13-1980-cv In re: Merrill Lynch & Co., Inc.
UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT
SUMMARY ORDER RULINGS BY SUMMARY ORDER DO NOT HAVE PRECEDENTIAL EFFECT. CITATION TO A SUMMARY ORDER FILED ON OR AFTER JANUARY 1, 2007, IS PERMITTED AND IS GOVERNED BY FEDERAL RULE OF APPELLATE PROCEDURE 32.1 AND THIS COURT’S LOCAL RULE 32.1.1. WHEN CITING A SUMMARY ORDER IN A DOCUMENT FILED WITH THIS COURT, A PARTY MUST CITE EITHER THE FEDERAL APPENDIX OR AN ELECTRONIC DATABASE (WITH THE NOTATION “SUMMARY ORDER”). A PARTY CITING A SUMMARY ORDER MUST SERVE A COPY OF IT ON ANY PARTY NOT REPRESENTED BY COUNSEL.
1 At a stated term of the United States Court of Appeals 2 for the Second Circuit, held at the Thurgood Marshall United 3 States Courthouse, 40 Foley Square, in the City of New York, 4 on the 25th day of June, two thousand fourteen. 5 6 PRESENT: DENNIS JACOBS, 7 PIERRE N. LEVAL, 8 ROSEMARY S. POOLER, 9 Circuit Judges. 10 11 - - - - - - - - - - - - - - - - - - - -X 12 LOUISIANA PACIFIC CORPORATION, 13 Plaintiff-Appellant, 14 15 -v.- 13-1980-cv 16 17 MERRILL LYNCH & CO., INC., and MERRILL 18 LYNCH, PIERCE, FENNER & SMITH, 19 INCORPORATED, 20 Defendants-Appellees.1 21 - - - - - - - - - - - - - - - - - - - -X 22
1 The Clerk of Court is directed to amend the case caption as above. 1 1 FOR APPELLANT: SHAWN RAITER (with Paul A. Sand 2 on the brief), Larson King, LLP, 3 St. Paul, Minnesota. 4 5 Mark A. Fuchs, Vice President, 6 General Counsel and Corporate 7 Secretary, Louisiana Pacific 8 Corporation, Nashville, 9 Tennessee, on the brief. 10 11 FOR APPELLEES: ANDREW STERN (with Alex J. 12 Kaplan and Tom A. Paskowitz on 13 the brief), Sidley Austin LLP, 14 New York, New York. 15 16 Appeal from a judgment of the United States District 17 Court for the Southern District of New York (Preska, C.J.). 18 19 UPON DUE CONSIDERATION, IT IS HEREBY ORDERED, ADJUDGED 20 AND DECREED that the judgment of the district court be 21 AFFIRMED. 22 23 Plaintiff-appellant Louisiana Pacific Corporation 24 (“Louisiana Pacific”) appeals from a final judgment, entered 25 on April 17, 2013, dismissing with prejudice all of 26 Louisiana Pacific’s claims against Merrill Lynch & Co., Inc. 27 (“Merrill”), and Merrill Lynch, Pierce, Fenner & Smith 28 Incorporated (“MLPFS”) (collectively, “Defendants”). See 29 La. Pac. Corp. v. Money Mkt. 1 Institutional Inv. Dealer, 30 851 F. Supp. 2d 512 (S.D.N.Y. 2012).2 We assume the 31 parties’ familiarity with the underlying facts, the 32 procedural history of the case, and the issues on appeal. 33 34 Between February 2007 and July 2007, Louisiana Pacific 35 purchased more than $50 million in auction rate securities 36 (“ARS”) at auctions managed by Defendants. When Defendants
2 Louisiana Pacific also brought suit against Deutsche Bank Securities, Inc. (“Deutsche Bank”) and Money Market 1 Institutional Investment Dealer (“MM1”). These matters were transferred to the Southern District of New York for coordinated pretrial proceedings by the Judicial Panel on Multidistrict Litigation, after which Louisiana Pacific’s claims against Deutsche Bank were severed and remanded to the Northern District of California. Louisiana Pacific obtained a default judgment against MM1. 2 1 withdrew their support from the ARS market on February 13, 2 2008, Louisiana Pacific was left holding illiquid long-term 3 financial instruments. See generally Wilson v. Merrill 4 Lynch & Co., 671 F.3d 120, 123-28 (2d Cir. 2011). 