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Fernandez v. UBS AG
Citations: 222 F. Supp. 3d 358; 2016 U.S. Dist. LEXIS 169306; 2016 WL 7163823Docket: 15-Cv-2859 (SHS)
Court: District Court, S.D. New York; December 6, 2016; Federal District Court
The document outlines a legal opinion regarding a class action lawsuit stemming from Puerto Rico's debt crisis, specifically involving 23 closed-end mutual funds managed by UBS and Banco Popular. The plaintiffs, clients of UBS Financial Services and Popular Securities, invested in these funds between May 5, 2008, and May 5, 2014, during a period when the Puerto Rican government faced significant financial distress, leading to substantial losses for investors, many of whom are retirees. Key points include: 1. **Background**: The plaintiffs allege misconduct by the UBS and Popular defendants due to the funds' high leverage and concentration in Puerto Rican government debt, which collapsed as the government defaulted and debt ratings fell. 2. **Claims**: The plaintiffs are pursuing state law claims for breach of fiduciary duty, aiding and abetting breach of fiduciary duty, and breach of contract against various defendants, including UBS entities and individual executives. 3. **Legal Standards**: The opinion discusses the standard of review, the court's jurisdiction, and the standing of the plaintiffs to represent absent class members. It addresses the Securities Litigation Uniform Standards Act (SLUSA) and its applicability to the plaintiffs’ claims. 4. **Timeliness**: The court examines the timeliness of the plaintiffs' action under Puerto Rico's one-year statute of limitations, noting it bars tort claims against some defendants but not others. 5. **Pleading Sufficiency**: The opinion evaluates the sufficiency of the pleadings, noting that claims for breach of fiduciary duty and implied covenant of good faith and fair dealing were not sufficiently detailed per Rule 9(b). The conclusion highlights the systemic issues faced by investors due to regulatory gaps in Puerto Rico, culminating in the financial failure of the funds and the resulting legal action. Plaintiffs in the case do not present any federal claims. The UBS Defendants, Ferrer, and the Popular Defendants filed three motions to dismiss the Amended Class Action Complaint based on several arguments: plaintiffs lack standing for claims related to investments they did not make; claims are barred by the Securities Litigation Uniform Standards Act (SLUSA); certain tort claims are time-barred due to the statute of limitations; and some claims are prohibited by the Puerto Rico Uniform Securities Act (PRUSA). Additionally, defendants argue that plaintiffs have failed to adequately state claims under the relevant Federal Rules of Civil Procedure. The court granted in part and denied in part the motions to dismiss from the UBS and Popular Defendants, while granting Ferrer’s motion entirely. It ruled that the court has jurisdiction since plaintiffs can represent unnamed class members and their claims are not barred by SLUSA. However, the court dismissed the breach of fiduciary duty claims against the UBS Defendants, Ubiñas, and Ferrer due to the one-year statute of limitations under Puerto Rico law. Conversely, plaintiffs' tort claims against the Popular Defendants were considered timely, as plaintiffs lacked prior notice of the claims. The court also noted that PRUSA's two-year statute of repose applies to claims alleging fraud. Vela’s and Toro’s breach of fiduciary duty claims against the Popular Defendants, along with Vela’s and Montes’ claims regarding the implied covenant of good faith and fair dealing, were dismissed with prejudice as time-barred. Remaining breach of contract claims related to the defendants' failures to perform suitability analyses were deemed timely since they do not allege fraud. Vela's 2012 breach of fiduciary duty and implied covenant claims against the Popular Defendants were dismissed without prejudice for failure to meet the pleading standard. Similarly, claims by Fernandez, Schreiner, Santana, and Viera against the UBS Defendants were also dismissed without prejudice. The court determined that the remaining plaintiffs, Santana, Viera, and Toro, could not assert a breach of contract claim due to the absence of any contractual obligation for a suitability analysis. Therefore, the court's examination of the breach of contract claims proceeded under the appropriate standards, leading to partial grants and denials of the defendants' motions to dismiss. The closed-end mutual funds in this case are incorporated under Puerto Rico law, designed to provide tax-free income to Puerto Rico residents, contingent on at least 67% of the funds’ assets being Puerto Rico-based. These investments primarily consist of Puerto Rico government bonds, and only residents can purchase shares, which are not traded nationally or listed on any exchanges. The funds are exempt from the Investment Company Act of 1940, resulting in a lack of federal oversight regarding conflicts of interest and leverage; thus, they are highly leveraged, with about 50% of assets financed through loans. The plaintiffs, all Puerto Rico residents, invested in twelve of the twenty-three funds from May 5, 2008, to May 5, 2014, and are bringing claims on behalf of a potential class of clients from UBS Puerto Rico and Popular Securities. UBS Financial, a subsidiary of UBS AG, and UBS