Arco Capital Corporation Ltd. v. Deutshe Bank AG

Filing 37

OPINION re: 28 MOTION to Dismiss Amended Complaint filed by Deutshe Bank AG. Based upon the conclusions set forth above, the motion of Deutsche Bank to dismiss the FAC is granted in its entirety and Counts I and II of the FAC is dismissed with prejudice. (Signed by Judge Robert W. Sweet on 11/27/2013) (lmb)

Download PDF
UNITED SOUTHERN DI DISTRICT COURT CT OF NEW YORK --------------------------------x ARCO CAPITAL CORPORATION LTD., Plaintiff, 12 Civ. 7270 inst OPINION BANK AG, Defendant. -x A P PEA RAN C E S: Att for Plaintiff MILLER & WRUBEL P.C. 570 Lexington Avenue New York, NY 10022 By: John G. Moon, Esq. S. Christopher Provenzano, Esq. Atto nt JONES DAY 222 East 41 st Street New York, NY 10017 By: Jayant W. Tambe, Esq. Kelly A. Carrero, Esq. 1 O. Thayer, Esq. -------------------------------,--------_.._--"<.. Sweet, D.J. Deutsche Bank AG ("Deutsche Bank" or "Defendant") has moved pursuant to Rule 9(b) and l2(b) (6) of the Federal Rules of Civil Procedure and the Private Securities Litigation Reform Act to dismiss the First Amended Complaint (the "First Amended Complaint" or "FAC") of Arco Capital Corporation Ltd. "Plaintiff"). ("Arco" or Upon the conclusions set forth below, the motion is granted and the FAC is dismissed with prejudice. Prior Proceedings This action was commenced on September 27, 2013. On December 3, Deutsche Bank moved to dismiss the original This motion was granted on June 6, 2013 Complaint. Opinion").l (the "June 6 On July 3, Plaintiff filed the FAC. On July 29, 2013, Deutsche Bank moved to dismiss the FAC. The instant motion was heard and marked fully submitted on October 2, 2013. 1 This Court's June 6, 2013 Opinion dismissing Plaintiff's original complaint is reported at Arco Capital Corp. Ltd. v. Deutsche Bank AG, 12 Civ. 7270, 2013 WL 2467986 (S.D.N.Y. June 6, 2013) [Docket ("Doc.") #23]. 1 Facts The transaction giving in the tial complaint and The addit se to this action was alleged scribed in the June 6 Opinion. FAC, filed on July 5, 2013, allegations principally involve a July 2008 transaction in which Arco purchased notes from Earl's Eight Limited, a special purpose rated in the Cayman Islands ("Earl's entity i ~ 97.) The transaction is al ght"). (FAC d as follows: In or about March 2007, Deutsche Bank, aIle dly in violation of terms of the CRAFT Transaction, designat Reference ObI ions that did not con rm to International Swaps and Der i ves Association, Inc. (" ISDA") standa ~~ 93-94.) rence Obligations Deutsche Bank CRAFT Notes. in or about early 2008 Arco learned of this brea when two such Re (FAC , and demanded iate the terms of its purchase of certain (FAC ~ 94.) Deutsche Bank d so, and in July ckaged certain CRAFT Notes into 2008, Deutsche Bank securities called Earls Eight Series 469 B Pass Though Notes ("Earls Eight Notes"). Earls Eight Notes, as "securit same Eligibility Cr s" (FAC ~~ 95-97.) r the Exchange Act, incorporated the ria and other obligations as the CRAFT Notes, including the requirement that an "I 2 ndent Accountant" certify compliance with the Eligibility Criteria upon default. Deutsche Bank also agreed to additional obligations, such as not including non-ISDA derivatives as Reference Obligations. <j{<j{ Tambe, July 29, 2013 (" 96-97); De (Declaration of Jayant W. ."), Ex. 22 (Letter Agreement dated July 15, 2008)); Ex. 25 (Prospectus dated July 15, 2008).) Deutsche Bank s Arco the Earls Eight Notes on July 15, 2008. (FAC <j{ 97.) The Earls Eight offering documents contain disclaimers regarding the risks of the Earls Eight Notes, and caution investors to "examine carefully" the documentat the underlying CRAFT Class G Notes. Arco, as an investor in the Earls Ei De relating to Ex. 25 at 3.) Notes, was informed t: Purchasers of [the Earls Eight] Notes should conduct such independent investigation and anal is regarding [CRAFT Class G Notes] and all r assets from t to time comprising the [CRAFT Class G Notes] and [CRAFT CLO] . . . as they deem app ate to evaluate merits and risks of an investment in [the Earls Eight] Notes. (Id. at 1.) Through the Earls Eight offering documents, "[t]he Issuer [i.e. Earls Eight] and the Arranger [i.e. Deutsche Bank] disclaim[ any responsibility to advise the purchasers of [the 3 -------_._-- - - - - - - - - - - - - - - - - - - - - - - - - - - - -.......................... _ _--_ ..... .. ­ Earls Eight] Notes of the risks and investment considerations associated with the purchase of the [Earls Eight] Notes as they may exist at the date hereof or from time to time thereafter." (Id. at 1.) Arco's allegations arise out of events that occurred with respect to seventeen Reference Obligations, some related to the Earls Eight transaction and others relating to the CRAFT CLO, that Deutsche Bank designated in January 2007. 14, 84, 91, 212, 232, 237.) (FAC ~~ 13, The Reference Obligations were selected by Deutsche Bank, and noteholders could rely only on Deutsche Bank's assurances that they would be selected in compliance with the Eligibility Criteria. ~~ (FAC 119-121.) Prior to a default, Deutsche Bank purportedly permitted Arco no knowledge about any Reference Obligation. single default; three in 2008 In 2007 there was a (during the financial crisis); two in 2009; two in 2010; five in 2011; and in the first three months of 2012, an additional two. (FAC ~~ 123, 130, 133.) When the CRAFT CLO Notes came due in June 2012, CRAFT had experienced 15 defaults, not including the two non-ISDA Reference Obligations, which Arco used to force Deutsche Bank to repackage the Earls Eight Notes in July 2008. (FAC ~ 138). Arco has alleged that it was not alerted to the possibility of fraud until after the five defaults occurred in 2011. 4 (FAC ~ 137.) The accelerating series of defaults in 2011 purportedly led Arco to commence an investigation that ultimately revealed that Deutsche Bank had disregarded the Eligibility Criteria and used the Reference Port trans noteholders. r its toxic loans to io to (FAC 'IT'IT 122-138.) Initially, in trying to investigate the circumstances of defaults, Arco was frustrated by a lack of publi information, se y available (FAC 'IT 120-121, 134), and allegedly by stonewalling, repeated misrepresentations and false assurances by Deutsche Bank. (FAC 'IT'IT 118, 120, 124 125, 127 131, 135-136.) Arco then obtained a few Independent Accountant certifications relating to some defaults, which indicated breaches of the terms of the transact In t further in , not fraud. (FAC 'IT'IT 101-108.) fall of 2011, having difficulty obtaining rmation, Arco's general counsel retained litigation consultants to perform factual investigat statements of the Re Obligors. of the financial (FAC 'IT 135.) This analysis was difficult to conduct because many of the Reference Obligors were emerging markets companies or non-public. 136.) When Reference Obligations were finally identi (FAC 'IT ed and researched, Arco discovered apparent repeated violations of t Eligibility Criter (FAC 'IT'IT 142-197.) 5 mid-2012, Arco that the numerous from its invest not the result of a poor ts were stment or simple noncompliance with terms of the transaction, but represented a del lent effort by Deuts investors. e s to k to transfer its bad (FAC'J[ 118). Count I of the FAC s alleged scheme liability r 10b-5(a) and (c) on the sale of CRAFT and Earls Eight sentation and omission Notes, Count I I has alleged mis lity on the sale of the Earls E Notes under Rule 10b­ 5(b), and Counts III and IV have all cornmon law fraud and Ii breach of contract, respectively, on the CRAFT and Earls Eight Notes. The Applicable Standards applicable standards were set rth in the June 6 y on the instant motion as well. Opinion and The Transactions Are Not Barred By Morrison Deuts Eight Notes Bank has contended that the sa ils to satis facts establishing that Morrison, because Arco title passed or ir 6 of Earls s pled no Ie lity was incurred in 1 U.S., and instead has attempted to rely on the "conduct and ef . at 22.) cts" test Morrison reject Deutsche Bank's conclusion is belied by t (Mov. FAC, which alleges: Arco's purchase of Earls ght Notes