Vivine H Wang v. The Bear Stearns Companies LLC et al

Filing 95

OPINION 104219. Based upon the conclusion set forth above, the motion of the Defendants is granted, and the Complaint is dismissed with leave granted to replead within 20 days. It is so ordered. Re: 79 MOTION to Dismiss filed by Garrett Bland, Joey Zhou. (Signed by Judge Robert W. Sweet on 4/15/2014) (rjm) Modified on 4/17/2014 (nt).

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK

-- ------------x
VIVINE H. WANG,
Plaintiff,
-against-

11 Civ. 5643
OPINION

THE BEAR STEARNS COMPANIES LLC,
J.P. MORGAN SECURITIES LLC,

J.P. MORGAN CLEARING CORP.,

DELOITTE & TOUCHE LLP,

ALAN D. SCHWARTZ, ALAN C. GREENBERG,

JOEY ZHOU, and GARRETT BLAND,

Defendants.

-----------------------------------x
A P PEA RAN C E S:
Attorne

for the Plaintiff

GHODS LAW FIRM
2100 N. Broadway #300
Santa Ana, CA 92706
By: Mohammed K. Ghods, Esq.
William Stahr, Esq.
Jeremy A. Rhyne, Esq.

s Joe Zhou and Garrett Bland
PAUL, WEISS, RIFKIND, WHARTON & GARRISON LLP
1285 Avenue of the Americas
New York, NY 10019
By:
Brad S. Karp, Esq.
Eric S. Goldstein, Esq.

Jessica S. Carey, Esq.

Jonathan Hurwitz, Esq.

Sweet, D.J.

Defendants Joe Y. Zhou ("Zhou") and Garrett Bland
("Bland")

(collectively, the "Defendants") have moved pursuant

to Federal Rules of Civil Procedure 9(b) and 12(b) (6) to dismiss
the claims against them in t
(t

"

complaint filed on March 29, 2011

"Complaint") by plaintiff Vivine H. Wang ("Wang" or the
aintiff"). Upon t

conclusions set

rth below, the motion

is granted and the Complaint is dismissed as to Zhou and Wang
with leave granted to

lead within 20 days.

Prior Proceedings

Wang purchased 150,000 shares of The Bear Stearns
Company Inc.

("Bear Stearns") between March 6, 2008 and March

14, 2008 through a Bear Stearns brokerage account upon the order
of her husband, Roger Wang ("Roger Wang," collectively with
Plaintiff the "Wangs"). The purchase and its circumstances are
the subject of the Complaint. The Wangs refused payment on the
purchase.

After the Wangs refused to pay for purchases of Bear
Sterns stock, Bear Stearns liquidated Wang's brokerage account
1

and filed an

tration claim to recover the money owed.

~~ 38-39).1 Wang re

ed to

icipate

the arbitration, and

Bear Stearns was eventually awarded $3,048,514.87 on June 9,
2009.

(~

40). The award was confirmed and a judgment was entered

by a district court

California on January 13, 2010.

Stearns was also subsequently awarded attorne

'

Bear

fees and costs.

While Bear Stearns's arbitration against
was proceeding, in April 2008, Roger Wang fil
against Bear Stearns, Zhou, and Bland

Wang

a complaint

California state court,

connection with the March 2008

alleging state law violations

purchases of Bear Sterns stock in his wife's account.

(No.

BC388727 (Cal. Super. Ct., Los Angeles)). Roger Wang alleged
he, not his wife, authorized the purchases, although the
account was so

ly in her name. Roger Wang's s

asserted a putative
States District Court

, which

ass claim, was removed to the United
r the Cent

District of Cali

rnia (08

Civ. 5523 (C.D. Cal.), Doc. No. 42), and then transferred by the
nated or consolidat

MOL Panel to this Court for
proceedings

pretrial

the other related actions pending here.

Citations in the form"'
refer to paragraphs in the Complaint.
Citations in the form "CA,
n refer to
in the Consolidated Class
Action
(08 MDL 1963 (S.D.N.Y.), Doc. No. 61), which Wang
incorporated by reference into her Complaint. (See' 43).
U

2

ed with

Roger Wang's action was subsequently consoli
ed securit

tigation, No. 08 C

Cos., Inc. Securities
"Securities Action").
~

ion In re Bear Stearns

actions under the

(08 M.D.L.

. 2793

1963 (S.D.N.Y.), Doc. No. 31

21). In the Securities Action, court-appointed Lead Plaintiff
led a Consol

2009, which ass

Class Action Complaint on February 27,

December 14, 2006 and Ma

entities that,
purchas

or otherwise acqui

stock [of Bear Stearns]." (CA

On

f of "all persons and

claims on

~

the publi

14, 2008
y traded common

1).

29, 2011, Wang

led the instant Complaint in

the United States District Court for the Central

strict of

California. On August 15, 2011, the MDL Panel transferred Wang's
action to this Court for coo
proceedings with the Securit
Wang's appl
consolidat

ion to have

ed or consoli
s Action. On

ruary 6, 2012,

r action coordinat

, with the Securities Action was

ed pretrial

,rather than
ed.

(See 11

Civ. 5643 (S.D.N.Y.), Doc. No. 53).

er motion

and discovery in the Securities

Action, the parties reached a settlement,
the Court in the orders

ch was approved by

final judgments dated November 29,

3

2012.

(08 M.D.L. 1963 (S.D.N.Y.), Doc. Nos. 337-338). On August

22, 2012, Vivine Wang opted-out of t

class action settlement. 2

Allegations of the Complaint

The Compla

makes the following allegations. Vivine

Wang is an individual res
Bland worked
fice.

in Cali

rnia.

(91 1). Zhou

r Bear Stearns in its Century City, Cali

(9191 18, 19). Wang all

dealer, the agent of a bro
advisor" (91 18), and

inning

s that Zhou worked as a Ubro

r-dealer, and/or an

or Managing Director."

the mid-1990s,

advice to the Wang family.

r-

stment

and as a broker-dealer and/or

advisor with the title of uS

ia

stment
(91 19).

