defendants charged the MHPI Projects “hundreds of millions of dollars in inflated and undisclosed fees and profits.” (ECF No. 220 ¶ 6). Plaintiffs allege that Defendants, including Jefferies, failed to “disclose all material facts regarding the financing transactions” and engaged in a pattern of racketeering including charging inflated interest rates and undisclosed profits on the project loans, manipulated the Projects' bond ratings, charged unnecessary insurance fees and premiums, inflated deal expenses, among other acts. (ECF No. 256 ¶¶ 8-22) (emphasis added). While it is true that Litvak was prosecuted for making misrepresentations, and Plaintiffs allege in this case that Jefferies made misrepresentations, the subject matter of those misrepresentations are distinct. Litvak made misrepresentations about BWIC bond trades, see Litvak II, 889 F.3d at 62-63, while Plaintiffs allege here that Jefferies made misrepresentations in the financing transactions for the MHPI projects, a by-product of which was bonds that were sold to third parties. (ECF No. 256 ¶¶ 6, 11-14). But Plaintiffs are not those third parties, and they are not suing about the truth or falsity of statements made to Jefferies' customers who purchased bonds issued by the MHPI projects. Accordingly, the Court reaffirms its conclusion that the NPA Documents are not relevant to Plaintiffs' claims.
IV. CONCLUSION
For the reasons set forth above, the Motion is DENIED. Due to references to sealed filings, this Opinion and Order is being issued temporarily under seal. By Wednesday, December 28, 2022, the parties shall submit to the Court any proposed redactions to this Opinion and Order, which the Court will take under advisement in preparing a public version to be filed on the docket.
The Clerk of the Court is respectfully directed to make this document available only to the case participants and the Court at this time.
SO ORDERED.