Case 1:15-cv-05119-JSR Document 99 Filed 07/12/16 Page 1 of 34
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`UNITED STATES DISTRICT COURT
`SOUTHERN DISTRICT OF NEW YORK
`-----------------------------------------x
`BEAZLEY INSURANCE COMPANY,
`INC.,
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`Plaintiff,
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`-v-
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`15-cv-5119 (JSR)
`
`OPINION AND ORDER
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`ACE AMERICAN INSURANCE COMPANY, et al.,:
`
`f
`
`l
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`Defendants.
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`) : - "
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`--------------------------------------~--x
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`·- .... ---..... -·-"':""',
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`JED S. RAKOFF, U.S.D.J.
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`This dispute between three
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`class action suit (the "Facebook Class Action") that retail
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`investors in Facebook brought against NASDAQ in the aftermath of
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`Facebook's troubled initial public offering on the NASDAQ stock
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`exchange. While plaintiff Beazley Insurance Company, Inc.
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`("Beazley") agreed to contribute its full limit of liability to
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`NASDAQ's settlement of the Facebook Class Action, defendants ACE
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`American Insurance Company ("ACE") and Illinois National Insurance
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`Company ("INIC") disclaimed coverage. Beazley now moves for partial
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`summary judgment against ACE on its second cause of action seeking a
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`declaratory judgment that ACE is obligated to provide indemnity
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`coverage to NASDAQ in connection with the Facebook Class Action.
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`Conversely, ACE moves for summary judgment on all remaining claims
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`against it (Counts Two, Four, and Five) primarily on the basis that
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`the Facebook Class Action falls within the "professional services"
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`exclusion of the relevant policy. INIC likewise moves for summary
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`1
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`

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`Case 1:15-cv-05119-JSR Document 99 Filed 07/12/16 Page 2 of 34
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`judgment on all remaining claims against it (~, Counts One and
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`Two)
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`Because the Court finds that the J«acebook Class Action's claims
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`fall within the "professional services" exclusion, the Court denies
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`Beazley's motion for summary judgment, grants ACE's motion for
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`summary judgment on Counts Two and Four, and grants INIC's motion
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`for summary judgment in its entirety. However, the Court denies ACE
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`summary judgment on plaintiff's breach of contract claim (Count
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`Five), since ACE breached its duty to advance defense costs to
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`NASDAQ and since Beazley (in its capacity as NASDAQ's assignee)
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`appears to have damages in the form of NASDAQ's unreimbursed
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`attorneys' fees.
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`This litigation traces itself to a series of lawsuits filed
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`against NASDAQ entities and officers in 2012 in connection with
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`NASDAQ's alleged mishandling of the Facebook IPO. On October 4,
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`2012, the Judicial Panel on Multidistrict Litigation centralized 41
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`actions related to the Facebook IPO in the Southern District of New
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`York before Judge Sweet, including eight actions brought against
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`NASDAQ entities and officers alleging federal securities law and
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`negligence claims. See In re Facebook, Inc., IPO Sec. & Derivative
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`Litig., 899 F. Supp. 2d 1374, 1377 (J.P.M.L. 2012). Judge Sweet
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`subsequently consolidated the NASDAQ actions separately for pretrial
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`proceedings. See In re Facebook, Inc., IPO Sec. & Derivative Litig.,
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`288 F.R.D. 26, 29-30 (S.D.N.Y. 2012).
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`2
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`Case 1:15-cv-05119-JSR Document 99 Filed 07/12/16 Page 3 of 34
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`On April 30, 2013, a consolidated amended class action
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`complaint (the "CAC") was filed against NASDAQ OMX Group, Inc.,
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`NASDAQ Stock Market, LLC, Robert Greifeld (NASDAQ's President and
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`CEO at the relevant time), and Anna Ewing
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`(NASDAQ's Chief
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`Information Officer at the relevant time) (collectively, the "NASDAQ
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`Parties"), on behalf of a putative class of all persons "that
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`entered pre-market and aftermarket orders to purchase and/or sell
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`the common stock of Facebook Inc.
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`. on May 18, 2012
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`in
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`connection with Facebook's initial public offering .
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`. and who
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`thereby suffered monetary losses as a result of the [NASDAQ
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`Parties'] wrongdoing." See Deel. of Kevin Kieffer in Support of Pl.