from Deuts Bank was effectuated by means of the execution of documents by Arco Management LLC, a Puerto co LLC as attorney in r Arco, from its offices in Puerto Rico. Deuts Bank's counsel, located in New York, held signature pages for both Arco and Deutsche Bank. When transaction was ed, Deutsche Bank's counsel emailed the signature s to Arco in Puerto Rico and Deutsche Bank in London, copying LEMG personnel in New York. The Earls Eight Notes were sold into Arco's prime brokerage account at Citigroup, locat New York, NY. On July 17, 2008, Arco Capital Mana LLC from its offices in Puerto Rico transmitted to Deuts Bank a cross-rece ing closing of transaction. It was the rstanding of the when Arco received ies that the transaction Earls Eight Notes and its accounts in New York, and Deutsche Bank rece G Notes in its account. (FAC <J[ 99); (see also FAC <J[ 17.) , under Morrison, Second Circuit has in order to ly allege the existence of a domestic transaction, "it is sufficient for a plaintiff to allege facts leading to irrevocable Ii plausible inference that rties incurred lity within the United States." Absolute 7 Act st Value Master Fund Ltd. v. Ficeto, 677 F.3d 60, 68 (2d Cir. 2012). The FAC, as shown above, has alleged that t const ut Unit States: Arco's agreement was execut acts the sale of the Earls Eight Notes occurred in in the Uni States, sent to Deutsche Bank's U.S. counsel, the securities were delivered in t United States, and the rties understood the transaction to close when funds and securities were livered in New York. "incur (See FAC ~~ 17, 99.) Arco refore irrevocable liability within the United States to take and pay for a security." Absolute Activist 677 F.3d at 68. Deutsche Bank has contended that Morrison Court cludes application of Section 10(b) and Rule 10 5 to offshore transactions, including those structured expressly ion S like the Earls Eight transaction." accordance with (Mov. Br. at 22.) However, Morrison referred to t were not and other securities laws to demonstrate that intended to have extraterri a1 effect. Selling securities under Regulation S does not automatically exempt the antifraud provisions of the 1933 Act. S ssly provi 1933 Act rties from Moreover, Re ion s that it relates only to the 1933 Act, and "not to antifraud or ot r provisions of the 8 deral securit s laws," including those upon which Arco relies. (Prelimina Note ~ 1). Accordingly, the Ea by Morrison, and t 17 C.F.R. § 230 s Eight transaction is not barred conclusions with respect to Morrison in the June 6 Opinion concerning t CRAFT CLO transaction remain. (See June 6 Opinion at 16-26.) Counts I and II Are Time-Barred Although Morrison does not preclude aintiff's ral claims, Arco's amended Count I and Count II claims are t -barred under the applicable statutes of repose and limitations under which this Court dismissed the predecessor claim. (June 6 Opinion at 33 34 (applying 28 U.S.C. Specifically, Count I is untimely under the f repose as bas II are both unt § 1658(b)).) -year statute of on the 2006 or 2007 CRAFT Notes and Counts I and ly under the statute's two-year post-discovery deadline. Pursuant to 28 U.S.C. Section 10(b) of § 1658(b), "[a]n action under Exchange Act or Rule 10b-5 is subject to a five-year statute of repose or may be brought within '2 years 9 after the discovery of the facts constituting the violation.'" (Id. at 26.) "The five-year statue of repose period is a fixed statutory cutoff independent of a plaintiff's awareness of a violation and is an absolute bar, not subject to equitable tolling for any reason." (Id. at 27 (citing Lampf, Lipkind, Prupis & Petigrow v. Gilbertson, 501 u.s. Pleva, 350, 363 (1991); P. Stolz Family P'ship, L.P. v. Daum, 355 F.3d 92, 102­ 03 (2d Cir. 2004)). Under the Second Circuit's decision in Arnold v. KPMG LLP, 334 F.App'x 349, 351 (2d Cir. 2009), "the statute of repose in federal securities law claims starts to run on the date the parties have committed themselves to complete the purchase or sale transaction." The June 6 Opinion held that the statute of repose barred the CRAFT Notes claims because at latest Arco purchased the CRAFT Notes in May 2007, more than five years before filing its initial Complaint, and "Arco has not meaningfully distinguished itself from Arnold." (June 6 Opinion at 27-28.) Arco's FAC contends that the July 15, 2008 Earls Eight transaction supports tolling the applicable five-year statute of repose by eighteen months with respect to the CRAFT Notes. 