Zhou provided investment

(91 23). In early 2008, a

er some

time working with a different broker, Wang and her husband
contacted Zhou and asked to "place some stock orders with Bear
Stearns."

(91 24). Zhou told

r that a new account would need to

be opened, and then met with Wang to execute the necessary
paperwork.

(Id.).

On February 29, 2008, Wang entered into a Customer
Agreement

th Bear Stearns, which set fo

the terms and

Roger Wang did not opt out, and thus any claims he had are barred.

4

• • • • •1;

----~~····-·······----------------------!'!.Iiili

conditions on which Bear
account.
st

(Chepiga Decl.

earns "open[ed] and maintain[ed]" her
~

3, Ex. 2). The Customer Agreement

ed:

(a) A Bear Stearns entity will execute transactions
accepted by it and/or will provide such other
clearance, settlement and custody services in
connection with the maintenance of your
Account(s) at Bear Stearns.
(b)

Bear Stearns is acting as a
ker-dealer and
custodian, and not as (1) an investment adviser
under the Investment Advisors Act of 1940, or (2)
a "fiduciary" as defined in Section 3(21) of the
Employee Retirement Income Security Act of 1974,
as amended ("ERISA") or Section 4975 of the
Internal Revenue Code of 1986, as amended
("Code"), with respect to your Account(s) under
this Agreement..
. Nei t
r Bear Stearns nor
its employees are authorized to prov
, and
shall not provide, legal, tax or accounting
advice or services and you will not solicit or
rely upon any such advice from them whether in
connection with transactions in any of your
accounts or otherwise. You have consulted or will
consult with your own technical, legal,
regulatory, tax, business, investment, financial
and accounting advisors to the extent you deem
necessary in determining the investment and
trading strategy appropriate for you and the
appropriateness of each transaction.

(Id. at '1I l(a),

(b)).

rtly
after the new account was opened, Roger Wang
began placing verbal orders through Zhou for purchases
financial companies.

stock

('1I'1I 25 29). On March 6, 2008, he ordered
5

10,000 shares of Bear Stearns corrunon stock ("BSC").

(~27).

He

placed additional orders for 20,000 BSC shares on March 10 and
11 respect

ly.

(~~

28-29).

On March 11, 2008, Roger Wang attended a meeting (for
the Asia Society) that was hosted at the offices of Bear Stearns
Century City, California.

(~

30). At this meeting Roger Wang

was seated at a table with Bland. Bland is alleged to have told
Roger Wang: "that Bear Stearns was financially sound, that its
stock value should be at least $85.00 per share, and that now
was a great time to invest in the stock." (Id.). In addition,
Bland allegedly told Roger Wang "to buy as much BSC stock as he
could." (Id.).

Early
infiltrate

the week of March 10, rumors had begun to
market about Bear Stearns's liquidity.

(CA

~

263). On March 10, 2008, the Company's liquidity pool stood at
$18.1 billion.

(CA

~

4

). At the end of the day on March 11,
at $15.8 billion

2008, the Company's liquidity remai
(adjusted
273,

the release of customer protection funds)

(CA

~

ting letter from SEC Chairman Cox to the Chairman of the

Basel Corrunittee on Banking Regulat

dated March 20, 2008),

well within the range of the preceding weeks.

6

..IIIIIIIIIII~

--------------------------------~.IM

Clients continued pulling their funds on March 12 and
13, drawing down the Company's liquidity pool.

(CA

~~

280-81).

By the evening of Thursday, March 13, 2008, Bear Stearns's
liquidity had declined to $2 billion.

(CA

~

280). Because Bear

Stearns could not open for business the next day without
financing,
cil

it negotiat

with JPMorgan for a $30 billion funding

backstopped by the federal government.

(CA

~

285). At

9:00 am on the morning of Friday, March 14, 2008, before the
market opened, Bear Stearns issued a press release announcing
deterioration of

s liquidity position, and the secured
(~

loan facility from JPMorgan.
price of Bear Stearns stock
share.

(CA

~

33). Following this release,

the

11 from $57 per share to $30 per

11).

At some po

after the market opened on March 14,

Roger Wang, allegedly unaware of Bear Stearns's press release,
contacted Zhou and placed a verbal order for 200,000 additional
shares of BSC.
"part

(~~

31-34). The order, however, was only

lly filled," and, as a result, Wang was to receive

100,000 shares of BSC at approximately $34 per share and "at no
time that day or ever did .

.

. Zhou warn, caution, or advise

Plaintiff or her husband against buying any more BSC stock."
(~

31). In placing this order on March 14, Roger Wang is also

7

leged to have relied on Bland's "favorable recommendation"
from three days earl

r.

(Id.).

Over the ensuing weekend, the loan facility did not
calm

market's fears. On Sunday, March 16, 2008, Bear Stearns

announced an agreement for JPMorgan to purchase the Company for
the equivalent of $2

r share.

(tjl

35). According to the

Complaint, this announcement is when the Wangs "learned of the
fraud./I

35). The Wangs immediately stopped payment "on the

(tjl

scheduled wire transfer for their final stock trades," and
refused to pay

ir purchases of BSC stock.

(tjl

35). The

following day, March 17, a representative of Bear Stearns
demanded payment from the Wangs, but was referred to their
lawyer.

36).

(tjl

Based on

se allegations, the Plaintiff

s brought

claims against the Defendants for violation of Securities
Exchange Act of 1934, Section 10 (b), 15 U.S.C.

§

78j

(b)

(<j[<j[

49­

58) breach of fiduciary duty; conspiracy to induce breach of
fiduciary duty
defraud

(<j[<j[

(<j[tjl

64-69); fraud and

ceit and conspiracy to

70-79); violations of California Corporations Code

Sections 25400 and 25401

(<j[tjl

80-86); and violations of

California Corporations Code Section 17200

8

(tjltjl

87-91).

The Relevant Standards

On a motion to dismiss pursuant to Rule 12 (b) (6),
factual

all

are accepted as true,

and

tions

al

in the

compla

12 F.3d 1170,
is

not whether a

1174

plaintiff will

is entitled to of

378

(2d

Ci r.

