Lillie v. Stanford Trust Company

UNITED STATES DISTRICT COURT

MIDDLE DISTRICT OF LOUISIANA

TROY LILLIE ET AL. CIVIL ACTION

VERSUS

STANFORD TRUST CO. ET AL. NO.: 18-150-BAJ-EWD

C/W NO.: 19-138-BAJ-EWD

RULING AND ORDER

Before the Court is the Motion for Reconsideration (Doc. 147) of the

Court's Ruling (Doc. 146) denying Plaintiffs’ Motion for a Federal Rule of Civil

Procedure 56(d) Continuance (Doc. 130) and granting SEI’s Motion for Summary

Judgment (Doc. 127).! Also before the Court is Plaintiffs’ Memorandum in Response

(Doc. 149) to the Court’s directive that Plaintiffs show cause why the Court should

not grant summary judgment in favor of the Insurer Defendants.? For the reasons

that follow, the Court DENIES Plaintiffs’ Motion for Reconsideration (Doc. 147),

GRANTS summary judgment in favor of the Insurer Defendants under Federal Rule

of Civil Procedure 56(f), and by separate order ENTERS JUDGMENT against

Plaintiffs in accordance with Federal Rule of Civil Procedure 58.

1 ‘The parties refer to SEI Investments Company and SEI Private Trust Company collectively

as SEI. The Court does the same.

2 The Court refers to the following insurers collectively as the Insurer Defendants: 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.

I. BACKGROUND

The Court stated the facts of this case in a prior ruling and will not restate

them here. (Doc. 146 at pp. 1-15). At issue now is the soundness of the Court’s ruling

denying Plaintiffs’ request for a Rule 56(d) continuance and granting SEI’s motion

for summary judgment. (/d.).

That ruling rested on two conclusions. (/d.). The first: Plaintiffs failed to show

that they were entitled to a Rule 56(d) continuance under the law of this Circuit. □□□□

at p. 8). The second: SEI met its Rule 56(a) burden by pointing to the absence of

evidence supporting the control element of Plaintiffs’ control-person claim under

Section 714(B) of the Louisiana Securities Law, and Plaintiffs offered no evidence of

control in rebuttal. Ud. at p. 13).

As for the first conclusion, the Court denied Plaintiffs’ request for a Rule 56(d)

continuance on the ground that Plaintiffs’ supporting declaration was deficient. (Doc.

146 at pp. 7-8). The Court began by explaining that, under the law of this Circuit,

the party requesting a Rule 56(d) continuance must “set forth a plausible basis for

believing that specified facts, susceptible of collection within a reasonable time frame,

probably exist and indicate how the emergent facts, if adduced, will influence the

outcome of the pending summary judgment motion.” (fd. at p. 7) (citing Am. Family

Life Assur. Co. of Columbus v. Biles, 714 F.3d 887, 894 (5th Cir. 2018)).

The Court next considered the declaration submitted by Plaintiffs’ lead

counsel, Philip Preis. (/d.). The Court found the declaration deficient in several

respects; the declaration failed to (1) identify “specified facts” further discovery may

disclose, (2) “set forth a plausible basis” for believing that the unspecified facts were

“susceptible of collection within a reasonable time frame,” and (8) state that the

unspecified facts would “influence the outcome” of SEI’s summary judgment motion.

(id.). Because the Preis Declaration did not establish what Rule 56(d) and the law of

this Circuit require, the Court denied Plaintiffs’ Rule 56(d) continuance request and

proceeded to the merits.? Ud. at p. 8).

As for the second conclusion, the Court granted SEI’s motion for summary

judgment on the ground that SEI offered evidence that it lacked control over Stanford

Trust Company’s securities-law violations, and Plaintiffs offered no relevant evidence

in rebuttal. 7d. at pp. 9-13). Central to that conclusion were the contract between

SEI and Stanford Trust Company and the testimony of Al Del Pizzo, then-President

of SEI Private Trust. (/d.). Based on that contract and testimony, the Court found

that SEI met its initial burden of pointing to the absence of evidence supporting the

control element of Plaintiffs’ Section 714(B) control-person claim. (/d. at p. 11) (citing

In re La. Crawfish Producers, 852 F.3d 456, 462 (5th Cir. 2017)).

