DURIGON v. THE TORONTO-DOMINION BANK et al

Filing 65

OPINION. Signed by Judge Noel L. Hillman on 12/6/2018. (dmr)

UNITED STATES DISTRICT COURT
DISTRICT OF NEW JERSEY

Civil No. 17-1665 (NLH/JS)
In re TORONTO-DOMINION BANK
SECURITIES LITIGATION

OPINION

APPEARANCES:
JEREMY A. LIEBERMAN
MATTHEW L. TUCCILLO
JENNIFER BANNER SOBERS
POMERANTZ LLP
600 THIRD AVENUE, 20TH FLOOR
NEW YORK, NY 10016
PATRICK V. DAHLSTROM
POMERANTZ LLP
10 SOUTH LA SALLE STREET, SUITE 3505
CHICAGO, IL 60603
BRUCE DANIEL GREENBERG
LITE DEPALMA GREENBERG, LLC
570 BROAD STREET
SUITE 1201
NEWARK, NJ 07102
Attorneys for Plaintiffs.
SUSAN M. LEMING
WILLIAM M. TAMBUSSI
BROWN & CONNERY, LLP
360 HADDON AVENUE
WESTMONT, NJ 08108
RICHARD C. PEPPERMAN, II
MATTHEW A. PELLER
SULLIVAN & CROMWELL LLP
125 BROAD STREET
NEW YORK, NEW YORK 10004

Attorneys for Defendants The Toronto-Dominion Bank, Bharat
Masrani, Colleen Johnston, Riaz Ahmed, Teri Currie, Leo Salom,
Mike Pedersen, Mark Chauvin.
HILLMAN, District Judge
This case is a putative securities class action concerning
alleged material misrepresentations or omissions made by
Defendants.

Presently before the Court are two motions.

First

is Defendants’ Motion to Dismiss Plaintiffs’ First Amended
Complaint.

Second, is Plaintiffs’ Motion to File a Sur-Reply.

For the reasons expressed herein, Defendants’ motion will be
granted, in part, and denied, in part.

Plaintiffs’ motion will

be granted.
BACKGROUND
We take our brief recitation of the facts from Plaintiffs’
First Amended Class Action Complaint (“FAC”).

This is a

putative securities class action asserted against Defendant
Toronto-Dominion Bank (“TD Bank”) and several TD Bank executives
(collectively, “Individual Defendants”).

The executives include

Bharat Masrani, CEO, Riaz Ahmed, CFO, Teri Currie, Group Head,
Canadian Personal Banking, Leo Salom, Group Head, Wealth
Management and TD Insurance, TD Bank Group (formerly, Executive
Vice President, Wealth Management), Mike Pedersen, President and
CEO until October 27, 2016 (formerly, Group Head, U.S. Banking),
and Mark Chauvin, Group Head and Chief Risk Officer.

2

The

putative class consists of those who held United States-traded,
TD Bank stock between December 3, 2015 and March 9, 2017,
inclusive.
The securities claims are centered around TD’s public
statements about (1) strong risk management, (2) solid organic
growth, and (3) growth in the Canadian Retail segment.
statements, Plaintiffs allege, were false.

Those

Instead, Plaintiffs

allege that a “highly pressurized work environment” and “forced
sales targets” – among other things – led to violations of TD
Bank’s Code of Conduct, behavior that “exceeded TD’s articulated
risk appetite,” and possibly illegal activity.

Plaintiffs

suggest that these allegations are supported by hundreds of
confidential witnesses (“CWs”). 1
The FAC presents statements from nineteen CWs, who are nonparties.

Those individuals and their statements are discussed

as relevant, infra.

The CWs statements generally allege that TD

Bank implemented a strict sales quota on tellers, loan advisors,
financial advisors, and customer service representatives.

These

sales quotas were consistently used by management to both reward
and punish TD Bank employees.

This so-called high-pressure

environment led tellers to allegedly sign up customers – without

1

To be clear, the FAC does not include statements from hundreds
of CWs. Instead, it contains statements from nineteen. The
hundreds of others allegedly gave information that was used in
March 6 and 10, 2017 CBC News reports.
3

authorization – for TD Bank products, services, and accounts.
This also led loan advisors to bend rules and guidelines –
governing TD Bank’s risk tolerance – in order to authorize a
higher percentage of loans.

Managers (at various levels) and

the human resources department were unable to stop these
unauthorized sales because it was the employees’ word versus the
customers’ word, and serious discipline would only occur if the
manager had personal knowledge of an unauthorized sale.
Plaintiffs complain of statements made in press releases,
SEC filings, TD Bank’s Code of Conduct, and investor
teleconferences by TD Bank and Individual Defendants, which they
say contradict the alleged experience of the CWs.
statements will be discussed as relevant, infra.

These
Generally,

Plaintiffs have separated these statements into three fraud
categories: (1) risk management and internal controls fraud, (2)
business operations fraud, and (3) reported results fraud.
Plaintiffs filed their first complaint on March 12, 2017.
This Court consolidated this case with a similar action filed by
Janet Tucci (No. 1:17-cv-1735 (NLH/JS)) and appointed Plaintiff
Ethan Silverman as the lead plaintiff on December 13, 2017.
Plaintiffs filed the operative FAC on March 5, 2018, alleging
two counts.

First, Plaintiffs allege violations of Section

10(b) of Securities Exchange Act of 1934 (the “Exchange Act”)
and Securities and Exchange Commission (“SEC”) Rule 10b-5
4

(codified at 17 C.F.R. 240.10b-5) against all Defendants.
Second, Plaintiffs allege violations of Section 20(a) of the
Exchange Act against Individual Defendants.
Defendants filed their Motion to Dismiss on April 16, 2018.
The Motion to Dismiss has been fully briefed.

Additionally,

Plaintiffs filed their Motion for Leave to File a Sur-Reply or,
in the Alternative, to Strike Exhibit 1 on July 24, 2018.
motion has also been fully briefed.

This

Therefore, these motions

are ripe for adjudication.
A.

Subject Matter Jurisdiction

This Court has subject matter jurisdiction over this case
because it presents a federal question under the Exchange Act.
See 28 U.S.C. § 1331; 15 U.S.C. § 78aa.
B.

Motion to File a Sur-Reply

On July 24, 2018, Plaintiffs filed a Motion to File a SurReply and attached, as an exhibit, a proposed sur-reply brief.
In the alternative, Plaintiffs request this Court to strike
Exhibit 1 of Susan Leming’s Supplemental Declaration, which was
attached to Defendants’ reply brief.

Plaintiffs’ only complaint

concerns one footnote in Defendants’ reply brief, which mentions
a Financial Consumer Agency of Canada (“FCAC”) report (the “FCAC
Report”).

Plaintiffs believe the FCAC Report was improperly

first set forth in a reply brief instead of being presented in
Defendants’ moving brief.

Defendants disagree, arguing the FCAC
5

Report was properly presented in the reply brief in reply to one
of Plaintiffs’ arguments.
Local Rule of Civil Procedure 7.1(d) controls the filing of
a sur-reply brief in this specific situation.

It states: “No

sur-replies are permitted without permission of the Judge or
Magistrate Judge to whom the case is assigned.”
7.1(d)(6).

Loc. R. Civ. P.

Since the proposed sur-reply was accompanied by a

brief in support, Plaintiffs have complied with the Local Rules.
In the interests of justice, this Court will grant
Plaintiffs’ Motion to File a Sur-Reply and consider both
Plaintiffs’ and Defendants’ arguments concerning the FCAC Report
on the merits, to the extent relevant, infra.

While this Court

does not find either side’s arguments particularly helpful (or
persuasive), it considers it wise – in its discretion – to
consider all argument on the merits.

Considering Defendants

have responded to Plaintiffs substantive arguments on the
merits, this will not prejudice any of the parties.

This Court

will deny the Plaintiffs’ alternative argument to strike the
offending exhibit attached to Defendants’ reply brief.

In light

of this Court’s ruling to consider the sur-reply, that argument
is moot.
C.

Motion to Dismiss Standard

When considering a motion to dismiss a complaint for
failure to state a claim upon which relief can be granted
6

pursuant to Federal Rule of Civil Procedure 12(b)(6), a court
must accept all well-pleaded allegations in the complaint as
true and view them in the light most favorable to the plaintiff.
Evancho v. Fisher, 423 F.3d 347, 351 (3d Cir. 2005).

It is well

settled that a pleading is sufficient if it contains “a short
and plain statement of the claim showing that the pleader is
entitled to relief.”

FED. R. CIV. P. 8(a)(2).

“While a complaint attacked by a Rule 12(b)(6) motion to
dismiss 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 Atl. Corp. v.

Twombly, 550 U.S. 544, 555 (2007) (alteration in original)
(citations omitted) (first citing Conley v. Gibson, 355 U.S. 41,
47 (1957); Sanjuan v. Am. Bd. of Psychiatry & Neurology, Inc.,
40 F.3d 247, 251 (7th Cir. 1994); and then citing Papasan v.
Allain, 478 U.S. 265, 286 (1986)).
To determine the sufficiency of a complaint, a
court must take three steps.
First, the court must
“tak[e] note of the elements a plaintiff must plead to
state a claim.”
Second, the court should identify
allegations that, “because they are no more than
conclusions, are not entitled to the assumption of
truth.” Third, “whe[n] there are well-pleaded factual
allegations, a court should assume their veracity and
then determine whether they plausibly give rise to an
entitlement for relief.”

7

Malleus v. George, 641 F.3d 560, 563 (3d Cir. 2011) (alterations
in original) (citations omitted) (quoting Ashcroft v. Iqbal, 556
U.S. 662, 664, 675, 679 (2009)).

A court may “generally

consider only the allegations contained in the complaint,
exhibits attached to the complaint and matters of public
record.”