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`Beazley Ins. Co., Inc.'s Mot. for Partial Summ. J. dated Jan. 15,
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`2016 ("Kieffer Deel. dated Jan. 15, 2016"), Ex. 2 at 1, ECF No. 74-
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`2 .
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`More specifically, the CAC was brought on behalf of both a
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`"Securities Class" alleging violations of§ lO(b) and§ 20(a) of the
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`Securities Exchange Act of 1934 and a "Negligence Class" alleging
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`claims for common law negligence. See id. Among other things, the
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`CAC alleged that "the wholesale breakdown in NASDAQ's trading
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`platforms" on the day of the IPO "caused Class Members substantial
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`damages by, inter alia: (i) causing erroneous and failed trade
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`executions; (ii) blinding Class Members for hours -
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`if not days - as
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`to their then-current positions in Facebook stock due to late and/or
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`missing trade confirmations; (iii) preventing Class Members from
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`executing orders at the National Best Bid/Offer [] prices for
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`3
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`Case 1:15-cv-05119-JSR Document 99 Filed 07/12/16 Page 4 of 34
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`Facebook stock as required by SEC Reg. NMS; and (iv) exposing Class
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`Members to related failures of the NASDAQ trading platform,
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`resulting in, among other things, an artificial downward pressure on
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`the price of Facebook's stock." Id. ~ 15.
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`During the relevant time period, NASDAQ OMX Group, Inc.
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`maintained both an errors and omissions ("E&O")
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`insurance policy and
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`a directors and officers ("D&O")
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`insurance policy - both of which
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`were potentially implicated by the CAC. Non-party Chartis Specialty
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`Insurance Company ("Chartis") was NASDAQ's primary E&O liability
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`insurer at the relevant time, having issued NASDAQ OMX Group, Inc. a
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`policy for the policy period of January 31, 2012 through January 31,
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`2013 (the "Chart is E&O Policy"). See Defs.' Joint Statement of
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`Undisputed Material Facts ("Defs.' Rule 56.1 Stmt.") ~ 8, ECF No.
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`71. 1 Beazley was NASDAQ's first-layer excess E&O insurer, having
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`issued a policy to NASDAQ OMX Group, Inc. for the same policy period
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`(the "Beazley E&O Policy"). See id. ~ 12. The Beazley E&O Policy
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`follows the form of the Chartis E&O Policy - meaning that it
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`generally insures the same risks under the same set of terms and
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`conditions as the Chartis E&O Policy - and sits in excess of the
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`Chartis E&O Policy's $15 million limit of liability. As a "first-
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`layer excess" insurer, Beazley's $15 million limit of liability was
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`1 All citations to facts set forth in a party's Local Rule 56.l
`Statement are citations to facts that were admitted in relevant part
`by the opposing party, unless otherwise noted.
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`4
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`Case 1:15-cv-05119-JSR Document 99 Filed 07/12/16 Page 5 of 34
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`implicated once Chartis's $15 million limit of liability was
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`exhausted. See id. ~ 13.
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`ACE, for its part, was NASDAQ's primary D&O liability insurer
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`at the relevant time, having issued a policy to NASDAQ OMX Group,
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`Inc. for the policy period of January 31, 2013 to January 31, 2014
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`(the "ACE D&O Policy") . 2 See id. ~ 16. INIC was NASDAQ' s first-layer
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`excess D&O insurer, having issued a policy to NASDAQ OMX Group, Inc.
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`for the same policy period with a $15 million limit of liability
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`(the "INIC D&O Pol icy") . See id. ~~ 19-2 0. The INIC D&O Policy
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`follows the form of the ACE D&O Policy and sits in excess of the ACE
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`D&O Policy's $15 million limit of liability. See id. ~~ 17, 21-22.
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`The E&O policies provided NASDAQ with coverage, in relevant
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`part, for "Damages resulting from any Claim
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`for any Wrongful
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`Act
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`.
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`solely in rendering or failing to render Professional
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`Services." Compl., Ex. C, § l.I, ECF No. 2-3. Upon receiving notice
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`of various of the underlying actions brought against NASDAQ, Chartis
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`issued a reservation of rights letter and agreed to advance defense
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`costs to NASDAQ under the Chartis E&O Policy. See Aff. in Support of
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`De f . ' s Mot . for S umm . J .
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`( "London A ff. " ) , Ex . L , EC F No . 6 6- 8 .
