Perez v. Higher One Holdings, Inc. et al
ORDER: For the reasons set forth in the attached ruling, the motion to dismiss (Doc. No. 90 ) is hereby GRANTED in part and DENIED in part. The motion to dismiss is being granted with respect to the false statements alleged in paragraphs 89, 91 and 93. Signed by Judge Alvin W. Thompson on 9/25/17. (Mata, E.)
UNITED STATES DISTRICT COURT
DISTRICT OF CONNECTICUT
-------------------------------BRIAN PEREZ, INDIVIDUALLY and on
behalf of all others similarly
situated, and ROBERT E. LEE,
HIGHER ONE HOLDINGS, INC., MARK :
VOLCHECK, CHRISTOPHER WOLF,
JEFFREY WALLACE, MILES LASATER, :
DEAN HATTON, and PATRICK
Civil No. 3:14-cv-755(AWT)
RULING ON MOTION TO DISMISS
Lead plaintiff Brian Perez and additional plaintiff Robert
E. Lee bring this class action on behalf of all persons, other
than the defendants and their affiliates, who purchased Higher
One Holdings, Inc. (“Higher One”) securities during the period
from August 7, 2012 to August 6, 2014 (the “Class Period”).
plaintiffs allege two claims for violations of the Securities
Exchange Action of 1934 (the “Exchange Act”), under Sections
10(b) and 20(a) of the Exchange Act and Rule 10b-5, 17 C.F.R. §
The defendants, Higher One and current or former
executives at and/or directors of Higher One, have moved to
dismiss the plaintiffs’ Second Amended Complaint.
reasons set forth below, the defendants’ motion to dismiss is
being granted in part, i.e. with respect to the false statements
alleged in paragraphs 89, 91 and 93 of the Second Amended
Defendant Higher One was co-founded in 2000 and is
headquartered in New Haven, Connecticut.
The company provides
products and services to higher education institutions and to
Those services include financial aid refund
disbursements, educational institution performance analytics,
banking services, tuition payment plans, and financial
Its products include a line of electronic refund
management and disbursement products and retail banking
products, including federally insured online deposit and
checking accounts (“OneAccounts”) and a debit card.
provides its services and products to more than 1,900 campuses
and 13 million students across the country.
Defendant Mark Volchek (“Volcheck”) was a co-founder of
Higher One, and from June 2012 to April 2014 he served as Chief
Executive Officer (“CEO”); he was a Director throughout the
Defendant Miles Lasater (“Lasater”) was a co-
founder of Higher One and, during the Class Period, he served as
its President, Chief Operating Officer (“COO”), and a Director.
He left the COO position in May 2013 and resigned as President
in January 2014.
Defendant Christopher Wolf (“Wolf”) has served
as Higher One’s Chief Financial Officer (“CFO”) since March
Defendant Jeffrey Wallace (“Wallace”) has served as
Higher One’s President of Finance at all relevant times.
Defendant Dean Hatton (“Hatton”) was President and CEO prior to
the Class Period and was a Director during most of the Class
Defendant Patrick McFadden (“McFadden”) served as a
Director and Chairman of the Board’s Audit Committee throughout
the Class Period.
II. LEGAL STANDARD
When deciding a motion to dismiss under Rule 12(b)(6), the
court must accept as true all factual allegations in the
complaint and must draw inferences in a light most favorable to
Scheuer v. Rhodes, 416 U.S. 232, 236 (1974).
Although a complaint “does not need detailed factual
allegations, a plaintiff's obligation to provide the ‘grounds'
of his ‘entitle[ment] to relief’ requires more than labels and
conclusions, and a formulaic recitation of the elements of a
cause of action will not do.” Bell Atlantic Corp. v. Twombly,
550 U.S. 544, 555 (2007) (citing Papasan v. Allain, 478 U.S.
265, 286 (1986) (on a motion to dismiss, courts “are not bound
to accept as true a legal conclusion couched as a factual
“Nor does a complaint suffice if it tenders
naked assertions devoid of further factual enhancement.”
Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Twombly,
550 U.S. at 557).
“Factual allegations must be enough to raise
a right to relief above the speculative level, on the assumption
that all allegations in the complaint are true (even if doubtful
Twombly, 550 U.S. at 555 (citations omitted).
However, the plaintiff must plead “only enough facts to state a
claim to relief that is plausible on its face.” Id. at 570.
“The function of a motion to dismiss is ‘merely to assess the
legal feasibility of the complaint, not to assay the weight of
the evidence which might be offered in support thereof.’”
Mytych v. May Dept. Stores Co., 34 F.Supp.2d 130, 131 (D. Conn.
1999) (quoting Ryder Energy Distrib. v. Merrill Lynch
Commodities, Inc., 748 F.2d 774, 779 (2d Cir. 1984)).
issue on a motion to dismiss is not whether the plaintiff will
prevail, but whether the plaintiff is entitled to offer evidence
to support his claims.”
United States v. Yale New Haven Hosp.,
727 F. Supp. 784, 786 (D. Conn. 1990) (citing Scheuer, 416 U.S.
In its review of a motion to dismiss for failure to state a
claim, the court may consider “only the facts alleged in the
pleadings, documents attached as exhibits or incorporated by
reference in the pleadings and matters of which judicial notice
may be taken.”
Samuels v. Air Transp. Local 504, 992 F.2d 12,
15 (2d Cir. 1993).
The court may consider a document if “the
complaint ‘relies heavily upon its terms and effect,’ which
renders the document ‘integral’ to the complaint.”
Time Warner, Inc., 282 F.3d 147, 153 (2d Cir. 2002) (quoting
Int'l Audiotext Network, Inc. v. Amer. Tel. and Tel. Co., 62
F.3d 69, 72 (2d Cir. 1995)).
“[A] plaintiff's reliance on the
terms and effect of a document in drafting the complaint is a
necessary prerequisite to the court's consideration of the
document on a dismissal motion; mere notice or possession is not
Id. (citing Cortec Indus., Inc. v. Sum Holding L.P.,
949 F.2d 42, 47–48 (2d Cir. 1991)).
The court may also consider
“public disclosure documents required by law to be, and that
have been, filed with the SEC.”
Rothman v. Gregor, 220 F.3d 81,
88 (2d Cir. 2000).
Federal Rule of Civil Procedure 8(a) requires that a
pleading contain “a short and plain statement of the claim
showing that the pleader is entitled to relief.”
Fed. R. Civ.
However, allegations of securities fraud pled under
§ 10(b) of the Exchange Act and Rule 10b–5 are subject to the
pleading requirements of Federal Rule of Civil Procedure Rule
See Shields v. Citytrust Bancorp, Inc., 25 F.3d 1124,
1127 (2d Cir. 1994).
Rule 9(b) provides: “In alleging fraud or
mistake, a party must state with particularity the circumstances
constituting fraud or mistake. Malice, intent, knowledge, and
other conditions of a person's mind may be alleged generally.”
Fed. R. Civ. P. 9(b).
“[A] complaint making such allegations
must ‘(1) specify the statements that the plaintiff contends
were fraudulent, (2) identify the speaker, (3) state where and
when the statements were made, and (4) explain why the
statements were fraudulent.’”
Shields, 25 F.3d at 1127–28
(quoting Mills v. Polar Molecular Corp., 12 F.3d 1170, 1175 (2d
Similarly, the Private Securities Litigation Reform Act of
1995 (“PSLRA”) requires that when a plaintiff claims that the
defendant has made an untrue statement of a material fact or
omitted a material fact necessary to make a statement not
misleading, the plaintiff must “specify each statement alleged
to have been misleading [and] the reason or reasons why the
statement is misleading, and, if an allegation regarding the
statement or omission is made on information and belief, the
complaint shall state with particularity all facts on which that
belief is formed.”