To
12 (b) (6),

1995 )

"a

a

v.
2d 90

motion

complaint must
to

544,

Plaintiffs

claims

Twombly,

1,

173 L. Ed. 2d 868

550 O.S.

must

across

5500

.S.

570,

127 S.

al

570.

dismiss

as

true

a

legal

O.S.

232,

to

Rule

pursuant

sufficient

ctual matter,

662,

Ct.

1955,

Though

s

conceivable
the

conclusion

9

129 S.

167 L.

sufficient
from

678,

ausible

(quoting Bell Atl. Co

Court

ctual allegations of a complaint as true,
accept

375,

(1974)).

556 O.S.

(2009)

line
at

F.3d

416

Rhodes,

56

aim to relief that is

on its face.'" As
1937, 1949,

to

contain

'state a

"'The issue

dence to support the cla

(quo t

survive

ed as true,

their

1993).

ultimately prevail but whet
r

236, 94 S. Ct. 1683, 40 L.

(2007)).

r.

(2d

_V~i~l~-L~r~~~P~o~n_d~__I_n_c~.__ _ _~T~o_w_n _~o_f ~D~a_r~i~e~n,
v_.
_
__

,,,

ar

pleader. Mills v.

s are drawn in favor of

all

.

to
to

must

Ct.
. v.

2d 929

"nudge [
plausible."
accept

the

is "'not bound to

couched

as

a

factual

legation.'"

Iqbal,

129

S.Ct.

at

1950

(quoting

Twombly,

550

U.S. at 555).

"To state a cIa
§

on which reI

f can be grant

10(b) and Rule 10b-5, a plaintiff must plead,
the defendant made a

under

er alia, that

lse representation as to a material

fact, or omitted material information, and acted with senter."
~S~.~~~~~~~L==L~C__~.~H~e~n~n_e_s~s~e~e~~~.~L~L~C,
v

573 F.3d 98, 108 (2d

Cir. 2009). A plaintiff must also satisfy

heightened

pleading requirements set forth in Rule 9(b) of the Federal
Rules of Civil Procedure and the PSLRA. See Boca Raton
------~-----------------------------------------

35-36 (2d Cir. 2012). Ru

I

506 F. App. 32,

9(b) requires that averments of fraud

be "state[d] with particularity." Fed. R. Civ. P. 9(b); see also
ATSI Commc'ns,

Inc. v. Shaar Fundi Ltd.,

493 F.3d 87 1 99 (2d

Cir. 2007). To satisfy this requirement, a plaintiff must: "(1)
specify the statements that the plaintiff contends were
fraudulent,

(2) identify the spea ker

I

(3) state where and when

the statements were made, and (4) explain why the statements
were fraudulent." Rombach v. Chang, 355 F.3d 164, 170 (2d Cir.
2004)

(internal quotation marks and

tat

omitted). General,

conclusory, or speculative allegations, unsupported by specific
facts, are legally insufficient. Id. at 176.

10

The Allegations of Section lO(b) Violations Are Inadequate

Wang's Section 10(b) al
fraud with

y, sc

icula

ions inadequately allege

er, and reliance on any

misstatements or omissions.

The Complaint does not plead

ud with particularity.

With respect to Zhou, Plaintiff does not allege any affirmative
s that Zhou failed to "caution

sstatements. Instead, she al

or her husband a

or advise Plainti
stock" on Ma

14, 2008 "or ever."

[i.e., an omission]
under

inst buying any more BSC
(~

31). However, "[s]ilence

sent a duty to disclose, is not misleading

10b-5." In re I

ial Public Offe

--------------------------------~----------~-

ting Basic v.

241 F. Supp. 2d 281, 380 (S.D.N.Y. 2003)
Levinson, 485 U.S. 224, 380 (1988)).
adequately aIle

Compla

that Zhou had any duty to

does not
se Wang or

caution her about purchases of SSC shares in view of the
discla

r in the Customer

ement t

t Wang signed.

11

.......

_-----------------------

- -.....- . .

- - - - -........

It is not alleged that Zhou had a duty to speak in
order to correct any prior statements.

_S_e_e~__~_.,

116 F. Supp. 2d 446,

In re N.

460-61

(S.D.N.Y.

y to correct or update, by definition, only arises

2000)
with re

ct to 'prior' public statements."). Zhou did not have

a duty to correct any misstatement allegedly made by anyone else
at Bear Stearns, since there is no allegation that he was
invo

in any way in the making of those statements. See
v. J.P.Morgan Sec., Inc., 710 F.3d 454, 467-68

2013)
fai

(defendant did not

(2d Cir.

a duty to disclose where
's

to allege the de

n

int

rect involvement" in

)i In re Union Carbide Corp. Consumer Prods. Bus. Sec.
666 F. Supp. 547, 563 (S.D.N.Y. 1987)
of direct participation in t

(absent evi

preparation or issuance of

documents, officers had no duty to disclose or correct any
misstatements or omiss

of material fact in documents issued

by corporation) .

Plaintiff

s that the Complaint

any affirmative misstatement by Zhou but has al

s not allege
Zhou

should have warned her not to purchase any additional BSC stock
on Friday, March 14, 2008 in view of the 9 a.m. announcement
that Bear Stearns's liquidity had significantly

12

eriorated and

t

firm was receiving extraordinary financing from JPMorgan.

(~~

31, 33). The Comp1a

Stearns

also has alleged that the Bear

ss release on t

morning of March 14 meant, "[iJn

effect, Bear Stearns' credit
up, liquidity was in

cilities had essentially dried

a huge problem, and the company was

rapidly heading towards complete financ

I collapse./I

33).

(~

Even if the allegedly omitted, publicly available
formation about Bear Stearns's financial condition on March 14
was material, Zhou had no duty to

sclose that information to

the Wangs. The Customer Agreement signed by

aintiff

specifically disclaimed any such duty. Plaintiff has contended
that the Customer Agreement only disclaimed fiduciary dut

s in

the context of ERISA or retirement accounts, but the Customer
Agreement is not so limited. It explicitly notes on t

first

page that "Bear Stearns is acting as a broker-dealer and
custodian

Bro

rage activities are regulated under

different laws and rules than advisory activit
do not g

rise to the fiduciary duties that an investment

adviser has to its clients./I

13

. _ . _ - - - - - - _ ....