Next, the Court found that Plaintiffs failed to come forward with evidence of

control. Ud. at p. 18). Instead, the Court observed, Plaintiffs advanced erroneous

theories of Section 714(B) liability. Ud. at pp. 11-13). For example, Plaintiffs

repeatedly—and incorrectly—theorized that SEI could have Section 714(B) liability

for “enabling” R. Allen Stanford’s Ponzi scheme. Ud.). The Court explained that

3 Separately, the Court found that Plaintiffs failed to show that they had diligently pursued

discovery. (id. at p. 8) (citing Jacked UP, L.L.C. v. Sara Lee Corp., 854 F.3d 797, 816 (5th Civ. 2017).

“enabling” is not the standard; control is. Ud. at pp. 11-12) (citing La. REV. Stat.

§ 51:702(4) and Heck v. Triche, 775 F.3d 265, 283 (5th Cir. 2014)). Plaintiffs also tried

to swap proof of an alleged “cradle-to-grave relationship” for actual evidence of

control. dd. at p. 12). The Court explained that SEI’s Section 714(B) liability turns

on its ability to control Stanford Trust Company’s securities-law violations, not on

the duration of the business relationship between the entities. (/d.). Finally, Plaintiffs

argued that SEI could have Section 714(B) liability because it failed to perform due

diigence on the marketing and valuation of the Stanford International Bank

certificates of deposit. (/d.). This too was erroneous. As the Court explained, a Section

714(B) defendant’s due diligence does not become relevant until that defendant is

adjudged a control person. (/d. at p. 18) (citing Trans Pac. Interactive, Inc. v. U.S.

Telemetry Corp., 2017 WL 1876592, at *6, 2016-1298 (La. Ct. App. Ist Cir. 4/12/17),

reh’g denied (May 1, 2017), writ denied, 2017-0914 (La. 9/29/17), 227 So. 3d 294).

Based on Plaintiffs’ erroneous interpretation of Section 714(B) and failure to

marshal relevant evidence of control, the Court concluded that Plaintiffs failed to

show a genuine dispute of material fact warranting trial. (Doc. 146 at p. 13). The

Court accordingly entered summary judgment in SEI’s favor. (Id.).

Now, Plaintiffs move the Court to reconsider. (Doc. 147). Plaintiffs contend the

Court improperly applied Section 714(B) and in so doing “unjustly depriv[ed]” them

of the chance to test their claims to a jury. (Docs. 147 at p. 1; 147-2 at p. 1). Plaintiffs

also point to what they call a “startling admission” that SET described itself as a

“Business Service Provider” for Stanford Trust Company. (Doc. 147-2 at p. 2).

According to Plaintiffs, this “startlmg admission” derives from documents SEI

produced in spring 2019—well beyond the close of summary judgment briefing. (d.).

SEI opposes. (Doc. 154). It contends that Plaintiffs have long known it was a

“Business Service Provider” for Stanford Trust Company and that Plaintiffs offer no

valid reason—legal or otherwise—-for reconsideration. (Doc. 154 at pp. 1-14).

II, LEGAL STANDARDS

A. Reconsideration

The Court may revise an interlocutory order at any time for any reason before

entering judgment. United States v. Renda, 709 F.3d 472, 479 (5th Cir. 2013). The

Court’s Ruling (Doc. 146) did not adjudicate all claims or decide the rights and

habilities of all parties; it is therefore interlocutory. See FED R. Civ. P. 54(b).

Because requests to reconsider interlocutory orders under Rule 54(b) require

the Court to consider the policies behind Rule 59(e) requests to alter or amend

judgment, the Court applies the Rule 59(e) standard to Rule 54(b) motions to

reconsider. See, e.g., eTool Dev., Inc. v. Nat'l Semiconductor Corp., 881 F. Supp. 2d

745, 748 (E.D. Tex. 2012). To support relief under that standard, Plaintiffs must

“clearly establish” that the Court’s ruling was “manifestly erroneous” or offer newly

discovered evidence justifying reconsideration. Schiller v. Physicians Res. Grp., Inc.,

342 F.3d 563, 567 (5th Cir, 2008).

B. Sua Sponte Summary Judgment

After giving notice and a reasonable time to respond, the Court may grant

summary judgment for a nonmovant. ED. R. CIv. P. 56(f); see Celotex Corp. v. Catrett,

477 U.S. 317, 326 (1986) ([D]istrict courts are widely acknowledged to possess the

power to enter summary judgments sua sponte, so long as the losing party was on

notice that she had to come forward with all of her evidence.”).