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`Beazley similarly accepted potential coverage under its E&O policy,
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`subject to a reservation of rights. See Deel. of Carrie Parikh in
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`2 Although the actions that ultimately formed the consolidated
`Facebook Class Action were first brought prior to the beginning of
`the policy period, ACE acknowledged in an October 8, 2013 letter to
`NASDAQ that the Facebook Class Action qualified as a "Prior Covered
`Claim" under the ACE D&O Policy. See Compl., Ex. Fat 2, ECF No. 2-
`6.
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`5
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`Case 1:15-cv-05119-JSR Document 99 Filed 07/12/16 Page 6 of 34
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`Support of Pl. Beazley Ins. Co., Inc.'s Mot. for Partial Summ. J.
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`dated Jan. 15, 2016 ("Parikh Deel. dated Jan. 15, 2016") ~ 2, ECF
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`No. 75. ACE, however, disclaimed coverage, relying primarily on the
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`"professional services" exclusion. See Def.'s Rule 56.1 Stmt. ~ 46.
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`In April 2015, the NASDAQ Parties agreed to settle the Facebook
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`Class Action for $26.5 million. See Parikh Deel. dated Jan. 15, 2016
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`~ 5. In connection with that settlement and in exchange for a mutual
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`release of claims, Beazley entered into an agreement with the NASDAQ
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`Parties dated June 15, 2015, by which Beazley agreed to contribute
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`its full $15 million limit of liability toward the settlement and by
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`which the NASDAQ Parties "assign[ed] to Beazley any and all
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`contractual rights or extra-contractual rights they have or that
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`they may acquire .
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`. against ACE and/or Illinois National in
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`connection with the [Facebook Class Action] up to the amount of [$15
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`million]." Kieffer Deel. dated Jan. 15, 2016 ~ 20; see also Deel. of
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`Carrie Parikh in Opp. to ACE Am. Ins. Co.'s and Ill. Nat'l Ins.
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`Co.'s Mots. for Summ. J. dated Jan. 29, 2016 ~ 6, ECF No. 86.
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`Shortly thereafter, on June 30, 2015, Beazley initiated this action
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`against ACE and INIC.
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`Beazley subsequently moved for partial summary judgment on
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`Count One, seeking a declaratory judgment that ACE was obligated
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`under the ACE D&O Policy to cover NASDAQ's defense costs in
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`connection with the Facebook Class Action. Simultaneously, ACE and
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`INIC both moved to dismiss the complaint in its entirety. On October
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`21, 2015, the Court granted Beazley partial summary judgment on
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`6
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`Case 1:15-cv-05119-JSR Document 99 Filed 07/12/16 Page 7 of 34
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`Count One and granted in part and denied in part defendants' motions
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`to dismiss. Specifically, the Court dismissed Count Three (for
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`indemnification) as against both defendants with prejudice;
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`dismissed Count Four (for contribution) and Count Five (for breach
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`of contract) as against INIC without prejudice; and otherwise denied
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`defendants' motions to dismiss. See Beazley Ins. Co. v. Ace Am. Ins.
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`Co., 2015 WL 6442224, at *1-2 (S.D.N.Y. Oct. 21, 2015). The Court
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`explained these rulings in an opinion issued on December 20, 2015,
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`in which it found, based on the arguments then before it, that ACE
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`had not yet met its heavy burden of demonstrating that the
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`"professional services" exclusion unambiguously applied to the CAC's
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`claims such that ACE could avoid its duty to advance defense costs
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`to NASDAQ. See Beazley Ins. Co. v. Ace Am. Ins. Co., 2015 WL
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`9267199, at *5 (S.D.N.Y. Dec. 20, 2015).
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`Turning to the parties' pending motions for summary judgment,
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`the critical issue remains the applicability of the "professional
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`services" exclusion found in the ACE D&O Policy to the claims in the
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`Facebook Class Action. That exclusion provides as follows:
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`The Insurer shall not be liable for that portion of Loss
`on account of any Claim:
`. by or on behalf of a
`customer or client of the Company [~, NASDAQ],
`alleging, based upon, arising out of, or attributable to
`the rendering or failure to render professional services.