10 In Arnold support tolling, t whi is the sole case Arco last in the "complex series of transactions" was a to the alleged fraud, tolling from the date of st transaction. KPMG LLP, 543 F. Supp.2d 230,232 Ex. 27 at ~~ 79-84, 90 [Arno See Arnold v. (S.D.N.Y. 2008); (Tambe De (but r ter scheme would not have no fraudulent tax deduction generated any artificial losses Here, unli Arnold, Earls Eight is not the ultimate and necessary st a series of r a transaction undertaken at Arco's rate financing st as erconnected transactions, but rt of a settlement the parties approximately ei months after the fraud is purported to have been Ex. 22 [Letter Agreement].) requiring llowing a series of purchase transactions-the alleged tax s could have occurred).) s Third Amended Complaint] the last transaction-a sale all s to Arco fail rway. to (AC <j[~ 94-97 i lude Earls Eight its initial complaint and has itself alle that the sale of the Earls Eight Notes constitutes an i tion under 1 Ob-5. ewed as (FAC <j[ 16.) Earls Eight cannot therefore be "essential" to the alleged scheme. this case as i The distinctions tween bar equitable tolling of the to CRAFT. See Lampf, Pleva, Lipkind, 501 U.S. 350, 363 (1991) 11 Prupis & (holding "t not apply," ling principles statute of repose is " se the purpose of the rly to serve as a cutoff"). Arco's FAC also contends the repose riod for a CRAFT Notes runs from either (i) claim based on t 2012 (the last day of the purpo 15, 2008 (the y 15, "violation"), or (ii) July of the last all intiffs' Opposition Brief [Doc misrepresentat) . No. 33], "Opp. Br.", at 9 12.) These issues were previously determined in the June 6 Opinion. (See June 6 Opinion at 28, 32-33); see also Corre Servs. 412 (S.D.N.Y. 2007) . v. J.V.W. Inv. Ltd. ("Under 524 F. Supp.2d of the case decision on an issue of law ine, a at one stage of a case becomes binding pre to be followed in subsequent st same litigat (citations and quotations omitted)). claim under s of the Arco's 10b-5(a) and (c) with respect to the 2006 or 2007 CRAFT Notes therefore remains time-barred under the statute of repose. (June 6 Opinion at 28, 32-33 (the CRAFT Notes were purchased, at the latest, in May of 2007, more than five years prior to filing of the initial compl Arco's CRAFT Notes c two-year post-discovery ) .) im has also expired under , as this Court 12 ously held. (Id. at 33 (quoting MBIA Inc., 637 F.3d 169, 175 (2d Cir. 2011)).) Arco contends the FAC's new allegations overcome two-year deadline and support the inference was not until the pattern of rea y be expected to a d undertaking investigation of I condition of emerging market companies," (FAC i the f 122) ults in 2011 that "Arco that it was not until t investi completion of this ion in 2012 revealing a desi as Reference Obligat rea have, discovered all t support Counts I and II. ttern of bad loans being t Arco did, and could elements of its action (Opp. Br. ting FAC i 137).) se "new allegations" in Arco's FAC (Opp. Br. at 12 14 (cit FAC i i 118-137), do not alter the June 6 Opinion holding that Arco's federal securities law claims are time­ barred under § 1658 (b). the Compla Arco could (June 6 Opinion at 32 relevant to scienter, as pI ("allegations in , demonstrate that scovered 'the facts constituting the violation' within two years of the date upon which 'a reasonably diligent pIa iff would have sufficient fact to adequately plead it in a complaint. omitted) .) 13 rmation about the .'") (citation Under the two-year post-discovery statute of tat ions , 1 's Section lO(b) claims expi two years a date upon which "a reasonably diligent p ficient information a complaint." 