_-_

.....

s and generally

_--------------------­

Wang has alleged that Zhou placed certain orders for
BSC stock at her husband's request and that Zhou was
incentivized to commit fraud

order to earn commissions on the

trades. Wang does not allege that Zhou received any greater
commissions from Wang's purchases of Bear Stearns stock than he
did from Wang's other stock purchases at this time, and such
generalized allegations do not give rise to a strong inference
of scienter. See
Chi

v.

JP Mo

Local 134 IBEW Joint Pension Trust of
Chase Co.

------~----------~~------------

553 F.3d 187, 200-01

(2d Cir.

2009) .

In the absence of motive, the Plaintiff must provide
"correspondingly greater" circumstantial allegations of
s

enter. PI

ntiff has not alleged that Zhou was in possession

of any material information about Bear Stearns's financial
condition that was not publicly disclosed. Although Wang cites
several "early warning signs such as that, on March 11, ING
Group NV allegedly informed Bear Stearns that it was pulling
$500 million

financing,"

(Opp. at 9; CA , 269), there is no

connection alleged between Zhou and those allegations nor an
explanation for why a retail broker in the Bear Stearns's Los
Angeles office would have had any knowledge of these events in
real time. A corporation's knowledge cannot be attributed to

14

Inc. Sec. Lit

. See, e. g. ,

1

1897, 2006 WL 314524, at *8 9 (S.D.N.Y. Feb. 10,

No. 05

2006), rev'd in part on other grounds, 531 F.3d 190 (2d eir.
2008) .

Wang does not dispute that she and her husband are
ghly sophisticated investors who placed unsolicited orders
th Zhou for increasing amounts of BSe stock in March 2008 as
the rumors about Bear Stearns's

ial condition intensifi

and its stock price

Wang also does not dispute

purchased Bse stock on

s

14 following the public

announcement of Bear Stearns's serious liquidity problems.
Plaintiffs alleged reI

on Zhou is unreasonable as a matter

of law.

Further,

omission by Zhou would only

as fraud under §10(b) to
Merrill

actionable

extent it was "material." See In re

Rate Sec. Lit

851 F. Supp. 2d 512,

535-36 (S.D.N.Y. 2012). To establish materiality a plaintiff
must demonstrate "a substantial likelihood
of the omitted
investor as

ct would have been

~--------

the reasonable

ng significantly altered the total mix of

15

----

the disclosure

information made availab

." Hutchison v. Deutsche Bank Sec.

Inc., 647 F.3d 479, 485 (2d Cir. 2011)

(quotations omitted,

emphasis added). Wang fails to allege that a representation from
Zhou regarding the instability of Bear Stearns would have
affected the decision to purchase stock. Moreover, Wang has
acknowledged that the substance of Zhou's alleged omission on
March 14 had already been disclosed to the market at the time of
the purchases that day.

(~~

33-34). Any failure on Zhou's part

to reference the release relating to the loan facility with JP
Morgan in a later conversation with Roger Wang after the release
cannot be material as a matter of law. See In re Merrill Lynch,
851 F. Supp. 2d at 535-36 (defendants prior disclosure of the
substance of the alleged omission to the market rendered an
omission immaterial) .

To the extent that Wang's claims against Zhou are
based on a failure to "ever" caution her or her husband about
buying more BSC shares, not just on March 14, Wang has not
alleged with any particularity why omissions on other occasions
were materially misleading.

16

with respect to Bland,

Plaintiff claims that Bland

represented to Roger Wang during a conference on March 11 that
Bear Stearns was a sound investment, that "its stock value
should be at least $85.00 per share,

. that

[it] was a great

time to invest in the stock," and that he would have purchased
more shares at the time if he could.

('][ 30). However, Bland's

alleged statements are opinion. See Rombach v. Chang,
164, 174

355 F.3d

(2d Cir. 2004). Prior cases have found statements

virtually identical to Bland's to be inactionable as fraud:

• "[Bank] is in very good shape as it moves into its next
stage of development." City of Sterling Heights Police &
Fire Ret. Sys. v. Abbey Nat'l, PLC, 423 F. Supp. 2d 348,
358 (S.D.N.Y. 2006);
• "[Company has a ] strong balance sheet." In re DRDGOLD
Ltd. Sec. Litig., 472 F. Supp. 2d 562, 568-69 (S.D.N.Y.
2007) (statement "more properly characterized as
optimistic statements of opinion as opposed to fact");
. problems reflect
• "[Company is] in very good shape
what every other reinsurer faced. We have put it behind
us .
." Malin v. XL Capital Ltd., 499 F. Supp. 2d
117, 144 (D. Conn. 2007);

• Plaintiffs "were going to make good money on new issues."
New v. L.F. Rothschild, Uterberg, Towbin, 651 F. Supp.
160, 163-64 (S.D.N.Y. 1986) (finding that statements were
nothing more than "the common puff of a salesman"); and

•

"[Bank] set the standard for best practices in risk
management techniques." ECA, Local 134 IBEW Joint Pension
Trust of Chi. v. JP Morgan Chase Co., 553 F.3d 187, 205­
06 (2d Cir. 2009) (" almost every investment bank makes
these statements.").

17

Such corporate opt
only when

speaker

sm has been held to be actionable

ded "guarantees or

statements of fact,

. specific

or if [he] does not genuinely or
them. u In re Int'l Bus. Machines Co

reasonably bel

Litig., 163 F.3d 102, 107 (2d Cir. 1998). Wang rna
all

statements of

, and she provides no adequate all

Bland did not subject

scienter.

s no

ever made any guarantees or specific

ion that

The P

. Sec.

ly believe

ion that

statements when made.

intiff has also failed to adequately

Under the PSLRA, "Congress required

with part

lege

intiffs to

arity facts giving rise to a strong-i.e., a

powerful or cogent-inference u of fraudulent intent. Tellabs,
Inc. v. Makor Issues &
Ct. 2499, 2510 (2007)

551 U.S. 308, 323, 127 S.
(citations omitted) i 15 U.S.C.

4 (b) (2). A "strong inference u of sc

§

78u­

r can be established by

demonstrating facts either: "(1) showing that the defendants had
motive

opportunity to commit the [

legedJ

constituting strong circumstantial evidence of cons
misbehavior or rec

essness.