Schmidt v. Skolas, 770 F.3d 241, 249 (3d Cir. 2014)

(citing Pension Benefit Guar. Corp. v. White Consol. Indus.,
Inc., 998 F.2d 1192, 1196 (3d Cir. 1993)).
A district court, in weighing a motion to dismiss, asks
“not whether a plaintiff will ultimately prevail but whether the
claimant is entitled to offer evidence to support the claim.”
Twombly, 550 U.S. at 563 n.8 (quoting Scheuer v. Rhoades, 416
U.S. 232, 236 (1974)); see also Iqbal, 556 U.S. at 684 (“Our
decision in Twombly expounded the pleading standard for ‘all
civil actions’ . . . .”); Fowler v. UPMC Shadyside, 578 F.3d
203, 210 (3d Cir. 2009) (“Iqbal . . . provides the final nail in
the coffin for the ‘no set of facts’ standard that applied to
federal complaints before Twombly.”).

“A motion to dismiss

should be granted if the plaintiff is unable to plead ‘enough
facts to state a claim to relief that is plausible on its
face.’”

Malleus, 641 F.3d at 563 (quoting Twombly, 550 U.S. at

570).
Since this is a claim covered by the Private Securities
Litigation Reform Act (“PSLRA”), heightened pleading standards
8

apply beyond those encapsulated by Rule 12(b)(6).

Federal Rule

of Civil Procedure 9(b) requires that “[i]n alleging fraud or
mistake, a party must state with particularity the circumstances
constituting fraud or mistake.”

Moreover, to allege a material

misrepresentation, a plaintiff must “specify[] each allegedly
misleading statement, why the statement was misleading, and, if
an allegation is made on information or belief, all facts
supporting that belief with particularity.”

Institutional

Inv’rs Grp. v. Avaya, Inc., 564 F.3d 242, 252-53 (3d Cir. 2009).
Finally, to allege scienter, a plaintiff must “state with
particularity facts giving rise to a strong inference that the
defendant acted with the required state of mind.”
D.

Id.

Motion to Dismiss

To allege a Section 10(b) claim, a plaintiff must plead
“(1) a material misrepresentation or omission, (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.”

City of Edinburgh Council v. Pfizer, Inc., 754 F.3d

159, 167 (3d Cir. 2014).

“Every person who, directly or

indirectly, controls any person liable under any provision of”
the Exchange Act will be held jointly and severally liable under
Section 20(a).

As is apparent from the statutory text, Section

20(a) liability may only be found if there is an underlying
9

violation of the Exchange Act – here Section 10(b).
Defendants present four main arguments concerning dismissal
of Plaintiffs’ claims, focusing on the materiality and falsity
of the statements and whether scienter has been appropriately
pleaded.

First, Defendants argue that the statements complained

of were neither material nor false or misleading.

Second,

Defendants argue that Plaintiffs have not presented the strong
showing of scienter required for either the Individual
Defendants or Defendant TD Bank.

Third, Defendants argue as a

result of dismissal under either of the above two grounds, the
Section 20(a) claims must also be dismissed.

Fourth and

finally, Defendants argue that – at the very least – claims
against two Individual Defendants, Pedersen and Chauvin, should
be dismissed because of a lack of the necessary factual
predicates for a claim.

This Court will address each argument

in turn.
a. Materially False and Misleading Statements
Defendants present three basic arguments in favor of
dismissal of the Section 10(b) claim.

Essentially, Defendants

argue the statements complained of were either not material or
not false or misleading.

First, Defendants argue Plaintiffs

have failed to plead the falsity of the statements with
particularity, as required by the Federal Rules of Civil
Procedure and applicable statutory law.
10

Second, Defendants

argue Plaintiffs cannot base their claim on TD Bank’s earnings
statements or certifications.

Third, Defendants argue

Plaintiffs only cite general statements about risk management,
internal controls, and business operations.

This is – in

Defendants’ understanding – not enough to support a Section
10(b) claim as the statements are so general as to be
immaterial.
i. Whether Plaintiffs Fail to Plead the Alleged
Underlying Scheme with Particularity
Defendants assert Plaintiffs fail to plead facts with
particularity concerning the underlying illegal scheme that
resulted in improper, illegal, or unauthorized sales of TD Bank
products, services, and accounts.

Defendants’ argument here

contains two main facets: (1) Plaintiffs’ CW allegations do not
meet the standards required under controlling Third Circuit law
and (2) even if they meet that standard, the allegations do not
state an illegal scheme with the requisite particularity.
Plaintiffs counter by stating the CW allegations are proper and
an illegal scheme was pleaded with the requisite particularity.
The details of those arguments will be addressed infra.
1. Analysis of CWs’ Statements under the Third
Circuit Test
In assessing the particularity of CWs’ allegations, a court
should examine “the sources’ base of knowledge, the reliability
of the sources, the corroborative nature of other facts alleged,
11

including from other sources, the coherence and plausibility of
the allegations, and similar indicia.”

Cal. Pub. Emples.’ Ret.

Sys. v. Chubb Corp., 394 F.3d 126, 147 (3d Cir. 2004).

When a

plaintiff relies solely on CWs to meet the particularity
requirement, those claims “assume[] a heightened importance.”
Id. at 148.

This Court will not engage in a wholesale

examination of each CW under this test.

Instead, it will

address the alleged deficiencies presented by Defendants.
Under this test, Defendants assert some CWs lack personal
knowledge as they were not employed during the class period,
some CWs’ statements are conclusory, and some CWs’ statements
are based merely on rumor or conjecture.

Defendants appear to

be correct in that CW2, CW3, CW7, CW8, and CW9 were not employed
at TD Bank during the class period.

Although this seems to

foreclose the possibility of personal knowledge of facts during
the class period, that does not mean those CWs’ statements must
be – or can be – ignored.

As Plaintiffs point out, the

misstatements at issue made during the class period were based
on TD Bank’s conduct before the class period.

The CWs

statements are certainly relevant to those allegedly false
statements – at least.

Additionally, they may also serve as

corroboration of CWs’ statements regarding conduct within the
class period.
Defendants are correct that CWs’ statements which appear to
12

be based on rumor or conjecture do not meet the particularity
requirement.

See Chubb Corp., 394 F.3d at 155 (“Generic and

conclusory allegations based upon rumor or conjecture are
undisputedly insufficient to satisfy the heightened pleading
standard of 15 U.S.C. § 78u-4(b)(1).”).

This Court will not

consider these statements in evaluating Plaintiffs Section 10(b)
claim.
But, CWs’ statements are not conclusory merely because they
state something happened “regularly,” “often,” or “usually.”
Even though these statements are not exceedingly precise,
Defendants place too much emphasis on the particularity
requirement.

These CW statements provide where the misconduct

occurred – to a specific branch location or department, the time
period when it occurred, how and why it occurred, and what
products may have been involved. 2

It seems Defendants would only

find these statements “particular” if all the alleged bad actors
stepped forward and provided statements concerning the specific
date, location, and product that was improperly sold to a
specific customer.

That is not required.

2

Avaya, Inc., 564 F.3d

For example, Defendants attack CW3’s statements as conclusory.
(FAC ¶¶ 83-84.) This is particularly confusing, considering CW3
claims to have overheard other tellers not disclosing fees to
customers. (FAC ¶ 83.) The FAC then explains the application
of CW3’s personal knowledge, stating it was “usually” the
highest sellers who did not explain fees. That does not make
CW3’s statement conclusory, but provides more detail and context
for the previous statement.
13

at 253 (stating that particularity only requires a plaintiff to
“plead the who, what, when, where, and how: the first paragraph
of any newspaper story.” (internal quotations and citations
omitted)). 3
Defendants also challenge CW7’s statements on grounds of
particularity.

The crux of Defendants argument is that CW7 does

not provide a basis for how he determined a certain percentage
of his subordinates’ sales of certain services were without
customer authorization.

Defendants point to CW7’s statements,

which states he lacked “direct evidence” and never “saw”
unauthorized sales occur.

Plaintiffs counter that CW7’s

estimates are sufficiently supported by the detailed allegations
in the FAC.
Defendants citations to Chubb Corp. and Intelligroup on
this point are unhelpful.

Both of those cases left the court

without any idea of how the CWs came by their purported
knowledge.

As described in more detail infra, this case is

distinguishable.

The Court has enough information here to

determine these estimates are based on personal knowledge of CW7

3

Similarly, this Court will not ignore CW1’s statement that
“everyone knew” about TD Bank employees’ unauthorized sales.
This Court understands Defendants point to be that this
statement should not be taken literally – that everyone actually
knew. While this Court will not take this statement literally,
it does understand it to state that similarly situated employees
in CW1’s branch also knew or suspected unauthorized sales were
being made.
14

acquired during his time supervising his seventeen employees.
The Court does not doubt – at this stage – his knowledge or
reliability, and his allegations appear to be corroborated by
other accounts and are plausible based on the allegations of a
high-pressure sales environment.

Thus, this Court will not

ignore CW7’s statements.
Finally, Defendants challenge the CW statements that appear
to be drawn from CBC reports released in March 2017.

Defendants

assert these allegations do not contain the necessary
specificity or indicia of reliability.

Defendants specifically

complain that Plaintiffs fail to allege when these CBC CWs
worked at TD Bank, the dates when they acquired the information
that serves as the basis of their allegations, and the facts
showing how they obtained the information.

Plaintiffs counter

with the assertion that many courts allow CW statements to be
taken from other complaints.

Moreover, some courts find news

reports – because of their independence – a more reliable source
than CW statements provided in other actions.
This Court will consider the allegations stemming from the
CBC CWs.

Defendants’ own case, In re Optionable Sec. Litig.,

supports this holding.

