Melgen et al v. Bank of America Corporation et al
Filing
69
MEMORANDUM AND ORDER granting (906) Motion to Dismiss in case 1:09-md-02058-PKC; granting (56) Motion to Dismiss in case 1:12-cv-05210-PKC. For the reasons explained, the defendants' motion to dismiss is GRANTED. (12 Civ. 5210, Docket # 56.) Plaintiffs' alternative request for a stay pending a motion to remand is DENIED. The Clerk is directed to terminate the motion. (Signed by Judge P. Kevin Castel on 12/11/2013) Filed In Associated Cases: 1:09-md-02058-PKC, 1:12-cv-05210-PKC (lmb)
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UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
-----------------------------------------------------------x
IN RE: BANK OF AMERICA CORP.
SECURITIES, DERIVATIVE, AND
EMPLOYEE RETIREMENT INCOME
SECURITY ACT (ERISA) LITIGATION
USDSSDNY
DOCUMENT
ELECTRONICALLY FILED
DOC #: _ _ _~--;-:::DATE FILED: IJ. - II - I ,j
Master File No. 09 MD 2058 (PKC)
MEMORANDUM AND ORDER
THIS DOCUMENT RELATES TO:
DR. SALOMEN MELGEN, FLOR MELGEN
and SFM HOLDINGS LIMITED
PARTNERSHIP,
Plaintiffs,
12 Civ. 5210 (PKC)
-againstBANK OF AMERICA CORPORATION and
KENNETH D. LEWIS,
Defendants.
-----------------------------------------------------------x
P. KEVIN CASTEL, District Judge:
Plaintiffs bring claims of fraud, breach of fiduciary duty and negligent
misrepresentation, asserting injury in both their capacities as purchasers and holders of common
stock in Bank of America Corporation ("BofA"). They allege that BofA and its then-CEO,
Kenneth D. Lewis, are liable for fraud, breach of fiduciary duty and negligent misrepresentation
due to allegedly material misstatements and omissions related to the 2008 financial crisis.
Defendants now move to dismiss plaintiffs' Complaint pursuant to Rules 12(b)(6)
and 9(b), Fed. R. Civ. P. (12 Civ. 5210, Docket # 56.) For the reasons more fully explained, the
motion is granted. The Court concludes that the Securities Litigation Uniform Standards Act
("SLUSA"), 15 U.S.C. § 78bb(f), precludes plaintiffs' state-law claims directed to the Merrill
acquisition, and that even if it did not, plaintiffs' claims would be dismissed based on plaintiffs'
failure to timely opt out of the related class action. To the extent that plaintiffs asseli Florida
state-law claims as "holders" ofBofA shares, and assuming that Florida law would recognize
such claims, plaintiffs have failed to plead the requisite reliance. Lastly, the Complaint fails to
plausibly allege claims of fraud, negligent misrepresentation and breach of fiduciary duty.
BACKGROUND
Plaintiffs commenced this action on May 3, 2012 in the Fifteenth Judicial Circuit
Court of Palm Beach County, Florida. (Docket # 1.) On June 1,2012 BofA removed the action
to the United States District Court for the Southern District of Florida on the basis of diversity
jurisdiction. (Docket # 1.) Plaintiffs Flor Melgen and Dr. Salomon Me1gen are Florida citizens.
(Docket # 68, SFM Dec.
~
5.) The membership ofplaintiffSFM Holdings Limited Partnership
consists ofFlor Melgell, Dr. Salomon Melgen and SFM Investments, Inc., which is a Nevada
corporation with its principal place of business in Florida. (SFM Dec.
~
3.) Defendant BofA is
incorporated in Delaware and maintains its principal place of business in North Carolina, and
defendant Lewis is a North Carolina citizen. (Notice of Removal
~~
7-8.)
The Complaint brings claims directed toward defendants' conduct as it relates to
BofA's mortgage practices and corporate acquisitions. (Comp!'t ~~ 68-111.) Counts I, II and III
assert claims of fraud, breach of fiduciary duty and negligent misrepresentation directed toward
plaintiffs' decisions to retain and hold their shares ofBofA common stock. (Compl't ~~ 68-89.)
Counts N, V and VI assert those same claims, but are directed toward plaintiffs' status as
purchasers ofBofA's common stock. (Compl't ~~ 90-111.)
As discussed below, the Complaint asselis unlawful conduct in four areas of
BofA's business.
2
A. BofA' s Portfolio of Securitized Mortgages.
According to the Complaint, beginning sometime prior to 2007, BofA
"aggressively" participated in the market for residential mortgage-backed securities ("RMBS").
(Compl't ~~ 15-16.) Plaintiffs asseli that BofA originated and acquired numerous high-risk
subprime mortgages, and that by the end of 2007, held approximately $11.63 billion of subprime
mortgage assets. (Compl't ~~ 15-17.)
BofA publicly disclosed its internal underwriting guidelines. (Compl't ,,19.)
According to the Complaint, when BofA acted as originator or acquirer of residential mortgage
loans, it had access to the applicants' occupation, income and creditworthiness, but BofA failed
to follow its own intemal underwriting standards, exposing the company to "extraordinary" risk
on RMBS assets and to broad litigation exposure. (Compl't ~~ 19-21.) Plaintiffs assert that
BofA falsely stated to the public that its mortgage practices complied with company standards,
while knowing that they did not, and instructed its outside due-diligence teams "to ignore red
flags" in the loans. (Compl't ~ 22.)
The Complaint also asserts that BofA's filings with the SEC did not properly
account for the value of its RMBS holdings and that BofA failed to meet GAAP requirements to
set aside reserves for possible losses on those holdings. (Compl't ~ 24.) Plaintiffs contend that
BofA's failure to reserve against future losses and account for the value ofRMBS holdings
resulted in false and misleading statements and omissions that persisted tln'ough the first half of
2008. (Compl't ~ 25.) They assert that BofA's RMBS holdings dropped in value beginning in
2007, and that BofA materially misstated their value in SEC filings through the first half of2008.
(Compl't ",,26-27.) Plaintiffs state that these holdings caused BofA "to suffer massive losses"
3
when housing prices declined and mortgage defaults rates rose, resulting in "huge" writedowns
beginning in January 2009. (Compl't ~~ 28-29.)
B. BofA's Receipt of Federal Funding.
Plaintiffs allege that, beginning in March 2008, BofA received "massive"
emergency financing fi·om the federal govelmnent. (Compl't ~ 30.) This included govemment
financing to facilitate the purchase and borrowing of asset-backed commercial paper; access to
funding that provided liquidity to large brokerage finns; collateralized loans; and financial
assistance directed to mOligage bonds. (Compl't ~ 31.) Plaintiffs assert that this emergency
funding was not disclosed, even though by 2009, it totaled more than BofA's market
capitalization. (Compl't '132.) Plaintiffs allege that the receipt of govelmnent funding
contradicted defendants' upbeat public statements about BofA's financial health and its ability to
weather the 2008 financial crisis. (Compl't ~~ 33-37.)
C. BofA's Acquisition of Countrywide.
On or about July 2, 2008, BofA acquired Countrywide Financial Corporation
("Countrywide"). (COl11p!'t '138.) Plaintiffs assert that the acquisition exposed BofA to
approximately $30 billion in loan loss and $8.7 billion in litigation loss due to Countrywide's
l11Oligage-related practices. (Compl't ~ 40.) They state that the losses incuned through the
Countrywide acquisition hindered BofA's ability to withstand the deterioration of the broader
subprime market. (Comp!'t ~ 42.) According to plaintiffs, BofA intentionally and negligently
misrepresented the risks of the Countrywide acquisition, thereby depriving investors of necessary
information. (Comp!'t ~~ 41,43.)