5 6 On these basic facts, Louisiana Pacific asserts claims 7 against MLPFS for market manipulation and material 8 misstatements or omissions under section 10(b) of the 9 Exchange Act and Rule 10b-5 promulgated thereunder. See 15 10 U.S.C. § 78j(b); 17 C.F.R. § 240.10b-5. It also asserts a 11 control-person liability claim against Merrill Lynch & Co. 12 under section 20(a) of the Exchange Act. See 15 U.S.C. 13 § 78t(a). Finally, it asserts claims against Defendants 14 under California law and common law. 15 16 We review de novo the district court’s dismissal of 17 these claims, accepting all non-conclusory factual 18 allegations as true and drawing all reasonable inferences in 19 the Louisiana Pacific’s favor. Generally, a complaint must 20 plead sufficient facts to “raise a right to relief above the 21 speculative level” and to “state a claim to relief that is 22 plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 23 544, 555, 570 (2007). Louisiana Pacific’s securities fraud 24 claims must be pleaded “with particularity” and, to the 25 extent an allegation is made on information and belief, “all 26 facts on which that belief is formed” must also be pleaded 27 with particularity. 15 U.S.C. § 78u-4(b)(1) (2012); see 28 also ATSI Communs., Inc. v. Shaar Fund, Ltd., 493 F.3d 87, 29 101 (2d Cir. 2007) (“Because a claim for market manipulation 30 is a claim for fraud, it must be pled with particularity 31 under [Federal Rule of Civil Procedure] 9(b).”). 32 33 A. Federal Securities Fraud Claims 34 35 To state a misrepresentation claim under section 10(b) 36 and Rule 10b-5, the complaint must “allege that the 37 defendant[s] (1) made misstatements or omissions of material 38 fact, (2) with scienter, (3) in connection with the purchase 39 or sale of securities, (4) upon which the plaintiff relied, 40 and (5) that the plaintiff’s reliance was the proximate 41 cause of its injury.” Stoneridge Inv. Partners, LLC v. 42 Scientific-Atlanta, 552 U.S. 148, 157 (2008). To state a 43 market manipulation claim, the complaint must “allege (1) 44 manipulative acts; (2) damage (3) caused by reliance on an 45 assumption of an efficient market free of manipulation; (4) 46 scienter; (5) in connection with the purchase or sale of 47 securities; (6) furthered by the defendant’s use of the
3 1 mails or any facility of a national securities exchange.” 2 ATSI, 493 F.3d at 101. 3 4 Having conducted an independent and de novo review of 5 the record in light of these principles, we affirm the 6 dismissal of these claims. See La. Pac. Corp., 851 F. Supp. 7 2d at 525-28 (S.D.N.Y. 2012). 8 9 Louisiana Pacific’s misstatement and manipulation 10 claims boil down to two basic points: (1) MLPFS’s support 11 bidding affected the clearing rate of the auctions and (2) 12 MLPFS’s ARS market activities created a false appearance of 13 liquidity and thereby artificially inflated prices paid for 14 ARS. We have thrice rejected this theory of liability on 15 the grounds that investors were sufficiently on notice of 16 the liquidity risks inherent in ARS (and the market was 17 therefore not misled) because the SEC cease-and-desist order 18 dated May 31, 2006 and Defendants’ online disclosure of its 19 ARS practices and procedures sufficiently disclosed that 20 auction managers could--and did--intervene in, and set 21 clearing rates for, their own auctions. See Cellular South 22 Inc. v. Merrill, Lynch, Pierce, Fenner & Smith, Inc., 516 F. 23 App’x 30, 32 (2d Cir. 2013) (summary order), Anschutz Corp. 24 v.