577 F. Supp. 2d 681 (S.D.N.Y. 2008).

In

it, the Court assumes the veracity of allegations in a news
report for purposes of a motion to dismiss.

Id. at 690.

Considering Plaintiffs’ CW allegations are consistent with those
15

made by the CBC CWs, there is no reason to seriously doubt their
reliability at this stage in the proceedings. 4
Additionally, Plaintiffs are correct that some courts have
considered “the probative value of an independent news article
or government report is much greater than that of confidential
witness statements recounted in another complaint.”

In re

Lehman Bros. SEC. & ERISA Litig., No. 09 MD 2017 (LAK), 2013
U.S. Dist. LEXIS 107559, at *13 (S.D.N.Y. July 31, 2013).

This

Court will follow in the footsteps of the Southern District of
New York and consider these statements.

To the extent a time

period cannot be discerned from the CBC CWs’ statements, this
Court will only consider those statements for purposes of
corroboration.
These appear to be the only objections to the CWs
statements under the Third Circuit test.

Thus, with the above

caveats in mind, this Court finds it may rely on the CWs’
statements in determining whether an underlying wrong has been
sufficiently pled.
2. Whether the CWs’ Statements Allege an
Underlying Illegal Scheme
Since this Court has found it may rely on certain CWs
statements, it must next determine whether those statements have
adequately pleaded an underlying illegal scheme.
4

Defendants

This is especially so for those CWs who admit to actions that
could give rise to their own civil or criminal liability.
16

provide several reasons why these statements do not show, with
particularity, an underlying illegal scheme.

First, the

allegations mainly focus on “standard sales practices” that are
not unlawful.

(Defs.’ Br. 10.)

Second, the allegations pertain

to only “isolated,” “localized,” or “episodic” unlawful
activities at most, not widespread illegal conduct across the
Canadian retail market.

(Defs.’ Br. 12-13.)

Defendants first argument on this point is a red herring.
Plaintiffs do not complain that TD Bank’s sales practices were
per se illegal. 5

Even if Plaintiffs did complain of the legality

of TD Bank’s sales practices, it does not affect the sufficiency
of Plaintiffs’ other allegations concerning unauthorized sales.
Moreover, Plaintiffs describe TD Bank’s sales practices to
explain why they believe TD Bank employees were engaging in
improper or illegal conduct, like unauthorized sales or nondisclosure of fees.

This provides helpful context for the Court

in considering Plaintiffs’ allegations.

Accordingly, the Court

finds Defendants’ argument here does not bear on dismissal.
Defendants second argument, whether Plaintiffs have alleged
an underlying, nationwide illegal scheme, is substantive.

5

The

The Court does note here Plaintiffs believe TD Bank’s sales
practices may have created a hostile work environment for some
employees and may have created other consequences that were
illegal. But, in isolation from their many consequences, it
does not appear that Plaintiffs believe TD Bank’s institutional
practices are per se illegal.
17

Court is certainly cognizant that Plaintiffs have not provided a
CW – or even a statement – from someone occupying a high
position at TD Bank to show conclusively that untoward conduct
may have been occurring across the entire Canadian retail
sector.

The Court is also aware that the CWs’ statements in the

FAC provide snapshots of different locations at different times.
But this does not make the FAC deficient.
This case is not Chubb Corp., which Defendants heavily rely
on in favor of dismissal.

In Chubb Corp., the shareholders

generally asserted a rate initiative in its commercial insurance
business meant to improve Chubb’s bottom-line was failing and
that executives engaged in misleading accounting practices to
cover up this failure.

394 F.3d at 140-41.

In considering the

CWs used in that case, the Third Circuit noted:
Plaintiffs fail to aver . . . when any of [the CWs]
were employed by Chubb. Nor do Plaintiffs allege the
dates that these sources acquired the information they
purportedly possess, or how any of these former
employees had access to such information . . .
Plaintiff heavily rely on former employees who worked
in Chubb’s local branch offices for information
concerning Chubb’s business on a national scale.
Moreover, many of these sources were branch employees
who
worked
in
departments
other
than
standard
commercial . . . we are left to speculate whether the
anonymous
sources
obtained
the
information
they
purport to possess by firsthand knowledge or rumor.
Id. at 148.
In contrast, the Plaintiffs have properly alleged where and
when the CWs worked for TD Bank, how the CWs had access to the
18

information they allege, and that they possess firsthand
knowledge.

Moreover, the CWs were employed in the very branches

and departments that are alleged to have engaged in
improprieties.

These allegations are much different than those

presented to the Third Circuit in Chubb Corp.
As noted supra, Defendants are correct that Plaintiffs have
not brought forth one source with nationwide knowledge.
that is not dispositive of this matter.

But,

As even Chubb Corp.

states, “[c]iting to a large number of varied sources may in
some instances help provide particularity, as when the accounts
supplied by the sources corroborate and reinforce one another.”
Id. at 155.

This is what Plaintiffs have accomplished here,

relaying markedly consistent allegations from across TD Bank’s
Canadian retail segment.
In fact, it appears Plaintiffs’ case is most analogous to
the case cited by Plaintiffs out of the Central District of
California.

In re Countrywide Fin. Corp. Derivative Litig., 554

F. Supp. 2d 1044 (C.D. Cal. 2008).

There, fourteen low-level

CWs (underwriters, senior underwrites, senior loan officers,
vice presidents, auditors, and external consultants) in four
locations over the period of four years were found to have
sufficiently shown – at the motion to dismiss stage - improper
nationwide practices.

Id. at 1058-59.

Particularly persuasive

to the court there was the consistency of the statements between
19

different levels of employees at different locations across
time.

Id.

Plaintiffs’ allegations are sufficiently similar to

those in Countrywide to allow them to survive a motion to
dismiss.
Defendants attempt to distinguish this case is unavailing.
Possibly, Defendants arguments about whether the claims were
elevated to higher levels of the company could have a bearing on
scienter, but it does not bear on whether an underlying scheme
has been pleaded with particularity.

Moreover, Plaintiffs have

presented CW statements from multiple levels – tellers,
advisors, customer service representatives, a branch manager, a
district vice president, a human resources employee, and a
senior credit analyst – not just the lowest levels as Defendants
attempt to argue.

Accordingly, this Court will not dismiss

Plaintiffs Section 10(b) claim on these grounds.
ii. Whether Plaintiffs Fail to Plead the Falsity of
Defendants’ Statements with Particularity
Defendants argue, even if this Court finds an underlying
illegal scheme was sufficiently pleaded, Plaintiffs have not
explained why each statement is misleading.

Defendants assert

Plaintiffs’ allegations concerning the falsity of these
statements are merely conclusory and boilerplate.

Plaintiffs

counter that their allegations may be repetitive, but they are
far from conclusory or boilerplate.

20

This Court first notes that it appears Plaintiffs have not
merely used identical language to explain why each statement was
allegedly misleading.

Defendants seem to admit as much, saying

the paragraphs are only “nearly identical.”

Plaintiffs actually

offer a number of different versions of this paragraph that are
specifically tailored to the alleged misstatement at issue.

As

Plaintiffs point out, this does not make their allegations
conclusory, nor is it a ground for dismissal.

In re Honeywell

Int’l Sec. Litig., 182 F. Supp. 414, 426-27 (D.N.J. 2002).
Defendants are incorrect in that Plaintiffs do not refer to
a public statement and then allege “in a general and conclusory
manner, that those disclosures were false or misleading.”

In re

Party City Sec. Litig., 147 F. Supp. 2d 282, 300 (D.N.J. 2001).
Instead, Plaintiffs explain why the statement was misleading
based on the CWs’ statements, which allegedly disclose what was
actually occurring in TD Bank’s Canadian retail segment.
While this Court will not walk through each and every
allegation – especially considering Defendants do not present
argument specific to each and every allegation – it is
instructive to provide an example.

Plaintiffs complain of a

statement made by Masrani on a December 1, 2016 earnings call.
On it, Masrani stated, “[b]y putting the customer front and
center, we’ve been able to drive engagement to new levels,
particularly in mobile.” (FAC ¶ 172 (emphasis in original).)
21

Plaintiffs then state “[i]t was especially misleading to state
any positive notion of customer acquisition, deepening customer
relationships, or putting the customer front-and-center, in
light of the CW statements set forth herein.”

(FAC ¶ 173.)

As

discussed supra in that very paragraph, the statement is at odds
with the CW statements which allegedly show “rampant misconduct”
which included sales to customers that were unauthorized.

(FAC

¶ 173.) 6
iii. Whether Plaintiffs Fail to Plead the Falsity of
Defendants’ Statements of Opinion
Defendants also argue that many of the complained of
statements were statements of opinion.

Defendants assert a

statement of opinion is only actionable if the speaker did not
“actually hold[] the stated belief” or if the statement “omits
material facts about the [speaker’s] inquiry into, or knowledge
concerning [the] statement . . . and if those facts conflict
with what a reasonable investor . . . would take from the
statement itself.”

Omnicare, Inc. v. Laborers Dist. Council

Constr. Indus. Pension Fund, 135 S. Ct. 1318, 1326, 1329 (2015).
Plaintiffs counter that these opinion statements actually convey
the speaker’s basis for holding the opinion.

In that

circumstance, Plaintiffs argue, “if the real facts are
6

The Court is aware that Defendants also make a specific
argument as to the sole statement attributed to Chauvin. This
will be addressed infra when this Court considers Defendants
arguments on whether to dismiss Chauvin from this case.
22

otherwise, but not provided, the opinion statement will mislead
the audience” and is therefore actionable.
Defendants are correct.

Id. at 1328.

First, as Plaintiffs seem to

admit, there are no allegations in the FAC that the Individual
Defendants did not truly hold the stated belief.