4
D. BofA's Acquisition of Merrill.
Lastly, plaintiffs assert claims directed to BofA's acquisition of Merrill Lynch &
Co., Inc. ("Merrill"). (Compl't ~~ 44-60.) Beginning on or about September 13, 2008, Lewis
and Merrill CEO John Thain began to discuss the possibility ofBofA acquiring Merrill.
(Compl't ~ 44.) During early negotiations, BofA agreed that Men-ill could pay $5.8 billion in
employee bonuses prior to the close of the proposed transaction. (Compl't ~~ 45-47.) This
figure totaled approximately 12% ofthe transaction's overall value. (Compl't "45.) The bonus
alTangement was memorialized in a non-public disclosure schedule. (Compl't ~ 49.)
According to the Complaint, while shareholder approval for the transaction was
pending, Merrill incurred significant losses that were not disclosed to shareholders. (Compl't ~~
50-52.) In October and November 2008, its losses allegedly exceeded $15 billion. (Compl't ~~
50-51.) Plaintiffs allege that BofA was aware of MelTill's losses but did not disclose them to
shareholders. (Compl't ~ 51.) Plaintiffs assert that the losses exceeded BofA's eamings for the
first nine months of2008, which totaled $5.8 billion. (Comp!'t ~ 52.)
Plaintiffs also assert that the defendants are responsible for material misstatements
and omissions contained in the joint proxy that solicited shareholder approval for BofA's
acquisition of Merrill. (Compl't ""53-60.) They note that the joint proxy did not disclose the
Merrill bonuses or the scope of Merrill's fourth-quarter losses, despite an obligation to do so.
(Compl't ",,57-58.) According to the Complaint, the joint proxy misleadingly stated that Men-ill
employees would not receive additional compensation that was "not required" by an existing
plan or agreement, when, at the same time, defendants had agreed to the accelerated Men-ill
bonuses. (Comp!'t ~ 57.) As fmiher alleged: "BofA's intention was to convince its
5
shareholders to hold their stock by providing them with false and misleading infonnation and by
omitting and failing to disclose material accurate infoID1ation." (Compl't ~ 60.)
The procednral context for plaintiffs' Merrill claims is critical to defendants'
motion. It is undisputed that the plaintiffs did not follow the cOUlt-ordered opt-out procedure for
those seeking exclusion fi'om the celtified class in the related Consolidated Securities Class
Action. At the time that plaintiffs filed this action, this Court had certified a class of shareholder
plaintiffs in the related Consolidated Securities Class Action asserting claims directed to BofA's
acquisition of Merrill Lynch. In re Bank of Am. Corp. Sec., Derivative & ERISA Litig., 281
F.R.D. 134 (S.D.N.Y. 2012). On March 21,2012, a Notice of Pendency of Class Action was
distributed via first-class mail to 538,696 potential class members. (09 MD 2058, Docket # 539
~
4.) The Notice directed any class member who wished to opt out to request exclusion from the
class by May 7, 2012. (09 MD 2058, Docket # 539, Ex. A ~ 20.) Plaintiffs commenced this
action on May 3, 2012. (12 Civ. 5210, Docket # 1.) As discussed in greater detail below,
defendants contend that plaintiffs' failure to submit a request to opt out of the class bars them
from pursuing claims directed to the Merrill Lynch acquisition. Defendants also assert that the
Securities Litigation UnifOilli Standards Act ("SLUSA"), 15 U.S.C. § 78bb(f), precludes
plaintiffs from pursuing their Merrill-based claims because the action was transfel1'ed to this
Court for coordinated and consolidated pretrial proceedings under the multidistrict litigation
statute.
RULE 12(b)(6) AND RULE 9(b) STANDARDS.
To survive a motion to dismiss for failure to state a claim upon which relief can
be granted, "a complaint must contain sufficient factual matter, accepted as true, to 'state a claim
to reliefthat is plausible on its face. '" Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell
6
Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007». In assessing a complaint, courts draw all
reasonable inferences in favor of the non-movant. See In re Elevator Antitrust Litig., 502 F.3d
47,50 (2d Cir. 2007). Legal conclusions, however, are not entitled to the presumption oftruth,
and a court assessing the sufficiency of a complaint disregards them. Iqbal, 556 U.S. at 678.
Instead, the court must examine only the well-pleaded factual allegations, if any, "and then
detennine whether they plausibly give rise to an entitlement to relief." Id. at 679.
Rule 9(b) govems state-law fraud claims when a federal court exercises diversity
jurisdiction.
See,~,
Stern v. Gen. Elec. Corp., 924 F.2d 472, 476 n.6 (2d Cir. 1991). "In
alleging fraud or mistake, a party must state with particularity the circumstances constituting
fraud or mistake." Rule 9(b), Fed. R. Civ. P. To plead a fraudulent misstatement, "the plaintiff
must (1) specify the statements that the plaintiff contends were fi'audulent, (2) identify the
speaker, (3) state where and when the statements were made, and (4) explain why the statements
were fraudulent." Anschutz Corp. v. Men'ill Lynch & Co., InC., 690 F.3d 98,108 (2d Cir. 2012)
(intemal quotation marks and citation omitted). "Malice, intent, knowledge, and other conditions
of a person's mind may be alleged generally," Rule 9(b), but a plaintiff alleging fraud also must
plead facts giving rise to "a strong inference of fraudulent intent." Acito v. IMCERA Grp., Inc.,
47 F.3d 47,52 (2d Cir. 1995). This may be accomplished "by (1) alleging facts to show that
defendants had both motive and oPP011unity to commit fi'aud, or by (2) alleging facts that
constitute strong circumstantial evidence of conscious misbehavior or recklessness."
S.Q.K.F.C., Inc. v. Bell Atl. TriCon Leasing Corp., 84 F.3d 629,634 (2d Cir. 1996).
7
DISCUSSION.
1.
Plaintiffs' Claims Directed to the Merrill Acquisition Are Dismissed.
A. SLUSA Precludes Plaintiffs' Claims.
Defendants contend that the Securities Litigation Uniform Standards Act
("SLUSA"), 15 U.S.C. § 78bb(f), precludes plaintiffs fl.·om pursuing their state-law claims
directed to BofA's acquisition of Merrill. As noted, this action was originally filed in state cOUli,
was removed to federal cOUli on grounds of complete diversity of citizenship and asserts claims
solely on behalf of two natural persons and one limited partnership. The Judicial Panel on
Multidistrict Litigation transferred the action to the undersigned "for coordinated or consolidated
pretrial proceedings pursuant to 28 U.S.C. § 1407." (12 Civ. 5210, Docket # 14.)
Congress adopted SLUSA in 1998 with the goal of precluding plaintiffs from
bringing state-law claims that circumvent the heightened pleading standard ofthe Private
Securities Litigation Refom1 Act (the "PSLRA").
See,~,
In re Herald, 730 F.3d 112, 118 (2d
Cir. 2013) (reviewing history ofSLUSA's adoption). SLUSA "mak[es] federal court the
exclusive venue for class actions alleging fl.·aud in the sale of certain covered securities" and
"mandat[ es] that such class actions be govemed exclusively by federal law." Lander v. Hartford
Life & Annuity Ins. Co., 251 F.3d 101, 108 (2d Cir. 2001); see also Ring v. AXA Financial, Inc.,
483 F.3d 95,101 (2d Cir. 2007) ("[T]he purpose ofSLUSA is to preclude class action suits
based on state law grounds but alleging fraud in the sale of 'covered securities' .... ").
SLUSA states in relevant part:
No covered class action based upon the statutory or common law
of any State or subdivision thereof may be maintained in any State
or Federal court by any private party alleging -(A) a misrepresentation or omission of a material fact in
connection with the purchase or sale of a covered security.