Puerto Rico, its local arm, served as broker-dealers for the plaintiffs, who received investment advice from them. UBS Financial is registered with the SEC and the OCIF, while UBS Puerto Rico is a member of FINRA and SIPC. UBS Trust, also incorporated in Puerto Rico, manages the funds and acts as the administrator and custodian. UBS Bank USA provided loans to investors secured by their shares in the funds, which were then used to buy more shares. Popular Securities, a brokerage firm incorporated in Puerto Rico, acted as a broker-dealer for certain plaintiffs and has underwritten various Puerto Rican debt offerings. Banco Popular, the largest bank in Puerto Rico, is affiliated with Popular Securities and co-manages nine of the funds alongside UBS Asset Managers. The client agreements with UBS define the relationship as inclusive of all UBS entities. Carlos Ubiñas and Miguel Ferrer, key officers at UBS Puerto Rico during the relevant class period, were heavily involved in the management of UBS-managed Funds. Ubiñas served as President from 2005, became CEO in 2009, and held multiple roles including Chairman of the Board and Executive Vice President across UBS Funds. Ferrer held several leadership roles, including Chairman and CEO of UBS Puerto Rico, later returning as Vice Chairman and then Chairman in 2010. Plaintiffs allege that UBS Financial, UBS Puerto Rico, and Popular Securities breached their fiduciary duties, with Ubiñas, Ferrer, and Banco Popular aiding these breaches. The misconduct included acts deemed conflicted and disloyal, alongside failing to conduct suitability analyses for the Funds, breaching implied contractual duties of good faith. The Funds were structured primarily for the defendants' financial benefit, focusing 67% of assets on Puerto Rican investments, which involved purchasing risky government-backed securities. The defendants profited as underwriters and advisors in these transactions, circumventing regulations due to the Funds' exemptions. Moreover, defendants allegedly misled clients about the safety of these investments while encouraging heavier investment through a dividend reinvestment program and a loan program that urged clients to borrow against their Fund shares. Changes to internal controls reportedly disabled alerts for over-concentration, enabling clients to invest beyond UBS guidelines. Financial advisors were incentivized to promote the Funds, with directives from Ferrer encouraging increased client investment. Defendants allegedly inflated sales commissions for financial advisors on Fund share transactions, with UBS Puerto Rico modifying its policies to incentivize advisors to retain clients in the Funds to earn additional fees. Despite advisors raising concerns regarding the Funds' viability and risks, defendants, including Ferrer, assured them that the Funds were safe and stable. Advisors then misrepresented the Funds to potential investors as conservative investments that would safeguard principal while offering high, tax-free returns. While specific policies from the Popular Defendants are not detailed, plaintiffs claim they encouraged further investments in the Funds, despite UBS's awareness of the high risks associated with the PR Employees Retirement bonds it underwrote. Plaintiffs argue that defendants failed to assess the Funds' suitability for investors, particularly retirees seeking low-risk, liquid options, breaching their contractual and fiduciary obligations. Concurrently, UBS Financial directed its personnel to reduce their inventory of Fund shares, launching a campaign to encourage clients to purchase these shares, acknowledging the risks involved. From mid-2013 to March 2014, concerns about Puerto Rico's creditworthiness led to a significant decline in the value of the Funds, which lost over half their value by March 2014, exacerbated by a lack of asset diversity and high leverage. Investors faced additional losses due to margin loans taken against their Fund shares. During the Funds' decline, multiple government investigations into UBS and Ferrer were initiated, prompting UBS to conduct its own internal review. Following these events, plaintiffs filed their initial lawsuit in May 2014 in the Southern District of New York but later withdrew it, re-filing as a putative class action in the District of Puerto Rico on May 30, 2014, seeking consolidation with an existing related securities class action. On January 30, 2015, the District of Puerto Rico denied a motion for consolidation by the plaintiffs. Subsequently, on March 30, 2015, the court, at the defendants' request, ordered the action to be transferred back to its original district based on a forum selection clause in the parties' agreements. The transfer occurred on April 14, 2015, and the plaintiffs filed an Amended Class Action Complaint on May 8, 2015. The defendants then filed motions to dismiss the complaint under Federal Rules of Civil Procedure (Fed. R. Civ. P.) 12(b)(1) and 12(b)(6). In assessing a motion to dismiss under Rule 12(b)(6), the court accepts the allegations in the complaint as true, requiring the plaintiffs to plead sufficient facts to establish a claim that is plausible. A claim must be dismissed if it does not cross the threshold from conceivable to plausible. For Rule 12(b)(1), a dismissal for lack of subject matter jurisdiction occurs when the court cannot adjudicate the claim based on statutory or constitutional grounds. If