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`7
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`Case 1:15-cv-05119-JSR Document 99 Filed 07/12/16 Page 8 of 34
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`London Aff., Ex. F §III (as amended by Endorsement Nos. 10 and 19),
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`ECF No. 66-2.3
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`Neither "customer or client" nor "professional services" is
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`defined in the ACE D&O Policy. Beazley's argument that defendants
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`have wrongfully invoked this policy exclusion is two-pronged. First,
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`Beazley argues that the class of retail investors who brought and
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`settled the Facebook Class Action are not "customer[s] or client[s]"
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`of NASDAQ, as is required to trigger the exclusion. 4 Rather, argues
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`Beazley, NASDAQ's customers are its members -
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`that is, the market
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`makers through which retail investors may buy and sell stock listed
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`on the NASDAQ stock exchange - and the listing companies themselves
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`(~, Facebook) . Second, Beazley argues that the settled claims in
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`the CAC are not "alleging, based upon, arising out of, or
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`attributable to the rendering or failure to render professional
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`services." ACE, conversely, submits that retail investors are
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`"customer[s] or client[s]" of NASDAQ and that the settled claims
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`3 Though many capitalized terms in the relevant policies appear in
`boldface, the Court has not replicated that formatting in this
`Opinion and Order, as it is immaterial to the contractual analysis.
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`4 On November 9, 2015, Judge Sweet issued an Order and Final Judgment
`approving the settlement of the Facebook Class Action. See Kieffer
`Deel. dated Jan. 15, 2016, Ex. 20, ECF No. 74-20. The Order and
`Final Judgment certified a settlement class of "all persons and
`entities that entered retail pre-market and aftermarket orders to
`purchase and/or sell the common stock of Facebook, Inc. on May 18,
`2012, and who suffered monetary losses as a result of the conduct
`alleged in the CAC," and expressly excluded "any person or entity
`that was on May 18, 2012 a member of the Exchange." Id. ~ 3. In
`other words, the settlement class was composed exclusively of retail
`investors in Facebook.
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`8
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`Case 1:15-cv-05119-JSR Document 99 Filed 07/12/16 Page 9 of 34
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`arose out of "professional services" as a matter of law. For ACE to
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`prevail, it must be right on both counts.
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`As the parties agree, the insurance contracts here in issue are
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`governed by New York state law. 5 Under well-settled New York law,
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`"[w]henever an insurer wishes to exclude certain coverage from its
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`policy obligations, it must do so in clear and unmistakable
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`language." Pioneer Tower Owners Ass'n v. State Farm Fire & Cas. Co.,
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`12 N. Y. 3d 302, 307
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`(2009)
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`(quoting Seaboard Sur. Co. v. Gillette
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`Co., 64 N.Y.2d 304, 311 (1984)) (internal quotation mark omitted)
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`Policy exclusions "are not to be extended by interpretation or
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`implication, but are to be accorded a strict and narrow
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`construction." Id. To avoid coverage on the basis of a policy
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`exclusion, an insurer thus bears the burden of establishing that the
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`exclusion is "subject to no other reasonable interpretation." Id.
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`This rule "is merely a specific, heightened application of contra
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`proferentem," the principle by which ambiguities in an insurance
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`contract are construed against the insurer. Sea Ins. Co. v.
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`Westchester Fire Ins. Co., 51 F.3d 22, 26 n. 4 (2d Cir. 1995). And
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`"contra proferentem does not come into play unless this court first
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`determines that the contract is, in fact, ambiguous." Hugo Boss
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`Fashions, Inc. v. Fed. Ins. Co., 252 F.3d 608, 616 (2d Cir. 2001).
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`5 "[W]here the parties agree that New York law controls," as is the
`case in this diversity action, "this is sufficient to establish
`choice of law." Fed. Ins. Co. v. Am. Home Assurance Co., 639 F.3d
`557, 566 (2d Cir. 2011).