In the Ruling (Doc. 146) under review, the Court notified Plaintiffs that it

intended to enter summary judgment in favor of the Insurer Defendants and gave

Plaintiffs ten days to respond. (Doc. 146 at pp. 18-14) (citing FED. R. Crv. P. 56(f)).

Ii. MOTION FOR RECONSIDERATION

A. Manifest Error

Plaintiffs contend the Court committed manifest error in denying their Rule

56(d) continuance request and in granting SEI’s summary judgment motion. (Doc.

147-2 at pp. 1-21). The Court considers each contention in turn.

1. Rule 56(d) Continuance

Plaintiffs offer two categories of argument in an effort to persuade the Court

to reconsider its denial of Plaintiffs’ Rule 56(d) continuance request. (Doc. 147-2 at

pp. 12-18). The first category comprises Plaintiffs’ contention that the Court

overlooked “four important things.” Ud. at p. 12). The second category comprises

“errors of fact” Plaintiffs contend the Court made. (Id. at pp. 14-18).

a. Items Allegedly Overlooked

The first “important thing” Plaintiffs contend the Court overlooked is the

failure of any federal court to enter a discovery or scheduling order. (Id.). Plaintiffs

do not explain why or how the absence of a discovery or scheduling order excuses

their failure to establish an entitlement to a Rule 56(d) continuance under the law of

this Circuit. Udd.). And Plaintiffs’ position presupposes that summary judgment

cannot be entered absent some discovery. (/d.). That is inarguably incorrect. See

Mendez v. Poitevent, 823 F.3d 326, 336 (5th Cir. 2016) (“Rule 56 does not require that

any discovery take place before summary judgment can be granted.”) (citation

omitted) (emphasis in original). Accordingly, this “important thing” does not justify

reconsideration of the Court’s denial of Plaintiffs’ request for a Rule 56(d)

continuance.

The second “important thing” is that “continuances are always granted” when

the movant has exclusive control over discoverable information. (Doc. 147-2 at p. 12)

(emphasis added). As purported support for this proposition, Plaintiffs cite Brown v.

Miss. Valley State Univ., 311 F.3d 328 (5th Cir. 2002). But Brown does not actually

stand for that proposition; nothing in the decision establishes that Rule 56(d)

continuances are “always granted” when the movant controls the discoverable

information. See 311 F.3d at 828-334. To the contrary, the decision confirms that no □

matter which party controls the allegedly relevant information, the party seeking a

Rule 56(d) continuance “must demonstrate (1) why additional discovery is needed and

(2) how the additional discovery will likely create a genuine issue of material fact.”

Brown, 311 F.3d at 333 n.5 (citation omitted). And here, Plaintiffs make no effort to

correct their original failure to show, through the Preis Declaration, how additional

discovery would likely create a genuine dispute of material fact as to SEI’s ability to

control Stanford Trust Company’s securities-law violations. (Doc. 147-2 at pp. 1-21).

Accordingly, this “important thing” does not justify reconsideration of the Court’s

denial of Plaintiffs’ request for a Rule 56(d) continuance.

The third “important thing” is the Court’s failure to discuss “pending discovery

disputes.” (Doc. 142-2 at p. 13). In Plaintiffs’ view, the Court should not have

entertained SEI’s summary judgment motion until the Court resolved a months-old

discovery dispute that had not generated a discovery motion. (Jd.). Plaintiffs cite no

authority for the remarkable proposition that a party can avoid summary judgment

by gesturing towards a discovery dispute. (Ud.). If Plaintiffs considered SEI’s

discovery responses to be deficient, Plaintiffs should have moved to compel.4 Not

having done so, Plaintiffs cannot complain that the Court declined to “resolve” a

discovery dispute not properly before it. Accordingly, this “important thing” does not

justify reconsideration of the Court’s denial of Plaintiffs’ request for a Rule 56(d)

continuance.