15 U.S.C. § 78u–4(b)(1)(2010).
to state a claim for securities fraud, the plaintiff must “with
respect to each act or omission . . . state with particularity
facts giving rise to a strong inference that the defendant acted
with the required state of mind.” 15 U.S.C. § 78u–4(b)(2)(2010).
“The requisite state of mind in a Rule 10b-5 action is ‘an
intent to deceive, manipulate or defraud.’”
Ganino v. Citizens
Utils. Co., 228 F.3d 154, 168 (2d Cir. 2000) (quoting Ernst &
Ernst v. Hochfelder, 425 U.S. 185, 193 n. 12 (1976)).
The Second Amended Complaint alleges false or misleading
statements that the plaintiffs have recategorized as: (1) Higher
One’s legal compliance (“Legal Compliance Fraud”), (2)
termination of the banking partner relationship between Higher
One and Cole Taylor Bank (“Cole Taylor Fraud”), (3) Higher One’s
product transparency (“Products Transparency Fraud”), (4)
changes in Higher One’s practices as a result of the class
action settlement (“Class Action Resolution Fraud”) and (5)
false statements and omissions by Higher One in its public
statements and filings announcing its financial and operating
results (“Operating Results Fraud”).
The defendants argue that the Second Amended Complaint
should be dismissed because the plaintiffs have failed to plead
facts that show that the defendants made any actionable
statement or omission and because the plaintiffs have failed to
plead with particularity facts that establish a strong inference
To state a claim for violation of Section 10(b) and Rule
10b-5, a plaintiff must allege “(1) a material misrepresentation
or omission by the defendant; (2) scienter; (3) a connection
between the misrepresentation or omission and the purchase or
sale of a security; (4) reliance upon the misrepresentation or
omission; (5) economic loss; and (6) loss causation.”
Inc. v. Conn. Ret. Plan and Trust Funds, 133 S. Ct. 1184, 1192
(2013) (quoting Matrixx Initiatives, Inc. v. Siracusano, 563
U.S. 27, 37-38 (2011)).
A plaintiff must allege “that the defendant[s] made a
statement that was ‘misleading as to a material fact.’”
Initiatives, 563 U.S. at 38 (quoting Basic Inc. v. Levinson, 485
U.S. 224, 238 (1988)).
The “materiality requirement is
satisfied when there is ‘a substantial likelihood that the
disclosure of the omitted fact would have been viewed by the
reasonable investor as having significantly altered the “total
mix” of information made available.’”
Id., 563 U.S. at 38
(quoting Basic, 485 at 231-32 (2010)).
“[W]hen presented with a
Rule 12(b)(6) motion, ‘a complaint may not properly be dismissed
. . . on the ground that the alleged misstatements or omissions
are not material unless they are so obviously unimportant to a
reasonable investor that reasonable minds could not differ on
the question of their importance.’”
Ganino v. Citizens Utils.
Co., 228 F.3d 154, 162 (2d Cir. 2000) (quoting Goldman v.
Belden, 754 F.2d 1059, 1067 (2d Cir. 1985)). “While each
allegation of fraud must be sufficiently particularized,
allegations of materiality should not be considered in
Manavazian v. Atec Grp., Inc., 160 F. Supp. 2d 468,
478 (E.D.N.Y. 2001).
“[Section] 10(b) and Rule 10b-5(b) do not create an
affirmative duty to disclose any and all material information.
Disclosure is required under these provisions only when
necessary ‘to make . . . statements made, in the light of the
circumstances under which they were made, not misleading.’”
Matrixx Initiatives, 563 U.S. at 44 (quoting 17 CFR § 240.10b5(b)).
Courts distinguish between false or misleading statements
of fact and false or misleading statements of opinion.
Statements of opinion are considered false or misleading if at
the time a statement was made, “the speaker did not hold the
belief she professed” or “the supporting fact[s] she supplied
Omnicare, Inc. v. Laborers Dist. Council Constr.