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`9
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`Case 1:15-cv-05119-JSR Document 99 Filed 07/12/16 Page 10 of 34
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`Whether a contract term is ambiguous is assessed from the
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`perspective of a "reasonably intelligent person
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`. who is
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`cognizant of the customs, practices, usages and terminology as
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`generally understood in the particular trade or business." Int'l
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`Multifoods Corp. v. Commercial Union Ins. Co., 309 F.3d 76, 87 n.4
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`(2d Cir. 2002) (internal quotation marks omitted)
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`(holding that
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`district court "erred in declining to consider the custom and usage
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`evidence that was offered by the parties as part of its assessment
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`of whether an ambiguity existed"); see also Sompo Japan Ins. Co. of
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`Am. v. Norfolk S. Ry. Co., 762 F.3d 165, 180 (2d Cir. 2014)
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`("Evidence of trade practice and custom may assist a court in
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`determining whether a contract provision is ambiguous in the first
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`instance."). Thus, evidence of custom and usage is properly
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`considered prior to the evaluation of extrinsic evidence. In
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`addition, "contracting parties operate against the backdrop not only
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`of state law, but of federal law as well. And when federal law
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`concepts
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`. are employed, the parties may be read as having
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`incorporated established meanings and definitions forged in the
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`relevant federal cases." Hugo Boss, 252 F.3d at 618 (finding that
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`undefined term in a policy exclusion was sufficiently established in
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`the federal case law such that the exclusion unambiguously applied)
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`Against the backdrop of these governing principles, the first
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`issue for the Court is whether retail investors in a company (here,
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`Facebook) listed on a stock exchange (here, NASDAQ) are
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`10
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`Case 1:15-cv-05119-JSR Document 99 Filed 07/12/16 Page 11 of 34
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`unambiguously "customer[s] or client[s]" of the exchange. 6 Custom and
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`usage - particularly usage in the context of federal securities case
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`law - establishes that they are.
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`Most significantly, in Lank v. New York Stock Exch., 548 F.2d
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`61
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`(2d Cir. 1977), the Second Circuit observed that "[t]he primary
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`purpose of the Exchange Act was to protect customers of the stock
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`exchanges that is, public investors" and explained that this purpose
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`was effectuated through, inter alia, the imposition of a statutory
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`duty on exchanges to regulate their members. Id. at 64
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`(emphasis
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`added). Along the same lines, district courts across the country
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`have repeatedly identified retail investors as "customers" of stock
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`exchanges, clearly distinguishing between members of the exchange
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`and customers of the exchange. See Matter of Lake States
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`Commodities, Inc., 936 F. Supp. 1461, 1469 (N.D. Ill. 1996)
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`("[T]he
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`Second Circuit [has] construed the NYSE constitution and rules as
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`intending to provide customers of the exchange with the right to
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`6 On first glance, it might seem as though this issue was already
`resolved by the Court's December 20 Opinion, in which the Court
`found that because "interpreting 'customer[s] or client[s]' to
`exclude retail investors in a public company listed on NASDAQ is at
`least one reasonable interpretation of the ACE D&O Policy," ACE had
`a duty to advance defense costs to NASDAQ under its D&O Policy.
`Beazley Ins. Co., 2015 WL 9267199, at *5. But, as the Court also
`made clear in its December 20 Opinion, "[d]efendants [would be]
`free, with the benefit of discovery, to renew their arguments as to
`the meaning of 'customers or clients' on summary judgment." Id. at
`*5 n.9. Taking advantage of the framework provided by discovery and
`by the rules of summary judgment practice, ACE has now done so -
`raising more compelling arguments this time around -
`and so the
`issue of whether "customer or client" is ambiguous warrants a fresh
`look in this new context.
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`11
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`Case 1:15-cv-05119-JSR Document 99 Filed 07/12/16 Page 12 of 34
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`force members into arbitration over disputes." (emphasis added)),
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`abrogated on other grounds by Damato v. Hermanson, 153 F.3d 464 (7th
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`Cir. 1998); Carr v. New York Stock Exch., Inc., 414 F. Supp. 1292,
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`1298 (N.D. Cal. 1976)
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`("In enforcing its rules and in making complex
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`decisions on the suspension or forced liquidation of members, the
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`Exchange must consider the often conflicting interests of the member
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`firm, its partners, and investors, and the corporations whose
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`securities are handled by the firm, as well as the Exchange's public
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`customers." (emphasis added)); Moses v. Burgin, 316 F. Supp. 31, 57
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`(D. Mass. 1970)
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`("[A]n anti-rebate rule is the type of stock
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`exchange rule which has the force of law and is binding alike upon
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`members and customers of the exchange." (emphasis added)), rev'd in
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`part on other grounds, 445 F.2d 369 (1st Cir. 1971); New York Stock
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`Exch., Inc. v. Sloan, 1980 WL 1431, at *3 (S.D.N.Y. Aug. 15, 1980)
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`("[The New York Stock Exchange's] right to relief is predicated upon
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`its subrogation to the rights of its customers."). In fact, with the
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`benefit of summary judgment briefing, it now appears that this usage
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`is uniform and consistent. 7
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`7 Beazley argues that the district court in Sloan was using
`"customers" to refer to customers of member firms, rather than the
`exchange itself. While that is true of some of the references to
`"customers" in Sloan, the district court also clearly referred to
`public investors as "customers" of the New York Stock Exchange, as
`in the parenthetically quoted language above. Beazley is correct,
`however, that ACE's reliance on Lehman Bros. Inc. v. Certified
`Reporting Co., 939 F. Supp. 1333 (N.D. Ill. 1996), is misplaced. The
`court there was analyzing whether the plaintiffs were "customers" of
`the exchange's members, not the stock exchange to which the members
`belonged. See id. at 1340-41.