Without that,

Plaintiffs do not properly plead a Section 10(b) claim premised
on pure opinion.

Moreover, this Court finds that none of the

statements referenced in Defendants’ moving brief actually
expresses an “embedded statement[] of fact.”
135 S. Ct. at 1327.

Omnicare, Inc.,

The closest Plaintiffs get is Masrani’s

statement about his feeling of comfort with “healthy levels on a
consistent basis.”

(FAC ¶ 158.)

But, even this is not enough.

Masrani is not asserting TD Bank has “healthy levels,” just that
he feels comfortable with those levels.

Plaintiffs may not

proceed on their Section 10(b) claims on the basis of the
statements cited by Defendants on page seventeen of their moving
brief. 7
iv. Whether Plaintiffs Adequately Allege TD Bank’s
Earning Statements and Certifications are False
and Misleading
Next, Defendants argue that any claims based on figures in
TD Bank’s earnings statements must be dismissed.

7

Defendants

The one exception is the statement made at paragraph 162 of the
FAC. That statement is not one of opinion, but one literally
stating what keeps Chauvin up at night. As discussed supra,
Chauvin’s statement will be addressed infra separately.
23

assert those allegations occur at paragraphs 177(a), 177(c),
178(a), 179(a), 180(a), 181(c), and 182(a) of the FAC.

First,

Defendants argue that as long as the numbers disclosed in the
earning statements are accurate, they cannot give rise to
Section 10(b) liability.

Plaintiffs do not respond to this

particular argument, instead pointing to assertions which
attribute the growth of various factors that they believe
violated Section 10(b).
Considering the strength of the case law in this area, this
Court will dismiss any claims – to the extent they are made –
which are premised on numbers reported in the earnings
statements.

See, e.g., In re Advanta Corp. Sec. Litig., 180

F.3d 525, 538 (3d Cir. 1999) (“Factual recitations of past
earnings, so long as they are accurate, do not create liability
under Section 10(b).”); In re Nice Sys., Ltd. Sec. Litig., 135
F. Supp. 2d 551, 579 (D.N.J. 2001) (same); In re Milestone Sci.
Sec. Litig., 103 F. Supp. 2d 425, 457 (D.N.J. 2000) (same).
While this Court understands this is not a per se rule,
Plaintiffs do not allege the figures reported are actually
inaccurate or provide estimates as to how dramatically
unauthorized sales may have affected these figures.

Therefore,

Plaintiffs may not base their claims on either the figures in
the earnings statements or the textual statements describing

24

those figures. 8
Second, Defendants argue the statements attributing
financial results to specific sources cannot be the basis for a
Section 10(b) claim.

In doing so, Defendants rely heavily on

Galati v. Commerce Bancorp, Inc., 220 F. App’x 97 (3d Cir.
2007).

Galati was premised on the convictions of three officers

of Commerce Bank for their participation in a “pay-to-play
scheme” that involved Commerce Bank providing personal loans to
the Philadelphia Treasurer who, in turn, channeled millions of
dollars in municipal business into the bank.

Id. at 99-100.

The shareholders in that action claimed SEC filings and earnings
releases were misleading, because they discussed business growth
but did not disclose its source was the illegal pay-to-play
scheme.

Id. at 101.

The shareholders generally complained of

(1) descriptions of the percentage and actual growth of various
divisions and (2) positive statements describing this growth
like “dramatic,” “strong,” or “unique.”

Id.

The Court rejected this entire theory of Section 10(b)
liability.

It held, as this Court has already described supra,

that an accurate factual recitation of past earnings cannot give
rise to Section 10(b) liability.

8

It also held that “statements

For example, the statement that “TD reported net income of
$2,358 million and diluted earnings per share (“EPS”) of $1.24,
on revenue of $8,701 million” would be inactionable under this
Court’s ruling. (FAC ¶ 180(a).)
25

concerning the [defendant’s] ‘dramatic deposit growth,’ ‘strong
performance,’ and ‘unique business model,’ constitute nothing
more than mere puffery, insufficient to sustain a Rule 10b-5
claim.”

Id. at 102.

In other words, “routine recitations of

past financial performance, and general optimistic statements
about the Company’s future growth . . . [do] not give rise to a
duty to disclose the malfeasance . . . .”

Id.

Defendants may have correctly described the law, but they
fail to grapple with the facts of this case.

While this Court

agrees – as discussed supra – that mere recitations of past
financial performance (whether or not accompanied by puffery) do
not give rise to Section 10(b) liability, attributing that
financial performance to particular sources may.

See, e.g., SEC

v. Kearns, 691 F. Supp. 2d 601, 616-17 (D.N.J. 2010) (“A
reasonable fact-finder could find it misleading to attribute
increased revenue to increased sales to existing customers when,
in fact, MedQuist's revenues were also due to falsely inflating
bills to existing customers and not merely increased sales to
those customers.”).

Here, attributing certain financials to

“loan and deposit volume growth” or “good organic growth” or
“higher fee-based revenue” could provide a basis for a Section
10(b) claim.

As Defendants know, Plaintiffs assert this growth

is actually based on improper, illegal, or unauthorized sales.
This Court cannot decide as a matter of law that these
26

statements are immaterial or not misleading at this stage in the
proceedings.
Third, Defendants argue the certifications accompanying the
earnings statements are inactionable because the financial
figures have been determined to be inactionable.

Defendants

assert those allegations occur at paragraphs 177(b), 177(c),
178(b), 179(b), 180(b), 181(c), and 182(b) of the FAC.
Plaintiffs counter that Sarbanes-Oxley (“SOX”) certifications
are actionable here – regardless of whether the figures in the
earnings statements are actionable - because Plaintiffs have
pleaded deficient internal controls.
Plaintiffs are correct.

SOX certifications are typically

actionable when either the financial figures are inaccurate or
when there is an allegation that the internal controls within a
company were deficient.

City of Roseville Emps.’ Ret. Sys. v.

Horizon Lines, Inc., 686 F. Supp. 2d 404, 418 (D. Del. 2009).
Thus, Defendants’ argument on this point cannot support
dismissal of this claim.
Defendants also argue over whether Plaintiffs have
sufficiently alleged that the Individual Defendants who
certified the reports had the necessary state of mind.

This

argument is more properly addressed in the scienter section
below, so the Court will address it infra.

See, e.g., Carmack

v. Amaya Inc., 258 F. Supp. 3d 454, 467-68 (D.N.J. 2017)
27

(stating that whether the appropriate state of mind has been
shown should be determined in a scienter analysis); Horizon
Lines, Inc., 686 F. Supp. 2d at 420 (“[P]laintiffs [must] plead
with sufficient particularity that either [defendant] was aware
or should have been aware of the rate-fixing scheme at the time
those certifications were made.

This leads us to the scienter

prong of the PSLRA.” (emphasis added)).
v. Whether TD Bank’s Code of Conduct Contains
Actionable Statements
Defendants also challenge whether Plaintiffs may base a
Section 10(b) claim on statements made in TD Bank’s Code of
Conduct (the “Code”).

Defendants assert Plaintiffs’ claim

regarding the Code is merely that TD Bank did not disclose
violations, which were evidenced by the CWs’ statements.
Plaintiffs argue that statements in the Code are actionable
because it contains “specific, concrete, objectively provable or
disprovable statements.”

(Pltfs.’ Opp. Br. 23.)

This Court finds the Code is inactionable.

To the extent

that Plaintiffs’ claim is based on the Code acting as a
representation by TD Bank that the Code is not being violated by
its employees, it is inactionable.

City of Roseville Emps.’

Ret. Sys., 686 F. Supp. 2d at 415.

City of Roseville is

persuasive on this point.

There, shareholders argued that

Horizon Lines, Inc.’s “Code of Ethics” was actionable because it

28

alleged the defendants failed to disclose violations of the Code
of Ethics.

Id.

The District of Delaware disagreed, finding the

theory of liability untenable.

Id.

The court there cited two

reasons why this was so: (1) since a code of ethics is required
under SEC regulations, allowing this theory of liability would
create liability for every company that did not disclose
violations; and (2) because it is mandatory, the publishing of a
code is not actually a statement or representation that it will
be followed.

Id.

The same applies here, regardless of the

contents of the Code.
Furthermore, to the extent Plaintiffs complain about the
actual statements made in the Code, those are also inactionable,
general statements.

Plaintiffs cited case is unavailing, as it

found inactionable most of the statements in the defendant’s
ethics code, and only allowed a statement in a corporate
responsibility report to move forward.

City of Brockton Ret.

Sys. v. Avon Prods., No. 11 Civ. 4665 (PGG), 2014 U.S. Dist.
LEXIS 137387, *41-47 (S.D.N.Y. Sept. 29, 2014).

Unlike City of

Brockton Ret. Sys., Plaintiffs are unable to point to a
statement in the Code “about [an] allegedly elaborate internal
controls operation as reflecting concrete steps” that a
reasonable investor may interpret “as a guarantee that such
steps had, in fact, been implemented.”

Id. at *46-47.

Instead, the statements are most analogous to those
29

considered inactionable.

For example, statements that “[o]ne of

Avon’s fundamental principles is that its associates will
observe the very highest standards of ethics in the conduct of
Avon’s business” and “[b]ribes, kickbacks and payoffs to
government officials, suppliers and other[s] are strictly
prohibited” were found inactionable.

Id. at *38, 41.

Like the

previous statements, statements that “TD is committed to
conducting its affairs to the highest standard of ethics,
integrity, honest, fairness and professionalism – in every
respect, without exception, and at all times” or “[i]rregular
business conduct . . . will not be tolerated under any
circumstances” are general statements and immaterial puffery
that are inactionable as a matter of law. (FAC ¶ 152(c), (h).)
See In re Braskem S.A. Sec. Litig., 246 F. Supp. 3d 731, 754-57
(S.D.N.Y. 2017) (finding similar general statements and
immaterial puffery inactionable); City of Brockton Ret. Sys.,
2014 U.S. Dist. LEXIS 137387, *41-47 (same).

