SRM Global Master Fund Limited Partnership v. The Bear Stearns Companies L.L.C. et al

Filing 42

OPINION granting (17 in 1:13-cv-02692-RWS) MOTION to Dismiss the Complaint (Docket Entry 1) filed by Deloitte & Touche L.L.P., (362 in 1:08-md-01963-RWS) MOTION to Dismiss the Complaint filed by Samuel L. Molinaro, Jr., Warren J. Specto r, James E. Cayne, The Bear Stearns Companies LLC, Alan D. Schwartz, (372 in 1:08-md-01963-RWS) MOTION to Dismiss filed by Garrett Bland, Joey Zhou, (374 in 1:08-md-01963-RWS) MOTION to Dismiss filed by Deloitte & Touche LLP, (14 in 1:13-cv-02692-RWS ) MOTION to Dismiss the Complaint filed by James Cayne, Samuel L. Molinaro, Jr., Warren Spector, The Bear Stearns Companies L.L.C., Alan D. Schwartz. Based on the conclusions set forth herein, Defendants' motions to dismiss are granted. (Signed by Judge Robert W. Sweet on 2/3/2014) (ft)

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UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK -x IN RE BEAR STEARNS COMPANIES, INC. SECURITIES, DERIVATIVE, AND ERISA LITIGATION 08 MDL 1963 This Document Relates To: Securities Act , 08 Civ. 2793 --------------------------x SRM GLOBAL MASTER FUND LIMITED PARTNERSHIP, Plaintiff, 13 Civ. 2692 -againstTHE BEAR STEARNS COMPANIES LLC (F/K/A BEAR STEARNS COMPANIES INC.), ALAN D. SCHWARTZ, SAMUEL L. MOLINARO, JR., JAMES CAYNE, WARREN SPECTOR and DELOITTE & TOUCHE LLP, Defendants. ----- ------ ------ ----x A P PEA RAN C E S: BOIES, SCHILLER & FLEXNER, LLP 575 Lexington Avenue New York, NY 10022 By: Philip C. Korologos, Esq. chard B. Drubel, Esq. Matthew J. Henken, Esq. KOREIN TILLERY, LLC 205 North Michigan Avenue OPINION cago, IL 60601 By: George A. Zelcs, Esq. Stephen M. Til ,Esq. Douglas R. Sprong, Esq. Attorne Defendant The Bear Stearns C s LLC PAOL, WEISS, RIFKIND, WHARTON & GARRISON LLP 1285 Avenue of the Ame cas New York, NY 10019 Eric S. Goldstein, Esq. Brad S. Karp., Esq. Jessica S. Carey, Esq. Jonathan Hurwitz, Attorne s for Defendant Alan D. Schwartz SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP 4 Times Square New York, NY 10036 By: Susan Saltzstein, E Attorne for Defendant Samuel L. Molinaro ALLEN & OVERY LLP 1221 Avenue of the Americas New York, NY 10020 By: Pamela R. Chepiga, Esq. Atto KRAMER LEVIN NAFTALIS & FRANKEL LLP 1177 Avenue of the Americas New York, NY 10036 David S. Frankel, Esq. Defendant Warren J. WACHTELL, LIPTON, ROSEN & KATZ 51 West 52nd Street New York, NY 10019 1 ctor Jr. By: David B. Anders, Esq. loitte & Touche LLP Attorne CRAVATH, SWAINE & MOORE LLP Worldwide Plaza 825 Eighth Avenue New York, NY 10019 Thomas G. Rafferty, Esq. Antony L. Ryan, Esq. Rachel G. Skaistis, Esq. 2 Sweet, D.J. The The Bear Stearns Schwart z, (the defendants Samuel Defendants" ) have Bear 9 (b) plaintiff SRM Global Master "Plaintiff"). 12 (b) (6) Based and to to di the D. "Bear Stearns ("Deloi tte") Defendants, the Rules Complaint Fund Limited Partnersh on Alan Spector LLP Federal ss (F /K/A Warren the Stearns pursuant Procedure the and the moved Cayne, Touche & LLC Stearns"), (collectively, Deloitte with "Defendants") James Defendants") Companies ("Bear Inc.) Molinaro, and (collectively, Bear Stearns Companies L. " Individual The conclusions set of the Civil fil by (" SRM" forth or low, Defendants' motions are granted. I. Prior Proceedings In the immediate in mid-March 2008, a actions were against of New fil York and wake Bear series of securities other Defendants in jurisdictions Stearns common stock and stock options, Court by the coordinated or Stearns' Judicial Panel consolidated on pret 3 by fraud putative class the Sout rn purchasers and trans Multidistrict al near-collapse District of Bear rred to this Litigation proceedings. See Trans for r Order, No. In re Bear Stearns Cos. 08 MOL 1963 (J.P.M.L. Aug. consolidated on January 5, Stearns Cos. 1963 (RWS), Lead Inc. Lead Complaint 2008). 5, ERISA filed the ies that, 2008 actions were In re Bear 08 M.D.L. On February 27, Retirement Systems Consolidated ("Class Action Complaint") 14, Those Li ti . 2009). Michigan Plaintiff") of "all persons and ent March & (Jan. of & ERISA Liti . Deriv. (the "Class Action"). Der State Sec. 19, 2009 2009 WL 50132 Plaintiff Action Sec. Inc. No. 2009, ("Class Class Action asserting claims on behalf between December 14, purchased or otherwise publicly traded common stock or other equity secu options of or guaranteed by Bear Stearns, 2006 and acquired t s, the or call or sold Bear Stearns put options and were damaged thereby." The Court Defendants' motions Bear Stearns Cos. (S.D.N.Y. Inc. 2011) Deriv. Sec. [hereina the production Defendants. was of In May 2012, approved by the November 28, over er Bear Stearns I 2012 (" nine the Court million rt s in orders 2011. the In re . The parties scovery, pages of resulting documents by reached a settlement that and judgments final ss Action Settlement"). 4 dismiss & ERISA Liti ., 763 F. Supp. then spent over fourteen months conducting in to ss action complaint on January 19, consolida 2d 423 denied (No. dated 08 MOL 1963, ECF Nos. to 337-38, persons equi ty who Exs. transacted or securities, Settlement 10-11.) Class"). in call (See The Settlement Class was Bear or ~ id. Stearns common put options (the 3.) SRM ed stock, not did 1 " ass r Action rticipate in any of the Class Action proceedings. SRM hedge fund is that approach in a highly takes 'a sophisticat contrarian "multi and illion long term dollar investment' 'companies or sectors that have been through riods of stress and are out of favor with the market. '" SRM Global Fund __________~_________~~____________~, No. WL 2473595, at *14 (S.D.N.Y. June 17, 09 Civ. 2010) 5064 (RMB) , 2010 (quoting Tom 11 & Katherine Burton, Wood's SRM Global Fell 30% in Janua 2007 Losses, apps/news (2d Cir. investment BLOOMBERG (Feb. 6, 2008), http://www.bloombe id=21070001&sid=aCPmITS71Z8k), 2011). SRM fund (See Complaint in ~ is the domiciled Cayman 12, SRM, No. aff'd 09 Civ. .coml and 5064 448 F. App'x istered and Islands, to as a private in Monaco. is (RMB) based 116 (S.D.N.Y. May 29, 2009), ECF No.1; Carey Aff., Ex. 3.) SRM least May s been represented by its present counsel since at 2009, recovery foe when SRM Countrywide s Financial losses that SRM allegedly suffered in 5 seeking financial crisis because of an investment in Countrywide. No. 5064 09 C (RMB) (S.D.N.Y. May 29, (Comp 2009), int, ECF No. 1.) in August 2012. SRM action on April 24, 2013 its complaint for instant t ("Complaint" or "Compl."). instant The filed SRM ttlement submitted a request for exclusion from the Class Action Class SRM, motions ard and marKed of were the same fully submitted on October 23, 2013. II. Allegations of the Complaint The allegations Bear Complaint as Stearns' the contains Class collapse is opinion in Bear Stearns I, Action set many Complaint. forth in 763 F. Supp. The facts detail 2d 423. in Bear Deloitte (i) "the value of bacKed (ii) (iii) securities "the adequacy [Bear Stearns'] and of "the quality of 2; see also Defendants other its "fraudulently mortgages, rivat liquidity [Bear Stearns'] • 'JI'JI 39237.) 