130 S.Ct. 1784 Co. v. Re iff would have to adequately pIe ~~~__~~~~, r [its claims] in 637 F.3d at 175; see also Merck & (2010); Royal Bank of Scotland Grp., PLC, 902 F. Supp. 2d 329 (S.D.N.Y. 2012). The appli as Arco contends. legal standard is not a subjective one, (Opp. Br. at 12 13.) A fact is deemed "discovered" for § 1658(b) purposes when "a reasonably diligent p su intiff would icient ormation about that fact to adequately plead it in a complaint." (citations omitted); accord Intesa __________ 12 ~ ________ ~ _ _ _ _ _ _ _ _L __ _ ~ __ . 2683, 2013 U.S. Dist LEXIS 19635, at *16 (S.D.N.Y. Feb. 12, 2013). aile (June 6 Opinion at 33-34) Arco's allegations, including the newly added ions, demonstrate that more than two years filing its initial complaint In Sept facts now alleged in support of both t claims, including al or to r 2012, the relevant CRAFT and s Eight ions relevant to scienter, could have been discovered. Arco was provi Reference Obligations at the identity of the default time of de 14 t. (FAC ~ 121.) The faults began as early as 2007 seven of the seventeen Re (id. at (Id.) By 2008, over four rs its initial complaint, Arco had already llenged Re 123), and by 2009 rence Obligations of which it now complains had already defaulted. fore it fi ~ eligibility of two of the seventeen defaulted rence Obi reement. (Id. the July 2008 Letter ions resulting ~~ is a settlement Letter Agreement, on its face, 94-97.) llowing Arco's scovery that , unlike other investors, had not signed the amendment in 2007 to allow the inclusion of non-ISDA documented Port lio. This settlement, and rivatives in t Reference subsequent of r documents of Earls ght, provide ional support that, under a "reasonably dili nt plaintiff" rd, Arco was on inquiry notice by at least July 2008. Furt r, though Arco retained legal counsel as early as December 2009, almost t prior to filing its ial compla id. ~ rs 126), Arco waited two more years, until Fall 2011, to retain litigation con (Id. s to investi ~ the defaulted Reference Obligations. 135). Arco's FAe has not alleged what uncovered to substantiate its contention t scienter could not be discovered earlier, as holds. For the seven of seventeen defaul 15 s 2011 investi tion Deutsche Bank's June 6 Op Reference ion Obl ions that Arco has identified, it has alleged only facts available contemporaneous with default three of these seven September 2007 (id. ~ 142) , Peace Mark relevant facts with re July 2009 id. in October 2008 ~ 187) . ~ No additional ct to scienter have been alleged to prior conclus s. See, e.g., Merrill ______ ~ Fenner & Smith, Inc. v. Young, *7-8 (S.D.N.Y. July 9, 1996) leave to 144-197), and ~~ faulted between 2007 and 2009; 160) , and Wockhardt alter (FAC 91 Civ. 2 ~~L-~~ __ erce ~~~ 3, 1996 WL 383135, at (dismissing claims and denying lead where amended complaint merely "add[s] conclusory allegations" cause such "amendments are cosmet they add no new factual allegations"). Counts I and II rely on one set of facts to plead t Deutsche Bank purportedly a with scienter concerning both Notes. the CRAFT CLO and the that the CRAFT Notes are t also. For the same reasons rred, the Earls ght claims are Earls Eight 10b-5 claims are Accordingly, the CRAFT both "unt ly with respect to § 1658(b)'s two- discovery ine." (June 6 Opinion at 32 ("al ar posttions in the Complaint relevant to scienter, as pled, demonstrate that Arco could have within two t scovered 'the facts constituting violation' rs of the date upon which 'a reasonably diligent plaintiff would have sufficient information about that fact to 16 ," adequately plead it in a complaint (quoting Pontiac, 637 F. 3d at 175).) The Allegations of lOb-S Violations Are Inadequate In any event, Arco's ral securities claims are inadequately pled. To state a c im a vi ation under defendant; misrepresentation or omission by s causation." (2) scienter; sentation or omission and y; the purchase or sale misrepresentation or omiss 10(b) and "(1) a material 10b-5(b), a plaintiff must (3) a connection between t § (4) reliance upon the (5) economic loss; and (6) loss Pac. Inv. . Co. LLC v. LLP, 603 F.3d 144, 151 (2d Cir. 2010) r Brown 2 The elements are the same under 10b-S{a) and (c), except the first element under lOb-Sial and (cl is a "device, scheme, or artifice to defaud or "any , or course of business which operates or would as a 7 C.F.R. § 40.10b-S(al,lc); 2 ff . 