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`12
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`Case 1:15-cv-05119-JSR Document 99 Filed 07/12/16 Page 13 of 34
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`Beazley tries to dismiss this case law as merely using the term
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`"customer" in passing, such that the Court should give it little
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`weight. ~he Second Circuit's reterence to public investors as
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`"customers" of a stock exchange, Beazley asserts, "was no more than
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`an offhand remark." Beazley Ins. Co., Inc.'s Opp. Br. in Response to
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`ACE Am. Ins. Co.'s Mot. for Summ. J. ("Beazley Opp.") at 9, ECF No.
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`82. In fact, however, the Lank Court's observation that the Exchange
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`Act was designed to protect public customers of stock exchanges was,
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`far from being an "offhand remark," critical to the court's holding
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`that members of stock exchanges cannot sue exchanges under § 6 of
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`the Exchange Act because members of stock exchanges are not "within
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`the class the statute is intended to protect." Lank, 548 F.2d at 65;
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`see also Carr, 414 F. Supp. at 1297-98 ("Defendants contend that
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`. Congress intended [§ 6] to protect only the public customers
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`of the Exchange and not private investors in the brokerage houses
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`themselves.
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`Subsequent cases have extended the scope of the
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`implied right of action beyond the public customers of an
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`exchange.") .
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`The Second Circuit's reasoning in Hugo Boss also undermines
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`Beazley's argument. There, the Second Circuit held that the meaning
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`of the undefined term "trademarked slogan" in a policy exclusion was
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`sufficiently clear in the federal case law so as to render the term
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`unambiguous as used in the policy exclusion. Hugo Boss, 252 F.3d at
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`618-20. In particular, the Second Circuit found that the federal
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`case law establishes that a "trademarked slogan" is a "phrase[] used
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`13
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`Case 1:15-cv-05119-JSR Document 99 Filed 07/12/16 Page 14 of 34
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`to promote or advertise a house mark or product mark, in
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`contradistinction to the house or product mark itself." Id. at 618
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`(emphasis in original). Notably, in reaching this conclusion, the
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`Second Circuit relied primarily on cases in which the meaning of
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`"trademarked slogan" was not squarely at issue. See, e.g., Blau
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`Plumbing, Inc. v. S.O.S. Fix-It, Inc., 781 F.2d 604, 609-11 (7th
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`Cir. 1986)
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`(holding that a "location box" in an advertisement was
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`descriptive and lacked secondary meaning); Nike, Inc. v. Just Did It
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`Enters., 6 F.3d 1225, 1233 (7th Cir. 1993) (reversing grant of
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`summary judgment because whether parody of Nike's trademarks created
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`a likelihood of confusion was genuinely disputed) . Indeed, the
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`Second Circuit found significant that most federal courts had taken
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`the meaning of "trademarked slogan" "as a given." Hugo Boss, 252
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`F.3d at 619. So too here, numerous courts have taken it "as a given"
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`that retail investors are "customers" of stock exchanges. 8
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`Finally, Beazley's argument that there is no indication that
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`the parties intended to incorporate the usage of federal law misses
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`the point. As noted, because "contracting parties operate against
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`the backdrop .
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`of federal law," and because concepts of federal
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`securities law are inherently employed when contracting parties make
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`reference to a national stock exchange's "customers" in an insurance
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`8 Beazley also tries to distinguish these cases by pointing out that
`none of them concerned NASDAQ - which operates differently from a
`traditional, brick-and-mortar exchange - but fails to explain why
`that distinction is relevant.