6 2008, the overstated": mortgage-and asset financial and Court's SRM alleges that, 2006 through approximately March 12, and regarding this from December 14, Stearns factual capital instruments;" reserves;" risk management." and (CompI. 'JI SRM alleges losses of two types. it "owned shares of Bear [Stearns] rst, SRM alleges that stock at March 2007," and "continued to invest in near collapse. ~ (Compl. 12.) r Following st as early as [Stearns]" until its Bear Stearns' near collapse, it sold its "investment in Bear [Stearns]" between Ap 1, 2008 and June 2, 2008, than $200 million." request r (CompL ion exc and thereby "incur[red] from ~ 6.) the sses of more According to Defendants, Class Action 1 SRM's Settlement Class states that SRM had made its last purchase of Bear Stearns common stock on September 24, common stock on the 2007 same decreased significantly. Ex. and y, sold all fore of its Bear Bear Stearns' Stearns stock price (Def. Bear Stearns Br., at 6; Carey Aff., 9.) Second, SRM alleges losses from its "purchase [ of] security-based swaps representing approximately 3.5 million shares of Bear Stearns September 24, (Id. ~ Smith Inc. stock" ("Bear 2007 and March 12, 13.) SRM purcha UBS Secu & common ies LLC 2008 Stearns Swaps") between (the "Swap Transactions"). its Bear Stearns Swaps by placing orders ("UBS") and Merrill Lynch, (Id. ("Merrill Lynch") ~ 14.) Pierce, Fenner SRM's Bear Stearns Swaps were "total return swaps," which are synthetic instruments designed to mimic all aspects (i. e., 7 the "total return") of a stock as though the stock had been purchased itself. rns Swaps were the Stearns common stock. functional (Opp., lent equ of SRM' s shares Bear of Bear at 4 -5. ) 1 SRM alleges that Bear Stearns S\vaps were inflated to precisely the same extent and by Y t cis Stearns same misrepresentations itself, stock and when and Bear omissions Stearns' as stock Bear price ed, so did the value of SRM's Bear Stearns Swaps. colI Delo Stearns, se and te it was provided s t t contained audit, outside auditor audit-related, tax 2 0 0 6 and Bear and other 2 0 0 7. SRM Deloi tte "consented to and caused the incorporation reference financial independent r n s dun g f i s cal yea r s ces to Bear all the of its statements unqualified r scal op ons years on Bear[ and 2006 srepresentations and omissions that cau Stearns'] 2007" which SRM loss. ( Comp 1. 'JI 23.) SRM alleges that its losses SRM's reliance on Bear Stearns occurred, Defendants' in part, due to Ise and misleading Citations to "Def. 3ear S'::earns Br." refer to the Bear Stearns Defendan'::s' Memorandum of Lav, in Support of their Motion to Dismiss. Citations to "Def. Deloi tte Br." refer to Deloi tte' s Memorandum of Law in Support of Its ~lo'::ion to Dismiss. Ci'::ations to "Opp." refer to SRM's Memorandum of Law in ition. Citations to "Bear Stearns Reply" and "Deloitte refer to the Bear Stearns Defendants' and Deloitte's Reply Meworandum of Laws, respectively. 1 8 representations Risk ") Stearns and amounts. knew the stated omissions (Compl. Securities rega ng 59, <JI<JI 66.) and Stearns' SRM all downt urn. filings, SRM From the conc substantially purchas reta and (Id. <JI<JI risk than Bear had 73, SEC was subject to in fact stock to request Set tlement tween April for exclusion 1 , it is alle Stearns had col Stearns' According 177.) Class, Bear Stearns Bear was and t and s investment. (Compl. Bear Stearns Section and 10 (b) "Exchange Act") (ii) t Bear laint SRM Stearns and June losses of more in from the Class Action 2, 2008, after Bear that SRM sold its holdi at a of significant than $200 million on , SRM asserts claims s allegat Deloi tte of s the t the alleged violations of: Defendants for Securities Exchange Act Rule lOb 5 promulgated thereunder Section and 243.) <JI Based on case, the Bear Stearns stock and the Bear Stearns Plaintiff all and subprime in Stearns conflict with SRM's 23) ; that Bear ("SEC") ct the housi VaR publ ished that less (i) at Bear Stearns' VaR models were seriously flawed and the mort loss. Value s Commission VaR models were never updated to ref Swaps. Bear 18 misrepresentations suppose of the Exchange Act, of 1934 • <j[<JI based (the 519­ on y made in documents filed pursuant to 9 Exchange Act 535-48). ~~ fendants SRM for ~~ (id. also alleged (iii) 524-30); asserts a claim (Compl. against rson ll "control 20(a) of the Exchange Act. common law fraud liability ~'lI the I 1 under Sect 531-34.) III. Discussion a. The Rule 9(b) and 12 (b) Standard The Bear Stearns Defendants and Deloitte dismiss the Compla Procedure 9 (b) Rule 12 (b) and 12 (b) (6). (6), all pleader. Mills v. 1993) . Federal On a motion to allegations issue is not rt the claims en, in es whether t 416 U.S. 232, 236, (2d 94 (1974) ) . 10 S. Civil 1aint a 1170, r are of the 1174 plaintiff (2d will is entitled to of Inc. ' n 56 F.3d 375, 378 of ss pursuant to 12 F. il but whether the cIa evidence to v. Rhodes, the Polar Molecular Co '" ultimately Town of Da ual to all inferences are drawn in accepted as true, Cir. pursuant moved to r. 1995) Ct. 1683, r v. (quoting S 40 L. Ed. 2d 90 To 12 (b) (6), survive "a complaint ed as true, on its 1937, to motion must 173 L. 550 U.S. (2007)) Plaintiffs cia Twombl 544, across u.s. 550 127 S. allege the at (2009) line 570. as true ion. '" al a Iqbal, 129 Ct. 1955, sufficient from ct. 678, 167 L. facts concei vab the 129 S. Ct. at 1950 2d 9 "nudge [ plausible." must accept the "'not bound to lS couched Ed. to to Court conclusion S. matter, (quoting Though legal Rule is plausible 662, factual allegations of a complaint as true, accept to factual ief t 556 U.S. 1 pursuant sufficient aim to r I 570, must dismiss contain 2d 868 Twombl to 'state a ce. '" Ashcroft v. 1949, their a as (quoting a factual Twombl 550 U.S. at 555). Rule "state[d] with ATSI Cornmc'ns, Cir. 2007). lent, rticularity." Inc. v. Shaar (2) statements identi were that Fed. averments R. Civ. ., Fund, is requirement, statements were fraudulent." 