Indus. Pension Fund, 135 S. Ct. 1318, 1327 (2015).
must identify particular (and material) facts going to
the basis for the issuer's opinion--facts about the
inquiry the issuer did or did not conduct or the
knowledge it did or did not have--whose omission makes
the opinion statement at issue misleading to a
reasonable person reading the statement fairly and in
Id at 1332.
“[O]pinions, though sincerely held and otherwise
true as a matter of fact, may nonetheless be actionable if the
speaker omits information whose omission makes the statement
misleading to a reasonable investor.”
Tongue v. Sanofi, 816
F.3d 199, 210 (2d Cir. 2016). “[A] reasonable investor, upon
hearing a statement of opinion from an issuer, ‘expects not just
that the issuer believes the opinion (however irrationally), but
that it fairly aligns with the information in the issuer's
possession at [the] time.’”
Id. (quoting Omnicare, 131 S. Ct.
At the same time, “[r]easonable investors understand
that opinions sometimes rest on a weighing of competing facts,”
and, therefore, “a statement of opinion ‘is not necessarily
misleading when an issuer knows, but fails to disclose, some
fact cutting the other way.’”
Id. (quoting Omnicare, 135 S. Ct.
“Adequacy of disclosure is not assessed by looking at a
single sentence in a vacuum, but rather the question is ‘whether
the defendants' representations, taken together and in context,
would have misled a reasonable investor.’”
Donaldson, Lufkin & Jenrette, Inc., 167 F. Supp. 2d 639, 649
(S.D.N.Y. 2001) (quoting McMahan & Co. v. Wherehouse Entm’t,
Inc., 900 F.2d 576, 579 (2d Cir. 1990)).
The central issue . . . is not whether the particular
statements, taken separately, were literally true, but
whether defendants' representations, taken together
and in context, would have mislead a reasonable
investor . . . . Some statements, although literally
accurate, can become, through their context and manner
of presentation, devices which mislead investors. For
that reason, the disclosure required by the securities
laws is measured not by literal truth, but by the
ability of the material to accurately inform rather
than mislead prospective buyers. . . . Even a
statement which is literally true, if susceptible to
investor may properly
McMahan & Co., 900 F.2d at 579 (citations, quotation marks, and
“Courts that have determined that corporations had a duty
to disclose uncharged illegal conduct in order to prevent other
statements from misleading the public have required a connection
between the illegal conduct and the statements.”
Stolt-Nielsen S.A., No. 3:03CV409(DJS), 2005 WL 3050970, at *7
(D. Conn. Nov. 10, 2005).
“The connection between the alleged
inaccurate statement and the underlying conduct may not be too
attenuated, and . . . must be pled with sufficient specificity.”
In re Axis Capital Holdings Ltd. Sec. Litig., 456 F. Supp. 2d
576, 588 (S.D.N.Y. 2006).
[A]bsent a duty to cure prior misleading statements,
[the defendant] was under no duty to disclose its
hyper-aggressive sales tactics and quota system or to
programs in a pejorative manner. This is because the
securities laws do not impose a general duty to
disclose corporate mismanagement or uncharged criminal
In re ITT Educ. Servs., Inc. Sec. & Shareholder Derivatives
Litig., 859 F. Supp. 2d 572, 579 (S.D.N.Y. 2012) (citations and
quotation marks omitted).
The court in In re ITT held that the
statements cited by plaintiffs were “not misleading because they
do not suggest that the undisclosed improper activity alleged by
Plaintiff was not occurring.”
See also In re FBR Inc. Sec.
Litig., 544 F. Supp. 2d 346, 358 (S.D.N.Y. 2008) (“[P]laintiffs
do not point to any specific statement in the press releases
that could be interpreted by a reasonable investor as suggesting
that the company or its executives had not assisted or
participated in a single . . . violation.”).
Legal Compliance Fraud
The defendants contend that the plaintiffs have not pled
facts showing that the statements regarding legal compliance
were false or misleading when made.
They argue that the
plaintiffs’ allegations regarding Higher One’s legal compliance
are conclusory and speculative.
It is insufficient under Rule
9(b) “to couple a factual statement with a conclusory allegation
of fraudulent intent.”