13, 234 (2d Cir. 2012). Arco, as found below, has not sufficiently this first element under either standard. This s to both Counts and both transactions. The Earls claims are based on the same al misconduct as the CRAFT and the FAC does not add any new al ions related to the Earls Eight Notes identi any misstatements with cularity or explaining why are fraudulent. 17 Fraudulent conduct is not sufficiently pled. To satisfy Rule 9(b), a plaintiff "must specify what deceptive or manipulative acts were performed, which defendants performed them, when the acts were performed, and the effect the scheme had on investors in the securities at issue." See, e.g., Refco, 2007 WL 2694469, at *7-8. In re 3 Arco alleges that Deutsche Bank's fraud included the failure to honor the E&Y Certification requirement (FAC ~~ 108, 207, 219, 228, Ex. B.), the Eligibility Criteria (id. 101­ ~~ 139-197, 205-206, 220, 228), the Replenishment Conditions (id. ~~ 101, 103-104, 106, 151, 219, 228), and the requirement to give effect to an updated Moody's Mapping Table (id. ~~ 109-117, 208), all of which are contractual obligations imposed on Deutsche Bank by the Swap Agreements. ~4, (Tambe Decl. Exs. 14-17 at Schedule C, Schedule D, Schedule E [Swap Confirmations].) But the FAC has not identified all seventeen defaulted Reference Obligations; alleged facts to support why each Reference Obligation was ineligible; demonstrated evidence of Deutsche Bank's fraud and not inadvertence, error, or oversight in the selection; pled that Deutsche Bank failed to deliver the The pleading standard for 10b-5(a) and (c) under 9(b) similarly requires that Arco "(1) specify the statements that the plaintiff contends were fraudulent, (2) identify the speaker, (3) state where and when the statements were made, and (4) explain why the statements were fraudulent." Romach v. Chang, 355 F.3d 164, 170 (2d Cir. 2004). 3 18 ---------------------------------------------------~. requi E&Y Certifications for any of the seventeen defaulted Reference Obligations; alleged PIa anything more than the E&Y Certi how what was 1 support ions that were delivered or allegation that Deut Moody's Mappi iff was entitled to red amounts to fraud: pI any facts Bank used the wrong Table; or alleged facts to support how use of the wrong Moody's Mapping Table and/or pa of Credit Event Bank under the Swap Payments to Deuts s would constitute f to Deutsche Bank, Arco has all more than s of contract but "a breach of contract . does not justify a Rule 10b-5 action . promise was made, F.3d 792, 801 (2d Cir. 2000) 1 fact probative of de made in contracts execut at issue). There are no v. Winehouse, 235 (citations and quotations omitted): see also Mills v. Polar Molecular (dismissi . unless, when the defendant secretly intended not to perform or knew that he could not perform." Gura Cir. 1993) nothing 12 F.3d 1170, 1176 (2d 5 claim where plaintiff al no 's intent not to perform promises connection with sale of securities cts alleged to support that at the time of the so-called "Upsize" in January 2007 Deutsche Bank had any such secret intention not to rform its contractual obligations, or regarding Deuts Bank's knowledge concern 19 the eligibility of the assets at the time these credits were underwritten or added to the Reference Portfolio. See, e.g., Meridian Horizon Fund, LP v. KPMG (Cayman), Nos. 11-3311-cv, 11­ 3725-cv, 2012 WL 2754933, at *3 (2d Cir. Jul. 12, 2012) (dismissing 10b-5 claim based on "impermissible allegations of fraud by hindsight"); Bay Harbour Mgmt. LLC v. Carothers, Nos. 07-1124-cv, 07-1157-cv, 2008 WL 2566557, at *2 2008) (same). (2d Cir. June 24, The contractual terms in the Swap Agreements were disclosed and Arco represented it had received and reviewed the