a Rule 12(b)(1) motion disputes jurisdictional facts, the court may consider evidence outside the pleadings, unlike with Rule 12(b)(6) motions. The burden of proof lies with the party invoking the court's jurisdiction in a Rule 12(b)(1) motion. Before evaluating the sufficiency of the Amended Complaint under Rule 12(b)(6), the court must first determine its jurisdiction in light of the defendants' Rule 12(b)(1) motions. The UBS Defendants, Ferrer, and the Popular Defendants argue for dismissal on two grounds: first, that the court lacks jurisdiction over claims related to eleven of the twenty-three Funds because the named plaintiffs did not invest in those Funds and thus lack standing; second, that the Securities Litigation Uniform Standards Act of 1998 (SLUSA) bars the claims. However, these arguments do not prevent the court from addressing the plaintiffs' individual and class claims. Regarding standing, the plaintiffs must demonstrate a personal injury that is traceable to the defendants’ conduct and likely to be addressed by the relief sought. The defendants assert that the named plaintiffs lack standing to claim injuries related to the eleven Funds in which they did not invest, arguing that this requires investment-specific proof differing across the Funds, making their claims distinct from those of absent class members. The plaintiffs counter that the defendants are conflating standing issues with questions related to class certification under Fed. R. Civ. P. 23. Plaintiffs assert individual injuries that grant them Article III standing to pursue claims on their behalf, as well as on behalf of unidentified members of a putative class, despite not investing in eleven of the Funds. They argue that all plaintiffs are similarly affected by defendants' uniform breaches of fiduciary and contractual duties across all twenty-three Funds, resulting in identical types of injuries due to consistent misconduct, including conflicts of interest and misrepresentations. The plaintiffs highlight that shares were sold under the same disclosures and that all Funds carried similar risks, thereby fulfilling standing requirements. The Second Circuit's decision in NECA-IBEW Health, Welfare Fund v. Goldman Sachs & Co. clarifies standing doctrine for named plaintiffs in class actions. It establishes a two-part test for "class standing," where a plaintiff must demonstrate (1) personal actual injury from the defendant's conduct, and (2) that this conduct aligns with concerns affecting other putative class members. This test is distinct from the criteria for adequate class representation under Rule 23. The court found that the named plaintiff had standing to assert claims on behalf of those who purchased certificates backed by the same lenders, as their claims were based on similar misstatements. However, the plaintiff lacked standing for claims related to offerings backed by different lenders due to potential variations in injury. The Second Circuit further elaborated on this test in Retirement Board, addressing breach of contract and fiduciary duty claims against trustees of trusts not directly invested in by the named plaintiffs. The Second Circuit differentiated the breach of duty claims in Retirement Board from the Securities Act claims in NECA-IBEW, indicating they require distinct proof—“loan-by-loan” and “trust-by-trust” in Retirement Board. The court highlighted the importance of whether plaintiffs possess a personal and concrete interest in proving related claims against the defendants. Plaintiffs established Article III standing, demonstrating individual injuries pertaining to the Funds they invested in. Defendants contended that plaintiffs could not meet the second criterion from NECA-IBEW, but the court found otherwise. Despite similarities in the claims to those in Retirement Board, the court noted that plaintiffs’ allegations align more closely with NECA-IBEW due to systematic misconduct by defendants affecting all twenty-three Funds, which are similarly structured and hold the same asset types. The court acknowledged that the alleged fiduciary duties arose from substantially similar client agreements and relationships with defendants, suggesting that if the defendants' conduct is tortious regarding one Fund, it likely applies to all. Defendants’ arguments about differences in proof were deemed more appropriate for class certification rather than dismissal. Additionally, the court ruled that SLUSA does not bar plaintiffs' claims, as alleged misrepresentations do not relate to the purchase or sale of covered securities. The case qualifies as a covered class action, with over 50 members and predominant common legal or factual questions, as defined by SLUSA. Plaintiffs, as private parties, aim to establish liability under state law, but there is a dispute regarding whether their allegations are precluded by the Securities Litigation Uniform Standards Act (SLUSA). Specifically, the question is whether the plaintiffs' claims involve misrepresentations related to covered securities. Plaintiffs argue their claims do not pertain to covered securities and do not involve allegations of fraud that would trigger SLUSA. The Court concludes that SLUSA does not apply, as no misrepresentations were made in connection with the purchase or sale of covered securities. Despite the agreement that the shares of the Funds are not traded on national exchanges and thus not covered