Shields, 25 F.3d at 1129.
defendants further contend that some of the allegedly fraudulent
statements were in fact optimistic statements and/or corporate
“[M]isguided optimism is not a cause of action, and
does not support an inference of fraud.
[Courts] have rejected
the legitimacy of alleging fraud by hindsight.”
citation and quotation marks omitted).
People in charge of an enterprise are not required to
take a gloomy, fearful or defeatist view of the
future; subject to what current data indicates, they
stewardship and the prospects of the business that
Id. at 1129-30.
The plaintiffs allege that the statements made by the
defendants that “[u]nder the terms of the [2012 FDIC] Consent
Order, we are required to, among other things, review and revise
our compliance management system and, to date, we have already
substantially revised our compliance management system[,]” and
that “[a]s a result of the Consent Order and completion of the
related examination, we believe that all material exposure
related to this matter has been recorded and we do not expect
any further losses as a result of this matter[,]” were
materially false and misleading.
Second Am. Compl. ¶¶ 75-79.
The defendants contend that the court has already held that
these statements “are not actionable under the securities laws
because they are, inter alia, merely expressions of corporate
optimism, puffery, and subjective belief.”
Def. Rep. 1 (Doc.
The court found with respect to these statements that
“the plaintiffs here have failed to plead facts establishing
falsity,” in part because there were no facts showing that the
three CWs, whose statements the plaintiffs relied upon to
establish falsity, had any personal knowledge or involvement in
the revision of Higher One’s compliance management system.
Ruling at 31-32 (Doc. No. 79).
With the inclusion of three additional CWs, and in
particular CW5, the plaintiffs have sufficiently pled falsity
with respect to the statement that Higher One had “substantially
revised [its] compliance management system,” as directed by the
2012 FDIC Consent Order.
“CW5 was a Compliance Assurance
Procedures Analyst at Higher One from August 2011 to October
2013[,]” who “was hired to help Higher One rework its banking
and compliance system,” and “wrote Higher One’s new banking
operations policies and procedures in the wake of the 2012 FDIC
Second Am. Compl. ¶ 33.
CW5 said that by
October 2013, “ten policies and procedures mandated by the 2012
FDIC Consent Order still needed to be written,” and ‘called
Higher One’s compliance program a ‘joke.’”
Second Am. Compl. ¶
CW5 also said that the “banking department head refused
to alter existing policies when CW5 pointed out problems and
told subordinates that Higher One did not have to comply with
banking rules and regulations because it was a technology
company, not a bank.”
Because the plaintiffs plead facts
demonstrating CW5’s personal knowledge of the compliance system,
and facts showing, inter alia, that the compliance management
system still lacked 10 necessary policies as of October 2013 -fourteen months after the defendants first published the
statement in their Form Q10, filed with the SEC on August 9,
2012 -- the plaintiffs have sufficiently pled the falsity of
this statement to survive a motion to dismiss.
With respect to the statement, “we believe that all
material exposure related to this matter has been recorded and
we do not expect any further losses as a result of this matter,”
the court held that “this matter” “referred to the FDIC
investigation and the specific violations regarding account
fees, misleading advertising, and other FTC Act violations
identified in the  FDIC Consent Order.”
Ruling at 32.
Because the plaintiffs did not plead facts creating a nexus
between the cited conduct and future violations, the court found
that the First Amended Complaint did not adequately plead facts
showing this statement was false or misleading.
In the Second Amended Complaint, however, the plaintiffs
added factual allegations that were not in their prior
complaint, including the statements from CW4, CW5 and CW6
regarding the defendants’ attitude toward compliance; statements
from CWs and the revelations from the later Federal Reserve
Cease and Desist Orders and 2015 FDIC Consent Order showing the
defendants continued the very conduct cited in the 2012 FDIC
Consent Order as constituting violations to the FTC Act; and
statements from CWs showing that the defendants received
warnings about their ongoing violative conduct from their own
employees and from their banking partner, Cole Taylor, before it
severed its relationship with Higher One.