Accordingly,

Plaintiffs will not be permitted to proceed on the basis of the
Code or statements made within the Code.
vi. Whether General Statements about TD’s Risk
Management, Internal Controls, and Business
Operations Are Material as a Matter of Law
Finally, Defendants argue the only statements left in the
FAC beyond the earnings statements, SOX certifications, Code,
and statements of opinion are “generalized positive comments
30

that are immaterial as a matter of law.”

(Defs.’ Br. 20.)

Statements of optimism and hope, according to Defendants, are
inactionable because they are not relied upon by any reasonable
investor.

Plaintiffs counter these statements are actionable

because they are statements which are provable or disprovable.
As both sides acknowledge, “[m]ateriality is ordinarily an
issue left to the factfinder and is therefore not typically a
matter for Rule 12(b)(6) dismissal.”

In re Adams Golf, Inc.

Sec. Litig., 381 F.3d 267, 274-75 (3d Cir. 2004).
here is high.

The standard

Accordingly, “[o]nly when the disclosure or

omissions are so clearly unimportant that reasonable minds could
not differ should the ultimate issue of materiality be decided
as a matter of law.”

In re Galena Biopharma, Inc. Sec. Litig.,

No. 2:17-cv-929-KM-JBC, 2018 U.S. Dist. LEXIS 141550, at *26
(D.N.J. Aug. 21, 2018) (quoting Craftmatic Sec. Litig. v.
Kraftsow, 890 F.2d 628, 641 (3d Cir. 1989)) (internal quotations
omitted).

In other words, “where there is room for differing

opinions on the issue of materiality, the question should be
left for jury determination.”

Id. at *27 (quoting Ieradi v.

Mylan Lab, Inc., 230 F.3d 594, 599 (3d Cir. 2000)).
With that standard controlling this determination, this
Court declines to dismiss the statements cited by Defendants.
As Plaintiffs correctly point out, these statements are devoid
of context.

For example, that TD Bank’s “philosophy around
31

compensation [is] very conservative” is not a positive or
general statement when taken in context.
Br. 20.)

(Defs.’

The context of the statement is whether Pederson

believes internal controls at TD Bank are sufficient to ensure
that the improprieties that occurred at Wells Fargo could not
occur at TD Bank.

The full statement Plaintiffs complain of

states:
We also have a philosophy around compensation that’s
very conservative. So, the pay at stake for our sales
force and the stores is significantly less than in
other banks, because of our philosophy, which applies
to my compensation too, that we have always believed
we don’t want compensation systems that incent any
swinging for the fences.
(FAC ¶ 154.)

This Court cannot say at this point – as a matter

of law – that this statement would not be material to a
reasonable investor.
This Court is unable to discount the other statements
complained of for the same or similar reasons.

Accordingly,

this Court will not dismiss the Section 10(b) claim on these
grounds.

But, the Court notes that Defendants are not

foreclosed from pursuing this argument again on a fuller factual
record.
b. Scienter
Defendants also challenge whether Plaintiffs have pleaded
the strong inference of scienter needed to propel Plaintiffs’
FAC past the pleading stage.

In determining whether a strong
32

inference of scienter has been shown, courts must determine
“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.”
Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 323
(2007) (emphasis in original).

In making this determination,

courts “must take into account plausible opposing inferences”
and determine whether “plaintiffs . . . plead with particularity
facts that give rise to a ‘strong’ – i.e., a powerful or cogent
– inference” of scienter.

Id.

In other words, a strong

inference of scienter is shown “only 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
facts alleged.”

Id. at 324.

Thus, this Court will discuss each basis for scienter and
Defendants plausible opposing inference.

Then this Court will

consider the complaint as a whole in determining whether
Plaintiffs have shown a strong inference of scienter.
i. Whether Plaintiffs Plead Individual Defendants
Were Aware of Conduct Described by CWs
Defendants present argument on two separate bases for why
this Court cannot use the CWs’ statements in conducting its
scienter analysis.

First, Defendants assert Plaintiffs do not

assert any facts alleging the Individual Defendants had actual

33

knowledge of the substance of the CWs’ statements.

Defendants

argue to do so would require allegations by CWs that they
disclosed this information to Individual Defendants.
do not contest this characterization.

Plaintiffs

Accordingly, this Court

will not allow this theory to support scienter. 9
ii. Whether Plaintiffs “Should Have Known” Theory Is
Sufficient to Plead Scienter 10
Second, Defendants challenge whether Plaintiffs allegation
that Individual Defendants “should have known” of the alleged
improprieties should be allowed to support an inference of
scienter.

To the extent Plaintiffs pleaded this way, Defendants

would be correct.

See City of Roseville Emps.’ Ret. Sys. v.

Horizon Lines, Inc., 713 F. Supp. 2d 378, 399 (D. Del. 2010)
(“Mere allegations that a defendant ‘should have known’ of fraud
because of his supervisory role within a company or because his
subordinates were aware of it, are insufficient.” (citations
omitted)).
But it appears Plaintiffs allegations go beyond that.

9

As disclosed infra, this does not disclose other scienter
arguments made by Plaintiffs. This is merely a recognition that
Plaintiffs have not pleaded direct evidence showing Individual
Defendants knew of the underlying wrong. Instead, Plaintiffs
have pleaded circumstantial evidence, thus requiring this Court
to determine whether a strong inference of scienter has been
shown on the FAC.
10

This Court will not address the argument made by Defendants in
their moving brief (Defs.’ Br. 25-26) concerning internal
controls as it is mooted by the Court’s decision, infra.
34

Plaintiffs do not argue Defendants should have known merely from
their supervisory role, but because it was widely known within
TD Bank that these alleged improprieties were occurring.

As

discussed supra, this Court has already found that Plaintiffs’
have adequately pleaded an underlying, nationwide illegal
scheme.

It appears from those allegations that these activities

were widespread – and therefore widely known.
Notably, there are some indications that individuals at the
corporate office were aware of the underlying issues disclosed
by the CWs.

(See FAC ¶ 141 (“For instance, CW7 said that the

corporate office might send a stern email about the high number
of customers placed in overdraft protection without permission.
As CW7 put it, ‘There’d be an email from head office, saying,
‘It’s come to our attention that overdraft protection is being
put on accounts improperly . . . Stop doing it, let’s not be a
part of that culture.’”).
This Court will permit the CWs’ statements to support a
strong inference of scienter.

The Court finds it may infer from

these allegations that Individual Defendants either knew or the
improprieties were so obvious that they must have been aware.
The Court has decided to let these allegations serve as a
basis for scienter because it finds the law unsettled.
Plaintiffs cite cases tending to show that CW statements which
show widespread misconduct may support an inference of scienter.
35

See In re EZCorp, Inc. Secs. Litigs., 181 F. Supp. 3d 197, 20910 (S.D.N.Y. 2016) (“Also supporting a finding of scienter is
the collective picture painted by the confidential witnesses: a
culture of unscrupulous lending practices and lax oversight that
was so widespread as to be ‘a matter of course’ . . . .”);
Cornwell v. Credit Suisse Grp., 689 F. Supp. 2d 629, 637-38
(S.D.N.Y. 2010) (finding CW statements which “allege[d]
widespread knowledge at CSG of the company’s problems with
valuation, risk management and internal controls” supported
scienter).
Although most of Defendants case law is not relevant, 11 one
citation to a case within this District suggests only
allegations of actual knowledge by Defendants of the substance
of CWs statements would suffice to satisfy a strong inference of
scienter. See Nat’l Junior Baseball League v. PharmaNet Dev.
Grp., Inc., 720 F. Supp. 2d 517, 553-56 (D.N.J. 2010) (“In sum,
in over fifty paragraphs of statements made by confidential
witnesses, not one witness claims to have met, emailed with,
spoken to, or otherwise heard or read anything by, either of the
Individual Defendants . . . which would sufficiently raise a

11

This Court will not address each case individually.
Generally, Defendants case law either assumes a very different
set of facts (e.g., where CWs do not allege impropriety, but
merely difficult sales goals or where the basis for scienter are
reports which were never disclosed to the defendants) or
presents an inapplicable point of law.
36

strong inference of scienter that Individual Defendants knew
their public statements and disclosures were false.”).
It would be improper for the Court to grant dismissal at
this stage in the proceedings because of the apparently
unsettled nature of the case law.

Therefore, Defendants are

unable to prove these allegations are improper as a matter of
law.

This does not disclose Defendants from challenging these

allegations again on a fuller record.
iii. Whether Plaintiffs Impermissibly Rely Upon Group
Pleading
Defendants also assert this Court may not consider
Plaintiffs scienter allegations because they improperly rely
upon group pleading.

Defendants cite cases which explain that

group pleading is prohibited by the PSLRA.

Plaintiffs counter

that they do not rely on group pleading and have identified
particularly which statements are attributable to which
Defendants and which scienter arguments are applicable to which
Defendants.
Defendants have accurately stated the law in this Circuit.
As pronounced in Winer Family Trust v. Queen, “the group
pleading doctrine is no longer viable in private securities
actions after the enactment of the PSLRA.”
(3d Cir. 2007).

503 F.3d 319, 337

In Winer Family Trust, the Court rejected

Plaintiffs’ attempt to plead that all the defendants were

37

responsible for misrepresentations in published information.
Id. at 335-37.

That case and City of Roseville, however, did

not address group pleading in the scienter context.
Regardless, Plaintiffs have not relied upon group pleading
in alleging Defendants’ statements.