8
15 U.S.C. § 7Sbb(f)(1). The statute defines a "covered class action" as including:
any group of lawsuits filed in or pending in the same court and
involving COlrnnon questions of law or fact, in which --
(1) damages are sought on behalf of more than 50 persons;
and
(II) the lawsuits are joined, consolidated, or otherwise
proceed as a single action for any purpose.
15 U.S.C. § 7Sbb(f)(5)(B)(ii). SLUSA preclusion is evaluated on a claim-by-claim basis. Dabit
v. Mel1'ill Lynch, Pierce, Fenner & Smith, Inc., 395 F.3d 25, 43-44 (2d Cir. 2005), vacated on
other grounds, 547 U.S. 71 (2006).
Here, the Complaint's Merrill-related allegations are directed toward material
misstatements and omissions concerning its acquisition by BofA, and the resulting damage that
plaintiffs allegedly suffered as shareholders. (See, M, Compl't ~~ 49,57-67.) Plaintiffs assert
that they purchased more than one million BofA shares between January and November 200S in
reliance on defendants' alleged misstatements and omissions. (Compl't ,,62.) Plaintiffs'
allegations closely parallel those asselted in the Consolidated Securities Class Action Complaint
filed in this same MDL. See, M, In re Bank of Am. COl]). Sec., Derivative & ERISA Litig.,
757 F. Supp. 2d 260 (S.D.N.Y. 2010). The related class action consisted of approximately
53S,696 members (09 MD 205S, Docket # 539 ~~ 3-4), far exceeding the SLUSA threshold of
50. This action asserts claims based on misrepresentations or omissions in connection with the
purchase ofa covered security, 15 U.S.C. § 7Sbb(f)(I)(A).
Plaintiffs assert that SLUSA should not apply because this case does not fall
within the statute's definition ofa "covered class action." 15 U.S.C. § 7Sbb(f)(5)(B)(ii). While
plaintiffs commenced this action on their own behalves, and not as a purported class action,
9
numerous tribunals have concluded that SLUSA's definition of a "covered class action"
encompasses actions brought solely on a plaintiffs own behalf when, as here, the proceeding is
coordinated for pretrial purposes under the multidistrict litigation statute, 28 U.S.C. § 1407. For
instance, Judge Kaplan recently concluded that SLUSA precluded a state-law claim that
paralleled related federal securities-law claims, all of which were before him in a pending MDL.
In re Lehman Bros. Sec. & ERISA Litig., 2012 WL 6603321 (S.D.N.Y. Dec. 17,2012). In that
action, plaintiff filed claims on its own behalf in the Northern District of California, including
one claim under California state law. Id. at *1. Pursuant to 28 U.S.C. § 1407, the Panel on
Multidistrict Litigation transferred the California action to Judge Kaplan for coordinated pretrial
proceedings, which involved "a large number of other[ ]" cases that alleged material
misstatements and omissions relating to defendant's securities offerings. Id. Judge Kaplan
concluded that although the action was brought solely on behalf of one plaintiff, it qualified as a
"covered class action" under SLUSA. Id. He explained:
This case is pending in the same cOUli as a large number of others,
all of which relate to Lehman Brothers and all of which involve
common questions of law or fact. . .. These cases collectively
meet any definition of the word "group." Although this case is
brought only on behalf of this plaintiff, damages are sought in
these cases on behalf of thousands, tens ofthousands, or even more
persons. The actions are consolidated here for pretrial purposes by
Pretrial Order No. 1 and the orders of the Judicial Panel on
Multidistrict Litigation. Hence, there is no serious question that
this is a "covered class action" within the plain terms of the
statutory definition.
Id. He concluded that "the language of SLUSA is crystal clear," and "clearly" applied to "an
individual case seeking damages on behalf of a single person that is transferred for coordinated
or consolidated pretrial purposes with a class action or multiple individual actions where
damages are sought on behalf of more than 50 persons." Id. at *2. He also noted that SLUSA
10
was enacted "decades after" Congress adopted the MDL statute, 28 U.S.C. § 1407, and expressly
applies to actions that are 'joined, consolidated, or otherwise proceed as a single action for any
purpose." Id. at *2 (quoting 15 U.S.C. § 77bb(f)(5)(B)(ii)(Il)).
Although the Second Circuit has not spoken to whether SLUSA' s definition of
"covered class action" applies to such claims, Judge Kaplan cited to numerous cases that have so
held. Id. at * 1 n.6 (collecting cases); see, ~, Instituto de Prevision Militar v. Merrill Lynch,
546 F.3d 1340, 1347 (l1th Cir. 2008) ("bona fide individual action[ ]" bringing a state-law claim
directed to securities purchase was a "covered class action" under SLUSA); In re Fannie Mae
2008 Sec. Litig., 891 F. Supp. 2d 458, 479 (S.D.N.Y. 2012) (Crotty, J.) ("SLUSA is triggered
where a group of actions are formally consolidated for any purpose (discovery, pre-trial, trial,
etc.)."); Krys v. Sugrue (In re Refco Inc. Sec. Litig.), 859 F. Supp. 2d 644, 648-49 (S.D.N.Y.
2012) (Rakoff, J.) (coordinated MDL proceedings qualify as "proceeding as a single action"
under SLUSA); Amorosa v. Ernst & Young LLP, 682 F. Supp. 2d 351, 374 (S.D.N.Y. 2010)
(McMahon, J.) ("courts in this District have not been shy to apply SLUSA to [preclude] state law
claims" when individual actions proceed in tandem with actions brought on behalf of 50 or more
people); In re WorldCom, Inc. Sec. Litig., 308 F. Supp. 2d 236, 244-47 (S.D.N.Y. 2004) (Cote,
J.) (ten individual actions removed from state court and consolidated for pretrial MDL
proceedings constituted covered class actions under SLUSA).
This Court is persuaded by the reasoning of Judge Kaplan and the line of
authority on which he relies. SLUSA's definition ofa "covered class action" is not limited
solely to class actions as conceived under Rule 23, Fed. R. Civ. P. Under SLUSA, a "covered
class action" may consist of "any group of lawsuits filed or ... pending in the same court and
involving common questions oflaw or fact," which seek damages for more than 50 persons and
11
"proceed as a single action for any purpose." 15 U.S.C. § 78bb(f)(5)(B)(ii) (emphasis added).
As the Second Circuit observed, "SLUSA is broadly worded." In re Herald, 730 F.3d at 118.
Under the text of SLUSA, an action directed to the purchase or sale of a security, filed solely on
behalf of three individual plaintiffs, which is then transferred by the Judicial Panel on
Multidistrict Litigation "for coordinated or consolidated pretrial proceedings pursuant to 28
U.S.C. § 1407" (Docket # 14) falls within "any group oflawsuits" that "proceed[s) as a single
action for any purpose," and therefore constitutes a "covered class action" under SLUSA.
Plaintiffs cite authorities that they claim are to the contrary. They amount to
nothing more than dicta in opinions that, themselves, precluded plaintiffs from pursuing statelaw claims.! Plaintiffs also argue that applying the plain meaning of the words of SLUSA
"would lead 'to absurd or futile results.'" (Opp. Mem. at 12 (quoting United States v. Am.
Trucking Ass'ns, 310 U.S. 534,543 (1940)).) They asseli that it is contrary to SLUSA's intent
to preclude claims filed in state court on behalf of individuals, which are then grouped with other
actions only by virtue of an MDL transfer. (Opp. Mem. at 11-12.) However, as discussed by
Judge Kaplan, SLUSA was enacted "decades after Section 1407 was passed and multidistrict
litigation had become a conmlon feature of our legal landscape." In re Lehman Bros. Sec. &
ERISA Litig., 2012 WL 6603321, at *2. Congress could have included a carve-out for actions
commenced in state court or actions that joined a "group oflawsuits" by virtue ofMDL transfer,
but it chose not to do so. Id. It remains Congress's prerogative to amend the statute's plain
I See, 'Uh, Merrill Lynch, Pierce, Fcnner & Smith Inc. v. Dabit, 547 U.S. 71, 87 (2006) (SLUSA's bar against state
securities claims is preclusive rather than preemptive); In re Enron Corp. Sec. Litig" 535 F.3d 325, 339-42 (5th Cir.