securities, defendants identify two categories of securities that they contend qualify as covered securities under SLUSA: the securities held by the Funds and the securities sold by plaintiffs to purchase shares in the Funds. However, the Court finds that plaintiffs did not allege any misrepresentations related to these securities. Referencing the Supreme Court's decision in Chadbourne v. Troice, the Court notes that SLUSA does not preclude claims related to certificates of deposit that are not covered securities, as the plaintiffs did not own the relevant covered securities. In contrast, the Second Circuit's ruling in In re Herald II distinguished Troice by ruling that transactions involving covered securities through a fund, even if the plaintiffs did not hold direct interests in those securities, can bar claims under SLUSA if the fund acts as an intermediary. In Herald II, defendants allegedly assured plaintiffs that their investments would be in covered securities via feeder funds associated with Bernard Madoff's Ponzi scheme. The Second Circuit ruled that the plaintiffs intended to invest in covered securities, even indirectly through feeder funds. Similarly, in In re Kingate, the court found that plaintiffs expected their shares in uncovered funds would ultimately invest in covered securities, satisfying SLUSA's "in connection with" requirement due to alleged misrepresentations by the defendants. Defendants argue that the current case mirrors Herald II and Kingate because the Funds involved invest in covered securities and were marketed as such. They highlight that the Funds were structured to offer tax benefits on otherwise taxable securities and that prospectuses indicated potential investments in preferred stock and Puerto Rico-issued securities, which could include covered securities. However, plaintiffs assert that the Funds were not marketed as intermediaries for owning underlying covered securities. The Fund prospectuses clearly state that investment in the Fund does not equate to investment in its underlying securities and advise against viewing the Fund as a trading vehicle. The court notes that the marketing statements are more akin to those in Troice, being vague and lacking explicit promises regarding covered securities. Furthermore, the prospectuses mention a range of other potential investments—such as mortgage-backed securities and municipal securities—that do not qualify as "covered securities." Consequently, the court finds insufficient evidence suggesting plaintiffs were attempting to invest in covered securities. Even if they were, defendants failed to identify any misrepresentations related to the covered securities purchased or sold by the Funds, unlike the claims in Kingate and Herald II, which were based on direct misrepresentations about covered securities. Allegations of misrepresentation pertain to the risk associated with the Funds, which involve uncovered securities. The relevant covered securities are deemed too distant from these misrepresentations to fall under SLUSA's provisions, as established in Troice. Defendants attempt to link the claims by referencing securities sold by plaintiffs to purchase or instead of purchasing shares in the Funds. The Popular Defendants provide bank statements showing that two plaintiffs sold mutual fund and IRA investments around the time they bought shares in the Funds. In contrast, the UBS Defendants lack such documentation and rely on vague allegations from the Amended Complaint suggesting that covered securities were sold. The UBS Defendants cite two specific allegations: one concerning Ferrer directing UBS Financial Advisors to channel TRA investors into the Funds, and another about Mulholland instructing advisors to sell clients' most liquid assets. However, these allegations do not assert that plaintiffs sold IRA securities to invest in the Funds or that defendants induced them to do so based on misrepresentations. Rather, the complaint indicates that defendants targeted specific investor profiles. The claim regarding Ferrer’s direction does not constitute evidence of IRA securities sales. Even if plaintiffs sold IRA investments potentially classified as covered securities to buy shares of the Funds, they fail to connect any misrepresentations closely enough to these transactions to support claims of fraud. The sales of IRA investments are considered tangential to the alleged misrepresentations. Furthermore, any directive from Mulholland to sell liquid assets was aimed at reducing plaintiffs' leverage exposure in the Funds, with no misrepresentation alleged regarding these sales. The bank statements from the Popular Defendants indicate that two plaintiffs may have used proceeds from covered securities to invest in the Funds, but the misrepresentations in the Amended Complaint are not linked to these securities, rendering them incidental to the alleged misconduct. The court in Romano v. Kazacos addressed the applicability of the Securities Litigation Uniform Standards Act (SLUSA) and the timeliness of plaintiffs' claims. It determined that plaintiffs’ claims did not meet SLUSA’s requirement of being “in connection with the purchase or sale of a covered security,” as their allegations were not based on misleading investment advice related to securities transactions, thus allowing their claims to proceed. Regarding the statute of limitations, the court found that plaintiffs' tort