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D-lOI-CV-2008-01895 STATE OF NEW MEXICO, ex rei. FRANK C.FOY and SUZANNE B. FOY, Qui tam Plaintiffs,
VANDERB ILT CAPITAL ADVISORS, LLC. et ai., Defendants.
STATE OF NEW MEXICO'S REPLY TO QUI TAM PLAINTIFFS' RESPONSE TO THE MOTION FOR PARTIAL DISMISSAL INTRODUCTION Fey's Response in Opposition underscores a basic premise behind the State's Motion: Fey's conduct of this litigation has been exceptionally poor. Over the course of his fourteenpage Response, Foy fails to cite to a single case. He does not and cannot challenge the wellestablished principle that the Court's review of the State's Motion in this context must be-for reasons rooted in the separation of powers doctrine-highly deferential to the State. Nor does he
directly address the good cause basis the State established for the partial dismissal it seeks. Instead, Foy misrepresents law and fact and grossly distorts the provisions of FAT A in a manner that runs counter both to FATA's plain language and to the case law. Then, after making perfunctory and baseless legal arguments, he repeats his shotgun-style assertions of conflict of
interest, assertions that lack both factual accuracy and legal merit. In short, Foy has utterly failed to present any basis for this Court to deny the State's Motion. ARGUMENT I. FOY l\USCHARACTERIZES HIS AUTHORITY 'UNDER FAT A.
Foy suffers from the delusion that he has become the State of New Mexico for purposes of this litigation. While Foy seeks to exploit the imprimatur of the State for his own personal gain, his contention that he-as a qui tam relator-exclusively represents the State even as to an
issue where the State, itself, has actually taken a contrary position is absurd. It is also contrary to FATA. Foy's assertion that, once the state declined "the initial opportunity to take over this lawsuit", Section 44-9-6(F) of FATA "vests the exclusive authority to represent the state in the qui tam relators and their counsel" and "not the Attorney General" is patently false. Foy Add'l Resp. at 3-4. Without regard to the actions of the qui tam relator or whether or not the State initiall y intervened, Section 44-9-6(B) of FAT A. provides that: The state may seek to dismiss the action for good cause notwithstanding the objections of the qui tam plaintiff if the qui tam plaintiff has been notified of the filing of the motion and the court has provided the qui tam plaintiff with an opportunity to oppose the motion and to present evidence at a hearing. This provision was modeled closely after the Federal False Claims Act, which likewise provides-in a functionally identical statutory framework-at 31 U.S.C. § 3730( c)(2)(A), that
the government "may dismiss a qui tam action notwithstanding the objections of the [relator]" so
argument that this dismissal right requires prior intervention or is otherwise limited in the absence of intervention by the government. In Swift v. United States, the D.C. Circuit rejected a
relator's argument that dismissal by the government without intervention was improper, noting that the FCA-like dismissal." FAT A-"does not say that the government must intervene in order to seek
318 F.3d 250, 251 (D.C. Cir. 2003). Likewise, in Ridenour v. Kaiser-Hill Co., LLC,
the Tenth Circuit declined "to construe the FCA as requiring intervention for cause before dismissal because a plain reading of the statute does not require it, canons of statutory construction do not support such a result, and in our view, such a reading would render the FCA constitutionally infirm." 397 F.3d 925, 932 (lOth Cir. 2005). In addition, contrary to Foy's suggestion that he now has "exclusive authority" over this case, Section 44-9-6 (F) of FAT A provides that the State can intervene, at any later time in the litigation, "upon a showing of good cause." FAT A so clearly preserves the State's ultimate authority to control qui tam suits that even Foy cannot, in the end, maintain his misleading characterizations. Immediately after asserting
his "exclusive authority" over this case, he recants and acknowledges that, upon a showing of good cause, the Attorney General can change the "status" of the qui tam relator. Foy Add'l Resp. at 4. FAT A preserves the State's ultimate authority because a qui tam case is the State's case. Even Foy cannot dispute that FAT A authorizes the State to intervene in or-without having intervened-dismiss II. a case upon a showing of good cause. ever
FOY MISREPRESENTS THE STATUTORY REQUIREl\IENT FOR THE ST ATE'S DISMISSAL OF ITS OWN CASE.