Fund, Ltd., 493 F.3d 87,

U

ATSI Commc'ns,

ous

99 (2d Cir. 2007)i see also ECA, 553

'strong' inference of scienter,

cts give

raj court must ta

into account plausible opposing inferences,u such t
18

(2)

Inc. v. The Shaar

F.3d at 198. "[IJn determining whether the pleaded
rise to a

or

f

"a

reasonable person would deem the inference of scienter cogent
and at

st as compelling as any opposing inference one could

draw from the facts alleged." Tellabs,

551 U.S. at 336, 127 S.

Ct. at 2509-10.

The Complaint is devo

of

ual allegations

suggesting that Zhou and Bland had motive to commit fraud. There
is an allegation that Zhou and Bland misstated or omitted
material facts "in an effort to maintain the artificiallyinflated

ice

BSC common stock."

('3I 51).

has held in numerous cases that "similar all

The Second Circu
ions of a

generalized motive that could be imputed to any for-prof
endeavor are not concrete enough to infer scienter." In re
Merrill
(no

851 F. Supp. at 528; see ECA, 553 F.3d at 200-01

ference of scienter could be drawn from all

ions that

defendants had a "desire to maximize corporation's profits," or
"were motivated because inflated stock price or improved
corporate

formance would increase their compensation") i Acito

v. IMCERA

. Inc.

------------~~------

47 F. 3d 47, 54

In addition, Wang has fail

(2d Cir. 1995).

to allege opportunity

that either Zhou or Bland were actually in possession of, or had
access to, material information about Bear Stearns's liquidity
or the value of its stock price that had not already been
19

~~---'-"""-----

-------------------------------_.

publicly disclosed. Absent credible allegations that Zhou or
Bland had access to nonpublic facts about Bear Stearns's
un

lding financial condition, Wang's claim cannot satisfy the

PSLRA and t

particular

y requirements of Rule 9(b). See In re

Dynex Capital, Inc. Sec. Litig., No. 05 Civ. 1897, 2006 WL
314524, at *8-9 (S.D.N.Y. Feb. 10, 2006)

(dismissing claims

where complaint failed to allege that corporate officers "saw or
had access to specific reports or statements that indicated
malfeasance, or that contradicted their public statements"),
rev'd in part, 531 F.3d 190 (2d

r.

2008).

With respect to Bland, there is no circumstantial
evidence from which to infer that Bland did not subjectively
believe that March 11, 2008 was in fact a good time to invest in
Bear Stearns. That Bland's prediction turned out to be wrong is
not relevant. See Podany v. Robertson Stephens, Inc., 318 F.
Supp. 2d 146, 155 (S.D.N.Y. 2004)

("[LJiability premised on

objective wrongness of an opinion alone would risk holding
federal securities law defendants liable for good-faith, if
negligent, errors.").

Wang has not alleged any circumstantial evidence that
would compensate for her failure to allege motive and
opportunity. "When, as here,

[plaintiff] ha[s]
20

iled to plead

motive and opportunity . . . the strength of t

circumstantial

allegations must be correspondingly greater."
Chase Sec. Liti ., 363 F. Supp. 2d 595, 624

(S.D.N.Y. 2005)

(citing Kalnit v. Eichler, 264 F.3d 131,142 (2d Cir. 2001)).
Strong circumstantial evidence of sc

er would require

ific allegations tending to s

rt that Zhou and Bland

either:

access to information

(1) possessed knowledge or

that renders their alleged statements
or (2) "ignored obvious signs of

omissions misleading;
" Novak v. Kasaks, 216

F.3d 300, 308-09 (2d Cir.), cert.

, 531 U.S. 1012 (2000).

There is no allegation that

or B

information; nor do Wang's all

tions give rise to a strong

inference of recklessness or

A plaintiff all

had access to

sbehavior.

ng fraud must also plead reasonable

reliance on the misstatements or omissions. SEC v. DiBella, 587
F.3d 553, 563 (2d Cir. 2009). The reasonableness of reliance
ctors; no single one is "dispositive." Brown

turns on several
v. E.F. Hutton

Inc.

------------------~~------

991 F.2d 1020, 1032 (2d Cir. 1993).

Factors include: "(I) The sophistication and expertise of t
plainti

in

i

of longstanding
to the re
relat

ies matters;

and s

(2) the

siness or personal relationships;
i

(5)

tion;

(3) access

(4) the existence of a f

concealment of the fraud;
21

(6)

the

stence

to detect the fraud;

(7) whether the plaintiff initiated the

stock transaction or sought to expedite the transaction; and (8)
the generality or specificity of the misrepresentations." In re
________~__ , 851 F. Supp. 2d at 536-37.

Roger Wang is the chairman and CEO of the Golden Eagle
International Group, which owns and operates high-end retail
department stores throughout China and is traded on the Hong
Kong exchange. In its 2013 list of billionaires, Forbes magazine
estimated Roger Wang's net worth to be $3.8 billion.
Decl.

~

(Chepiga

2, Ex. 1). The Wangs are financially sophisticated,

given their business experience and wealth and satisfy the
definition of "Accredit

Investor" under the federal securities

laws. See 17 C.F.R. § 230.501. The Customer Agreement provided
that Bear Stearns and its employees were acting only as a
broker-dea

r and custodian with respect to Wang's account, not

an investment advisor or fiduciary.

The specific misstatements or omissions alleged by
Wang do not adequately allege reasonable reliance. With respect
to Zhou, Wang concedes that Bear Stearns issued a press release
at 9:00 a.m. on the morning of March 14, prior to any purchases
that day in her account.
the market the liquidi

(~~

33, 34). This release disclosed to

deterioration at Bear Stearns. As a
22

sophisticated investor, Wang cannot claim justifi
on Zhou's failure to mention an already public
See

e.

.

Ie reliance
ss release.