claims against the UBS Defendants, Ubiñas, and Ferrer were time-barred under Puerto Rico’s one-year statute of limitations for tort claims. However, claims against the Popular Defendants were deemed timely because the plaintiffs were unaware of their claims against them until recently. Claims related to breaches of fiduciary duty and implied covenants concerning Fund shares purchased before May 30, 2012, were also time-barred due to the two-year statute of repose under the Puerto Rico Uniform Securities Act (PRUSA), particularly affecting only Vela, Toro, and Montes. Vela’s claim related to a June 2012 purchase was timely, as were claims from Fernandez, Schreiner, Viera, and Santana concerning the implied covenant of good faith and fair dealing. Additionally, breach of contract claims regarding suitability analysis were not subject to PRUSA's fraud-related limitations, thus remaining actionable. The court reiterated that Puerto Rico law governs the limitations period, which mandates that claims must be filed within one year from the date the plaintiffs had knowledge of their injury. Since the plaintiffs filed their complaint on May 30, 2014, their tort claims had to accrue no earlier than May 30, 2013, for them to be considered timely. Section 5298(2) incorporates the "discovery rule," which dictates that a claim in Puerto Rico accrues when the injured party is aware of their injury and has knowledge of the likely tortfeasor. Notice of an injury arises from observable signs indicating harm, and "deemed knowledge" is sufficient—actual knowledge is not required. Once a plaintiff is aware of their injury, they must act with reasonable diligence to pursue their claim, or risk losing the right to do so after the statute of limitations expires. The plaintiffs argue that their claims are timely, asserting that the statute of limitations began in June 2013 when the Funds' values significantly dropped, and they lacked sufficient knowledge of their injuries prior to that date. They contend that no outward signs of damage existed before June 2013. Conversely, defendants maintain that the plaintiffs were injured at the time they purchased shares prior to May 30, 2013, thus rendering their claims untimely. Defendants also assert that public lawsuits and news reports prior to May 2013 should have alerted the plaintiffs to their injuries, indicating that the claims are time-barred. Furthermore, plaintiffs' argument that injury occurred only when the Funds' risks materialized in 2013 misinterprets the distinction between injury and its manifestations. Harm from a breach of fiduciary duty occurs at the time of the breach, which can manifest when plaintiffs lose money due to misrepresentations, self-dealing, or failure to conduct a suitability analysis. The injury may not be immediately apparent, as it could only become evident when financial losses occur, such as declines in share prices. The statute of limitations for civil liability begins when the aggrieved party becomes aware of the damage, regardless of knowledge about the extent of the loss. The court is tasked with determining whether plaintiffs should have discovered the alleged breach of fiduciary duty before May 2013, based on observable signs of injury. Defendants argue that various information sources, including SEC proceedings, prior class actions, and news articles, indicated the plaintiffs were aware or should have been aware of the alleged misconduct. The court can acknowledge such public information as evidence without assessing its truthfulness, but recognizes the risks of using Rule 12(b)(6) to address statute of limitations issues. Courts in the District of Puerto Rico have accepted prior lawsuits and media coverage as factors in determining if tort claims are time-barred, establishing that publicized legal actions and news can imply common knowledge of tortious conduct for plaintiffs. Plaintiffs argue that the allegations in previous lawsuits and administrative proceedings against certain UBS Defendants and Ferrer have minimal overlap with their claims, asserting that their allegations encompass a broader range of misconduct. They contend that the prior actions primarily involve misrepresentations regarding Fund pricing and market liquidity, which did not adequately inform them of the fiduciary duty claims they are asserting. However, the plaintiffs acknowledge that publicized company-specific information indicated a potential breach of fiduciary duty, thus triggering their duty to investigate claims against the UBS Defendants and Ferrer. In contrast, the court finds that plaintiffs Toro and Vela, who have claims against the Popular Defendants, lacked notice of their tort claims, as there is no press coverage or publicized lawsuits linking the Popular Defendants to UBS’s misconduct. The document also references a 2010 class action lawsuit against UBS Puerto Rico and UBS Trust, alleging breach of fiduciary duty and fraud. This lawsuit accused UBS of self-dealing and conflicts of interest related to its roles in fund transactions. Additionally, it highlighted claims of material misstatements about bond purchase suitability. Defendants cited press coverage from February 2011, which noted allegations of fiduciary breaches by UBS due to its conflicting roles, but the Popular Defendants were not mentioned in either the lawsuit or related articles. In May 2012, the SEC initiated administrative and