2004) res To satisfy fy the 9(b) the the made, and F.3d 87, 99 contends state where expla why the F.3d 164, (internal quotation marks and citation 11 see a plaintiff must: (3) 355 Rombach v. 493 fraud 9 (b); P. plaintiff aker, (4) of be also (2d "( 1) were when statements 170 (2d Cir. ted). General, conclusory, or lati ve allegations, unsupported by ific facts, are legally insufficient. Id. at 176. b. SRM's Section lOCb) Claims Are Dismissed The lOeb) Claims Are Time-Barred i. Private actions 'Jnder Section 10 (b) of Exchange Act are sub ect to a two-year statute of limitations and a five­ year statute invol ves a in of repose. "[A] claim of fraud, contravention securities laws of a ceit, of facts v. L.P. P'Sh ing Daum, Cir. 2011) C 7270, action statute r the § concerning the 2 violation; 92, limit in § e (1) may ars after the or (2) 5 Inc. 104 (2d 1658 (b) (2) 663 F. as a 926, of repose 2004) "statute 930-32 (7th No. 2013 WL 2467986, Section years Cir. (same); under that 1658(b). See F.3d 355 McCann v. " ); of action or contrivance requirement earlier of const ing the fi ve- (int of [defined to include the Exchange Act] violation." 28 U.S.C. after right manipulation, regulatory be brought not later than t discove private at *10 10(b) which (S.D.N.Y. is is 12 indepe June 6, ect to of 2013) a a ("An five pIa 12 r i 's awareness of the tolling. "); 2013 and In re eiv. violation (" I a 3658, subject Techs. WL 1410147, statute of to se at run and from the *12 that t to Sec. (S.D.N.Y. Liti ., No. Apr. the the allegedly an scribed in the alleged Stearns valuation nearly Defendants Stearns' r risk Ise 14,2006 and 10 (b) c Action t 94 sleading and March 12,2008. Under the f on has contended S. Ct. 756, No. itself SRM when Bear asserts statements about tion (Compl. sed 'll'll Bear between 39-237; see -year statute of repose, even the latest of these before March 12, 2013. that led the statute of repose & fraudulent 15, 2012)). nancial to be pursuant to American 538, and 2008. as od SRM's claims are revealed d-March based statements were SRM that in management also id. 'll'll 484 515.) Section fraud collapsed made laint, 2013) Shrader, C i v . 1 0 1 6 3 , 2 0 12 WL 4 8 92 15 , at * 4 ( S . D. N . Y • As 8, 11 five-year (quoting Boudinot v. I ") itable ction 1658 (b) (2) stated that sentations were made. on not [C] ourts in this district have treated begins o9 is t pendency the Class its Section 10(b) claims Construction Co. 38 L.Ed.2d 713 13 (1974). v. of Utah, However, 414 U.S. the Second Circu recently issued Police 721 F. I statute of (" Securi t 95 e under Sect s Act"). Fire Ret. & (2d Cir. s. 2013), 13 of the S of Detroit v. relating to ties Act of 1933 The Second Circuit held t the statute of repose was not tolled because although a statute of limitations may be toll se cannot be. a statute of Id. 721 F.3d at 109-10. Statutes of limitations 1 t the availability of remedies and, accordingly, may subj ect to equi table considerations, such as toll or a discovery rule. In contrast, statutes of repose affect the underlying right, not just t remedy, and thus t y run without erruption once the necessary trigge event has even if equi table considerations would warrant toll or even if the plaintiff has not or could not yet have, discovered she has a cause of action. Id. at 106 (quot 712 F.3d 136, 140 (2d Cir. 2013)). Thus, statutes ected of repose si be 'create free 'If stated that to a from termined period of t Ci to contrast If statutes substant liability Id. "[t]his after of right a ficant practical consequences . 14 in those legislat (citation omitted). conceptual tations, 1 ly­ The stinction carr s . as most important here, a statute of exceptions' 355 F.3d repose and not at 102); is 'subj ect to equit see Li periods: Section 13, a § at Section 10 (b) ar statute of 1 a -year time states that not legis tolling." also tolling or extension ba second le to Id. 107 (quoting Stolz, (" [AJ statute of period later than ations, of of se, Sect private II is subj ect to two time which is subject to on the plaintiff's lack of knowledge, statute 10 (b), ght 5 years which the is not. Here, statute of action of the repose, may be brought after such vi at 28 ,,2 U.S.C. 1658 (b) . SRM has contended 's I -----"--­ to the Section 13 statute of repose, statute rectly at issue. Circuit's reasoning applicab to all (Opp., I c -~'---- statutes holding repose create a substant is confined because that was the only at 12-17.) However, Second was based on general principles of repose. The reasoned that "in contrast to stat utes of 1 of ively is said to be 'absolute. III). repose . and only right those Second tations, Circuit statutes protected to be SRM concedes that an "action under section lO(b) is ect to a fiveyear statute 0 repose," and that its claim was filed outside the five-year statute of repose . (Opp. f at 0-11.) 15 free from liability" created exceptions." omi tt 1 ). slat Because that are IndyMac, 721 has also 1658 (b) (2) kind from F. a ' substantive' is such a y found Stolz., at nothing in different right in 355 t (Opp., at Section 1658 (bl (2) is F. 3d at 104; 2013 WL 2467986, 1410147, marks not [Section 1658] (b) (1)." at 930 32; Longtop, 2013 WL is "there t right created by see (quotat the court concluded that it did cont creating statute of legislatively se. Id. at 106-110. 16. 