Second Am. Compl. ¶
With the additions, the Second Amended Complaint
sufficiently alleges facts that, if proven, would show a nexus
between the conduct cited in the FDIC Consent Order and ongoing
violations later revealed, and that because the defendants did
not, in any material way, alter the cited conduct, the
defendants could not have reasonably believed their own
statements of corporate optimism -- that all exposure had been
recorded and that they did not expect any further losses related
to the violative conduct -- at the time the statements were
Accordingly, the plaintiffs have pled actionable
misstatements and omissions with respect to Higher One’s legal
Cole Taylor Fraud
The plaintiffs allege that the statements by the defendants
that they had “agreed to a mutual termination” of their banking
relationship with Cole Taylor were materially false and
The statement, in substantively identical but
slightly varied forms, appeared in Higher One’s Form 8-K, filed
with the SEC on February 12, 2013 (“2/12/2013 Cole Taylor 8-K”);
was made by Volchek and Lasater on 2/12/2013 Earnings Call; and
appeared in Higher One’s 2012 10-K, filed with the SEC on March
See Second Am. Compl. ¶¶ 83, 85, 87.
The court previously found that the plaintiffs had not
sufficiently pled facts to support an allegation that these
statements were materially false or misleading because, inter
alia, they had alleged no facts that the statement was false,
and instead, had relied upon a conclusory assertion that “[t]he
only plausible inference -- supported by the facts and common
sense -- is that Cole Taylor ended the relationship upon
learning of Higher One’s continuing misconduct and the risks to
Ruling at 42 (quoting Pls.’ Mem. at 36 (Doc. No.
The Second Amended Complaint contains additional factual
allegations not found in the prior complaint, however, including
new statements from CW4, who had direct personal knowledge that
Cole Taylor had expressed concerns to Higher One about its
business practices three to six months prior to the termination
of the relationship, and that C-level executives, including CW4,
discussed the fact that “Cole Taylor terminated its relationship
with Higher One in 2013 due to fears that Cole Taylor would end
up in regulatory trouble related to Higher One’s consent
agreement or lawsuits”; and CW4’s statements regarding the
degree to which Higher One depended upon its relationship with
Cole Taylor and Volckek’s and Lasater’s alleged insider sales
occurring during the same time period, giving rise to an
inference that Higher One would not and did not mutually agree
to terminate the relationship, but rather, Cole Taylor
unilaterally terminated the relationship.
¶ 70; see id at ¶ 73.
Second Am. Compl. at
These new factual allegations, if proven,
could support a conclusion that these statements by defendants
were materially false.
The court reaches a different conclusion, however, with
respect to the false statements alleged in paragraphs 89, 91 and
93 and discussed in paragraphs 89 through 94.
The plaintiffs allege that the defendants made other
statements related to the termination of the Cole Taylor
relationship or Higher One’s transition to other banking
relationships that were materially false or misleading by way of
See Second Am. Compl. at ¶¶ 89-94.
Higher One’s Form
8-K, filed with the SEC on July 18, 2013, and signed by Volchek
(“7/18/2013 8-K”), “stated that Higher One and Cole Taylor had
‘entered into an amendment . . . to the Deposit Processing
Services Agreement between them’ under which ‘the parties agreed
to extend the term of the Agreement to October 31, 2013,’” but
that “‘[a]fter August 31, 2013, Cole Taylor may provide deposit
services for a reduced number of accounts.’”
at ¶ 89.
Second Am. Compl.
The 7/18/2013 8-K first “discussed payments to Cole
Taylor for its services,” adding that “‘Higher One intends to
move all accounts held at Cole Taylor to its other bank partners
by August 31, 2013 and entered into the Amendment to help ensure
a smooth transition in the event that it is unable to transfer
all accounts by that date.’”