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13-1980-cv In re: Merrill Lynch & Co., Inc.
UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT
SUMMARY ORDER RULINGS BY SUMMARY ORDER DO NOT HAVE PRECEDENTIAL EFFECT. CITATION TO A SUMMARY ORDER FILED ON OR AFTER JANUARY 1, 2007, IS PERMITTED AND IS GOVERNED BY FEDERAL RULE OF APPELLATE PROCEDURE 32.1 AND THIS COURT’S LOCAL RULE 32.1.1. WHEN CITING A SUMMARY ORDER IN A DOCUMENT FILED WITH THIS COURT, A PARTY MUST CITE EITHER THE FEDERAL APPENDIX OR AN ELECTRONIC DATABASE (WITH THE NOTATION “SUMMARY ORDER”). A PARTY CITING A SUMMARY ORDER MUST SERVE A COPY OF IT ON ANY PARTY NOT REPRESENTED BY COUNSEL.
1 At a stated term of the United States Court of Appeals 2 for the Second Circuit, held at the Thurgood Marshall United 3 States Courthouse, 40 Foley Square, in the City of New York, 4 on the 25th day of June, two thousand fourteen. 5 6 PRESENT: DENNIS JACOBS, 7 PIERRE N. LEVAL, 8 ROSEMARY S. POOLER, 9 Circuit Judges. 10 11 - - - - - - - - - - - - - - - - - - - -X 12 LOUISIANA PACIFIC CORPORATION, 13 Plaintiff-Appellant, 14 15 -v.- 13-1980-cv 16 17 MERRILL LYNCH & CO., INC., and MERRILL 18 LYNCH, PIERCE, FENNER & SMITH, 19 INCORPORATED, 20 Defendants-Appellees.1 21 - - - - - - - - - - - - - - - - - - - -X 22
1 The Clerk of Court is directed to amend the case caption as above. 1 1 FOR APPELLANT: SHAWN RAITER (with Paul A. Sand 2 on the brief), Larson King, LLP, 3 St. Paul, Minnesota. 4 5 Mark A. Fuchs, Vice President, 6 General Counsel and Corporate 7 Secretary, Louisiana Pacific 8 Corporation, Nashville, 9 Tennessee, on the brief. 10 11 FOR APPELLEES: ANDREW STERN (with Alex J. 12 Kaplan and Tom A. Paskowitz on 13 the brief), Sidley Austin LLP, 14 New York, New York. 15 16 Appeal from a judgment of the United States District 17 Court for the Southern District of New York (Preska, C.J.). 18 19 UPON DUE CONSIDERATION, IT IS HEREBY ORDERED, ADJUDGED 20 AND DECREED that the judgment of the district court be 21 AFFIRMED. 22 23 Plaintiff-appellant Louisiana Pacific Corporation 24 (“Louisiana Pacific”) appeals from a final judgment, entered 25 on April 17, 2013, dismissing with prejudice all of 26 Louisiana Pacific’s claims against Merrill Lynch & Co., Inc. 27 (“Merrill”), and Merrill Lynch, Pierce, Fenner & Smith 28 Incorporated (“MLPFS”) (collectively, “Defendants”). See 29 La. Pac. Corp. v. Money Mkt. 1 Institutional Inv. Dealer, 30 851 F. Supp. 2d 512 (S.D.N.Y. 2012).2 We assume the 31 parties’ familiarity with the underlying facts, the 32 procedural history of the case, and the issues on appeal. 33 34 Between February 2007 and July 2007, Louisiana Pacific 35 purchased more than $50 million in auction rate securities 36 (“ARS”) at auctions managed by Defendants. When Defendants
2 Louisiana Pacific also brought suit against Deutsche Bank Securities, Inc. (“Deutsche Bank”) and Money Market 1 Institutional Investment Dealer (“MM1”). These matters were transferred to the Southern District of New York for coordinated pretrial proceedings by the Judicial Panel on Multidistrict Litigation, after which Louisiana Pacific’s claims against Deutsche Bank were severed and remanded to the Northern District of California. Louisiana Pacific obtained a default judgment against MM1. 2 1 withdrew their support from the ARS market on February 13, 2 2008, Louisiana Pacific was left holding illiquid long-term 3 financial instruments. See generally Wilson v. Merrill 4 Lynch & Co., 671 F.3d 120, 123-28 (2d Cir. 2011). 