1 But courts have repeat a to 106 toll ly created exception, SRM only F. 3d at American not apply to statutes of Section "subject *12, does create a substantive right, merely a statute of limitations. ("[t]his conceptual dist ion which, !'v1cCann, at *10; according to In re I c, and that Section 1658 (bl (1) See car 721 es F.3d at significant 663 is 106 practical consequences.") . SRM " has contended size[q]" the parti whether However, r that the Court cited the y in explaining why t Circuit language in Section 13 in deciding statute of repose could be tolled. the Second specific language (Opp., of the at 12.). statute statute was one of repose rather than 16 of 1 tations. Ci t then c 721 F.3d at 100 n.1, 107. The Second -~'--- reached its conclus t American P tolling did not apply based on reasoning applicable to all statutes of repose: 1 that they create a substantive ility those protected after a Thus, right substant Id. at from 106. statue of repose in and Section 13 is immaterial as both create a right. SRM also whether a can Pipe the application of tolling should turn "not suggesting [on] time 1 has relied on tation is a with the legislat consonant with t (Opp. 16 scheme," statement ' sUbstantive' whether tolling the limitation in a claims. absolve period of time. 3 the difference in language between t Sect on 1658 (b) (2) to in or Ame 'procedural' given context and argues that t but is consonant ling would statutory scheme applicable to Section 10(b) ing American P 414 U.S. at 557-58).) The Second Circuit did not find it necessary to resolve ';,.;hether ,~Tfierican £:i:p_e.. tolling was" able" or "egal." The Court reasoned that if the tolling rule is "properly class fied as 'equitable,'" then application of tol is barred v. 5Cc U.S. 350, 1 held that "equitable 'tol ing y to [statute of repose 72 F.3d at 109 501 U.S. at 363, 111 S. Ct. at 2782). On the other hand, if tolling is a "legal" rule, then is barred from enlarging or modifying a substantive right the Rules Act, 28 U.S.C. § 2072, which ides the Supreme Court 'the power to prescribe rules of ice and procedure,' id. § 2C72 (a), the Federal Rules of Civil Procedure, which 'shall not , id. § 2C 2 (b) ." I any substantive 721 F. 3d or modi at 1C9. --",,---' 17 The Second Circuit rejected this argument in I -~'--- on ground that tolling is never consonant with a statute of r See 7 21 I ----"'--- F. 3d at from and however, noted provision 109 n. 17 stating procedural there at (referencing "[t] American nature issue same substant before 414 U.S. at 558 n.29. procedural es defining a authorize substantive It tolling right." se of a (certain likewise were cons Second Circuit. --='--I 721 F. Court, statutory 'that s not abridge anti trust acts.' statute of citations omitted)). red and rej e by the at 109-10. t ling was "statutorily enacted into the Exchange Act's limitations part Pub. L. sections "not the [] of the No. of 107 204, 15 Act Sarbanes-Oxl and 18 116 Stat. U. S. C. ). repose benefits of tolling a SRM also has contended that American P as a d not consider whether SRM's policy arguments about the suppos statute of P concluding ght afforded by the American statement the of judicial tolling of the statute of limitations or modify a se. of 745 2002 ("Sarbanes-Oxley"), (codified According to riod" SRM, in scattered Congress did make any substantive change" to the "basic standards of on a statute of 1 tation" except increasing the time in which plaintiffs could assert Section 10(b) 18 aims. (Opp., at 12, 15.) of However, se, aside American repose the statute ction that of , 10 (b) 's statute 112 SRM presumption Stat. has 3227 cited 40 (2d Cir. Congress ~~~ 1994) adopted was ~ such settled ~ (citation but also by a merely updated Standards Yet, r stand only to as c propos 'settled ~~ (re omit ing sufficed to settle to because F. 3d 37, hold "[w] e that cannot en rendered prior to the termination cial judici 22 ~~ isions as had j the Brass Prods. _______ Inc., __ ______ interpretations exist amendments no amended around ations when it legislates, applies conclude that such . the the statute of repose, (1998). codi Congress is presumed to be aware In re____c.c...= Cent__ .. ! II s not tolling does not apply to Section 13. cases constructions. did was of chan and adopt existing statutory inte " it ies Litigation Oni in some circumstances, but then Securi ties Act See Se holds, American P t t stantive 301, § The of no rences. it, change the statute as SRM suggests. Moreover, Section made 1998, s-Oxley did not lengthening 13 time as certain re Act from tolling, in same if Sa law"). t Here, there American P tolling applied to Section 10(b) 's statute of repose. One of the three "the strict court availability cases of SRM has [American 19 cited P expressly tolling] notes ght that stionable," but Fifth Circu " P. 506, adopted ~ Supp. 2d address eto v. 519 toll " [aJ bsent John Hancock Mut. (N .0 . Te x. 2001)) ; 181 F.R.D. and the third is from a (:;alkind v. (D. Wang, Mass. hold se circu th e Civ. Mar. A. 30, American law in t 1410147, s ci at *13 SRM (N.D. c dif rs. Ill. 1998)); of this rcuit 1995 WL 170122, asserted that, lower courts appli to ing various e case from this t n.11 has ling in Section 1658 (b) (2) ," s and a si 600 "virtually all Pipe on 1 y case an issue raised 93-10912-WGY, 1995)). 132 in a footnote 582, No. from the In . secon d strict court outs Sarbanes-Oxley's passage, to Life the timeliness of plaintiff's cla for the first time in a surreply, *3 guidance rcui t . the cases statute of from other (Opp . 14 n. 7 .) See because although "[s]ome courts have er continued The 2013 WL -----'---""-­ (American Pipe tolling a at d not apply to § 1658, Id t the tolling rule of American . applies even to statutes of repose [t]he trend in this strict . . is to hold a period of inviolable unless specifically modifi P fitters & MES v. (S.D.N.Y. 2012) Fairfax Holds. (holding legislative intent beh that "[§ by statute."); 886 F. 1658's] Supp. plain e Plumbers, 2d 328, 334-35 language and statutes of repose as well as Supreme Court and Second Circuit precedent" all indicat 20 that statutes of repose Smith not subject to American ., Ba (S.D.N.Y. dist were 2012), cited by SRM, . ct are di vi action complaint repose." Id. s at recogni tolls Supp. F. 799 F. (same) , th Supp. 2d 258, not Section 10(b) 's enacted or statute by SRM do not earl F. est r ct district (S.D.N.Y. judicial construction, (S.D.N.Y. 2d Bros. Sec. 2011) 2011) 650, 667 Erisa & (American 624 (S.D.N.Y. Ame- - - - - " ' - ­ -- repose when enactment, 1 ish "set tIed 2011) Powell, case, " nor one which we 21 and 379 U.S. sent[ t ling Sarbanes-Oxley the judicial two circuit court cases, court v. Supp. 2d 618, of its United States v. (two dist of se cases shows that there was no of to 380 Lehman Supp. construction subsequent statute and (same) ). The tension between judicial re 310 770 F. settled 152 and In apply) , tolling does 2d ling of a class applicable 368, 810 2011) Supp. re S.A. 2d s), In that "[c]ourts In this the Pass (S. D. N . Y . F. (comparing 159 (American Pipe tolling appl ci t 884 as to whether the 1arly 822 tolling). 