' t Income Trust

Hunt v. AlIi

F.3d 723, 730 (2d Cir. 1998)

light of adequate

ng

(f

been misled")

disclosures, "no reasonable investor c
see also --------~------~-----Heliot

189 F.

at 980-81

articles). This is true

(no duty to

r or not Wang was

ss of

actually aware of the release. Starr ex reI. Estate of

(quoting Brown,

s

diligence, the investor

With re

ct to

too generic to

i

on

Inc., 412 F.3d 103, 109-10 (2d Cir. 2005)

991 F.2d at 1032)

justifiably rely on a

i

market was aware of" from news

disclose information "

v. Georgeson S'holder,

159

Inc.

("[A]n

stor may not

sentation if, through minimal
ld have discovered the truth.").

, his statements of opinion are
a reasonable investor to rely on

them. In
75 F.3d 801, 811
Circuit

t

it was
to per

t "general announcements by Philip Morris
stic' about its earnings and 'expected' Ma

rm well .

investor .

"

.

. [could not] have misled a reas

(company's statement

"continued prosperity" was not a
23

- - - -...........•

~-~~~~ ....

Ie

See also Lasker v. N.Y. State Elec. & Gas

85 F.3d 55, 59 (2d Cir. 1996)
wou

(2d Cir. 1996), the Second

~----------------------~

inst

stock price declines, and just "the type of 'puffery' that this
and other circuits have consistently held to be inactionable").

Any reliance on Bland's alleged statements is not
adequate because Wang only alleges reliance on Bland's
statements in connection with purchases on March 14.
Friday, March 14,
and's favorab

(i 31 ("On

. with reasonable reliance on Defendant
recommendation

. Plaintiff's husband
.")). As an initial matter,

placed another verbal order .

these purchases took place three days after Bland is alleged to
have spoken wi

Roger Wang and hours after Bear stearns issued

s press release on the morning of March 14 notifying the
market of the serious liquidity problems
result of a run on the bank and t
JPMorgan.

experienced as a

financing being provided by

(ii 33-34). In light of these intervening

developments, which were widely reported in the press,

it was

not reasonable for a sophisticated investor like Wang to have
relied on statements that Bland allegedly made back on Tuesday,
March lIon Friday, March 14. 3

3In her opposition, the Plaintiff has alleged for the first time that she also
relied on Bland's statements in connection with the March 11 purchases of BSC
stock. However, Plaintiff cannot amend the Complaint in an opposition brief.
352 F. Supp. 2d 501, 516 (S.D.N.Y. 2005) ("It is
long-standing
in this circuit that parties cannot amend their
pleadings through issues raised solely in their briefs.").

24

Moreover, Wang's allegation that Bland informed Roger
Wang at a luncheon on March 11, 2008 that Bear stearns was a
s

investment, "its stock value should be at least $85.00 per
In the stock [of Bear

re," it "was a great time to
Stearns],n and Bl

would have pur

ric statement of corporate

if he could constitutes a

t

sed more shares at the

only if Bland provided "guarantees U or

imism acti

"specific statements of fact n or

not "genuinely or

reasonablyn believe the statements. See In re Int'l Bus. Machs.
Corporate Sec. Litig., 163 F.3d 102, 107 (2d Cir. 1998). The
"hallmark of an
objective

nion is that

does not express 'matters of

, which can be asses

standard' but instead conveys a

against an 'objective
1

f or 'judgment' whose

'determination is inherently subjective.,n Billho

r v. Flamel

Techs., S.A., No. 07 Civ. 9920 (RWS), 2012 WL 3079186, at *10
(S.D.N.Y. Ju

30, 2012)

(quoting Fait v. Regions Fin. Corp.,

655 F.3d 105, 110 13 (2d
reflect his own subjective

r. 2011)). Bland's alleged statements
1

fs. While the

intiff has

contended it would be inappropriate to find that these
statements were opinions as opposed to factual statements, such
findings are routinely made by courts on motions to dismiss.
See, e.g., Plumbers Union
Reins

No. 12 Pension Fund v. Swiss

753 F. Supp. 2d 166, 182 (S.D.N.Y. 2010); In re

25

DRDGOLD Ltd. Sec. Litig., 472 F. Supp. 2d 562, 568-69 (S.D.N.Y.
2007) .

Plaintiff's allegations do not give rise to a
plausible inference that Bland did not subjectively believe his
alleged March 11, 2008 statements to Roger Wang about Bear
Stearns. The contention that Bland must have known that Bear
Stearns was in a precarious financial position because two
lenders allegedly pulled a small amount of financing from Bear
Stearns prior to March 11 fails to connect Bland to the
withdrawals of financing and does not allege any facts
demonstrating that Bland knew or should have known of those
events. The allegations of scienter fall well short of the Rule
9(b) and PSLRA heightened pleading standards.

The Allegations of State Law Violations are Time-Barred and
Inadequately Pled

Count V of the Complaint asserts claims against Zhou
and Bland for securities fraud under

§§

25400 and 25401 of

California Corporations Code.

Under California law, Wang had "two years after the
discovery

of the facts constituting the violation" to

26

assert her state law securit

s fraud claims. Wang alleges

substantive violations of both §§ 25400 and 25401,

§§ 25500 and 25501, respect

for which

ly, provide causes of action. In

turn, Section 25506 provides a two-year limitations period from
the time of discovery for any causes of action arising under
§§

25500 and 25501. See Cal. Corp. Code § 25506 (b)

shall be maintained to enforce any liabil
Section 25500, 25501, or 25502

. un

(" [N]

y creat

action

0

under

ss brought before the

expiration of five years after the act or transaction
constituting the

olation or the expiration of two years a

the discovery by the plaintiff of the

er

cts constituting the

violation, whichever shall first expire."). Wang discovered

r

claims on March 16, 2008, when the merger between Bear Stearns
and JPMorgan was announced and when Wang stopped payments on
purchases of BSC because she had "learned of t
Wang's Complaint was not

fraud."

(~

35).

led until March 29, 2011, more than

three years later, and thus is time-barred.