cease-and-desist proceedings against Ferrer and another UBS officer for allegedly misrepresenting the nature and liquidity of the closed-end mutual fund market to UBS financial advisers and clients. The SEC's order detailed conduct similar to that in the Amended Complaint, including the UBS dividend reinvestment program and a strategy labeled "Objective: Soft-Landing," which involved UBS selling its own shares in the Funds to clients, highlighting a conflict of interest that was not disclosed. Ferrer was accused of pressuring investment advisors to promote the Funds despite their concerns. Concurrently, the SEC also instituted proceedings against UBS Puerto Rico for failing to disclose similar conflicts while recommending the Funds. UBS Puerto Rico later settled with the SEC without admitting or denying liability. These investigations were widely reported, with media coverage focusing on allegations that UBS inflated the closed-end mutual fund market by purchasing shares while advertising the Funds as liquid investments. Reports also noted UBS's control over pricing and the secondary market for the Funds. In August 2012, investors filed a securities action against UBS Puerto Rico, UBS Trust, Ferrer, and others, alleging they failed to disclose the Funds' illiquidity while marketing them as safe investments. The 2012 Securities Action includes allegations related to UBS's conduct outlined in SEC proceedings, particularly its dividend reinvestment program and efforts by Ferrer to persuade UBS Puerto Rico's advisers to promote new Fund offerings. The objective was to facilitate UBS Puerto Rico's sale of its own shares in the Funds, undermining customer sales efforts. Plaintiffs alleged that UBS Puerto Rico and UBS Trust misrepresented the Funds' nature and associated risks. The action received media attention, notably from Caribbean Business, which highlighted concerns about Fund liquidity and UBS's role in price manipulation. Furthermore, the article discussed UBS's conflicting responsibilities as an advisor to the Puerto Rico Government Employees Retirement Fund and as an underwriter and manager of mutual fund portfolios. Six specific Funds were identified in the action, which are part of a larger set of twenty-three Funds relevant to this case. The Popular Defendants were not implicated in this complaint or the related media coverage. Plaintiffs were deemed to have constructive notice of their claims against the UBS Defendants due to the publicized lawsuits and media reports, particularly by August 2012. It was established that media reports need not detail every aspect of alleged misconduct to trigger inquiry notice. Instead, similar allegations in publicized lawsuits can suffice to put parties on notice. Specific articles named UBS Puerto Rico, UBS Financial Services, and Ferrer while detailing the allegations, thus informing plaintiffs of their potential claims. Articles detailing business practices relevant to the plaintiffs' complaint against the UBS Defendants provide sufficient information to alert an average investor to potential fiduciary breaches, despite not addressing all allegations. These articles highlight UBS and Ferrer's pressure on financial advisors to sell shares in specific Funds and reference a dividend reinvestment program designed to increase investments in those Funds. However, while UBS and Ferrer are explicitly named in publicized legal proceedings, the Popular Defendants are not, resulting in a lack of sufficient notice to investors regarding their involvement in misconduct. The court concludes that, based on the evidence, ordinary investors would not reasonably infer connection to the Popular Defendants, thus allowing tort claims against them to proceed despite Puerto Rico's one-year statute of limitations for tort claims. Additionally, under the Puerto Rico Uniform Securities Act, plaintiffs cannot initiate claims more than two years post-execution of the sale contract. The time limitation under Puerto Rico's statute applies specifically to claims made pursuant to Section 890, but courts have interpreted it more broadly, barring securities fraud claims, including those based on common law theories like breach of contract and unjust enrichment, if filed more than two years after the sale contract execution. Notable cases include PaineWebber, Inc. v. First Boston Inc. and Tollinche Puig v. Triple S Mgmt. Corp., which illustrate this interpretation. Courts assess whether fraud is integral to the claim, regardless of its characterization; claims that depend on allegations of fraud cannot be redefined merely through artful pleading. Defendants argue that the two-year limitation precludes certain claims from three plaintiffs who purchased shares over two years prior to filing, particularly citing that plaintiff Montes’ claims are barred due to her purchase date. The UBS Defendants accept that other plaintiffs have timely claims. The Popular Defendants assert that PRUSA limits all claims from plaintiff Toro and some from plaintiff Vela, while conceding the timeliness of Vela's claims from June 2012. The defendants contend that all claims arise from material misrepresentations about the Funds, aligning them with fraud. Conversely, plaintiffs assert that their claims are mischaracterized as common law fraud and maintain that they rely on different theories. The court concludes that the plaintiffs' breach of fiduciary duty claims against the