`
`14
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`

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`Case 1:15-cv-05119-JSR Document 99 Filed 07/12/16 Page 15 of 34
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`policy that covers "Securities Claims,"9 the parties are presumed to
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`have incorporated the "established meanings and definitions forged
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`in the relevant federal cases." Id. at 618 (emphasis omitted). This
`
`presumption governs the interpretation of the contract "unless [the
`
`parties] expressly indicate otherwise." Id. at 620. The parties did
`
`not "expressly indicate otherwise," and the federal case law
`
`establishes that "customers," as that term is used in the policy
`
`exclusion, unambiguously encompasses retail investors.
`
`This conclusion is sufficient to end the inquiry into the
`
`meaning of "customers" as that term is used in the policy exclusion.
`
`But even if it were not, compelling evidence of industry usage -
`
`now
`
`before the Court as part of the summary judgment record -
`
`reinforces
`
`and confirms the Court's conclusion. As ACE recounts, on May 10,
`
`2012, NASDAQ's Chief Information Officer (Anna Ewing, a named
`
`defendant in the Facebook Class Action) made the following statement
`
`to analysts: "We process billions of transactions in a day at sub-
`
`microsecond speeds to millions of customers." Defs.' Rule 56.l Stmt.
`
`~ 6 (emphasis added). In referring to "millions of customers," Ewing
`
`was plainly referring to retail investors. 10 In the same vein, when
`
`9 The ACE D&O Policy defines "Securities Claim" as,
`Claim .
`alleging a violation of any federal
`statute .
`regulating securities." London Aff.,
`(as amended by Endorsement No. 12)
`
`inter alia, "any
`rule or
`Ex. F, § II.0.2
`
`io Beazley's suggestion that Ewing was not necessarily referring to
`NASDAQ's customers is unpersuasive. The fact that Ewing also used
`the term "customers" to refer to non-investors on the same call is
`irrelevant, as defendants have never contended that public investors
`are the only customers or clients that NASDAQ has. In addition,
`contrary to Beazley's assertion, Ewing's statement is not hearsay
`
`15
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`

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`Case 1:15-cv-05119-JSR Document 99 Filed 07/12/16 Page 16 of 34
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`the Chicago Mercantile Exchange launched its S&P Dow Jones Indices
`
`in 2012, its Executive Chairman and President Terry Duffy noted that
`
`"this new [joint venture]
`
`will create new risk management
`
`index products and trading opportunities for both our institutional
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`and retail customers around the world." Id. ~ 94_11
`
`Moreover, there are numerous allegations in the CAC itself in
`
`which the class members (~, retail investors in Facebook) are
`
`referred to as NASDAQ's "customers" or "customer base." See, e.g.,
`
`Kieffer Deel. dated Jan. 15, 2016, Ex. 2, ~ 8
`
`("NASDAQ's trading
`
`platforms and system failures directly prevented the majority of
`
`NASDAQ's customer base from knowing their true positions in Facebook
`
`"
`
`(emphasis added)); id. ~ 133 ("Defendants .
`
`put their
`
`own business interests ahead of the interests of NASDAQ's customers
`
`and members
`
`"
`
`(emphasis added)); id. ~ 216 ("[T]he majority
`
`of NASDAQ's customers were forced to carry significant positions in
`
`Facebook over the weekend
`
`"
`
`(emphasis added)). While the fact
`
`that the CAC alleges that the class members are "customers" of
`
`because it is not being offered for the truth of the matter
`asserted.
`
`11 Beazley submits that Duffy's reference to "retail customers" could
`"easily mean customers that provide services to retail investors,
`rather than the retail investors themselves." Beazley Opp. at 12.
`But, as with Beazley's proposed reading of Ewing's comment, this
`interpretation unreasonably strains the statement without any basis
`for doing so. And, as with Ewing's statement, Duffy's remark is not
`hearsay because it is not being offered for the truth of the matter
`asserted.
`
`16
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`

`
`Case 1:15-cv-05119-JSR Document 99 Filed 07/12/16 Page 17 of 34
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`NASDAQ does not make it so, the class members' self-identification
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`as "customers" of NASDAQ is notable.12
`
`Beazley, for its part, relies heavily, as it did in earlier
`
`motion practice, on the rule change proposal NASDAQ submitted to the
`
`SEC in July 2012. In that proposal, known as the "Accommodation
`
`Plan," NASDAQ sought to modify Nasdaq Rule 4626 to allow its members
`
`to submit claims for losses resulting from the error-ridden Facebook
`
`IPO that the members in turn could use to compensate retail
`
`investors. See Kieffer Deel. dated Jan. 15, 2016, Ex. 10, ECF No.