The plaintiffs allege that the statements made by Volchek
and Lasater during Higher One’s earnings call with analysts and
investors held on November 7, 2013 (“11/7/2013 Earnings Call”)
See Second Am. Compl. at ¶¶ 91-92.
prepared remarks included statements that “compliance and
regulations remain a key focus for Higher One,” and following a
discussion of changes made in conjunction with Higher One’s new
banking partnership with Customers Bank, Lasater added, “In the
past year, we have made changes to the fee structure by
OneAccount to alleviate concerns regarding fees charged to
Second Am. Compl. at ¶ 91.
Finally, the plaintiffs allege that the statements Higher
One made in its press release on February 13, 2014 (“2/13/2014
Press Release”), which was filed with the SEC as an exhibit to a
Form 8-K signed by Volchek (“2/13/2014 8-K”), in which Volchek
was quoted as saying, “We continue to operate in a difficult and
complex operating environment due in part to our relationships
with multiple bank partners that are overseen by different
Second Am. Compl. at ¶ 93.
The plaintiffs contend that each of these statements is
“materially false or misleading because it omitted the details”
about the true reason Cole Taylor terminated its relationship
with Higher One, and that “[h]aving chosen to discuss Higher
One’s banking partner relationships, Defendants Higher One and
Volchek were under a duty to speak the whole truth, which they
Second Am. Compl. at ¶¶ 90, 94.
The court concludes that the plaintiffs fail to plead facts
sufficient to substantiate their claims with regard to these
statements for substantially the reasons given in the court’s
See Ruling at 43-44.
As discussed there, “the
securities laws do not impose a general duty to disclose
corporate mismanagement or uncharged criminal conduct,” In re
ITT, 859 F. Supp. 2d at 579, and there must be “a connection
between the illegal conduct and the statements,” Menkes, 2005 WL
3050970, at *7.
None of these statements by the defendants
suggests that the Cole Taylor relationship termination was
mutual, or that the defendants were not engaging in the conduct
allegedly giving rise to the Cole Taylor termination.
Additionally, having discussed any of its banking relationships
generally is insufficient to give rise to an obligation to
disclose uncharged criminal conduct that one of its prior
banking partners found objectionable.
Indeed, had the
defendants included the information as to why Cole Taylor
terminated its relationship with Higher One, the statements
would be no more true than they are without the additional
Accordingly, these statements are not actionable,
and the motion to dismiss is being granted with respect to these
See Second Am. Compl. at ¶¶ 89-90, 93-
Accordingly, the motion to dismiss is being granted with
respect to the false statements alleged in paragraphs 89, 91 and
Products Transparency Fraud, Class Action Resolution
Fraud, and Operating Results Fraud__________________
The court agrees with the plaintiffs that the Second
Amended Complaint adequately pleads the false statements with
respect to the Products Transparency Fraud.
are identified in paragraph 96 (statements on August 7, 2012
earnings call), paragraphs 98 and 99 (response to question from
analyst on November 6, 2012 earnings call), and paragraph 101
(statements made with respect to positive changes purportedly
made to Higher Ones’ products and processes on earnings calls on
February 12, 2013, May 7, 2013, August 8, 2013, November 7,
2013, and February 13, 2013 and in the press release on August
The reasons these statements are false are alleged in
paragraphs 95, 97, 100, 102.
The court agrees with the plaintiffs that the Second
Amended Complaint adequately pleads false statements with
respect to the Class Action Resolution Fraud.
are identified in paragraphs 104 (statements with respect to
changes in practices Higher One had agreed to make as part of
the class action settlement made in the Form 10Q for the quarter
ending September 30, 2013, the press release on November 5,
2013, and the 2013 Form 10-K) and paragraph 106 (statements made
during the November 7, 2013 earnings call).
The reasons the
statements are false are alleged in paragraphs 103, 105, and
The court agrees with the plaintiffs that the Second
Amended Complaint adequately pleads false statements, with
respect to the Operating Results Fraud, which are identified in
paragraphs 109 through 116 (press releases and filings with the
SEC is announcing its financial and operating results for Q2
2012 through Q1 2014).
The reasons the statements are false are
alleged in paragraphs 108 and 117.