5 6 On these basic facts, Louisiana Pacific asserts claims 7 against MLPFS for market manipulation and material 8 misstatements or omissions under section 10(b) of the 9 Exchange Act and Rule 10b-5 promulgated thereunder. See 15 10 U.S.C. § 78j(b); 17 C.F.R. § 240.10b-5. It also asserts a 11 control-person liability claim against Merrill Lynch & Co. 12 under section 20(a) of the Exchange Act. See 15 U.S.C. 13 § 78t(a). Finally, it asserts claims against Defendants 14 under California law and common law. 15 16 We review de novo the district court’s dismissal of 17 these claims, accepting all non-conclusory factual 18 allegations as true and drawing all reasonable inferences in 19 the Louisiana Pacific’s favor. Generally, a complaint must 20 plead sufficient facts to “raise a right to relief above the 21 speculative level” and to “state a claim to relief that is 22 plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 23 544, 555, 570 (2007). Louisiana Pacific’s securities fraud 24 claims must be pleaded “with particularity” and, to the 25 extent an allegation is made on information and belief, “all 26 facts on which that belief is formed” must also be pleaded 27 with particularity. 15 U.S.C. § 78u-4(b)(1) (2012); see 28 also ATSI Communs., Inc. v. Shaar Fund, Ltd., 493 F.3d 87, 29 101 (2d Cir. 2007) (“Because a claim for market manipulation 30 is a claim for fraud, it must be pled with particularity 31 under [Federal Rule of Civil Procedure] 9(b).”). 32 33 A. Federal Securities Fraud Claims 34 35 To state a misrepresentation claim under section 10(b) 36 and Rule 10b-5, the complaint must “allege that the 37 defendant[s] (1) made misstatements or omissions of material 38 fact, (2) with scienter, (3) in connection with the purchase 39 or sale of securities, (4) upon which the plaintiff relied, 40 and (5) that the plaintiff’s reliance was the proximate 41 cause of its injury.” Stoneridge Inv. Partners, LLC v. 42 Scientific-Atlanta, 552 U.S. 148, 157 (2008). To state a 43 market manipulation claim, the complaint must “allege (1) 44 manipulative acts; (2) damage (3) caused by reliance on an 45 assumption of an efficient market free of manipulation; (4) 46 scienter; (5) in connection with the purchase or sale of 47 securities; (6) furthered by the defendant’s use of the
3 1 mails or any facility of a national securities exchange.” 2 ATSI, 493 F.3d at 101. 3 4 Having conducted an independent and de novo review of 5 the record in light of these principles, we affirm the 6 dismissal of these claims. See La. Pac. Corp., 851 F. Supp. 7 2d at 525-28 (S.D.N.Y. 2012). 8 9 Louisiana Pacific’s misstatement and manipulation 10 claims boil down to two basic points: (1) MLPFS’s support 11 bidding affected the clearing rate of the auctions and (2) 12 MLPFS’s ARS market activities created a false appearance of 13 liquidity and thereby artificially inflated prices paid for 14 ARS. We have thrice rejected this theory of liability on 15 the grounds that investors were sufficiently on notice of 16 the liquidity risks inherent in ARS (and the market was 17 therefore not misled) because the SEC cease-and-desist order 18 dated May 31, 2006 and Defendants’ online disclosure of its 19 ARS practices and procedures sufficiently disclosed that 20 auction managers could--and did--intervene in, and set 21 clearing rates for, their own auctions. See Cellular South 22 Inc. v. Merrill, Lynch, Pierce, Fenner & Smith, Inc., 516 F. 23 App’x 30, 32 (2d Cir. 2013) (summary order), Anschutz Corp. 24 v. Merrill Lynch & Co., 690 F.3d 98, 108-09 (2d Cir. 2012); 25 Wilson, 671 F.3d at 131-32. 