2008) (SLUSA precluded plaintilTs' state law securities claims); In re Lelmlan Bros. Sec. & ERISA Litig., 2012 WL
6603321, at *2 (same); Stichting Pensioenfonds ABP v. Merck & Co., 2012 WL 3235783, at *13-17 (D.N.J. Aug. 1,
2012) (same). In Ventura v. AT&T Com., 2006 WL 2627979 (S.D.N.Y. Sept. 13,2006), Judge Stanton declined to
preclude certain claims under SLUSA. But there, the apparently related class action had already been dismissed for
failure to state a claim. Id. at * 1. The court dismissed plaintiff's federal securities law claims and declined to
exercise supplemental jurisdiction over the remaining state law claims. Id. at *2. As Judge McMahon noted in
Amorosa, 682 F. Supp. 2d at 375, the procedural posture of Ventura's plaintiff and claims was otherwise unclear.
12
language ifit so wishes. Id. at *3. The Court declines plaintiffs' invitation to create an MDLbased Calve-out for SLUSA. 2
Because SLUSA precludes plaintiffs' claims directed to BofA's acquisition of
Merrill, those claims are dismissed.
B. Plaintiffs Did Not Timely Opt Out of the Related Class Action.
Plaintiffs' MelTill-related claims are dismissed for the separate and additional
reason that plaintiffs failed to comply with the opt-out procedures required of class members
who wished to be excluded from the class action.
On February 6, 2012, this Court certified a class ofBofA securities purchasers
pursuant to Rule 23, Fed. R. Civ. P., with a class definition that included all persons and entities
who purchased shares ofBofA common stock between September 18,2008 and January 21,
2009. In re Bank of Am. Corp. Sec" Derivative & ERISA Litig., 281 F.R.D. 134 (S.D.N.Y.
2012). According to plaintiffs, they purchased more than 1 million BofA shares between
January and November 2008, including shares purchased in reliance on allegedly misleading
statements about Merrill. (Comp!'t 1[62.) Thereafter, on March 21, 2012, a Notice of Pendency
of Class Action was sent to all 538,696 potential class members, providing a deadline of May 7,
2012 to opt out of the class. (09 MD 2058, Docket # 5391[4 & Ex. A "20.) The class notice
included express and unambiguous instructions for filing an opt-out notice. (09 MD 2058,
Docket # 539 Ex. 11[20.)
Plaintiffs separately request that, in the event that SLUSA precludes their claims, the Court should stay this action
to allow plaintiffs to move for remand pursuant to Rule 10.3 ofthe Rules of Procedure of the United States Iudicial
Panel on Multidistrict Litigation. (Opp. Mem. at 12 n.5.) In essence, plaintiffs contend that they were sandbagged
by defendants' reliance on SLUSA, and that the MDL Panel would not have transferred this action if it had known
plaintiffs' claims risked SLUSA preclusion. (Id.) Nothing in this Memorandum and Order bars plaintiffs from
filing such a motion. Plaintiffs, however, have 110t persuasively articulated why such a stay should issue at this
point.
2
13
On April 8, 2013, this Court entered a Final Order and Judgment in the
Consolidated Securities Class Action, which stated that each class member is "deemed to have,
and by operation oflaw ... fully, finally and forever compromised, settled, released, resolved,
relinquished, waived, discharged and dismissed each and every Released Lead Plaintiffs' Claim
against the Defendants .... " (09 MD 2058, Docket # 871 ~ 7(a).) "Released Lead Plaintiffs'
Claims" included "any and all claims and causes of action of every nature and description,"
including those based on state law, that were directed toward the purchase ofBofA stock during
the class period and asserted claims based on the Merrill acquisition. (09 MD 2058, Docket #
767-1, at 22-23.) The class notice expressly stated that failure to submit an opt-out request
would bind a class member to "all past, present and future orders and judgments" in the class
action. (09 MD 2058, Docket # 539 Ex. A
~
18(a).)
As discussed, plaintiffs' Men'ill-based claims asselt that they purchased BofA
shares in reliance on alleged misstatements and omissions concerning Merrill's financial
strength, including its fourth-quatter losses and the non-disclosure of employee bonuses.
(Compl't ~~ 44-60.) These claims directly overlap with those in the Consolidated Securities
Class Action.
There is no dispute that plaintiffs failed to seek exclusion from the class using the
procedures directed in the class notice. They are not named in the list of excluded class members
that was filed with the Court. (09 MD 2058, Docket # 871 Ex. 1.) However, plaintiffs
commenced this action on May 3, 2012, four days before the opt-out deadline expired. (Docket
# 1.) Plaintiffs contend that the commencement of the present action was sufficient to provide
notice of their desire to opt out ofthe class. (Opp. Mem. at 8.)
14
"Absent a violation of due process or excusable neglect for failure to timely opt
out, a class-action settlement agreement binds all class members who did not do so." filre Am.
Express Fin. Advisors Sec. Litig., 672 F.3d 113, 129 (2d Cir. 2011). "It is well-established that
'pendency of an individual action does not excuse a class member fi'om filing a valid request for
exclusion.'" In re Prudential Secs. mc. Ltd. P'ships Litig., 164 F.R.D. 362, 370 (S.D.N.Y. 1996)
(Pollack, J.) (collecting cases) (quoting Belman v. L.A. Gear, filC., 1993 WL 437733 at 5 n.1
(S.D.N.Y. Oct. 26, 1993) (Sand, J.)); accord In re Auction Houses, 2004 WL 2624896, at *6
(S.D.N.Y. Nov. 18,2004 (Ellis, M.J.); 5 Newberg on Class Actions § 16:15 (4th ed. 2013)
(quoting fil re Prudential).
In a prior Memorandum and Order, this Court concluded that a group of plaintiffs
was barred from pursuing their individual action when they failed to timely file a notice of intent
to opt out of the class. See KERS & Co. v. Bank of Am. Corp. (Ill re Bank of Am. Corp. Sec.,
Derivative & ERISA Litig.), 2013 WL 2443748 (S.D.N.Y. June 5, 2013). Those plaintiffs had
commenced an action bringing claims directed to the Men"ill acquisition. Id. at *1. They failed
to submit a timely opt-out request, as the class notice expressly required. Id. As the Court noted,
"'without a firm opt-out date, litigants could wait to see if the class action resulted in a more
favorable than anticipated resolution before choosing whether to continue with their
own litigation. ", Id. at *7 (quoting In re WorldCom, mc. Sec. Litig., 2005 WL 1048073, at *3
(S.D.N.Y. May 5, 2005) (Cote, J.)).
Plaintiffs do not dispute that they received the class notice or assert that the class
notice did not include explicit instructions as to its opt -out procedure. The class notice stated in
part: "If you wish to be excluded fi'om the Class, you must specifically request exclusion in
accordance with the following procedures." (09 MD 2058, Docket # 539 Ex. A'1[20.) It
15
required opt-out plaintiffs to mail identifying information to the claims administrator. (Id.) It
stated that class members could not request exclusion by alte1'l1ative communications, such as
telephone or e-mail. (kh)
Plaintiffs offer no explanation as to why they did not submit an opt-out request
consistent with the procedures set forth in the class notice, while also electing to pursue claims
that are expressly barred by the Judgment in this case. (09 MD 2058, Docket # 767-1, at 22-23
(defining "Released Lead Plaintiffs' Claims").) Pelmitting plaintiffs' claims to carve out an
alte1'l1ative opt-out procedure would encourage wait-and-see gamesmanship and introduce
uncertainty in the class settlement process.