The statements which have

survived the Motion to Dismiss are attributed to specific
Defendants, whether they are SOX certifications or statements
made at conferences or on earnings calls.

Defendants’ argument

here is adequately countered by the FAC.
It appears In re Bio-Technology Gen. Corp. Sec. Litig. did
address group pleading and scienter – at least in part.
Supp. 2d 574, 586-87 (D.N.J. 2005).

380 F.

There, the Court held

“generalized allegations of motive and opportunity do not
suffice to create a strong inference of scienter unless
accompanied by particularized allegations . . . .”

Id. at 586.

Plaintiffs have offered particularized allegations as to
motive and opportunity where appropriate in the FAC.

Plaintiffs

have made particular allegations as to scienter stemming from
insider sales and SOX certifications.
for scienter deficient.

Nor are the other bases

For example, the core operations

doctrine is sufficiently pleaded.

Plaintiffs have alleged the

importance of the Canadian retail segment and Individual
Defendants position within TD Bank, which is enough to allow the
core operations doctrine pleading to survive a motion to
38

dismiss.

The Court will not ignore any allegations on the basis

of this argument.
iv. Whether the FAC Pleads a Factual Basis for Its
Allegation that Individual Defendants’ Trades
Were Suspicious 12
Defendants challenge whether an inference of scienter may
be derived from Individual Defendants’ allegedly suspicious
trades.

Generally, Defendants challenge this basis for scienter

on grounds that Plaintiffs fail to allege the trades were
unusual in scope or timing.

Plaintiffs essentially allege that

Individual Defendants’ trades support scienter because they
occurred during the class period, were unusual, and amounted to
C$28,950,441.

Defendants offer multiple opposing inferences

that may be derived from Individual Defendants allegedly
suspicious trades during the class period that will be discussed
in turn.

Defendants do not dispute the FAC’s allegations

concerning the types, dates, or amounts of trading by the
Individual Defendants.
In determining whether a stock sale supports scienter, a
court should consider whether it is “unusual in scope or
timing.”

In re Suprema Specialties, Inc. Sec. Litig., 438 F.3d

256, 277 (3d Cir. 2006) (citations and quotations omitted).

12

The Court will take judicial notice of the public filings
relied upon by Defendants in their reply brief that were not
objected to by Plaintiffs in their proposed sur-reply and
related filings.
39

To

determine whether a sale is unusual in scope, a court may
examine “the amount of profit made, the amount of stock traded,
the portion of stockholdings sold, or the number of insiders
involved.”

Id. (citations and quotations omitted).

Defendants first argue that the “performance share units”
(“PSUs”) supposedly “exercised” by Individual Defendants were
not suspicious because they were (1) not exercised by Defendants
and (2) not unusual in amount.

As Defendants explain, PSUs are

“phantom share units that track the price of common shares of
[TD B]ank, receive dividend equivalents in the form of
additional units, and are subject to an adjustment to a portion
of the award at maturity to further reflect bank performance
over the performance period.”

(Defs.’ Reply Br. 9.)

These PSUs

cannot be exercised or sold, but are paid out at the end of
three years.
While Defendants appear to be correct in that the PSUs were
not technically exercised or sold, that does not necessarily
defeat Plaintiffs’ argument on scienter.

The motive, personal

financial gain, and opportunity, because the PSUs vested shortly
after planned public statements were made by various Individual
Defendants, still exists whether the PSUs could be sold at
particular times or vested at a predetermined time.

While this

inhibits the flexibility of Individual Defendants in making a
statement to raise the stock price and then immediately sell at
40

a higher price, the timing of the vesting of the PSUs is close
in time to various statements by Individual Defendants, which
are alleged to contain false or misleading information.

This

will contribute to Plaintiffs’ scienter argument as the vesting
may have been unusual in time.
This Court must also consider “scope.”

Defendants appear

to be correct, that the amounts sold were not unusual.
Examining the records, it appears a similar amount of PSUs were
paid out each December during the class period.

Plaintiffs,

incorrectly, combine two Decembers of PSU sales and compare them
to only one December of PSU sales for all Individual Defendants.
This will neither aid nor detract from Plaintiffs pleading of
scienter.

If the PSUs take three years to vest, as Defendants

assert, then the amounts were set before the class period.
Given that fact, this cannot be said to support either side’s
scienter argument.
Regardless, there are still stock sales and options that
various Individual Defendants made during the course of the
class period.

Plaintiffs have presented evidence showing the

sales of shares and options were unusual in timing, as many were
sold in close proximity to allegedly false or misleading
statements.

Unlike the PSUs, Defendants do not allege these

sales were not within the control of Individual Defendants.
This supports scienter.

Moreover, it appears all Individual
41

Defendants either sold shares or exercised stock options during
the class period.

This also supports scienter.

It also appears

to be undisputed that these sales were unusual in amount, as
opposed to the previous year where none of the Individual
Defendants sold shares or exercised options (besides the
aforementioned PSUs).

This supports scienter as well.

See In

re Hertz Global Holdings Inc., 905 F.3d 106, 119-21 (3d Cir.
2018) (analyzing the above factors in determining whether
insider stock sales were unusual in scope and timing). 13
Defendants do not present this Court with a compelling
counter-narrative of the stock sales.

Instead, Defendants rely

on general principles about the percentage of holdings sold and
whether the stock sold was in the form of options.
Reply Br. 11.)

(Defs.’

If Defendants wished to challenge Plaintiffs’

scienter argument, they could have provided this Court with
percentages of holdings which each Individual Defendant sold off
during the class period. 14

They do not.

Thus, this Court lacks

13

The Court also notes that in additional letter briefs
submitted by the parties, which discuss the recent opinion in
the Hertz case from the Third Circuit, Plaintiffs show that the
proceeds from the sales of the PSUs, shares, and options
amounted to a large portion or exceeded Individual Defendants
salaries. From the Court’s examination of the FAC, the general
assertion appears to be true and would additionally support
scienter.
14

This Court acknowledges Defendants made an argument specific
to Johnston, but they are unable to address the timing and
amount of her sales. As discussed above, what percentage was
42

the information to determine whether this would support or
detract from the inference of scienter here.

The cases cited by

Defendants are unhelpful, as they do not bear on the specific
facts of this case or analyze arguments actually advanced by
Defendants that are lacking here.
Moreover, In re Hertz Global Holdings Inc. seems to suggest
that the percentage of holdings sold off in this case would not
affect the outcome.

905 F.3d at 120-21.

The reason: the

timing, amount – as compared to sales from the previous year,
and individuals involved all support a plausible allegation of
scienter.

The percentage sold could not here overwhelm the

strength of these factors.

Accordingly, this Court finds the

stock sales of the Individual Defendants may support a strong
inference of scienter here.
v. Whether the Misconduct at Wells Fargo May Support
Scienter
Defendants argue the allegations made concerning the effect
of the legal troubles faced by Wells Fargo in 2016 add nothing
to this Court’s determination of scienter for two reasons.
First, Defendants assert that the FAC does not plead that
misconduct at Wells Fargo put Defendants on notice of misconduct
at TD Bank.

Second, Defendants argue that “guilt by

association” theories of scienter have been rejected by other
sold is not dispositive of scienter.
Court’s analysis here.
43

It does not change the

federal courts.

Although Plaintiffs do not appear to dispute

this argument, this Court will consider it on the merits.
This Court is persuaded by Defendants’ argument on this
point.

There appears to be no cogent inference that could be

made here from the events that occurred at Wells Fargo.

While

Plaintiffs allege the same types of misconduct occurred at both
Wells Fargo and TD Bank, these are two separate banks with
different executives, employees, and policies.

Defendants are

right: the FAC does not allege that the occurrences at Wells
Fargo put Defendants on notice of improper conduct at TD Bank.
For this reason alone, this Court could find these allegations
do not contribute in any way to its determination of scienter.
Moreover, the decision in Pirnik v. Fiat Chrysler
Automobiles from the Southern District of New York is
persuasive.

No. 15-cv-7199 (JMF), 2017 U.S. Dist. LEXIS 120841

(S.D.N.Y. Aug. 1, 2017).

The court there did not find

allegations of Fiat Chrysler Automobiles’ “awareness that other
automobile manufacturers were facing regulatory scrutiny for
using illegal ‘defeat devices’” supported scienter.
(emphasis in original).

Id. at *6

This is a sensible conclusion, and this

Court comes to the same conclusion here on similar allegations.
Essentially, Plaintiffs allege Individual Defendants’ were aware
that illegal conduct could lead to regulatory scrutiny and other
legal consequences.

That could apply to any case, thus, it does
44

not support scienter here.
vi. Whether TD Bank’s Management Structure and
Corporate Organization May Support Scienter
Defendants argue Plaintiffs’ allegations concerning the
general structure and organization of TD Bank cannot be used as
a basis to support scienter.
this argument. 15

Plaintiffs do not appear to oppose

This Court will consider it on the merits.

Defendants assert “a plaintiff cannot establish scienter on
the part of defendant executives by ‘loosely describing the
managerial hierarchy’ by which fraudulent conduct could have
come to their attention.”

City of Roseville Emps.’ Ret. Sys. v.

Horizon Lines, Inc., 686 F. Supp. 2d 404, 422 (D. Del. 2009)
(quoting Clark v. Comcast Corp., 582 F. Supp. 2d 692, 706 (E.D.
Pa. 2008)).

To state it another way:

allegations that a securities-fraud defendant, because
of his position within the company, “must have known”
a statement was false or misleading are “precisely the
types of inferences which [courts], on numerous
occasions,
have
determined
to
be
inadequate
to
withstand Rule 9(b) scrutiny.”
In re Advanta Corp. Sec. Litig., 180 F.3d 525, 539 (3d Cir.
1999) (quoting Maldonado v. Dominguez, 137 F.3d 1, 10 (1st Cir.