Wang does not contest that she filed her Complaint
against Zhou and Bland more than three years after her discovery
of the alleged fraud, but contends that either

or

California's equitable tolling principles apply to save her
state law cia

. Wang's claims were not tolled during the

pendency of the Securities Action. "[A] federal court evaluating
27

the timeliness of state law claims must look to the law of the
relevant state to determine whether, and to what extent, the
statute of limitations should be tolled by the filing of a
putative class action in another jurisdiction." Casey v. Merck &
Co.,

653 F.3d 95, 100

(2d Cir. 2011). "California has not

adopted such American Pipe tolling where the class action was
filed in a foreign jurisdiction." See Hatfield v. Halifax PLC,
564 F.3d 1177, 1187

(9th Cir. 2009)

(quoting Clemens v. Daimler

Chrysler Corp., 534 F.3d 1017, 1025 (9th Cir. 2008)); Centaur
Classical Convertible Arbitrage Fund Ltd. v. Countrywide Fin.
Corp., 878 F. Supp. 2d 1009, 1017

(C.D. Cal. 2011)

(rejecting

argument that prohibition against cross-jurisdictional tolling
should not apply because the class action and subsequent action
were both filed in the same federal court, because cross­
jurisdictional tolling "includes all situations where a class
action is filed outside the .

. state court system"). American

Pipe is not the law in California.

Wang has acknowledged that in Clemens v. Daimler
Chrysler Corp., 534 F.3d 1017 (9th Cir. 2008), the Ninth Circuit
refused to extend American Pipe to allow an earlier class action
brought in a foreign jurisdiction to toll the statute of
limitations for a subsequently filed California action, but she
contends that tolling principles should still apply here. Wang
28

has contended t

t

Zhou and

by the filing of
Defendants have not

Securities Action in this District, and
udiced "in gathering evidence of

en p

identifying witnesses."

(Opp. at 25). Zhou and Bland are not

mentioned in the Securit

s Action complaint,

Action complaint is not bas
pI

and were on notice of her claims

the Securities

on a broker relationship with any

iff, and Zhou and Bland's alleged misrepresentations and

omissions are separate from those at issue in the Securities
Action. Wang has acknowledged these differences.
68 at 5
her"

"

See

. No.

(arguing her case presents "unique circumstances" due to
rect

ient relationship

th Bear Stearns" and the

lse material information [she received]

managers and employees (including de

from Bear Stearns

ndants Zhou and Bland)")).

The Securities Action did not provide Zhou and Bland with notice
of Wang's claims aga

t

them and allowing Wang's claims to

proceed would prejudice Defendants.

Counts III and IV of the Complaint allege,
respectively,
fraud

state law breach of fiduciary duty and common law

ims against Zhou and Bland.

Under California law, claims for
duty that sound in
wi

ud and common law fraud must be brought

n three years from the date the Plaintiff "discover[ed] the
29

- . - - - ­....

------~~----..

ch of fiduciary

----------------­

fraud or facts that would lead a reasonably prudent person to
suspect fraud." See Deveny v. Entropin, Inc.,

42 Cal. Rptr. 3d

807, 816 (Cal. Ct. App. 2006); Fuller v. First Franklin Fin.
Corp., C070452, 2013 WL 1820047, at *4

(Cal. Ct. App. May 1,

2013) .

Since Wang's breach of fiduciary duty and common law
fraud

aims are based on the same allegations as her Section

10(b) claims, her allegations must comport with the
particularity requirements of Rule 9(b). See Sollberger v.
Wachovia Sec., LLC, No. SACV 09-0766 AG (ANx) , 2010 WL 2674456,
at *7

(C.D. Cal. June 30, 2010);

9262,2010 WL 931888, at *7

v. Wasserman

(S.D.N.Y. Mar. 12, 2010)

No. 08 Civ.
("Rule 9(b)

also applies to breach of fiduciary duty claims where the breach
is premised on

defendant's fraudulent conduct, such as an

attempt to induce action or inaction on the part of .

.

investors by means of falsehoods or material omissions.

ff

(internal quotations omitted)); Jackson v. Fischer, No. C 11­
2753 PJH, 2013 WL 1089860, at *16 (N.D. Cal. Mar. 15, 2013)
(" [I]n

ral court, allegat

of [common law]

fraud

civil

cases are subject to the particularity requirements of Rule
9(b) ."). As set forth above, Wang has failed to plead fraud with
the particularity required by Rule 9(b), and, accordingly, her
claims for breach of fiduciary duty and common law fraud must be
30

dismissed. See

kson, 2013 WL 1089860, at *16; In re Merrill

851 F.

. 2d at 541.

Wang's Complaint also

ils to allege that either Zhou

or Bland had a fiduciary duty to warn her aga
i

rnia law,

t additional

purchases of

stock. Under

duty that a bro

r owes his customers is entirely dependent on

nature of the

rties' relationship, and does not include

the duty to disclose, advise or warn about an
the broker was act
Pens

scope of a

stment unless

in an advisory capacity_ Brown v. Cal.

Admin. & Consultants

Inc., 45 Cal. App. 4th 333, 348

(Cal. Ct. App. 1996).

Courts
here, a contract dis
v. MCA

Inc.

lined to f

d such a relationship. See Yerkovich

211 F.3d 1276 (9th Cir. 2000)

existence of a contract expressly disc
fiducia

a duty to warn where, as

(citing

iming the existence of a

relationship as evidence that no such relationship

existed), cert. denied, 531 U.S. 871 (2000); Petersen v. Sec .
Settlement, 226 Cal.
(same) .

. 3d, 1445, 1454 55 (Cal. Ct.

Customer Agreement signed by Wang made plain that

Bear Stearns would not

acting as an

31

- - - - - -........

. 1991)

~-

--------

.....

stment advisor or

duciary.

(See Chepiga Declo '][ 3; Ex. 2 '][ 1 (b)

(disclaiming

Bear Stearns's role as investment advisor and providing that
Plaintiff would consult with her own "investment, financial and
accounting advisors to the extent [she] deem[ed] necessary in
determining the investment and trading strategy appropriate for
[her]")).