Popular Defendants fundamentally involve fraud, despite the absence of the term "fraud" in the complaint, as their essence pertains to misrepresentations of investment risks made to induce investment for personal gain. The plaintiffs allege that the defendants failed to disclose conflicts of interest and did not assess the suitability of risky investments for their clients. They claim the defendants engaged in deceptive conduct by using terms like “steered,” “pushed,” and “induced,” indicating intentional misrepresentation. The plaintiffs' breach of fiduciary duty claims against Popular Securities hinge on these allegations of fraud and deceit, which also underpin their claims for breach of the implied covenant of good faith and fair dealing. Conversely, the breach of contract claims against the UBS and Popular Defendants, centered on an express obligation to perform a suitability analysis, are not subject to the PRUSA as they do not involve fraudulent conduct. The determination of these claims relies solely on whether such a contractual obligation existed and was fulfilled. Consequently, the breach of fiduciary duty and implied covenant claims by Vela and Toro against the Popular Defendants, as well as Montes' claims against the UBS Defendants, were dismissed as time-barred. However, Vela's 2012 breach of fiduciary duty claims and the breach of contract claims by Vela, Toro, and Montes regarding the suitability analysis are timely under PRUSA. Lastly, irrespective of PRUSA's application, the plaintiffs' breach of fiduciary duty and implied covenant claims have not been adequately pled under Federal Rule of Civil Procedure 9(b). Plaintiffs with contracts requiring defendants to conduct a suitability analysis—specifically Fernandez, Mondes, Schreiner, Viera, and Toro—have successfully stated a breach of contract claim. The Court determines that the heightened pleading standards of Fed. R. Civ. P. 9(b) apply to the plaintiffs’ claims of breach of fiduciary duty and breach of the implied covenant of good faith and fair dealing, as these claims involve allegations of fraud. To meet Rule 9(b) requirements, plaintiffs must detail the fraudulent statements, identify the speaker, provide the context of the statements, and explain their fraudulent nature. However, Rule 9(b) does not apply to the breach of contract claims regarding the failure to conduct a suitability analysis, which are assessed under the more lenient standard of Fed. R. Civ. P. 8. The allegations against the Popular Defendants lack specificity and do not meet the requirements of Rule 9(b). The complaint primarily addresses the UBS Defendants’ actions, with vague assertions against the Popular Defendants based on their joint management of funds. Plaintiffs’ claims that the Popular Defendants misled them into investing by misrepresenting the safety of the funds are generalized and fail to specify the necessary details of the alleged misrepresentations or omissions. UBS Defendants are alleged to have breached the implied covenant of good faith and fair dealing; however, the plaintiffs’ claims lack specificity regarding the misconduct, failing to adequately detail the who, what, where, why, and when of the alleged misrepresentations and omissions. The complaint improperly uses blanket references to actions by all defendants without distinguishing which UBS Defendant committed specific acts, violating the requirement of individual notice of allegations as established in legal precedent. Additionally, the allegations are unclear, failing to meet the standards set by Rule 9(b) regarding fraud claims, which is intended to protect defendants from unfounded accusations. Regarding aiding and abetting a breach of fiduciary duty, Vela's claim against Banco Popular hinges on an underlying breach by Popular Securities, which Vela has not adequately alleged. Without a foundational breach, the aiding and abetting claim cannot stand. In terms of breach of contract, the UBS Defendants assert that New York law governs the client relationship agreements, and the plaintiffs must establish: (1) the existence of a contract, (2) their own performance under the contract, (3) a breach by the defendant, and (4) resulting damages. The UBS Defendants argue that plaintiffs have not provided sufficient factual allegations to demonstrate that specific investments were unsuitable for the plaintiffs’ individual circumstances, which is necessary to claim a breach of the Client Relationship Agreement. The UBS Defendants also contend that the plaintiffs have failed to plead adequate damages resulting from any alleged breach. Defendants were required to perform a suitability analysis before making investment recommendations, but they failed to do so, independent of whether the investments were ultimately suitable. Notably, only three named plaintiffs—Fernandez, Montes, and Schreiner—have agreements with UBS that include a suitability analysis provision, allowing their breach of contract claims to proceed. Conversely, Santana and Viera could not identify any such provision in their contracts, resulting in the dismissal of their claims. In the case of Popular Securities, the plaintiffs' agreements reveal variations in governing laws and contractual obligations. Under Puerto Rico law, a breach of contract claim requires a valid contract, breach, and resulting damages, while Massachusetts law necessitates the plaintiff's performance of