15

This Court recognizes that Plaintiffs do attempt to oppose it
by citing to CW statements. (Pls.’ Opp. Br. 28 n.21.) But,
this does not actually address Defendants’ argument. Defendants
limit their argument to whether the general hierarchy of an
organization may be used to support scienter. Regardless, this
Court considered the CW statements, supra and infra, in weighing
whether a strong inference of scienter has been shown by the
FAC.
45

1998)).

This is essentially what Plaintiffs attempt to do in

their FAC.

(FAC ¶¶ 191-96.)

These allegations do not support a

finding of scienter.
vii. Whether the Core Operations Doctrine May Support
Scienter
Defendants argue the core operations doctrine cannot
support a strong inference of scienter when Plaintiffs fail to
plead any facts in the FAC showing alleged misconduct so
pervasive as to implicate the core operations of TD Bank.
Defendants generally complain the allegations concerning the
core operations doctrine are conclusory.

Plaintiffs contend the

core operations doctrine applies and strengthens the inference
of Defendants’ scienter given the Canadian retail segment’s
central importance to TD Bank’s profitability.
“[U]nder the core operations doctrine, misstatements and
omissions made on ‘core matters of central importance’ to the
company and its high-level executives gives rise to an inference
of scienter when taken together with additional allegations
connecting the executives’ positions to their knowledge.”

In re

Urban Outfitters, Inc. Sec. Litig., 103 F. Supp. 3d 635, 653-654
(E.D. Pa. 2015) (citations omitted).
The core operations doctrine was allowed to support
scienter in Urban Outfitters, essentially on the basis that the
business wherein fraud was alleged to have occurred accounted

46

for 44% of all sales by Urban Outfitters during the year in
question.

Id. at 654.

A similar decision was made by the Third

Circuit, where it allowed the core operations doctrine to
support scienter even though no CW statement or particular
document showed a defendant’s knowledge.

Institutional

Investors Group v. Avaya, Inc., 564 F.3d 242, 268, 271-72 (3d
Cir. 2009).

But see Rahman v. Kid Brands, Inc., 736 F.3d 237,

246-47 (3d Cir. 2013) (refusing to allow the core operations
doctrine to support scienter because the scheme involved only
comprised a small percentage of the defendants’ annual
business).
Here, the Plaintiffs allege the Canadian Retail segment is
“TD’s flagship business,” “contribut[ed] over 60%” of earnings,
and that 95% of TD Bank’s customer base used branch locations
for banking – the very locations where alleged improprieties
occurred. (FAC ¶¶ 48-59.)

Defendants fail to argue the Canadian

retail segment is not one of TD Bank’s core operations.
Defendants also fail to provide an alternative inference that
should apply here.

Therefore, like Avaya, it appears here

Individual Defendants made statements concerning the Canadian
retail segment and internal controls and the Canadian retail
segment was of central importance to TD Bank’s success.

That is

enough at the pleading stage to support the core operations
doctrine.

In consideration of the procedural posture, the
47

particular facts alleged supra support scienter.
viii. Whether the Resignations or Reassignments of
Certain Individual Defendants Support Scienter
Defendants also challenge whether Plaintiffs assertion that
the resignation or reassignment of three of the Individual
Defendants may properly support scienter.

Plaintiffs argue in

their opposition brief and the FAC that the resignations and
reassignments were suspicious because of their timing.
Generally, “[t]he departure of corporate executive
defendants is a factor that can strengthen the inference of
scienter.”

In re Hertz Global Holdings, Inc., 905 F.3d 106, 118

(3d Cir. 2018) (citing City of Dearborn Heights Act 345 Police &
Fire Ret. Sys. v. Align Tech., Inc., 856 F.3d 605, 622 (9th Cir.
2017)).

But, even the termination of an executive after the

announcement of so-called bad news (e.g. accounting
irregularities) requires “more than pleading a link between bad
news and an executive’s resignation.”

Id. at 119.

There must

still be allegations which “cogently suggest that the
resignations resulted from the relevant executives’ knowing or
reckless involvement in a fraud.”

Id.

The FAC does not support an inference of scienter from
these allegations.
conclusion.

There are three reasons supporting this

First, the timing of the two reassignments – that

of Johnson from CFO to Group Head and Pederson from President

48

and CEO to Advisor - was not suspicious.

Those occurred before

the CBC reports were published in March 2017.

Stepping down at

the height of an alleged fraud does not cogently lead to a
conclusion of knowledge or reckless involvement in a fraud.
Second, the fact that all three – Johnson, Pederson, and
Chauvin – retained a role at TD Bank further undercuts
Plaintiffs scienter theory.

A resignation may support a finding

of scienter because it may be implied that the individual knew
of the fraud being perpetrated.

Once those outside the fraud

find out, supposedly, they terminate (or force to resign) all
those who may have been responsible.

If these Individual

Defendants knew or were reckless in not knowing the alleged
fraud, why would TD Bank retain them in an advisory role?
Third, and most importantly, Plaintiffs plead nothing more
than that the resignation or reassignment happened within or
shortly after the class period.

The FAC does not allege, as is

required, that the resignations and reassignments had anything
to do with the specific Individual Defendants knowledge or
reckless involvement in the fraud.

Without more, this Court

finds these allegations do not support a finding of scienter.
ix. Whether TD Bank’s Offerings During the Class
Period Support Scienter
Defendants also challenge whether TD Bank’s $2.75 billion

49

in note offerings during the class period may support scienter. 16
Since this is all the FAC states on this point, Defendants
argue, it cannot support an allegation of scienter.

Plaintiffs

argue it should support scienter, because it shows that TD Bank
allegedly continued to defraud shareholders in order to ensure
the notes’ terms were more favorable for TD Bank.
Defendants cite Avaya, Inc. in support of their position.
564 F.3d 242 (3d Cir. 2009).

In that case, the shareholders

alleged the defendants were motivated to inflate the price of
stock in order to minimize paying cash for so-called Liquid
Yield Option Notes (“LYONs”) and obtain increased financing
through a $400 million, five-year unsecured revolving credit
facility.

Id. at 278.

In examining these facts, the Third

Circuit stated “a general corporate desire to retire debt and
raise funds and obtain credit on favorable terms” does not give
rise to a strong inference of scienter.

Id. at 279.

The Third

Circuit commented that “[c]orporate officers always have an
incentive to improve the lot of their companies, but this is
not, absent unusual circumstances, a motive to commit fraud.”
Id.
Plaintiffs counter with case law of their own.

See, e.g.,

Van Dongen v. CNinsure Inc., 951 F. Supp. 2d 457, 474 (S.D.N.Y.

16

Note, these allegations are solely advanced to support
Plaintiffs’ corporate scienter argument concerning TD Bank.
50

2013); In re Res. Am. Sec. Litig., No. 98-5446, 2000 U.S. Dist.
LEXIS 10640, at *18-20 (E.D. Pa. July 26, 2000).

The theory in

these cases is that misleading statements made directly before
company offerings may be used to artificially inflate stock
prices or better credit terms, which provide a motive and
opportunity in support of the inference of scienter.
This Court finds - based on the timing of the alleged
misstatements and the offerings - that these allegations are
probative of scienter.

But, they are not particularly helpful.

While the Court finds Plaintiffs have advanced a cogent theory,
this Court finds these allegations only support scienter because
it is at least as compelling as Defendants’ inference.
Therefore, this Court finds these allegations may lend some
support to scienter.
x. Whether SOX Certifications May Support Inference
of Scienter
Finally, Defendants argue that the SOX certifications made
by Masrani, Johnston, and Ahmed do not support an inference of
scienter.

Defendants essentially argue that “[a]n allegation

that a defendant signed a SOX certification attesting to the
accuracy of an SEC filing that turned out to be materially false
does not add to the scienter puzzle in the absence of any
allegation that the defendant knew he was signing a false SEC
filing or recklessly disregarded inaccuracies contained in an

51

SEC filing.”

In re Hertz Global Holdings, Inc., 905 F.3d at

118.
Considering this Court’s previous findings, supra, this
argument is unavailing.

This Court has already found the CWs’

statements may support a finding that Individual Defendants –
including those who filed SOX certifications (Masrani, Johnston,
and Ahmed) – either knew (or were reckless in not knowing) the
alleged improprieties occurring at TD Bank.

Considering the

same factual basis is being used to allege scienter as to the
SOX certifications as was used to allege scienter stemming from
the CWs’ statements, it is unclear whether this adds much more
to the scienter analysis.

To the extent it does, this Court

will consider it.
xi. Whether Plaintiffs’ Allegations Create a Strong
Inference of Scienter as to Defendants
On balance, this Court finds Plaintiffs’ allegations
support a strong inference of scienter.

In favor of a finding

of scienter are Individual Defendants’ stock sales, the core
operations doctrine, the CWs’ statements, and - to the extent
helpful - the SOX certifications.

The Court does not find that

the resignations, management structure, or activities which
occurred at Wells Fargo adds to the scienter puzzle.

On

balance, the FAC and Plaintiffs’ arguments have persuaded this
Court that – at this stage – Plaintiffs’ proposed inference is

52

at least as plausible or more plausible than Defendants’
proposed inference.

Thus, this Court finds a strong inference

of scienter and it will not dismiss Plaintiffs’ Section 10(b)
claim on this ground.
xii. Whether Plaintiffs Plead the Necessary Facts to
Support Corporate Scienter
Lastly, Defendants argue that the doctrine of corporate
scienter has not been adopted in the Third Circuit and cannot be
relied upon here.

Defendants also argue, even if this Court

allows the case to move forward on the doctrine of corporate
scienter, Plaintiffs have not met the exacting standard required
under that doctrine.
First, this Court will address Defendants argument
concerning the adoption of the doctrine of corporate scienter in
the Third Circuit.