California courts consider "the relative
sophistication and experience of the customer; the customer's
ability to evaluate the broker's recommendations and exercise an
independent judgment thereon;

nature of the account, whether

discretionary or nondiscretionary; and the actual financial
situation and needs of the customer." Duffy v. Cavalier, 215
Cal. App. 3d 1517, 1536, n.10

(Cal. Ct. App. 1989). Where a

broker serves only to execute investment decisions made by a
client, there is no "duty to notify the customer of the
nature of an investment, or

sky

. of the poor performance of

similar investments held by different customers./f Brown,

45 Cal.

App. 4th at 348; see also Petersen, 226 Cal. Ct. App. 3d at
1454-55 (broker that did not provide investment advice to its
customers had no duty to warn her about the risky nature of
investments). Wang and her husband were wealthy and
sophisticated investors with the background and financial means

32

necessary to exercise independent judgment. Inde

, they

appeared to have a strategy of investing in the stock of
financial companies in the height of the financial panic, as
Bear Stearns was not the only financial stock they were
acqui

ng at the time.

(<]1<]1

25-29).

With respect to Zhou specifically, Wang has al

ged

that, in the mid-1990s, Zhou "began advising [her] and her
family about investments," (<]1 23); that he provided advice about
"one or more purchases at issue in this case," (<]1 21); but did
not "warn, caution, or advise . . . against buying more BSC
stock," (<]1 31). Plaintiff does not allege that her BSC purchases
were solicited by Zhou, does not describe any advice provided by
Zhou, and does not state that she was

rsuaded by Zhou's

advice. To the contrary, at most her al
that, a

er some t

gat ions demonstrate

"using a different broker," (<]1 24), the

Wangs contacted Zhou to set-up a brokerage account at Bear
Stearns, and that, through him, Roger Wang placed orders for
purchases of stock in several financ

1 inst

utions. These

allegations are insufficient to show that Zhou had a duty to
advise Wang about the riskiness of her investments.

33

With respect to Bland, "Before a person can be charged
with a

duciary obligation, he must either knowingly undertake

to act on behalf and for the benefit of another, or must enter
into a relationship which imposes that undertaking as a matter
of law./I

. Fund v. Roth

Partners

~------~~----------------~~----------

158 Cal. App.

4th 226, 246 (Cal. Ct. App. 2007). The Complaint lacks
allegations that Bland intended to act on the Wangs' behalf or
exercised control over Plaintiff's account. While the Complaint
alleges that Bland knew that Roger Wang was a customer of Bear
Stearns, that is insuf

cient to establish a

duciary

relationship between the Plaintiff and Bland simply because
Bland was an employee of Bear Stearns. See Daniels v. Bd. of
~~

______

~~~~L-

__

~~~

__

~

__

~_

, No. B228240, 2011 WL

6004477, at *6 (Cal. Ct. App. Dec. 21, 2011)
individual defendants were not

a fiduc

("As employees, the

ry relationship with

plaintiff and they owed him no fiduciary duty as a matter of
law./I)

(citations omitted);

Ret. Ass'n, 37 Cal. Rptr. 2d 860, 870 (Cal. Ct. App. 1995)
(employee of retirement association owed no fiduciary duty to
claimant) .

The Plaintiff's claims for conspiracy to defraud and
conspiracy to induce breach of a fiduciary duty are also time

34

ba
not af

as "allegation[s] of a conspiracy of a ci
ct the limitations

I action [do]

riod for the substantive theory of

liability involved." Fuller, 2013 WL 1820047, at *4. Also, since
Wang's substantive cIa

against Zhou and

common law fraud and breach of fiduc
for

ilure to adequately al

and reI

ry duty must

ing to
dismiss

fraud, or pled with

particularity, so too should her conspiracy claims be dismissed
for the same reasons. See
Inc., No. SACV 12-0568, 2012 WL 2945051, at *5 (C.D. Cal. July
17, 2012)

(dismissing claims for fraud and conspiracy to defraud

where allegations failed to comport with particularity
requirements of Rule 9(b)).

In addition,

aintiff has not adequately pl

that

Zhou and Bland were participants in a conspiracy, or with whom
they conspired. See Arei II Cases, No. A130447, 2013 WL 2356108,
at *11

(Cal. Ct. App. May 29, 2013)

sufficient for t
"act

(plaintiff must allege facts

court to infer that each alleged conspirator

in concert and came to a mutual understanding to

accomplish a common and unlawful plan,
that the [alleged con

irators]

. It is not enough

knew of an intended wrongful

act, they must agree-expressly or tacitly-to achieve it.").

35

tion in a conspiracy

Bare, conclusory allegations of partie
are insufficient. Id.

-barred and were

Even if those claims were not t
pled wi

the requisite particula

iled to allege any facts supporting a con

Wang has
I

ty, which is not the case,

, the only

iracy.

Complaint to which she points

ragraph of

contains entirely conclusory al

ion that De

s "engaged

an unlawful conspiracy to support BSC's falling stock price
(~

through the use of deceitful means."
are insufficient to

a conspi

45). Such allegations
as a matter of law. See

Arei II Cases, 157 Cal. Rptr. 3d 368, 383 (Cal. Ct. App. 2013);
Geurin v. 21st Century Ins. Co., No. G029885,

2003 WL 329567, at

*2 (Cal. Ct. App. Feb. 13, 2003).

Count VI asserts claims
Pro

California Business &

17200

iness practices. To

ssions

§

state a claim under

§

unlawful

17200, a

intiff must plead, inter alia,

a predicate violation of an underl

ng law.

One Broa9., Servs., Inc., 28 Cal. Rptr. 3d 933,
App. 2005)

(a de

liable under

"cannot

938
§

(Cal. Ct.

17200

r

committing unlawful business practices without having violated

36

another law"). Because Wang has not sufficiently plead a viable
primary violation by Zhou or Bland,
dismissed.

r

§

17200 claims must be

737 F. Supp. 2d 1018,

1033 (N.D. Cal. 2010).

Conclusion

Based upon the conclusion set forth above, the motion
of the Defendants is granted, and the Complaint is dismissed
with leave granted to replead within 20 days.

It is so

0

red.

New York, NY
April I
2014

.:r-;

37