Accordingly the motion to dismiss is being denied with
respect to the Products Transparency Fraud, the Class Action
Resolution Fraud and the Operating Results Fraud.
“To establish liability under § 10(b) and Rule 10b–5, a
private plaintiff must prove that the defendant acted with
scienter, “‘a mental state embracing intent to deceive,
manipulate, or defraud.’”
Tellabs, Inc. v. Makor Issues &
Rights, Ltd., 551 U.S. 308, 319 (2007) (citing Ernst & Ernst,
425 U.S., at 193–194, and n. 12).
“A strong inference of
scienter may be established by alleging either ‘(1) that
defendants had the motive and opportunity to commit fraud, or
(2) strong circumstantial evidence of conscious misbehavior or
Poptech, L.P. v. Stewardship Inv. Advisors,
LLC, 849 F. Supp. 2d 249, 268 (D. Conn. 2012) (citing ECA &
Local 134 IBEW Joint Pension Trust of Chi. v. JP Morgan Chase
Co., 553 F.3d 187, 198 (2d Cir. 2009).
“[O]nly if a reasonable
person would deem the inference of scienter cogent and at least
as compelling as any opposing inference one could draw from the
Tellabs, 551 U.S. at 324.
if a plaintiff demonstrates only that an inference of scienter
is at least as compelling as any nonculpable explanation for the
defendant’s conduct, the tie goes to the plaintiff.”
849 F. Supp. 2d at 269 (quoting City of Brockton Ret. Sys. v.
Shaw Group, 540 F. Supp. 2d 464, 472 (S.D.N.Y. 2008)).
When determining whether the plaintiff has adequately plead
scienter, the court “must . . . evaluate ‘whether all of the
facts alleged, taken collectively, give rise to a strong
inference of scienter, not whether any individual allegation,
scrutinized in isolation, meets that standard.’”
F. Supp. 2d at 269 (quoting Tellabs, 551 U.S. at 322-323
See also Slayton v. Am. Express Co., 604
F.3d 758, 775 (2d Cir. 2010)(“We rest our conclusion “not on the
presence or absence of certain types of allegations, but on a
practical judgment about whether, accepting the whole factual
picture painted by the Complaint, it is at least as likely as
not that defendants acted with scienter.”) (citing Avaya, Inc.,
564 F.3d at 269).
The court agrees with the plaintiffs that the defendants
have offered no inference more compelling than the strong
inference of scienter pled in the Second Amended Complaint for
the reasons discussed by the plaintiffs in their opposition at
pages 26 to 37.
The plaintiffs have adequately alleged both
motive and opportunity and knowledge or recklessness.
The court agrees with the plaintiffs that the loss
causation allegations in the Second Amended Complaint are
virtually identical to those in the earlier complaint and that
there have been no material developments in the case law since
the defendants moved to dismiss the First Amended Complaint.
The court also agrees that under the circumstances present here
this argument was waived.
See Johnson v. Bryson, 851 F. Supp.
2d 688, 704-05 (S.D.N.Y. 2012) (“the filing of an amended
complaint will not revive the right to present by motion
defenses that were available but were not asserted in timely
fashion prior to the amendment of the pleading.”) (quoting 5C
Charles Alan Wright, Federal Practice & Procedure § 1388, at 491
(4th ed. 2009) (defendant waived venue defense by not raising it
in its prior motions to dismiss)).
In any event the court finds
persuasive the plaintiffs’ analysis as to why loss causation has
been sufficiently alleged.
Section 20(a) Claim
Because the plaintiffs have established a primary violation
of the securities laws, the motion to dismiss the Section 20(a)
claim, control person liability, is being denied.
For the reasons set forth above, the motion to dismiss
(Doc. No. 90) is hereby GRANTED in part and DENIED in part.
motion to dismiss is being granted with respect to the false
statements alleged in paragraphs 89, 91 and 93.
It is so ordered.
Dated this 25th day of September, 2017, at Hartford,
Alvin W. Thompson
United States District Judge
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