48, on was authorities construction." 55 n.13 (1964) contradicted by one neither should be a settled justifi in Congress, presuming silence, its by impliedly roved" (citation omitted)). Even if there was a settled judicial construction that American repose, t tolling there is no construction substantive s, a the to evidence in changes 1 ied Section t Congress Sarbanes-Oxley, to statute. slati ve 10(b) 's or To intended indeed the to to Congress adopt make contrary, shows hist statute any as was SRM "not suggesting ing the basic standards of the law on a statute of limitation" and statute. (Opp., d only to extend t at 15 (citing 148 CONGo REC. length of t S6524, S6535 t (daily ed. July 10, 2002)).) Nothing in the text or legislative history of this unrelated intentionally narrow amendment suggests Congress intended to make a dramatic substantive tolling extending 22 F. 3d at to 40 statute of clining to f by se. See that Congress ed lower court decisions by enacting an unrelated amendment because "we have seen no indication Pons, (1978) 434 U.S. (holding 575, question"); cf. Lorilla at all on that Congress focus 581,98 that S. Congress interpretation of certain p the legislative hist ct. 866, 870, 55 L. enacted an sions because 22 existing v. 2d 40 judi al "exhibi ted both a detailed knowledge of the . provisions and their judicial interpretation and a willingness to depart from those provisions regarded as undesirable or inappropr SRM also r s Sarbanes-Oxley, te for incorporation"). referenced a which, it Judiciary Committee claims, states that Report Section 10(b) 's statute of repose "was not subject to equitable tolling, but made no such statement American (Opp., " P at rding I 15.) ~ under report made clear 1 tolling, However, the that no tolling appl , whether legal or 107 146, ("Where there is a bifurcated limitations at 29 (2002) table. S. Rep. No. riod, with an inner limit running from the time when t was or terms, should begins violation, pe have been after making discovered, discovery tolling of the inner facts unnecessary. The at clear, 363, 111 applying S. Ct. at 2782 to American violate a defendant's substant believe without unrelated that Congress consideration amendment that its constituting limit] t is (citing Lampf, (1991))). a limit' by [outer od of repose inconsistent with tolling.'" U.S. to the fraud statute As a 501 IndyMac of makes repose would rights, and there is no reason intended or was different issue. 23 to abrogate explanation, intentionally such by rights, passing limited to an a Moreover, of limitations American Pipe tolling can apply to a statute only "involved exactly asserted". Johnson 454, 467, 95 S. when the v. Ct. earlier-filed the same cause Railway 1716, of Express 1723, 44 class action Agency, L.Ed.2d action subsequently 295 u. S. 421 Inc., (1975). Here, there can be no tolling of the five-year statute of limitations for SRM's Section 10(b) claims, see 28 U.S.C. 1658(b) (2), § based on the Bear Stearns Swaps because the Class Action did not involve swap claims. transactions, Claims such fundamentally as different based unregistered Bear the Stearns claims SRM's from on asserted derivative Swaps, in the are Class Action for common stock traded on the New York Stock Exchange. See, e. g., In 2013 WL action re New Oriental 1875102, only options, Deloi tte *4 asserted "the running"). at There could Class Action such as SRM Bear Stearns is have that (S.D.N. Y. claims statute Educ. of no for May way after Tech. 6, the based the of for Bear Grp. 2013) purchases limitations anticipated years & options Class the class not stock holders Defendants pleadings Action Li tig. , (because stock, Stearns on Sec. a in is and the class member (which is a class member by virtue of its losses on common stock) would file add separate swap claims. 24 an individual action and ~C_u_l_l~e~n__ __~~~o~t~t~a, v~. Benfie not invite a contra a c ., Mocatta Metals v. I under the 26 F. 3d 19 conclusion. RICO action after dismissed. 811 F.2d at 721. Commodities In Cullen a state In Benf Exchange Act and Benfield, SRM's Transactions involved dif the did receive t class 26 F.3d at 23. 554; cf. (S.D.N.Y. fair alleging ures, class quantities," transactions. common stock. "all to "not Swap Defendants the but also of or refined did not because Supp. cIa pu 414 taction"). Thus, although purported release, at 1091 bas on action or held silver sed silver in commerc 1 sufficiently inform defendants the against r U.S. 1086, of "the number and generic identity of potential pI to those only P F. 741 toll who those bullion, American Hunt, v. (declining of silver ike the regarding notice fraud But rent financial instruments t S.R.L. Camotex, 1990 ) law ities of the potential plaintiffs" based on swap cla action was common substanti ve claims being brought against them, number and generic 1994), do tolling was grant for claims requisite and a class action's claims and ass Action for Bear Stearns I not 1987), (2d Cir. court Id, led subsequent civil RICO claims. Cullen Cir. 811 F.2d 698 June all 25 25, 2012 Defendants, iffs Class claims Notice "that relate to purchase of the publicly traded common r equ riod, y securities American If of Bear Stearns P tolling can only Class i ly where cause of action is asserted. Johnson, 421 U.S. at 467, at 1723. Given such, SRM's cross aim stock or the same 95 S. Ct. d not toll its claims r damages arising out of the Swap Transact Gi ven such reasoning, American apply to SRM's 10(b) claims, and SRM's tolling does not are time-barred. a ii. There Is No Private Right of Action Under Section lO(b) For The Swap Transactions Prior to Modernization Act Stat. and 2763 securities conduct of enactment 2000 (2000) U.S. 15 the swap connect swaps did pursue not grounds, 295 position by F.3d st 312 Pub. L. lOIbl, Futures 106-554, No. ior to the Cir. Section 26 with CFMA."), 2002). 