The fourth and final “important thing” is that Plaintiffs should not be

“punished” for any delay in pursuing discovery because the delay would be

attributable to counsel alone. (Doc. 147-2 at p. 13). This argument lacks merit. The

Court denied Plaintiffs’ continuance request because Plaintiffs failed to show what

Rule 56(d) and Biles require. (Dec. 146 at p. 8). The Court recognized, as an

independent ground for denial of the continuance, that Plaintiffs failed to show that

they had diligently pursued discovery. ([d.) (citing Jacked Up, L.L.C. v. Sara Lee

4 As SEI observes, the United States District Judge formerly assigned to this case advised

Plaintiffs’ counsel, during a July 30, 2018 status conference, to consider moving to compel if Plaintiffs

were dissatisfied with SEI’s discovery responses. (Doc. 234 at p. 11 in N.D. Tex. Case No. 3:13-CV-

3127-N-BQ),

Corp., 854 F.3d 797, 816 (5th Cir. 2017)). Accordingly, even if the Court agreed that

Plaintiffs have diligently pursued discovery, Plaintiffs would not be entitled to Rule

56(d) relief because Plaintiffs have not set forth a plausible basis for believing that

“specified facts, susceptible of collection within a reasonable time frame,” will

influence the outcome of SEI’s summary judgment motion. Biles, 714 F.3d at 894.

b. Alleged Errors of Fact

Plaintiffs contend the Court based its denial of their Rule 56(d) continuance

request on three “errors of fact.”5 (Doc. 147-2 at pp. 14—18).

First, Plaintiffs contend the Court incorrectly found that the Preis Declaration

failed to identify the “specified facts” discovery would disclose. (Id. at p. 15). According

to Plaintiffs, the Preis Declaration was not deficient in this respect because it “cross-

referenced” interrogatories (allegedly tailored to identify records custodians) that

Plaintiffs “needed” SEI to answer. Ud.). This contention lacks merit.

To obtain a Rule 56(d) continuance, Plaintiffs had to point to “specified facts”

that would influence the outcome of SEI’s summary judgment motion. See Biles, 714

at 894. And to influence the outcome of that motion, the “specified facts” had to

show that SEI was a “control person” under Section 714(B) of the Louisiana Securities

Law-——specifically, that SEI had the ability to control Stanford Trust Company’s

primary violations of the Louisiana Securities Law. See Triche, 775 F.3d at 283. The

Preis Declaration failed to identify any “specified facts” that would establish the

5 Plaintiffs appear to concede that the Preis Declaration failed to establish that the allegedly

essential discovery was “susceptible of collection within a reasonable time frame.” Biles, 714 F.3d at

894, (Doc. 147-2 at pp. 1-21).

requisite control. (Doc. 130-1). It merely identified interrogatories Plaintiffs would

have liked SEI to answer, without lmking the probable answers to those

interrogatories to the dispositive question of control. Ud.). At best, it identified a

document that identified questions aimed at identifying people to whom Plaintiffs

could then pose questions that may elicit unspecified yet “essential” information.

(id.). That is not the specificity Rule 56(d) requires. See Biles, 714 F.3d at 894.

Second, Plaintiffs contend the Court incorrectly found that Plaintiffs “never

argued” the requested discovery would influence the outcome of SEI’s summary

judgment motion. (Doc. 147-2 at p. 16). Plaintiffs are mistaken. The Court found that

the Prets Declaration failed to identify “specified facts” that established SEI’s ability

to control Stanford Trust Company’s securities-law violations. (Doc. 146 at pp. 7-8).

The Court made no finding about what Plaintiffs did or did not “argue” because it is

the content of a declaration—not an argument in a brief—that informs the Rule 56(d)

analysis. See FED. R. Civ. P. 56(d) (requiring the proponent to show “by affidavit or

declaration” that it cannot present facts essential to its opposition).