Unable to contest the State's authority to dismiss qui tam actions, Foy misleadingly suggests that the State bears a "burden of proving good cause with admissible evidence" before the State can dismiss its own case. Foy Add'I Resp. at 4. The relevant provision, Section 44-96(B) of FAT A, provides as follows: The state may seek to dismiss the action for good cause notwithstanding the objections of the qui tam plaintiff if the qui tam plaintiff has been notified of the filing of the motion and the court has provided the qui tam plaintiff with an opportunity to oppose the motion and to present evidence at a hearing. (emphasis added). Section 44-9-6(B)'s plain language requires the State only to show good cause; it provides the qui tam plaintiff with the opportunity to present evidence in opposition. Foy's attempt to distort this into a requirement that the State satisfy an evidentiary burden in order to dismiss its own case has no basis in law and is without precedent in any court. Although the plain language of FAT A, alone, defeats Foy's contention, the case lawwith which Foy did not inconvenience himself-also thoroughly refutes Foy's claim. As the
State made clear in its opening brief, jurisdictions with identical good cause requirements for government dismissal of a qui tam action (and provisions allowing the qui tam plaintiff to present evidence in opposition), require only that the state show a rational basis for dismissal. State's Memorandum, at pp. 7-9, citing Int'l Game Technology v. Eighth Judicial Dist. Ct. of
122 Nev. 132, 148 (Nev. 2006); and Laraway v. Sutro &
116 Cal. Rptr. 2d
823 (CaL Ct. App. 2002). Accordingly, [he government need only put forth a reason for dismissal that is "rationally "I
. at 148.
factual showing from the government.
See, e.g., FCC v. Beach Communications, 508 U.S. 307,
(1993) (noting, in applying rational basis review, that the government's reason for its "choice is not subject to courtroom factfinding"). Thus, for example, in the ICT case, the Nevada Supreme no evidentiary findings whatsoever-that
Court rejected the relator's objections and held-with
the Nevada "Attorney General has asserted good cause for dismissal" of a qui tam case where the Attorney General indicated that a tax-based qui tam claim "presents issues better suited to resolution through the tax department's specialized knowledge." ld. at 158. Requiring an evidentiary basis-as Foy suggests-for the State's good cause for
dismissal of its own case would violate New Mexico's constitutionally mandated separation of powers. Courts in qui tam cases have universally recognized that decisions about whether or how to prosecute the government's case are matters that must be left almost entirely to the prosecutorial discretion of the executive. See, e.g., ICT, 122 Nev. at 146 (holding that a "motion to dismiss [a qui tam] action for good cause necessarily implicates the State's interests and the executive branch's prosecutorial discretion."); and see Hoyte ex rei. United States v. American Nat'[ Red Cross, 518 F.3d 61, 64 (D.C. Cir. 2008)(noting "the Government's virtually 'unfettered' discretion to dismiss the qui tam claim.") Apart from the fact that FATA contains no such requirement, the imposition of an affirmative evidentiary burden on the State for the dismissal of its own case would invite a level of judicial second-guessing of executive decisionmaking that is constitutionally impermissible.
FOY HAS FAILED TO OVERCOME THE STATE'S GOOD CAUSE FOR DIS.MISSAL.
FAT A does provide Foy with the opportunity to overcome the State's good cause for
dismissal by showing, for example, that the State's basis is "arbitrary, capricious, made in bad faith" or is otherwise "based on improper or illegal motives." lOT, 122 Nev. at 149. Foy has utterly failed to do so.
The State Demonstrated Ample Good Cause for the Partial Dismissal.