Therefore, in addition to SLUSA's preclusion of plaintiffs' Merrill-based claims,
those same claims are separately dismissed due to plaintiffs' failure to comply with the express
and unambiguous opt -out procedures set forth in the class notice.
II.
Counts I and III, Which Assert Claims as Holders, Are Dismissed.
Plaintiffs move to dismiss Counts I and III of the Complaint, which "assert
common law claims relating to plaintiffs' decision to hold [BofA] stock" against all defendants.
(Comp!'t at 18; emphasis omitted.) Count I asserts that defendants fraudulently misrepresented
BofA's tme condition, thereby inducing plaintiffs to retain their BofA shares. (Comp!'t'l/'169,
71-72.) Plaintiffs assert that they would have sold all shares had they known BofA's "tme
financial condition." (Comp!'t'l/72.) They allege that they "suffered significant damages" from
their "failure to sell their BofA stock before the collapse of prices .... " (Compl't'174.) Count
III asserts negligent representation, and alleges that defendants made representations that they
knew or should have known to be false. (Compl't '1/'1/82-83.) Plaintiffs state that they relied on
16
defendants' misstatements, which induced them to retain their shares rather than sell them all
"before the price ofBofA's stock collapsed." (Compl't '1'185-87.)
A. Florida Law Governs Plaintiffs' Claims.
As an initial matter, the parties dispute whether plaintiffs' claims are governed by
the law of North Carolina or the law of Florida. Because this action was commenced in Florida,
Florida's choice-of-Iaw rules gove111.
See,~,
Valley Juice Ltd., Inc. v. Evian Waters of
France, Inc., 87 F.3d 604,607 (2d Cir. 1996) ('''a transferee comt applies the substantive state
law, including choice-of-Iaw rules, of the jurisdiction in which the action was filed. "') (quoting
Menowitz v. Brown, 991 F.2d 36, 40 (2d Cir. 1993)).
When making choice-of-law determinations for tort claims, Florida has
"abandoned the rule that the applicable substantive law is the law of the state where the injury
occurred ~ i.e., lex loci delecti ~ in favor of a flexible test to determine which state has the most
significant relationships to the cause of action." State Farm Mut. Auto Ins. Co. v. Roach, 945
So.2d 1160, 1163 (Fla. 2006) (collecting cases); see also Bishop v. Florida Specialty Paint Co.,
389 So.2d 999, 1001 (Fla. 1980) (adopting "substantial relationships test" for t01i claims). In
making such an analysis, the Florida Supreme Court relies on the factors outlined in the
Restatement (Second) of Conflict of Laws § 145 (1971).
See,~,
Bishop, 389 So.2d at 1001;
Celotex Corp. v. Meehan, 523 So.2d 141,144 (Fla. 1988). The Restatement states that the
contacts "taken into account" include: '''(a) the place where the injury occurred, (b) the place
where the conduct causing the injury occurred, (c) the domicil, residence, nationality, place of
incorporation and place of business ofthe parties, and (d) the place where the relationship, if
any, between the parties is centered. '" Celotex, 523 So.2d at 144 (quoting Restatement (Second)
of Conflict of Laws § 145(2)). Even under this approach, "[t]he state where the injury occurred
17
would, under most circumstances, be the decisive consideration in determining the applicable
choice oflaw," but COUlts are to use "a less mechanical, and more rational, process," and apply
the law of the state with the most "actual significance for the cause of action." Bishop, 389
So.2d at 1001.
In addition to Section 145, federal courts undeliaking a Florida choice-of-Iaw
analysis have also relied on Section 148 of the Restatement (Second) of Conflict of Laws, which
governs claims of fraud and misrepresentation. See TlUmpet Vine Invs., N.V. v. Union Capital
Partners 1, Inc., 92 F.3d 1110, 1115-16, 1118 (11th Cir. 1996) (relying on sections 145 and 148
of the Restatement for Florida choice-of-law analysis); Walewski v. ZeniMax Media, Inc., 2012
WL 834125, at *7 (M.D. Fla. Jan. 30,2012) ("Section 148 of the Restatement provides the
choice oflaw principles for fraud and misrepresentation, and Florida would apply this section.").
Under Section 148, a choice-of-Iaw analysis for a fraud claim weighs "(a) the place, or places,
where the plaintiff acted in reliance upon the defendant's representations, (b) the place where the
plaintiffreceived the representations, (c) the place where the defendant made the representations,
(d) the domicil, residence, nationality, place of incorporation and place of business ofthe parties,
(e) the place where a tangible thing which is the subject of the transaction between the parties
was situated at the time, and (f) the place where the plaintiff is to render perfonnance under a
contract which he has been induced to enter by the false representations ofthe defendant."
Restatement (Second) of Conflict of Laws § 148(2). Although the Florida state courts have not
themselves cited to Section 148, both sides urge that it applies. Section 148 of the Restatement
is consistent with and complements the text of Section 145. As a federal cOUli sitting in
diversity, this Court predicts that the Florida Supreme Court would look to Section 148 for
guidance in a choice oflaw analysis for a fraud claim. See, M, Travelers Ins. Co. v. Cal])enter,
18
411 F.3d 323, 329 (2d Cir. 200S) (federal court sitting in diversity should predict ruling of
relevant state's highest court).
In considering the factors listed in Section l4S, Florida is "the place where the
injury occurred." Restatement (Second) of Conflict of Laws § l4S(2)(a). This consideration
weighs strongly in favor of applying Florida law. Bishop, 389 So.2d at 1001. Plaintiffs also are
Florida citizens who purchased their BofA shares through a Florida brokerage and received the
alleged misrepresentations in Florida. (Compl't'tf 4-S; GUlmell Dec. Ex. D.) These
considerations weigh in favor of applying Florida law under subsections (a) and (b) of Section
148(2). Defendants assert that "all" of the alleged misstatements were made in North Carolina.
(Def. Mem. at 11, citing Compl't 'tf'tf 7-8,33-34, 3S.) However, these statements were
disseminated nationally through SEC filings and other public statements; they were not limited
to an intrastate transaction or a communication that OCCUlTed solely within North Carolina. As
N01th Carolina was the originating state ofthe communications, Section l48(2)(c) weighs
somewhat in favor of applying North Carolina law. Section 148(2)(d) does not favor either state:
BofA is incorporated in Delaware with its principal place of business in N01th Carolina; it
maintains branches throughout Florida; and plaintiffs are citizens of Florida. Subsections (e) and
(f) are not, on their face, applicable to plaintiffs' claims.
Weighing the factors outlined in Sections l4S and 148, and mindful that Florida
applies "the law ofthe state having the most significant relationship to the occurrence and the
patties," Bates v. Cook, Inc., S09 So.2d 1112, 1114 (Fla. 1987), the Court concludes that Florida
law govems plaintiffs' claims. Plaintiffs incuned their alleged injuries in Florida, the underlying
stock purchases were made in Florida, plaintiffs are Florida citizens, defendants have a
significant business presence in Florida and the action was originally filed in Florida state courts.
19
North Carolina's interests include its role as the location ofBofA's principal place of business,
Lewis's state of citizenship and the originating locus of the alleged misleading statements and
omissions. While NOlih Carolina's interests have some weight, Florida has a substantially more
significant relationship to the causes of action. Its law therefore govems.