26 27 Like the plaintiffs in Anschutz, Louisiana Pacific has 28 attempted has attempted to save its claims by leveraging a 29 passage in Wilson leaving open the possibility that a 30 “hypothetical complaint” might state a claim by alleging 31 that, “as of the time of [plaintiff’s] purchase, Merrill 32 [and/or MPFLS] presently intended to place bids in every 33 single auction, knew that each auction would fail if it did 34 not place these bids, and signaled to its ARS investors that 35 these securities were genuinely liquid.”3 Wilson, 671 F.3d
3 Plaintiffs may be placing more weight on that passage than it can bear. As explained in Wilson, “[e]ven if we were to construe the complaint as attempting to plead that Merrill, at least for a time, placed support bids in every single auction for Merrill ARS, we do not see how that allegation can be actionable given Merrill’s disclosure that it ‘may routinely’ place such bids.” 671 F.3d at 133; see also Anschutz, 690 F.3d at 110 (explaining that after the website disclosure, investors who had purchased “had the option to buy, sell, or hold the ARS at issue. By that time, [such investors] w[ere] fully informed of Merrill 4 1 at 139. Louisiana Pacific’s allegations, however, are 2 materially indistinguishable from those in Anschutz and 3 Wilson. “In short, the [complaint] fails to state a claim 4 for violation of the federal securities laws, not because it 5 lacks magic words prescribed by Wilson, but because, like 6 the complaint[s] we rejected in [Wilson and Anschutz],” 7 Louisiana Pacific’s “generalized and conclusory allegations 8 are not ‘well-pleaded.’” Anschutz, 690 F.3d at 110 (citing 9 Wilson, 671 F.3d at 139); see also Appellees’ Br. 30-38 10 (comparing the material allegations of Louisiana Pacific’s 11 complaint with those filed by the Wilson and Anschutz 12 plaintiffs).4 13 14 B. State Law & Common Law Claims 15 16 After a de novo review of the record, we conclude that 17 Louisiana Pacific’s state law and common law claims were 18 properly denied for substantially the same reasons stated by 19 the district court. See La. Pac. Corp., 851 F. Supp. 2d at 20 530-31. 21 22 For the foregoing reasons, and finding no merit in 23 Louisiana Pacific’s other arguments, we hereby AFFIRM the 24 judgment of the district court. 25 26 FOR THE COURT: 27 CATHERINE O’HAGAN WOLFE, CLERK 28
Lynch’s ARS practices, and [those that still decided to hold [have no actionable claim for fraud].”). How Rule 10b-5 claims against these Defendants could survive such holdings is unclear. Cf. Gurary v. Winehouse, 190 F.3d 37, 45 (2d Cir. 1999) (“The gravamen of manipulation is deception of investors into believing that prices at which they purchase and sell securities are determined by the natural interplay of supply and demand, not rigged by manipulators.”). 4 Having concluded that Louisiana Pacific failed to state a claim for any primary violation of the securities laws, we affirm the district court’s dismissal of its Section 20(a) claim alleging that Merrill Lynch & Co. is liable as a controlling person. See SEC v. First Jersey Sec., Inc., 101 F.3d 1450, 1472 (2d Cir. 1996). 5