10(b) did (S.D.N.Y. connection f in to The 11, the 114 12, federal not transactions. . 2d 362, 371 (2d Commodity provisions Section laws, to the scattered sections of 7, anti Citibank, N.A., 137 F. authority ("CFMA"), fied Code), in of regulate Caiola 2001) v. ("[T]he security-based rev'd CFMA proscribe on changed conduct r connection with "security-based swap agreements," in addition to securi t s. In distinction making between § 78j (b) U.S.C. manipulat or purchase or securi t s that swap change, agreements (prohibiting of exchange any or and the or "in not securi ty-based swap agreement"). so l(b) (1) any (liThe definition security-based of swap 654 (Winter, J., concurring) F.3d (stating "Congress's then perception of a swaps years and ownership of later, in 2010 Reform and Consumer 111 7, 03, 12 124 Stat. and 15 security-based security. luding See as U. S. C. ), swaps 15 the § 276, Co v. 307 the underl of national or not any swap 78c­ § include Chil 's (2d CFMA Cir. 2011) demonstrated the ng secu ties"). Dodd-Frank Wall Ten Street ("Dodd-Frank"), L. No. (codified in various sections Congress in U.S.C. "secu (2010) CSX the ~~----~------------------ that Protection Act 1376 a See 15 U.S.C. does of ck of an equivalence between t part on a 15 with clear that 'security' agreement."); See registered, CFMA made agreements were not considered securities. drew employment stered security CFMA connection security any the securities. use devices decept sale however, amended Exchange 78c(10) y-based swap"). 27 (now the Act's rules to include definition defining "secur of y" a as To apply swaps iff's P the claims retroact ly to not when st this case, create the would at issue faced a intent indication should to the In all y apply retroact tation its new s omitted)). finition connection Section with swaps 10 (b) , limited to conduct securi ties. swaps excl ss CFMA, in from was F.3d at 327 in arguing There of is no "security" states that the 360 days after the date of 761 (a) (2), 124 Stat. 1376, 1754-55, 1802 "securities" (in clearly manifested the enactment of this subtitle." See Pub. L. No. expressly place sumption against Frank ly. definition "shall take ef By did rations of fairness" ss contrary." to that took 295 -hono t y ied retroactively, consi unless Dodd-Frank that 10 (b) "substantial burden" and courts should "apply th [e] legislation secur definition Sect the CFMA's changes to Section 10(b) retroacti ve of ly See Caiola it contravened "[e] lementa its to liability under conduct plaintiff definition be between 2006 and 2008). (not t Dodd- Frank's the some (2010). from also private 111-203 §§ 774, the excluded right time definition of conduct action recognized as connection with the purchase and sa See of r be of 421 U.S. 28 723, 731- 3 2 , (agreeing 95 with the 191 7 I 1923, "virtually all lower past quarter conclusion that 44 L. Ed. ral 2d 539 courts (1975 ) cing the century [which] the plaintiff class reaffirmed r purposes of [the] 10 (b) and i vate damage actions is limited to purchasers and Rule 10b-5 sellers Ct. hundreds of reported cases presenting this question issue in t over S. of CFMA securities"). gave t SEC enforcement authority over conduct relating to swaps by expanding the scope of conduct prohibit swap t ements," see 15 U.S.C. scope of the existing, relating to securi ties action parties action, securities. with would to issues swaps apply swap to involving If both, agreements swaps it did not alter well-defined private right of action Congress such concurring) to cover "security-based 78j (b), § t the or to could had ot rwise bring years a make 654 equate right clear private See CSX, and to private ("Congress has for wanted impli it did not do so explicitly. (Winter, J., 1 by Section 10 (b) of that right of F. 3d at 293 well aware of le has repeatedly ssed slation regarding them."). The interpreting Supreme the private Court has right cautioned of action courts "must give 'narrow dimens 29 under that, when Section 10 (b), to a right of action Congress did not authorize when it first enacted the statute and revisited the law. not expand when Inc. v. 2d 166 Traders, rst Der (2011) (quoting Scientific-Atlanta, 774, 196 L. Ed. Inc., 2d 627 . 2296, 180 L. Ed. Partners Inv. stoner 2302, LLC v. U.S. (2008)) 148, 167, (alteration at 165, 128 S. 128 in Ct. S. Ct. 761, original); at 773 see ("Concerns judicial creation of a private cause of action caution with against . the s expansion . express private right statutory of 10(b) private right should not § sent boundaries. be extended beyond its any Janus --------~--------~~ --------~~------------------~----------- 552 552 U.S. also Stoner 131 S. In language action under In the absence of II). indicating Section that 10 (b) the extended limited to swap transactions, such an extension will not be implied. Even if a private right of action for parties to swap transactions should under Section 10(b) were implied, that action narrowly circumscribed to apply only against persons swap transactions, directly involved customer alleged that as in Caiola, where a the defendant bank defrauded him in the representations it made about its hedging strat for the swaps the customer entered into with the bank. See Caiola, 295 F.3d at 315 19. Issuers such as Bear Stearns and auditors such Deloitte have no relationship or knowledge of the activit 30 as s of rties swap on a traditional security which are necessarily limited by the issuer's market capitalization and a mar transactions. se out of There is no limit on claims based on swap transactions referencing a security, which could involve amounts many Cf. U.s. times that at 739, of capitalization. 