Applying Florida law is consistent with the conclusions of other courts that have
made choice-of-Iaw determinations on similar claims. See, Q,g" Walewski, 2012 WL 834125, at
*8 (applying Florida law when misrepresentations from national corporation were made
nationwide, plaintiff was a Florida citizen, purchased product in Florida and was injured in
Florida); Valentino v. Bond, 2008 WL 3889603, at *9 (N.D. Fla. Aug. 19,2008) (applying
Florida law when Florida plaintiff acted in Florida based on representations made in the UK);
Berry v. Budget Rent A Car Sys., Inc., 497 F. Supp. 2d 1361, 1365-66 (S.D. Fla. 2007) (applying
Florida law when misrepresentations were received in Florida, transactions occurred in Florida
and alleged misrepresentations issued from defendant's New Jersey headquarters).
Because Florida has a greater interest in this action than North Carolina, Florida
law governs plaintiffs' claims.
B. Assuming that Florida Law Would Recognize Common-Law Claims Brought
by a Holder, Plaintiffs Have Not Adequately Alleged Reliance.
Plaintiffs contend that Florida law recognizes so-called "holder" claims, in which
a plaintiff asserts that it was induced to retain shares tln'ough material misstatements and
omissions. While one federal district cOUli observed that such claims are viable under Florida
law, it did so without citing Florida authority, and ultimately dismissed plaintiffs' claims for
failing to allege reliance. See Rogers v. Cisco Systems, Inc., 268 F. Supp. 2d 1305, 1312 n.13
(N.D. Fla. 2003) (in contrast to state and federal securities statutes, Florida's common law
pennits plaintiffs to bring claims of fraud and negligent misrepresentation based on
20
"representations intended to induce a stockholder to retain their securities."). Another federal
court more recently observed that "Florida law is unclear as to whether a plaintiff can sustain
such a claim." Pafumi v. Davidson, 2007 WL 1729969, at *3 (S.D. Fla. June 14,2007); accord
Bmhl v. Controy, 2007 WL 983228, at *9 (S.D. Fla. Mar. 27, 2007) ("There is no definitive
determination regarding the viability of a holding claim under Florida common law."). This
Court is unable to find any Florida authorities that rely on Rogers. Cf. Hunt v. Enzo Biochem,
471 F. Supp. 2d 390, 411 n.133 (S.D.N.Y. 2006) (Scheindlin, J.) ("Rogers has not been cited in
any other Florida case.").
Plaintiffs argue that this Court should adopt the conclusion of Rogers. They
contend that Florida law would recognize holder claims as an extension of precedent that permits
fraud claims based on a defendant's inducement of a plaintiff to refrain from taking celtain
action.
See,~,
Ward v. Atlantic Sec. Bank, 777 So.2d 1144, 1145-46 (Fla. Dist. Ct. App.
2001) (plaintiff had viable fraud claim when defendant knowingly induced him to retain
investments in failing fund); Hollywood Lakes Country Club v. Community Ass'n Servs., Inc.,
770 So.2d 716, 718 (Fla. Dist. Ct. App. 2000) (misstatements that prompted plaintiff "to refrain
from independently acting to collect assessments" were sufficient to state a claim of fraud);
Chino E1ec., Inc. v. U.S. Fidelity & Guar. Co., 578 So.2d 320 (Fla. Dist. Ct. App. 1991) (plaintiff
adequately alleged fraud when it failed to take legal action based on defendant's alleged
misrepresentations about terms of a bond); see also AHW Inv. P'ship v. Citigroup Inc., _ F.
Supp. 2d _,2013 WL 5827643, at *5-6 (S.D.N.Y. Oct. 30,2013) (Stein, J.) (predicting that
Florida would recognize holder claims).
Assuming arguendo that Florida conml0n law would recognize a fi-aud claim
based on a plaintiffs decision to hold shares ~ a proposition that is far from clear ~ the
21
Complaint nevertheless fails to allege fraud or negligent representation with the particularity
required of Rule 9(b).3 In dismissing plaintiffs' holder-based claims under Florida law, Pafumi
observed that "Rule 9(b) is particularly significant where a plaintiff claims that a defendant's
fraudulent misrepresentation or omission induced the plaintiff not to act." 2007 WL 1729969, at
*3. A plaintiff bringing such a claim "must specifically identify what she would have done had
the misrepresentation or omission not occurred." Id. Reviewing authorities that have recognized
holder claims, Pafumi stated that a plaintiff "must allege specific reliance on the defendants'
representations: for example, that ifthe plaintiff had read a tnlthful account of the corporation's
financial status, the plaintiff would have sold the stock, how many shares the plaintiff would
have sold, and when the sale would have taken place." Id. (quotation marks omitted) (citing
Rogers, 268 F. Supp. 2d at 1312-13; Small v. Fritz Co., 65 PJd 1255, 1265 (Cal. 2003)).
Pafumi's reasoning is consistent with other cOlllis that have required plaintiffs to
plead heightened detail for holder claims. See In re WorldCom, Inc, Sec. Litig., 336 F. Supp, 2d
310,320 (SD.N.Y. 2004) (Cote, J.) ("The few courts that have recognized common law 'holder'
class action claims impose heightened pleading standards on plaintiffs and require them to allege
specific reliance on the alleged misrepresentations by defendants."); Bruhl, 2007 WL 983228, at
*9 (Rule 9(b) requires a plaintiff pursuing a holder claim to allege "that, if the material
information had been disclosed, he would have sold the shares, the amount of shares he would
have sold, and when he would have sold them in relation to the time the material infOlmation
should have been disclosed."). Rogers ultimately concluded that plaintiffs failed to allege fraud
because the allegation that they would have sold their shares if they had known the company's
3 "Negligent misrepresentation is a type of fraud and, as such, is subject to Rule 9(b)'s heightened pleading
standard." Koch v. Pechota, 2013 WL 4834131, at *2 (SD.N.Y. Sept. 9, 2013) (Sweet, J.) (quotation marks
omitted); accord BNP Paribas Mortg. Com. v Bank of America, N.A., _F. Supp. 2d _, 2013 WL 2452169, at *14
(S.D.N.Y. June 6, 2013) (Sweet, l) (collecting cases).
22
true condition was "too vague to satisfy reliance requirement for a holding claim," and that a
plaintiff"must allege actions, as distinguished fi-om unspoken and umecorded thoughts and
decisions, that would indicate that the plaintiff actually relied upon the misrepresentations." 268
F. Supp. 2d at 1313-14.
Assuming arguendo that Florida would recognize plaintiffs' holder claims, the
plaintiffs nevertheless fail to allege reliance on the purported misstatements or omissions. The
Complaint asserts that plaintiffs "relied on" defendants' statements when they decided to hold
their BofA shares. (Compl't 'if'if 62-64.) The Complaint states: "Had the BofA Defendants
infom1ed Plaintiffs ofthe whole truth as it [sic1was required to do, Plaintiffs ... would have
sold all oftheir BofA shares after reading or becoming aware of the true and accurate condition
of the Company's financial condition." (Comp!'t'if 65.) "As a result of their failure to sell their
BofA stock before the collapse of prices caused by the compounding of false reports, Plaintiffs
suffered over ten million dollars in damages." (Compl't 'if 66.)
These assertions do not allege reliance on any purported misstatements or
omissions, and are instead the broad allegations that other courts have rejected as insufficient to
support holder claims. They contain no details as to when plaintiffs would have sold their
shares, how many shares they would have sold and any "actions, as distinguished from unspoken
and umecorded thoughts and decisions" that reflected an intent to sell their shares. Pafumi, 2007
WL 1729969, at *3; Rogers, 268 F. Supp. 2d at 1314.
This failure to allege reliance is particularly notable here, where plaintiffs allege
misstatements and omissions covering four separate areas of alleged wrongdoing, which
extended from sometime in 2007 tlu·ough the receipt of federal financial support in 2009.