Transaction Documents prior to its decision to double down on its investment and purchase additional notes. Without evidence of fraud, § 10(b) liability cannot lie where a "defendants disclosed the practices of which plaintiff now complains." See, e.g., In re Citigroup Auction Rate Secs. Litig., 700 F. Supp.2d 294,307 (S.D.N.Y. 2009). The FAC has also failed to plead sufficiently particularized facts to establish scienter. To plead a strong inference of scienter, a plaintiff must allege facts that "(1) show[] that the defendants had both motive and opportunity to commit the fraud or (2) constitut[e] strong circumstantial evidence of conscious misbehavior or recklessness." ATSI Commc'ns Inc. v. Shaar Fund, Ltd., 2007) . 20 493 F.3d 87, 103 (2d Cir. Arco ils to allege s supporting a motive to defraud in connection with the transaction yond an ordinary CLO or Earls Eight sire for commercial _C_h_i_l_l__ G_e_n_.____ v_.__ e_c_,__ __, 101 F.3d 263, 268 C_o , ("generalized mot , one which could (2d fit. See r, 1996) imputed to publicly-owned, for-profit endeavor" insufficient to est scienter) 468 i In re AstraZeneca Secs. Litig., (S.D.N.Y, 2008) (same). lish 559 F, Supp, 2d 453, Nor has Arco pled facts to support an inference that Deutsche Bank knowingly or recklessly misstatements or omissions of material essly ef 10b-5. a scheme to de s' Motion to Di (De ("Mov. Br."), at 7-8 21).) In sum, Arco of any part Arco in violat ss, July 29, 2013 Is to adequately allege any facts that Deutsche Bank knew the risk or lar asset to be other than as represented at time it was added to the Reference Port ~~~~~~~~~~~~, at *8 to state with " tion and belief" ~ _ _ _ _ _ _- L_ _ _ _ _ _ _ _ _ _ _ __ lio. See Catton v. No. 05 Civ. 6954(SAS), 2006 WL 27470, (S.D.N.Y. Jan. 3, 2006) fai __ of (citing Exs. 2-5, 811, 14-17), 16-17, ing the va or knowingly or (dismissing 10b-5 claim for icularity the facts supporting its legations); see also O'Brien v. Nat'l , 936 F.2d 674, 676 (2d Cir. 1991) ("[WJhile Rule 9(b) permits scienter to be demonstrated by 21 license to base inference, this 'must not be mistaken a of fraud on speculation and conclusory allegations.'") (citations omitt ). it has averred Though Arco has contended relevant to s enter, calling Deuts s Bank's arguments "disingenuous" and "laughable" and claiming that Deuts Bank "ignores the allegations" (Opp. Br. at 21-22), scienter cannot be pleaded merely by describing with rhetorical flourish t deal structure and mechanics of the transactions, when those matters were sclosed to Arco detail. (Mov. Br. at 7-8 (citing Exs. 25,8-11,14-17),16-17,21.) nally, the FAC must establish reliance. 10b-5, Arco must allege which it was aware. See S iance on allegedly de e. . Stoneri Under Rule ive acts of Inv. Partners ific Atlanta Inc., 552 U.S. 148, 161, 171 (2008) acts, which were not disclosed to "de publ LLC v. ~~~~~~----~~~~~~~==~~ (holding sting are too remote to satisfy the requirement of reliance," because a plaintiff cannot rely on acts of which it is unaware); Mills v. 12 F.3d at 1175 (a 10b-5 intiff must demonstrate that he relied on defendant's statements when he ente the transact ) . 1se Arco fails to any false statements or acts by Deutsche Bank upon which 22 Arco purportedly relied. Arco's allegation that it assumed that Deutsche Bank would honor its contractual duties in good faith is insufficient under the applicable standard. In re Smith Barney Transfer Agent Litig., No. 05 Civ. 7583(WHP), 2012 WL 3339098, at *9 (S.D.N.Y. Aug. 15, 2012) (a plaintiff must allege reliance on a specific deceptive act of which it was aware; reliance on an assumption that a defendant would honor its duties is not enough). Arco has contended that reliance is not an element of a Rule 10b-5(a) and (c) claim, and cites district court decisions that pre-date controlling authorities, including this Court's decision in In re Tower Automotive Secs. Litig., Supp. 2d 327, 349 (S.D.N.Y. 2007). (See Opp. Br. at 23.) 