Defendants are correct: the Third Circuit

has “neither accepted nor rejected the doctrine of corporate
scienter in securities fraud actions.”

Rahman, 736 F.3d at 246;

see also In re Hertz Global Holdings, Inc., 905 F.3d at 121 n.6
(acknowledging the Third Circuit has “neither accepted nor
rejected th[e] doctrine” and declining to adopt it upon the
plaintiffs’ request).
This does not provide an adequate basis for this Court to
dismiss the scienter argument made against TD Bank.

Federal

Rule of Civil Procedure 12(b)(6) only allows this Court to grant

53

a motion for “failure to state a claim upon which relief can be
granted.”

The Third Circuit has yet to determine whether it

will allow the doctrine of corporate scienter a place in its
jurisprudence.

While the outcome remains unknown, this Court

cannot hold that Plaintiffs have failed to state a claim merely
because the law is unsettled.

Therefore, this Court will not

dismiss the Section 10(b) claim against TD Bank on this basis.
Second, this Court must address whether – assuming the
viability of the doctrine of corporate scienter – Plaintiffs
have pleaded enough in the FAC.

Defendants argue Plaintiffs

have not pleaded facts (1) creating a strong inference that at
least one of the Individual Defendants possessed intent that
could be attributed to TD Bank or (2) evidencing “extraordinary”
circumstances.

Plaintiffs dispute Defendants allegedly narrow

view of the doctrine.
Regardless, since this Court finds that a strong inference
of scienter has been alleged as to Individual Defendants and
Defendants admit that this may properly support a finding of
corporate scienter, it will not dismiss the claim against TD
Bank premised on corporate scienter.
not permanently foreclosed.

This argument, however, is

Defendants are free to raise this

argument again on a fuller record.

54

c. Section 20(a) Claim 17
Defendants argue the Section 20(a) claim must also be
dismissed based on two pleading deficiencies.

First, Defendants

argue that the FAC is deficient because Plaintiffs fail to plead
that each of the Individual Defendants were Section 20(a)
“controlling persons.”

Defendants assert, instead, Plaintiffs

make only group allegations in their FAC.

Second, Defendants

assert the FAC fails to allege facts showing the Individual
Defendants’ culpable participation in the fraud.

Acknowledging

a split in this district, Defendants request this Court to
follow one line of cases and require allegations of culpable
participation.
First, this Court will address Defendants’ argument
concerning group pleading of control.

While Defendants have

accurately quoted the case law they cite, they have failed to
provide the necessary context.

For example, Rocker Mgmt.,

L.L.C. v. Lernout & Hauspie Speech Prods. N.V. actually stands
for the proposition that: “While status or position alone do not
constitute control for purposes of § 20(a), . . . courts in this
circuit have acknowledged that control person claims need not be
pleaded with particularity so long as the underlying Section
17

Defendants also argued the Section 20(a) claim is derivative
of an underlying violation of Section 10(b) and should be
dismissed if the Section 10(b) claim is dismissed. Because this
Court has not dismissed the Section 10(b) claim thus far, it
will not dismiss the Section 20(a) claim on that basis.
55

10(b) violation is properly pled.”

No. 00-5965, 2005 U.S. Dist.

LEXIS 16854, at *43 (D.N.J. June 7, 2005).
The Rocker Mgmt., L.L.C. decision then cites cases from
this Circuit and District which were allowed to move past the
motion to dismiss stage containing similar allegations to this
case.

Id. at *43-44 (quoting In re Rent-Way Secs. Litig., 209

F. Supp. 2d 493, 524 (W.D. Pa. 2002); In re Campbell Soup Co.
Sec. Litig., 145 F. Supp. 2d 574, 599-600 (D.N.J. 2001)).

In

fact, Rocker Mgmt., L.L.C. found the below allegations
sufficient to show control under Section 20(a):
•

“Individual Defendants, by reason of their stock
ownership,
directorships,
and/or
management
positions, were controlling persons of L&H and
had the power and influence to cause L&H to
engage in the unlawful practices complained of
herein.”

•

“[O]fficers and directors of L&H, by virtue of
his or her high-level position with the Company,
directly participated in the management of the
Company, [were] directly involved in the day-today operations of the Company at the highest
level,
and
[were]
privy
to
confidential
proprietary information concerning the Company
and its business, operations, and accounting
practices as alleged herein.”

Id. at *41-42 (alterations in original).

Considering the state

of the case law, the positions occupied by Individual
Defendants, the statements and/or certifications made by them to
the investing public, and the allegations made concerning the
Section 20(a) claim, this Court finds Plaintiffs’ allegations

56

are sufficient to survive Defendants’ Motion to Dismiss.
Second, this Court will address Defendants’ argument
concerning pleading culpable participation.

Defendants admit

“[t]he Third Circuit has left [open the question of] whether
plaintiffs must plead ‘culpable participation’ to survive a
motion to dismiss.”

(Defs.’ Reply Br. 34.)

Therefore, there is

no controlling law on-point for Defendants to assert that the
Section 20(a) claims must be dismissed on these grounds.

This,

alone, could preclude dismissal.
Moreover, this Court finds the line of cases that do not
require pleading of “culpable participation” at the motion to
dismiss stage persuasive.

Derensis has it right: (1) evidence

of culpable participation is unlikely to emerge until after
discovery is completed and (2) evidence relating to culpable
participation will likely be entirely within a defendants’
control.

Derensis v. Coopers & Lybrand Chtd. Accountants, 930

F. Supp. 1003, 1013 (D.N.J. 1996).

Requiring pleading of

culpable participation would essentially bar Section 20(a)
claims from being brought in the vast majority of cases.

The

strict pleading requirements for Section 10(b) claims under the
PSLRA provide an effective device to expose frivolous Section
10(b) claims – always leading to the dismissal of Section 20(a)
claims attached thereto.

Accordingly, this Court declines to

dismiss the Section 20(a) claims at this juncture.
57

d. Claims Against Mike Pedersen and Mark Chauvin
Lastly, Defendants request Defendants Pedersen and Chauvin
be dismissed from this case.

Essentially, Defendants argue that

only one statement from each individual has been asserted by
Plaintiffs to be false or misleading.

But, Defendants argue,

the FAC neither asserts facts showing these statements were
false or misleading nor does it contain particularized
allegations that these defendants’ control over any other
Defendant violated Section 10(b).

The Court addressed this

second argument, supra, and finds again that it cannot form the
basis for dismissal of Section 20(a) claims.
Plaintiffs assert that Defendants unfairly quote the actual
statement made, that the statement was alleged to be false and
misleading, and that these statements are not the only basis for
Plaintiffs’ claim against them.

This Court will address each

statement in turn.
i. Mike Pedersen
As discussed supra, this Court found this statement may be
the basis for a Section 10(b) claim.

This statement goes

directly to the heart of the alleged improprieties here and does
not solely contain statements of pure opinion.
argument does not persuade this Court otherwise.

Defendants

58

This Court

will not dismiss Pedersen from this action. 18
ii. Mark Chauvin
Finally, this Court examines Chauvin’s sole statement.
Chauvin was asked by an analyst “what keeps you up at night” and
he responded with what keeps him up at night – the loss and
monetization of customer data or a disruption of TD Bank’s
systems by an outside force.

(FAC ¶ 162.)

Plaintiffs allege

the statement was “materially false and misleading” but offer no
facts showing that the stated concern was not what keeps Chauvin
up at night.

(FAC ¶ 163.)

Generally, Plaintiffs’ allegations

do not have any relation to Chauvin’s statement about cyberattacks.
But, a statement may also be materially misleading by
omission.

And, Plaintiffs allege that Chauvin, TD Bank’s Chief

Risk Officer, was “asked, point-blank, to list” significant
risks facing TD Bank.

If Chauvin knew of the underlying

improprieties and failed to list this as a significant risk, his
statements could be misleading by their omission of that alleged
fact.

In light of the Court’s determination that the other

18

Defendants mischaracterize the statements Plaintiffs are
challenging. There are actually multiple lines within
Pedersen’s statements that are alleged to be false or
misleading, not just the single line quoted and devoid of
context.
59

elements have been plausibly pled, 19 the Court will not dismiss
Chauvin from this case.
This does not mean, however, that Defendants are foreclosed
from reiterating this argument at some later point.

Defendants

may present this argument again on a fuller record.
E. Leave to Amend
Plaintiffs request in one sentence and two footnotes at the
end of their opposition brief that this Court grant leave to
amend.

(Pls.’ Opp. Br. 35 n.27-28.)

Given the nature of this

Court’s Opinion, granting, in part, and denying, in part,
Defendants’ Motion to Dismiss, this Court will not decide
whether to grant or deny Plaintiffs’ request for leave to amend.
First, Plaintiffs’ request to amend the Section 20(a) claim is
moot – this Court did not dismiss it.

Second, Plaintiffs appear

to only request leave to amend if the Court granted Defendants
entire motion; the Court has not done so here.
Upon consideration of this Opinion and the accompanying
Order, Plaintiffs’ are permitted to file a motion complying with
the Federal Rules of Civil Procedure and this District’s Local
Rules of Civil Procedure requesting leave to amend.

19

The Court has already found that the FAC contains sufficient
allegations of scienter and has noted materiality is an issue
for the factfinder.
60

CONCLUSION
For the reasons stated in this Opinion, the Court will
grant, in part, and deny, in part, Defendants’ Motion to Dismiss
and grant Plaintiffs’ Motion to File a Sur-Reply.
An appropriate Order will be entered.

Date: December 6, 2018
At Camden, New Jersey

s/ Noel L. Hillman
NOEL L. HILLMAN, U.S.D.J.

61