Plaintiffs allegedly purchased approximately 1,000,000 BofA shares between January and
23
November 2008. (Compl't'll 62.) Their allegations conceming BofA's RMBS practices, the
Countrywide acquisition, the Meuill acquisition and the receipt of federal financial support all
involve separate and discrete time periods and areas of purported misconduct, some of which
predate their share purchases. The Complaint makes no attempt to allege at what point plaintiffs
would have sold their BofA shares. There is no coherent or detailed allegation of reliance, but
only a generalized averment that plaintiffs would have sold all BofA shares at an unspecified
point in time if defendants had not misstated or omitted material infonnation about the company.
(Compl't'll'll 63-66.) This is insufficient to allege reliance.
Because the Complaint fails to allege reliance as to plaintiffs' holder claims,
Counts I and III are dismissed.
III.
The Complaint Does Not Adequately Allege Fraud or Negligent
Misrepresentation as to Plaintiffs' Purchaser Claims.
Counts IV and VI of the Complaint assert that plaintiffs purchased BofA shares in
reliance on defendants' alleged material misstatements and omissions concerning BofA.
(Comp!'t 'II'll 90-98, 104-11.) Count N asserts fraud and Count VI asserts negligent
misrepresentation. (Id.) For the reasons explained, the Complaint fails to allege fraud or
negligent misrepresentation consistent Rule 9(b) and Florida law. 4
Under Florida law, "[tJhe elements of fraud are: (1) a false statement conceming a
specific material fact; (2) the maker's knowledge that the representation is false; (3) an intention
that the representation induces another's reliance; and (4) consequent injury by the other party
acting in reliance on the representation." Rhodes v. O. Turner & Co., LLC, 117 So.3d 872, 876
(Fla. Dist. Ct. App. 2013). A plaintiffs reliance on the misrepresentation must be justifiable.
For the reasons previously discussed, plaintiffs' claims related to the Menill acquisition are dismissed due to
SLUSA preclusion and plaintiffs' failure to submit a request for exclusion from the class. Defendants therefore do
not move to dismiss plaintiffs' Merrill-related claims for failure to plead fraud consistent with Rule 9(b) and Florida
law. (Def. Mem. at 16.)
4
24
Specialty Marine & Indus. Supplies, Inc. v. Venus, 66 So.3d 306, 310 (Fla Dist. Ct. App. 2011).
The elements of a negligent misrepresentation claim are identical, except that a plaintiff need not
allege or prove justifiable reliance. Id. Thus, in a negligent misrepresentation claim, '''a
recipient may rely on the truth of a representation, even though its falsity could have been
ascertained had [the recipient] made an investigation, unless [the recipient] knows the
representation to be false or its falsity is obvious.'" Id. (alterations in original) (quoting Gilchrist
Timber Co. v. ITT Rayonier, Inc., 696 So.2d 334, 336 (Fla. 1997».
As noted, Rule 9(b) requires a plaintiff to "(1) specify the statements that the
plaintiff contends were fi'audulent, (2) identify the speaker, (3) state where and when the
statements were made, and (4) explain why the statements were fraudulent." Anschutz, 690 F.3d
at 108.
Excepting plaintiffs' Merrill allegations, which are not subject to this aspect of
defendants' motion, the Complaint does not allege fraudulent statements with particularity. Each
of plaintiffs' allegations are addressed below.
BofA's RMBS Practices. In asserting that defendants failed to disclose the nature
or extent ofBofA's RMBS practices, plaintiffs contend that BofA "promulgated and publicly
disclosed internal underwriting guidelines," but cites no language from those guidelines and
offers no examples where it "failed to adhere to its own underwriting standards .... " (Compl't
'1'119-20.) They assert that defendants knew that their RMBS practices deviated from intemal
standards and that BofA directed outside finns to ignore red flags, but make no allegations of
defendants' states of mind or offer examples of such instructions. (Compl't ~ 22.) Plaintiffs
assert that BofA misrepresented the value of its RMBS holdings, but do not identify the
misrepresentations or the SEC filings alluded to in the Complaint. (Compl't ~ 24.) It also does
25
not identify which statements were rendered allegedly misleading by BofA's purported failure to
reserve against future losses. (Compl't '1'125-27.)
By failing to identify allegedly fraudulent statements, identify their speakers, state
when or where the statements were made or plausibly alleging why the statements were
fraudulent, plaintiffs' fraud and negligent representation claims directed to BofA's RMBS
practices do not satisfy Rule 9(b). See Anschutz, 690 FJd at 108.
Counts IV and VI are dismissed to the extent that they implicate defendants'
RMBS practices.
Federal Financial Support. The Complaint alleges that defendants concealed tens
of billions of dollars in emergency financing from the United States government. (Compl't ~
30.) It identifies several programs that allegedly benefited BofA: the Asset-Backed Commercial
Paper Money Market Mutual Fund Liquidity Facility, the Commercial Paper Funding Facility,
the Primary Dealer Credit Facility, the Fed's Single-Tranche Open Market Operations, the Tenn
Securities Lending Facility and the Term Auction Facility. (Compl't '131.)
Plaintiffs assert that BofA's participation in these federal financial programs
contradicted Lewis's representations about BofA's financial strength. (Compl't ~~ 33-34,36.)
Plaintiffs identify an April 21, 2008 statement in which Lewis said that BofA was "in a strong
position to withstand jolts to the system and emerge even stronger when conditions improve," a
September 15, 2008 statement in which he said that "[m]any strong companies have fallen victim
to this environment, while others have capitalized on opportunities as they have presented
themselves," and a statement in which Lewis described federal financial support for the Merrill
acquisition as "funds that [BofA] did not need and did not seek." (Comp!'t '1'133-34,36.)
26
In an attempt to identify misleading statements, the plaintiffs have cited broad
generalities that reflect Lewis's subjective opinions, and not representations of fact that could be
construed to allege fraud with particularity. Lewis offered subjective, generalized, opinion-based
assessments when he stated that BofA was "in a strong position" and was seeking out
"opportunities" in the midst of an economic crisis. (Compl't ~~ 33-34.) In addition, Lewis's
statement about BofA's receipt offunds did not implicate the programs cited in the Complaint.
(Compl't ~ 36.) It was instead directed to "a capital injection" that BofA received from the
federal government "in connection with its acquisition of Merrill," and not BofA's participation
in the various credit facilities cited in the Complaint. (Comp!'t ~ 36.) Plaintiffs contention that
the Court is obligated to impute this assertion to the array of credit facilities recited in the
Complaint (see Opp. Mem. at 23 n.17) is inconsistent with Rule 8 and Rule 9(b).
Under Florida law, a statement of opinion "cannot SUppOlt a cause of action for
fi·aud." Thompson v. Bank of New York, 862 So.2d 768, 770 (Fla. Dist. Ct. App. 2003)
(collecting cases). A '" false statement of fact, to be a ground for fraud, must be of a past or
existing fact, '" and "statements of opinions or promises of future action" are generally
inactionable. Eagletech Commc'ns, Inc. v. Bryn Mawr Inv. Grp., Inc., 79 So.3d 855, 862 (Fla
Dist. Ct. App. 2012) (quoting Wadlington v. Con!,1 Med. Servs., Inc., 907 So.2d 631, 632 (Fla
Dist. Ct. App. 2005)). Similarly, a negligent misrepresentation ciailllmay not be premised on
the purported falsehood of an opinion.
See,~,
H & S Corp. v. U.S. Fidelity & Guar. Co., 667
So.2d 393, 396-97 (Fla. Dist. Ct. App. 1995). In certain circumstances, however, Florida
recognizes a fraud claim if an opinion or a prediction is so definitive, or the position ofthe
parties is so unequal, that the statement amounts to a misrepresentation of existing fact. See,
27
~,
Tres-AAA-Exxon v. City First Mortg., Inc., 870 So.2d 905,907-08 (Fla. Dist. Ct. App.
2004).