No matter how the good cause standard is applied, the State has overwhelmingly met it here. As the State made clear in its Memorandum, it seeks partial dismissal to facilitate the efficient recovery of potentially significant damages from misconduct in connection with investments made by the State Investment Council. State's Memorandum, pp. 10-12. Foy cannot and does not show that this is an illegitimate government purpose, nor does he or can he contest that the partial dismissal serves this purpose. As the State indicated, this purpose is especially legitimate here given that this Court has prohibited retroactive application of the Fraud Against Taxpayers Act in this case. Because of the ruling on retroactivity, the only way to pursue pre-2007 conduct is through non-FATA claims that are unavailable to Foy. The question, then, is whether it is in the State's best interest to assert non- FAT A claims in this thoroughly bogged down lawsuit, or whether the State's interests are better served by filing new, targeted actions focused on well-substantiated claims. The choice is clear. The instant litigation is inarguably a poor vehicle for effective resolution of the State's SIC-related claims. This case has been stalled at the pleadings stage for three years and
remains hopelessly mired in dispositive motions. Even if Foy were correct-and
he is not-that
the State needs to show evidence justifying the partial dismissal it seeks, the docket report in this case, alone, would be all the evidence the State needs. Moreover, by excising the SIC-related claims, the State substantially reduces the scope of the instant lawsuit, thus promoting more expeditious resolution of the remaining claims. The State leaves only ERB-related allegations, allegations as to which Foy, the former investment officer at the ERB, can at least claim to have some meaningful knowledge.
Foy's Interests Do Not Override the Good Cause Basis for Dismissal.
Foy fails to even address the other considerations courts have looked to in evaluating a state's good cause for dismissal. As the State demonstrated in its memorandum, each such factor-the best interests of the State, the purposes of FAT A, the merits of claim-weighs
heavilyin favor of the partial dismissal sought here. State's Memorandum at pp. 12-13. Foy merely suggests that the good cause analysis serves "to provide additional protections for the qui tam plaintiff." Foy Add'I Resp. at 5. As the State made clear, however, the instant Motion does not alter Foy's statutory rights under FATA. To the extent that Foy believes he is entitled to a share of the State's recovery from or a level of participation in the new actions filed by the State, those matters must ultimately be resolved in the new actions, not here. Furthermore, to the extent Foy believes that his interests as whistleblower outweigh the State's interest in partial dismissal, he is woefully mistaken. Fey's status as a "whistleblower" regarding SIC-related claims is especially dubious. Unlike a whistleblower who provides the emphatically this case that he knew
nothing about kickbacks and pay-to-play at the SIC. See Affadavit of Frank C. Foy Concerning Concealment of Kickbacks ("Foy Affadavit"), filed November 16, 2009. As Foy has testified, "I never worked at the SIC, so I was never in a position to know about those kickbacks or illegal inducements. I had no responsibilities or authority for the SIC's business, nor did Ihave access
to their files." Foy Aff. at 14. In fact, as Foy's own testimony indicates, Foy only really learned about pay-to-play in connection with SIC investments a year after he initially filed this suit when he obtained a publicly disseminated SIC report regarding kick-backs. See Foy Aff. at (n 12 (noting that Foy first learned about various kickbacks or third-party fees from a tabulation issued by the SIC, first obtained by Foy's counsel at an April 17, 2009 SIC meeting.) Thus, as a matter of equity, Fey's personal interest in SIC-related claims in particular is negligible at best. As federal courts have explained, qui tam laws, including FAT A, are "designed to promote private citizen involvement in exposing fraud against the government," but contain restrictions "to prevent parasitic suits by [those] who add nothing to the exposure of the fraud." Costner v. URS Consultants, Inc .. 153 F.3d 667,675-76 (8th Cir. 1998); and see 44-9-9(D) NMSA
Foy's Assertions of Conflicts of Interest Are Bogus and Misplaced,
The State addressed Foy's baseless assertions of conflict of interest in its Response to Qui Tam Plaintiff's Motion to Disqualify filed on June 17,2011. Foy states in his Additional
Response to the State's Motion for Partial Dismissal that his June 2, 2011 Motion to Disqualify was a "partial and preliminary response" to the State's Motion for Partial Dismissal. Foy's Add'I Resp. at 1. Given that Foy made the same assertions of conflicts in his Motion to as
the State respectfully
requests that the Court consider its June 17, 2011 Response to Foy's Motion to Disqualify as if full y incorporated herein.