95 S. Ct. at 1 7 (expressing and ir lawyers." security-bas relevant investors, (c swap time to existence, determine let alone transactions or Swap Transactions any exchange, the benefit of speculators ation omitted)). Because the issuer (and others uninvolved in the ability for agreements riod, concern that Rule rge judgments, payable in the last 10b-5 c aims could "lead to analysis by innocent 421 the the was of not the stration of required underlying swap transactions) number identity of of during swap securities would have no transactions parties the to the in swap amounts involved in their transactions. were private transactions I not dis osed to any regulator, not registe third pa on Bear Stearns or Deloitte. SRM has not disputed that prior to the CFMA "virtually all lower federal courts . in the hundreds of reported cases over the past quarter century have reaffirmed . 10 (b) and Rule 10b-5 private damage actions 31 [are] that limited to purchasers Manor and sel Stores Ed. 2d 539 of 421 U.S. ---­ ------~ .. rs securities. 723, If 731 32, _B_l_u_e _ _ C_h---,~_ _-=-_s__ v_. 95 S. 1917, 44 L. (1975). SRM also has not contested the principle that courts must "give narrow dimensions" to a 10(b) action Ct. and that the present boundar s." right "should not be implied right extended beyond its (Def. Bear Stearns Br. 11-12.) The cases that SRM has cited are inapposite. One case, 521 0' (1997), U.S. noted 642, that 117 S. "only securi ties may maintain a Ct. actual 2199, 138 L. private il action 521 St U.S. at 421 U.S. Opp., at 3, 22). at 327, be covered under involved a im swap 664, 723, 117 SRM also re Rule Ct. ct. 95 S. suggesting that transaction, S. at 1917, 2213 inst a rather SRM has of after 10 (b)" § 10(b) § Ed. suits." 2d 539); rs to dictum in Cai a, (see 295 F. "clearly would CFMA, id., but Ca la counterparty directly involved in a than a claim against issuer and the issuer's auditor, as SRM see Further, sellers (citing 44 L. swap transactions 10b-5" 724 under because of "a longstanding limitation on private Id., 2d or purchasers Ed. not identifi third party to assert here. text history of the CFMA indicating that Congress 32 a or legislative intended, when it amended Section against a 10 (b), to the indicating Section the SRM two. that Instead, has rules 10 (b) secur "that of action securi ty­ in judicial and statements precedents decided prohibit fraud U.S.C. 78j(b); to the scope not the enforcement of that of CFMA under apply to same extent as they apply 15 § the shall ies," Section 10 (b), s of quoted refers language right Congress expressly distinguished security-based swap agreement to the to private securities issuer or auditor to part based swap agreements. between extend (Opp., the at conduct 22), but this "prohibit [ed]" by prohibition through an implied right of action. SRM contended has that Dodd-Frank "was clarification of what was already in CFMA," and that apply also a retroactively. Telvent GIT, (not S.A., (Opp., 873 F. at Supp. 24); see 2d 582, 590-91 mere should Les - - _.._ - - - " ' - - (S.D.N.Y. 2012) that there is a presumption that "a new statute does not y retroactively" clarifies existing change to the law, play"). However, but law, rather are than then retroacti Dodd-Frank included in the definition of Dodd-Frank "when that expressly was 33 amendment effecting a merely substantive y concerns do not come into the securi t described an as first s. time Numerous swaps were sections "clarification [s]," of see, e.g., 406, 912, Dodd-Frank 2017, 1852, 1837, 1824, 919, but 928, 1045, 124 Stat. at 1574, the section introducing swap finition of securities is not described as agreements into the such, id. § 761, 124 Stat. at 1754-55. Moreover, as noted above, ies swap including the were actions fini tion not entit against "securities an II to assert issuer, a action, Dodd-Frank until private amended under the Exchange Act. Dodd- Frank thus introduced a substantive change to the existing rights and liabilities and was not a mere rifica tion. addres whether an applied analogous retroactively, substanti burden argument, and found that The Caiola Court the the CFMA could be argument faced "a burden." 295 F.3d at 327. Plaintiff has not met that reo SRM has cited Leshins Frank merely clarifies r the proposition that Dodd- CFMA. However, Leshins involved an unrelated issue concerning Dodd-Frank's whistleblower protection provisions and stated that any view about general, or of F. Supp. above, 2d at the retroactive other 601. "[t] he Court today does not express application of Dodd-Frank in ific provisions of Dodd-Frank." 873 Accordingly, SRM does not have a pr under all the reasoning given te right of action against the 34 r Defendants its Section 10 (b) claims arising from the Swap Transactions. iii. The Section lO(b) Elements To state a Act, plaintiffs claim under Section 10 (b) plead must that fendants misstatements or omissions of material (3) the proximate Lynch & Co., re fact; made "'(1) (2) with scienter; connection with the purchase or sale of securities; upon which plaintiffs relied: was of the Exchange IBM claims Inc., cause 163 subj ect to F.3d the the Federal Rule of Ci Investors v. their 396 F.3d 161, Sec. are of and (5) that plaintiffs' inj ury. 172 102, 106 heightened Co., 447 Lentell (2d Cir. (2d F. Cir. reliance v. 2005) Merrill (quoting In 1998)). pleading 1 Procedure 9 (b) General Elec. ,II (4) Such irements and the PSLRA. App'x 229, 230 of See GE (2d Cir. 2011) . As time-barred previously and SRM noted, does inst Defendants for to opine on whether not SRM's have Section a 10 (b) private ght claims of are action Swap Transactions. The court declines SRM would have otherwise elements against the Defendants at this time. 35 met the 10(b) c. SRM's Section 18 Claims Are Dismissed i. The Section 18 Claims Are Time-Barred Section 18 provides "[n] 0 that and wi thin t such cause of action accrued." 15 U.S.C. limitations pe od begins actual notice notice, of the facts giving Sec. In re or when construct 406 F. Fed. Nat' I § notice, e 78r(c). "plaintiff is also years after The one- put known on as r either inquiry se to his claim." In re Alstom SA Supp. 2d 402, Mort be scovery of the facts unless brought within one year after the cause of action shall created under this section maintained to enforce any liabili consti tuting the action Assoc. 421 (S.D.N.Y. Sec. Deriv. 