obligations. Only Vela identified a specific provision in his contract with Popular Securities that allegedly was breached, allowing his claim to progress. Toro, however, did not point to any similar provision in his agreement, leading to the dismissal of his claim. Although Popular Securities argued that their contracts contradicted the obligation to conduct a suitability analysis, the Court did not dismiss Vela's claim at this stage. Ultimately, Counts I and II were dismissed with prejudice as time-barred. Counts III and IV are dismissed partially with prejudice and partially without prejudice. Vela's tort claims from 2011 and Toro's tort claims are dismissed with prejudice as time-barred under PRUSA. Vela’s 2012 tort claims are dismissed without prejudice due to non-compliance with Fed. R. Civ. P. 9(b), but he is granted leave to replead these claims pertaining to his 2012 Fund purchases. The UBS Defendants' motion to dismiss Count V is granted in part and denied in part; Montes’ claim for breach of the implied covenant of good faith and fair dealing is dismissed with prejudice as time-barred, while Fernandez, Schreiner, Santana, and Viera's claims are dismissed without prejudice for failing to meet Fed. R. Civ. P. 9(b) standards. Santana and Viera’s breach of contract claims regarding the UBS Defendants' suitability analysis are dismissed with prejudice for failure to state a claim, but the motion is denied for Fernandez, Montes, and Schreiner’s claims based on an express contractual obligation. The Popular Defendants' motion to dismiss Count VI is also granted in part and denied in part; Vela's and Toro’s claims for breach of the implied covenant of good faith are dismissed with prejudice as time-barred, while Vela's 2012 claim is dismissed without prejudice for failing to meet Fed. R. Civ. P. 9(b). Toro’s breach of contract claims regarding the suitability analysis are dismissed with prejudice, but the motion is denied for Vela’s claim based on an express contractual obligation. Overall, the motions to dismiss from UBS and Popular Defendants are partially granted and denied, while Ferrer’s motion is fully granted. Plaintiffs wishing to replead specific counts must do so within 21 days, or notify the Court to establish a litigation schedule. The SEC defines closed-end funds as those that do not continuously offer shares and whose secondary market prices can vary from net asset value (NAV). Ubiñas, represented by the same counsel as the UBS Defendants, has joined the motion to dismiss filed by the UBS Defendants. The named plaintiffs invested in twelve funds managed by UBS and Popular, specifically: Tax Free Puerto Rico Fund, Inc.; Tax-Free Puerto Rico Target Maturity Fund, Inc.; Puerto Rico AAA Portfolio Bond Funds I and II; and various Puerto Rico Fixed Income Funds. The plaintiffs allege that the UBS Defendants breached their contracts in two ways: (1) violating the covenant of good faith and fair dealing, and (2) failing to maintain a "reasonable basis" for their investment recommendations as stipulated in the Client Relationship Agreement. Eleven additional funds, in which no named plaintiff invested, are also identified. The legal discussion includes the debate among Second Circuit courts regarding whether SLUSA preclusion is appropriately raised under Rule 12(b)(1) or Rule 12(b)(6) when used as a defense, with recent indications suggesting a jurisdictional analysis is necessary regardless of the context. This court will treat the issue as jurisdictional. Plaintiffs reference Ortega v. Pou, 135 D.P.R. 711 (1994) to support the argument that injury is not necessarily recognized at the time of the wrongdoing. In Ortega, the statute of limitations began only once the plaintiff was aware of the injury, which was only apparent after a pregnancy following a sterilization procedure. The UBS Defendants argue that the Funds' prospectuses informed plaintiffs of the inherent risks and conflicts of interest; however, the Popular Defendants do not claim these disclosures triggered the statute of limitations but rather contradict the plaintiffs’ allegations, justifying dismissal. The Court finds that previous lawsuits against the UBS Defendants provided sufficient notice to the plaintiffs regarding their tort claims, making further examination of the prospectus disclosures unnecessary. Although Staehr's inquiry notice analysis in securities fraud was implicitly overruled by Merck Co. Inc. v. Reynolds, it remains relevant for understanding the discovery rule in common law. Plaintiffs did not assert an equitable tolling defense. Specific references to Carlos Ubiñas in articles connected him to the alleged wrongdoing, granting plaintiffs constructive knowledge. Allegations regarding Ferrer and Ortiz also provided adequate notice for plaintiffs to investigate UBS Puerto Rico's management. Two plaintiffs purchased shares in Puerto Rico tax-free funds co-managed by Banco Popular and UBS, with relevant dates in 2005, 2007, 2011, and 2012. At oral argument, plaintiffs acknowledged their knowledge regarding the claims. The remaining claims for the Court's consideration under Fed. R. Civ. P. 12(b)(6) include: Vela's breach of fiduciary duty and the implied covenant of good faith against Popular Securities, Vela's aiding and abetting claim against Banco Popular, and breach of the implied covenant by Fernandez, Schreiner, Viera, and Santana against the UBS Defendants.