Because the allegedly misleading statements cited by plaintiffs consist of nonactionable opinions and a remark that is umelated to the programs cited by plaintiffs, Counts N
and VI are dismissed to the extent that they implicate BofA's access to federal credit facilities.
BofA's Acquisition of Countrywide. Plaintiffs allege that on a July 21,2008
conference call, "Defendant Price" atmounced better-than-expected quarterly earnings, and
stated, "We think the worst is behind us on value declines, as evidence in our results for the
quarter."S (Compl't 1139.) According to the Complaint, BofA "repeatedly assured" shareholders
that the company had reduced its exposure to subprime mortgages. (Compl't'l 40.) Plaintiffs
assert that, in reality, the Countrywide acquisition exposed BofA to $30 billion in loan losses,
with BofA incapable of withstanding the subsequent deterioration ofthe subprime loan market.
(Compl't 111140-43.)
Aside from the single remark by Price, the Complaint cites no statements that they
contend SUppOlt a claim for fraud or negligent misrepresentation. Price's statement was qualified
to the extent that he said that BofA executives "think the worst is behind us." (Comp!'t'l 39.)
This remark was an opinion as to the company's future performance in light ofthe just-released
earnings statements. In addition, it was phrased in a broad manner, with no apparent reference to
the portfolio of assets acquired tlll'ough the Countrywide transaction. The remark is not
sufficient to allege fraud or negligent misrepresentation under Florida law, see Eagletech, 79
So.3d at 862, and H&S Corp., 667 So.2d at 396-97, or to plead fraud with the patticularity
required by Rule 9(b).
5
Although a defendant in other actions that were consolidated as part of this MDL, Joe L. Price, who was BofA's
chief financial officer, is not named as a defendant in plaintiffs' Complaint. The Complaint's single reference to
him as a defendant is apparently in crror.
28
Counts N and VI are dismissed to the extent that they bring claims directed to the
Countrywide acquisition.
N.
The Complaint Does Not Plausibly Allege a Breach of Fiduciary Duty.
Counts II and V asseli breach of fiduciary duty claims, asserting that defendants
owed BofA shareholders a fiduciary duty, which they breached by omitting and misrepresenting
material infonnation related to BofA. (Compl't ~~ 76-80, 99-103.) Because plaintiffs' Merrillrelated claims are dismissed for the previously discussed reasons, this motion addresses the
breach of fiduciary duty claims solely as they are directed toward BofA's RMBS practices, the
Countrywide acquisition and its involvement with celtain federal financing programs.
When a claim is directed toward the "organization or internal affairs" of a
corporation, including a claim for breach of fiduciary duty, Florida courts apply the law ofthe
state of incorporation. See Fla. Stat. § 607.1505(3) (Florida may not regulate internal affairs of a
foreign corporation doing business in Florida); Banco Industrial De Venezuela CA., Miami
Agency v. De Saad, 68 So. 3d 895, 898 (Fla. 2011); Mukamai v. Bakes, 378 Fed. Appx. 890, 897
(11th Cir. 2010) (unpublished opinion) (Florida applies Delaware law to breach of fiduciary duty
claim against Delaware corporation).
Under Delaware law, a corporation does not owe a fiduciary duty to its
shareholders.
See,~,
Alessi v. Beracha, 849 A.2d 939, 950 (Del. Ch. 2004) (corporation does
not owe a fiduciary duty to its shareholders); In re Dataproducts Corp. S'holders Litig., 1991 WL
165301, at *6 (Del. Ch. Aug. 22, 1991) ("a corporation qua corporate entity is not a fiduciary of,
and thus cannot owe a fiduciary duty to, its shareholders."). Plaintiffs' breach of fiduciary duty
claims against BofA are therefore dismissed.
29
As to plaintiffs breach of fiduciary duty claim against Lewis, under Delaware
law, to plead such a claim directly, as opposed to derivatively, a "stockholder must demonstrate
that the duty breached was owed to the stockholder and that he or she can prevail without
showing an injury to the corporation." Tooley v. Donaldson, Lufkin & Jenrette, Inc., 845 A.2d
1031, 1039 (Del. Ch. 2004). "To state a direct claim, the shareholder must allege ... an injury
that is different from what is suffered by other shareholders .... " Manzo v. Rite Aid Corp.,
2002 WL 31926606, at *5 (Del. Ch. Dec. 19, 2002). Manzo concluded that a plaintiff could not
pursue a direct claim that he was "deprived of accurate information upon which to base
investment decisions," because any resulting injury was "suffered by all ... shareholders in
proportion to their pro rata share ownership. This would state a derivative claim." Id. Here,
plaintiffs have identified no injury that would permit them to pursue a direct claim under
Delaware law. Plaintiffs' holder claim asserts that they retained their shares based on
defendants' purported breaches of fiduciary duty, and their purchaser claim asserts that they
bought stock at a price that did not reflect BofA's tme condition. (Comp!'t '1'179,102.) These
claims assert injuries that would have affected all BofA shareholders on a pro rata basis, and not
the plaintiffs specifically. The plaintiffs therefore fail to allege that Lewis breached a fiduciary
duty to shareholders. Manzo, 2002 WL 31926606, at *5.
Even if the Complaint asselied a direct injury, these claims would be dismissed as
to Lewis due to plaintiffs' failure to allege bad faith. As this Court has discussed elsewhere,
BofA's certificate of incorporation "exculpates its directors from personal liability to the
corporation, except in cases of disloyalty and other exceptions not relevant here, '[tlo the fullest
extent permitted' under Delaware law." Waber v. Lewis (In re Bank of Am. Corp. Sec.,
Derivative & ERISA Litig.), 2013 WL 1777766, at *12 (S.D.N.Y. Apr. 25, 2013); see also 8 Del.
30
C. § 102(b )(7); MusoffDec. Ex. C (BofA certificate of incorporation). To plausibly allege that
Lewis violated his duty of loyalty, plaintiffs therefore must plead facts that "support the
inference that the disclosure violation was made in bad faith, knowingly or intentionally." In re
Citigroup Inc. S'holder Derivative Litig., 964 A.2d 106, 132 (Del. Ch. 2009) (quotation marks
omitted).
For many of the reasons previously discussed, the Complaint fails to allege bad
faith as to Lewis. Its allegations concerning RMBS practices and the Countrywide acquisition
do not even mention Lewis by name. (Compl't ~~ 15-29, 38-43.) Lewis's statements concerning
the strength ofBofA's position were broad, opinion-based and non-actionable. (Comp!'t ~~ 3334,36.) Plaintiffs' other allegations concerning Lewis's intentions are conclusory. (Comp!'t ~~
10 (asserting unspecified "false and misleading statements" and "schemes to defraud"), 12-14
(asserting unspecified intentional misrepresentations).) These allegations do not plausibly allege
a bad faith, knowing or intentional disclosure violation. In re Citigroup, 964 A.2d at 132.
Plaintiffs' breach of fiduciary duty claims are therefore dismissed.
LEAVE TO AMEND IS DENIED
In a footnote to their opposition brief, plaintiffs request that, "[i]n the event the
COlU'l concludes Plaintiffs have not pleaded their holder claims sufficiently under Florida law,
the Com'! should provide plaintiffs with an opportunity to amend the Complaint." (Opp. Mem. at
18 n.12.) In the face of defendants' motion, plaintiffs have not identified what additional facts
they would allege to cure the deficiencies asserted by defendants. On the present record, the
request is denied.
31
CONCLUSION
For the reasons explained, the defendants' motion to dismiss is GRANTED. (12
Civ. 5210, Docket # 56.) Plaintiffs' altemative request for a stay pending a motion to remand is
DENIED. The Clerk is directed to telTI1inate the motion.
SO ORDERED.
P. Kevin Castel
United States District Judge
Dated:
New York, New York
December 11,2013
32
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