Foy's Other Arguments Are of No Relevance and Do Not Alter the State's Good Cause Basis for Partial Dismissal.
Foy attempts to disrupt the State's effort to take charge of its own case by making other cursory and thoroughly flawed arguments. Foy, for example, makes a series of assertions regarding the propriety of the contracting process used by the State Investment Council to hire outside counsel to prosecute claims in separate litigation. Foy suggests, for instance, without any basis in fact, that the SIC's contract with the law firm of Day Pitney "was carefully drafted to bypass the members of the SIC" and that Governor was not fully informed. Foy Add'l Resp. at
17-18. As the State pointed out in its Response to Foy's Motion to Disqualify, these
allegations are false. See State's Resp. to Foy Mot. to Disqualify at 21. In fact, both the Governor and the SIC's members were fully informed regarding the use of Day Pitney to initiate new litigation. (Indeed, as Exhibit 4 to the State's Response to Foy's Motion to Disqualify indicates. the Governor strongly praised the new litigation efforts undertaken by Day Pitney and the Attorney General's Office.) In any event, such issues are of no consequence here. Even if the State Investment Council's contracting process related to other litigation were subject to question-and it is not-that is an entirely separate issue from the Attorney General's
determination regarding Foy's pursuit of SIC-related claims here. Foy also suggests that the State is already acting "contrary to the best interests of the State" because it is not already pursuing everyone of the SIC-related defendants it seeks to
dismiss from Fey's case. Foy Add'I Resp. at <j[<j[ 24-5. The reason the State has sought dismissal of these defendants here is so that it may pursue them in an efficacious and methodical manner without hindrance from Fey's claims. The Attorney General already has sued a core group of corrupt fiduciaries, placement agents and principals of investment management firms. It intends to expand its case against other parties, including numerous investment management firms, on the basis of further investigation and civil discovery. Rather than simply filing suit against every person and entity that may have been involved in the scheme, the Attorney General wishes to exercise his flexibility to enter into negotiated settlements and cooperation agreements with potential parties if possible prior to initiating lawsuits. SIC currently is an investor in most of the private equity funds, hedge funds, and real estate funds that may be implicated in the scheme and careful consideration must be paid as how to best resolve any claims SIC may have against the affected fund managers and funds. Contrary to Foy's ridiculous assertion, the State does not intend to let off the hook any of the defendants who will be dismissed from his case if the State finds that claims against those defendants can be adequately substantiated, including many investment management firms that Foy has not sued. As Governor Martinez promised the citizens of New Mexico when the Attorney General sued the initial round of defendants, the effort will continue "until all responsible parties are held accountable for the abuses that occurred here in New Mexico." See Ex. 4 to State's Response to Foy's Motion to Disqualify, May 6,2011 SIC Press Release. The Attorney General shares the at least some the responsible
firms can be resolved without protracted litigation and that they heed her advice when she said that "the numerous investment managers who entered into payment arrangements with third party placement agents to obtain SIC investment business should approach the Attorney General's Office voluntarily and fully disclose the details of those arrangements "before the Attorney General knocks on their doors." CONCLUSION The State's Motion for Partial Dismissal deserves highly deferential review from this Court. The State has demonstrated ample good cause for the partial dismissal it seeks. The partial dismissal serves the State's interest in effectively pursuing claims regarding misconduct in connection with the SIC's investment of state funds. Foy has utterly failed to overcome the State's good cause for the partial dismissal; he has failed to even raise legitimate questions. The State's Motion for Partial Dismissal should be granted. Respectfully submitted, GARY K. KING New Mexico Attorney General