Finally, Plaintiffs contend the Court incorrectly found that the first time

Plaintiffs sought judicial assistance in obtaining any relevant documents was in

response to SHI’s summary judgment motion. (Doc. 147-2 at p. 14). Plaintiffs insist

that they repeatedly requested that the United States District Judge formerly

assigned to this case intervene in discovery disputes. Ud.). They do not mention,

however, their failure to move to compel before, in conjunction with, or after the filing

of their Rule 56(d) continuance request. (/d.). In any event, this alleged error of fact

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presents a variant of the diligent-pursuit-of-discovery argument the Court has

already rejected. Even if the Court agreed that Plaintiffs timely sought judicial

intervention in discovery, Rule 56(d) relief would be unwarranted because Plaintiffs

have not made the showing Biles requires. See Biles, 714 F.3d at 894.

In sum, Plaintiffs fail to show that the Court erred in denying their request for

a Rule 56(d) continuance. Rather than offer a revised and Biles-compliant

declaration, Plaintiffs have doubled-down on the deficient Preis Declaration and the

erroneous theories of Section 714(B) liability they advanced in their original motion.

Accordingly, Plaintiffs are not entitled to reconsideration of the Court’s Rule 56(d)

ruling on the ground of manifest error.

2. The Merits

Plaintiffs contend the Court committed manifest error in improperly applying

the control-person standard under Section 714(B) of the Louisiana Securities Law.

(Doc. 147 at p. 1). But Plaintiffs do not explain how the Court misapplied that

standard. (Doc. 147-2 at pp. 1-21). Worse, Plaintiffs cite no authority whatsoever on

the contrel-person standard. Ud.). And in the section of Plaintiffs’ brief titled “Errors

On Merits Ruling,” Plaintiffs urge the Court to consider “new” evidence, without

identifying any actual error in the Court’s control-person analysis. Ud. at pp. 18-20).

Plaintiffs have not identified an error in the Court’s merits ruling or cited a

single authority on the control-person question. (fd. at pp. 18-20). Accordingly,

Plaintiffs are not entitled to reconsideration of the Court’s merits ruling on the

ground of manifest error.

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B. Newly Discovered Evidence

Plaintiffs move for reconsideration on the alternative ground that “new”

evidence about how SEI described its relationship with Stanford Trust Company

creates a genuine dispute of material fact on the question whether SEI was a control-

person under Section 714(B) of the Louisiana Securities Law. (Doc. 147-2 at: p. 2).

According to Plaintiffs, documents produced in March 2019 show that SEI

described itself as a “Business Service Provider” for Stanford Trust Company. (/d.).

Plaintiffs assert that this designation means that Stanford Trust Company would

have “outsource|[d] its entire [t]rust department to SEI.” Ud.). This “Business Service

Provider” designation, Plaintiffs continue, gave SEI the power to control Stanford

Trust Company’s sale of fraudulent certificates of deposit. Ud. at p. 3).

SEI rejoins that this evidence is not “new.” (Doc. 154 at p. 4). In fact, SEI

contends, Plaintiffs have known about the “Business Service Provider” designation

for over a decade. (d.). And even if this evidence were “new,” SEI continues, it would

not create a genuine dispute of material fact. Ud.).

To obtain reconsideration based on the discovery of new evidence, Plaintiffs

must show that “(1) the facts discovered are of such a nature that they would probably

change the outcome; (2) the facts are actually newly discovered and could not have

been discovered earlier by proper diligence; and (3) the facts are not merely

cumulative or impeaching.” Ferraro v. Liberty Mut. Fire Ins. Co., 796 F.3d 529, 534

(5th Cir. 2015) (citation omitted). Plaintiffs have not made the requisite showing.

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First, having reviewed the documents attached to SET’s opposition, the Court

agrees that evidence that SEI was a “Business Service Provider” for Stanford Trust

Company cannot be considered “new.” (Docs. 154-2, 154-3, 154-4, 154-5, 154-6, 154-

7, 154-8). Documents produced to Plaintiffs as early as August 2010, as well as

deposition testimony dating to November 2010, reveal the “Business Service

Provider” relationship Plaintiffs claim to have only recently discovered. (Docs. 154-2,

154-3). Plaintiffs have not shown that this is “the type of new evidence that a truly

diligent litigant would be powerless to unearth’ prior to summary judgment.” Ferraro,

796 F.3d at 535 (quoting Diag v. Methodist Hosp., 46 F.3d 492, 495 (5th Cir. 1995)).

To the contrary, the evidence strikes the Court as standard documentary evidence

that could (and should) have been discovered earlier by proper diligence. See Ferraro,

796 F.3d at 5384. Because this evidence is not “new,” it does not provide grounds for

reconsideration. See, e.g., Gonzalez v. Philadelphia Indem. Ins. Co., 663 F. App’x 302,

806 (5th Cir. 2016) (per curiam).