`
`74-10. Absent the modification, NASDAQ explained, its members would
`
`be limited to a $500,000 recovery, as opposed to the $62 million
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`available under the rule change, leaving retail investors without
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`meaningful recompense from NASDAQ. See id. at 45707. In its
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`proposal, NASDAQ also stated that "Nasdaq's business and legal
`
`relationships are with its members, not its members' customers.
`
`Nasdaq has no contractual or other relationships with its members'
`
`customers, and generally does not possess information about
`
`interactions between a member and its customer that may underlie
`
`members' trading activity." Id. at 45712. 13
`
`12 Beazley's contention that the CAC uses the terms "customers" and
`"customer base" to refer to NASDAQ's member firms and not retail
`investors is belied by the CAC's allegation that "Defendants .
`put their own business interests ahead of the interests of NASDAQ's
`customers and members." Kieffer Deel. dated Jan. 15, 2016, Ex. 2,
`~ 133. Such an allegation would be inexplicably redundant if
`Beazley's reading were correct.
`13 NASDAQ made similar statements in its briefing in the Facebook
`Class Action asserting, for example, that it has "no direct
`relationship at all with non-member investors," in seeking to avoid
`
`17
`
`

`
`Case 1:15-cv-05119-JSR Document 99 Filed 07/12/16 Page 18 of 34
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`In Beazley's view, these statements demonstrate that NASDAQ
`
`does not view retail investors as "customers" of the exchange, or at
`
`least create an ambiguity as to the meaning of "customer" in the
`
`"professional services" exclusion. The fact that retail investors
`
`are "customers" of NASDAQ's members, however, as is undisputed, does
`
`not preclude retail investors from also being "customers" of NASDAQ.
`
`To be sure, NASDAQ's disclaiming any "relationship" with its
`
`members' customers is arguably in tension with the aforementioned
`
`evidence of industry usage. But positions taken by NASDAQ against
`
`the backdrop of litigation are not nearly as probative of meaning
`
`and usage as statements made free of such considerations. Cf. House
`
`of Clean, Inc. v. St. Paul Fire & Marine Ins. Co., 775 F. Supp. 2d
`
`302, 316 (D. Mass. 2011)
`
`("[W]hen statements are made for the
`
`purposes of litigation, the potential motivation of the [speaker]
`
`undermines the statements' trustworthiness.") . 1 4
`
`Taking all the foregoing evidence of usage together, the Court
`
`concludes that a "reasonably intelligent person
`
`. who is
`
`liability to retail investors. Kieffer Deel. dated Jan. 15, 2016,
`Ex. 18 at 22, ECF No. 74-18.
`
`1 4 In its discussion of extrinsic evidence, Beazley also points to
`two successive "Computer Crime" insurance policies issued by ACE to
`NASDAQ in which "customer" and "client" are defined to cover
`specific entities with specific types of "written agreements" with
`NASDAQ. See Deel. of Kevin Kieffer in Opp. to Ace Am. Ins. Co.'s and
`Ill. Nat'l Ins. Co.'s Mots. for Summ J. dated Jan. 29, 2016, Exs. V,
`W (filed under seal). The narrow definitions of these terms in
`policies insuring against such entirely different risks are simply
`not relevant to the interpretation of "customer or client" in the
`"professional services" exclusion.
`
`18
`
`

`
`Case 1:15-cv-05119-JSR Document 99 Filed 07/12/16 Page 19 of 34
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`cognizant of the customs, practices, usages and terminology as
`
`generally understood in the [industry]" would understand
`
`"customers," as that term is used in the "professional services"
`
`exclusion, to unambiguously encompass retail investors. Int'l
`
`Multifoods Corp., 309 F.3d at 87 n.4. Accordingly, the first prong
`
`of the exclusion is satisfied. 1 5
`
`Because the Court finds no genuine ambiguity, it need not
`
`evaluate the parties' extrinsic evidence of the contracting parties'
`
`intent. However, the Court notes that Beazley misapprehends the law
`
`in suggesting that if the Court were to find an ambiguity, then the
`
`