Seth T. Cohen Special Counsel to the Attorney General for Qui Tam Litigation Scott Fuqua Assistant Attorney General P.O. Drawer 1508 Santa Fe, New Mexico 87504-l508 (505) 827-6087
CERTIFICATE OF SERVICE I hereby certify that on June
l\cIEXICO'S REPLY TO QUI TAM PLAINTIFFS' RESPONSE TO THE MOTION FOR PARTIAL DISMISSAL was served via email to the following:
Counsel for: Plaintiffs Attorney: Victor R. Marshall E-mail address: email@example.com peter.simmonswfriedfrank.corn douglas. baruch@ friedfrank.com firstname.lastname@example.org Karen. soares @friedfrank.com Samuel.gronerts'friedfrank.com email@example.com firstname.lastname@example.org bill @madisonlaw.com email@example.com firstname.lastname@example.org email@example.com firstname.lastname@example.org email@example.com dbaker@ atb-law .com firstname.lastname@example.org email@example.com firstname.lastname@example.org email@example.com firstname.lastname@example.org email@example.com firstname.lastname@example.org email@example.com emil y.nicklints'kirkland.com mri vera @kirkland. com
201 L a true and correct copy STATE OF NEW
Vanderbilt, Pioneer, Hood, Kessinger, Peter Simmons Nault, Stem, Bernhardt, Florian, Douglas Baruch Koenig, Bradley John T. Boese Karen Soares Samuel Groner Linda Podheiser Andrew G. Schultz Patrick A. Livney B ill Madison Rebecca Shaw Kenny Peter A. Silverman Joseph A. Donado Tom Hnasko S. Barry Paisner Doug Baker
Katten Muchin Rosenman, LLP
Richards, Layton & Finger, P.A. Clifford Chance US, LLP
Mel E. Yost
Christopher Grimmer Carol C. Payne Allan Johnson
Ernst & Young LLP
Chuck Peifer Lauren Keefe Faith Kalman Reyes Emily Nicklin Maria Rivera
Price Waterhouse Coopers
Gregg Vance Fallick Henry F. Narvaez Martin R. Esquivel Bryan C. Garcia Gregg Vance Fallick Eric Loman Sam Bregman Luis Robles Stephen S. Hamilton
Alexandra Corwin Aguilar
firstname.lastname@example.org email@example.com firstname.lastname@example.org email@example.com firstname.lastname@example.org email@example.com firstname.lastname@example.org luis@roblesraeI.com email@example.com
Marla Wood Meyners + Co.
Darryl Brown Citigroup Inc., Citigroup Global Markets, Inc., Bear Steams & Co., Inc. (now JP Morgan Securities) & ABN AMRO Inc. Mark Sheridan Kristina Martinez Holly Stein SoUod Richard A. Rosen Kent Kemeny Michael Klunder Michael W. Brennan R. Hackney Wiegmann David M. Zinn William Doffermyre Paul M. Fish John M. Conlon Jason I. Kirschner David W. Peterson W. Spencer Reid David Cunningham Phillip A. Geraci Aaron Miner Stephen M. Simone Meena H. Allen Luis Stelzner
firstname.lastname@example.org msheridan@hoUandhart.com email@example.com hs teinsollodts'hollandhart.com firstname.lastname@example.org email@example.com firstname.lastname@example.org email@example.com firstname.lastname@example.org email@example.com firstname.lastname@example.org pfishts'modrall.com email@example.com firstname.lastname@example.org dwp@keleher-Iaw.com sr@keleher-Iaw.com email@example.com pageraci @kayescholer.com firstname.lastname@example.org ssimonewsrw-law.com email@example.com firstname.lastname@example.org
UBS Securities, LLC, UBS Investment Bank
Fortis Securities, LLC
Stone Castle Securities, LLC
Norman Weiss Jeffries Capital Management, Inc. NEPC Duane Lyons Jennifer L. Chunias Roberto M. Braceras Mike Comeau Marshall Martin Michael Jones Bryan Bertram Steve Vidmar Ed Spiro Eli Mark Rick Weinberg John A. Budagher Jordan W. Siev Jeffrey L. Glatzer Andrew Bernasconi
nweiss@srw-Iaw.com duanel yons@quinnemanueLcom email@example.com firstname.lastname@example.org email@example.com firstname.lastname@example.org mjones@ goodwinprocter.com email@example.com firstname.lastname@example.org email@example.com firstname.lastname@example.org email@example.com firstname.lastname@example.org email@example.com firstname.lastname@example.org email@example.com
Cal yon Securities, (UDS), Inc. (now Credit Agricole Securities)
Seth T. Cohen
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