Second, even if this evidence were “new,” reconsideration would be

unwarranted. General descriptions about the types of services SEI could provide for

any “Business Service Provider” client do not create a material fact issue on the

specific, dispositive question: Did SEI have the ability to control Stanford Trust

Company’s sale of fraudulent Stanford International Bank CDs and creation of bogus

CD values? See Triche, 775 F.3d at 283.

Plaintiffs have not identified evidence that is “new” or material to the Court’s

analysis of SETs control-person lability under Section 714(B) of the Louisiana

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Securities Law. Ud. at pp. 18-20). Accordingly, Plaintiffs are not entitled to

reconsideration of the Court’s merits ruling on the ground of newly discovered

evidence.

IV. SUA SPONTE SUMMARY JUDGMENT

Plaintiffs sued the Insurer Defendants under Louisiana’s Direct Action

Statute, LA. REV. STAT. § 22:1269. (Doc. 28-5 at JJ 142-146). That provision “docs

not create an independent cause of action against the insurer; it merely grants a

procedural right of action against an insurer where the plaintiff has a substantive

cause of action against the insured.” Sec. & Exch. Comm’n v. Stanford Int'l Bank,

Lid,, 927 F.3d 830, 850 (5th Cir. 2019) (quoting Soileau v. Smith True Value & Rental,

144 So. 3d 771, 780 (La. 2013)).

The Court has declined to reconsider its dismissal of all “substantive cause[s]

of action” against SEI, the insured in this case. Soileaw, 144 So. 3d at 780. So

Plaintiffs have no claims against the Insurer Defendants under the Direct Action

Statute. See Marsh Eng’g Inc. v. Parker, 2004-0509 (La. App. 3d Cir. 9/29/04); 883 So.

2d 1119, 1127 (“When the injured party’s substantive cause of action against the

original tort feasor [sic] is extinguished, the procedural right of direct action against

the msurer, which is purely remedial and ancillary to the cause, must fall by

operation of law.”),

Invoking these authorities, the Court gave Plaintiffs ten days to show cause

why the Court should not grant summary judgment to the Insurer Defendants. (Doc.

146 at pp. 14-15) (citing Fp. R. Civ. P. 56). Plaintiffs filed a response; in it, they

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urge the Court not to uphold the summary judgment but concede that the Insurer

Defendants “would not have liability in this action other than for the wrongful acts”

of SEI. (Doc. 149 at p. 1). Considering the Court’s dismissal of all “substantive

cause[s] of action” against SEI, it appears undisputed that Plaintiffs’ direct-action

claims are deficient as a matter of law. Soileau, 144 So. 3d at 780. The Court therefore

finds that there is no genuine dispute as to any material fact and that the Insurer

Defendants are entitled to judgment as a matter of law dismissing Plaintiffs’ direct-

action claims. See FED. R. CIv. P. 56.

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V. CONCLUSION

Accordingly,

IT IS ORDERED that the Motion for Reconsideration (Doc. 147) is

DENIED.

IT IS FURTHER ORDERED that the Motion for Leave to File

Supplemental Documents (Doc. 153) is DENIED because Plaintiffs have not

demonstrated that the evidence contained in the supplemental documents (1) is

actually newly discovenad: (2) could not have been discovered earlier by proper

diligence; or (8) would create a genuine dispute as to SEI’s ability to control the

Stanford Trust Company’s primary violations of the Louisiana Securities Law.

IT IS FURTHER ORDERED that Plaintiffs’ claims against the Insurer

Defendants are DISMISSED with prejudice. Because this Ruling and Order results

in the denial of all relief, a final judgment shall follow in accordance with Federal

Rule of Civil Procedure 58. The Clerk of Court is respectfully directed to close this

case.

Baton Rouge, Louisiana, this (SB of August, 2019.

boa

UNITED STATES DISTRICT COURT

MIDDLE DISTRICT OF LOUISIANA

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