483 F. Arco's arguments and its cases have been superseded by the Supreme Court's holding in Stoneridge Inv. Partners, LLC v. Scientific Atlanta Inc., 552 u.S. 148, 161, 171 (2008), and its progeny, such as In re Smith Barney Transfer Agent Litig., 05 Civ. 7583(WHP), 2012 WL 3339098, at *9 (S.D.N.Y. Aug. 15, 2012). Those controlling decisions require Arco to plead reasonable reliance to state a viable claim. (Mov. Br. at 17.) Regardless, Arco is foreclosed from asserting reasonable reliance because it purchased the CRAFT Notes subject 23 Emergent Capital to express disclaimers of reliance. LLC v. St Inv. Cir. 2003) (in dete 343 F.3d 189, 195 (2d ning if reasonable reliance is present, courts look to "the entire context of t transaction, including ors such as its complexity and magnitude, the sophistication of the content of any agreements between rties, and t them"); ----------~--------~-- , 91 F.3d 337, 345-348 (2d Cir. Harsco 1996) (reliance not reasonable where plaintiff was a sophist sclaimed reliance on ed investor who expressly sentations made outs of the contract). The same holds the Earls Eight transaction, which included Offering true discla Documents containing s rs. (Tambe Decl. Ex. 25 at 1, 3.) dismissed the federal June 6 Op cIa not i ies on statutes of limitations and repose grounds, and did ng deficiencies. ify any Arco s contended the Court is therefore barred from reconsidering Deutsche Bank's merit arguments as to these c because the June 6 Opi did not address. the contrary. See ims under the "law of the case," on impli ly rejected any arguments it (See Opp. Br. at 14.) e. However, pre . , Orbit One Commc'ns, Inc. v. Numerex Corp., 692 F. Supp. 2d 373, 382 (S.D.N.Y. 2010) (rejecting plaintiff's "law of the case" assertion as "baseless" where 24 is to or isions in case have not "'held [onJ'or 'decided,H the contested issue); accord DeWeerth v. Bal 1271 (2d Cir. 1994) 38 F.3d 1266, (finding dismissal of aim on procedural grounds did not result in allegedly implicit holding on merits claim becoming "law of the case H) (cit r the "law of the case H policy perspective, it makes no sense doctrine to apply where, as issue. re, re is no prior ruling on an Famous Foods Div., 327 Zdanok v. Glidden Co., F.2d 944, 953 (2d Cir. 1964) by Arco). From a rationale behind the "law of (t the case H doctrine is "to save j cial time U and to prevent t "unseemliness H of a court "altering a legal ruling as to same litigants N ). Because Arco's all the required elements of independently time ions fail to sufficiently pI claims, and because both claims are , Counts I and II are dismissed with prejudice. The Court Declines to Exercise SUpplemental Jurisdiction over the State Law Claims Deuts Bank also moves to di ss Arco's state law claims for common law fraud and breach of contract, Counts III and IV re ly. 25 "[AJ strict court 'may to exercise 1 supplemental j ction' if it 'has which it has 1 jurisdiction.'" Pre 455 F.3d 118, 122 (2d Cir. 2006) U.S.C. § 1367(c) (3)). smissed all claims over Kolari v. N.Y. re trial, the balance of considered under ndent jurisdiction doctrine - judicial economy, convenience, irness, and comity remaining state law claims." Carne & Co. Futures 255, 262 r. 2006) are el in the early generally remain s 98 L. Ed. 2d 720 (1988); Inc. v. Bd. of Trade, 464 F.3d re, as here, the f ("[WJ ral claims s of litigation, courts should line to exercise pendent jurisdiction over state law claims."). Because Arco's di e-Mellon Univ. v. Cohill 108 S. Ct. 614, see also will sdiction over point toward declining to exercise j 484 U.S. 343, 350 n.7, 28 "[IJn the usual case in which all federal-law claims are eliminated factors to (quot ral securities claims are both in the instant action, the Court lines to exercise emental jurisdiction over Plaintiffs' state law claims, Counts III and IV are di ssed without prejudice. 26 Conclusion Based upon the conclusions of Deutsche Bank to di and Counts I and I I of forth above, motion ss the FAC is granted in its entirety FAC is smissed with prejudice. New York, NM November ~~2013 7 27

Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.

Why Is My Information Online?