2005); see also & ERISA Lit 503 F. Supp. 2d 25, 35 (D.D.C. 2007). Section 18 applies only to Exchange Act filings. See 15 U.S.C. As three years previously prior Exchange Act filed on SRM's Section to filing January 18 29, noted, the SRM' s filing ci 78r(a). § of by SRM is 2008. claims t (Compl. refore 36 claims the accrued more than Complaint. The last Bear Stearns' 11 211-212.) accrued at 2007 The that 10-K, last time, of and became time-barred accrued when it (September 24, (March 12, on s made 2007) 2008), last 2008: SRM all from to 482 515), of its Bear last still if SRM's claims Stearns stock Swap Transaction time-ba because the and June market SRM 2007 March Defendants' alleges 18' s statute of repose, that the (Id. <J[ three year alleged last period, the st March that purportedly fraud, of (Compl. these <J[<J[ disclosures 513.) not save SRM's Co. 1997); No. 2:12-CV-956 JCM (GWF) , 2008 post accrual see (7th Cir. 2013) to tolling does Section 1336 limitations had such knowledge since at Arne 5, are one-year took place on March 16, 2008. Aug. o Even s that there was a series of "partial correct disclosures" 1332, purchase aims the shows that aims. 2011. or ente those Regarding revea 29, r period expired, at the latest, on June 2, 2011. the three- Compla January time Section 18 period v. is a 115 F.3d Oaktree ----------~-----~--~--------------~ 2013 WL 4006437, at *15 n.14 ("15 U.S.C. § 78r(c) (D. Nev. contains a three-year statute of repose for § 18 claims."); ------~--------~------~----------~ In re Enron Derivative 540 F.Supp.2d 800, § 18 claims are subject to a 820 (S.D. Tex. 2007) (liThe one-year limitations period and a 37 od of repose."), three-year be toll s 18 and a stat ute of repose cannot pendency of a class action by this Circuit. See Class Action Lead Plaintiff also did not assert Section the claims Sections claims Pipe. 10(b) Class and asserted Action, 20(a), in a and, class they scussed as action Swap transaction claims were asserted are tolled also never claims above, under under only American asserted in the ss Action. SRM has subject to a t fil I well c' s not disput its Section -year subject of repose and t after the repose reasoning ---='--­ that lies with 10(b) statue of repose as Sect are time-barred for period expired. equal force 18 tits (Opp ., to claim is aim was at 26. ) Section 18' s and SRM's Section 18 claims IS, same reason. ii. There Are No Section 18 Claims For The Swap Transactions "The Section 18 cause of action requires plaintiffs to plead 'that a document (1) a false or fil sleading statement was contained in pursuant to the Exchange Act ation thereunder); (2) defendant the false or misleading statement; 38 (3) (or any rule or or caused to be made plaintiff relied on the Ise pIa 406 statement; and (4) iff. '" Int'l Fund, F. Supp. F.2d 545, (2d Cir. § 78r(a). security-based caused 2d at 385 loss to t (quoting see also Ross v. A.H. Robins Co., 607 1979). A plaintiff must also plead that or sold a security" based on t he or she "purchas 15 U.S.C. reliance 822 F. Supp. 2d at 478); 556 the t reliance. The CFMA did not amend Section 18 to cover swap and, agreements discussed as above, expressly excluded them from the definition of a "security." See 15 U.S.C. § 78c-1 (b) (1). As contended by the Defendants, at all relevant times, Section 18 provided a right of act "purchased agreement. or sold a secur only where a pIa y,1I not a iff had security-based swap (Def. Bear Stearns Br., at 19.) SRM has not responded to this contention. Accordingly, to SRM's Section 10(b) for the same reasons applicable aims, SRM s not have a private right of action for its Section 18 claims for the Swap Transactions. iii. SRM Has Failed To Adequately Plead Reliance For Its Section 18 Claims The reliance "actual reliance, the fil i.e., document . alleged in 'that [it] Constructive 39 a Sect 18 aim must actually read and reli reliance is not su be on icient.' " Int'l § Fund Mgmt., 78r(a); Supp. F. Supp. 2d at 452, 493 that pIa (S.D.N.Y. for pI standa fraud, n.45 are (If [C]ourts applied Rule ("Unlike also 15 U.S.C. Liti ., 501 F. Section 10 (bl IS . Section 18 requires actual reliance on specific statements in subject requirements of Fed R. 483 Sec. ng reliance iffs al in see Inc. 2006) covered Exchange Act filings. If ). sound 385; In re Marsh & McLennan Cos. 2d re 822 Civ. in SRM's Section 18 to stringent stom, 406 F. Circuit this more 9(b). P. the ims, have without 9 (b) 's heightened pI which pleading Supp. 2d at hesitation ng requirements to Section 18 claims."). SRM's Section 18 the specific y any claim fraudulent with its whenever fraud, of Section and Complaint allegations or 18 and rule "is " as rna s no supporting and cornmon law (Opp., at limited Rombach, attempt fraud "SRM to Section aims reliance expressly 26), to 355 pI conduct imputations" not its to intentional claim, the ils Al though wordi " denominat 10 (b) required. claim di savow [ed] in connect Ru 9 (b) a aim of allegations F.3d involves styled distinguish 18 claim see Compl. applies 171-72. at or SRM's factual from <]I with its Section 524), and all three claims are predicated on exactly the same allegations of a 40 "valuation fraud" "intent deceiving Those of claims fendants that the sounding investing fraud s circuit have are public," subject (CompI. to Rule 'j['j[ 9 (b). s circuit to the contrary, not cited a case from in supposedly committed with without hesitation applied 2, an 5.) SRM has and "courts Rule 9(b) 's eading requirements to Section 18 claims." Alstom, heightened 406 F. Supp. 2d at 483 n.45. The allegation Complaint in its misrepresentations 'j[ 7 3 .) mis discussion in the SRM all e g e s t hat resentations in purchase occurred over a 2008, (Opp., the actual purchases a particular reliance on the response that reliance on the on alleged Form 10-K. (Compl. " r eli e d " 10-K "in s," (id. ) , od from 0 n deciding which rch 2007 t alleged whether it admits through March ew of any that document or any other document to of Bear Stearns transaction document "eve reliance 2006 and particularized 9 n.5). SRM does not link its identify identi 2006 Securit particular statements any SRM's Bear Stearns year-long pe at 4-5, of i t " r e ad " Bear should most contains SRM ci or any c in the Complaint," that other purchase securities of it 41 at 29), not made SRM' s securities misrepresentations (Opp., does allegedly document. Bear and generic was in and omissions is not s ficiently particularized. 4 regarding reliance, 18 Complaint's Given inadequate pleadings iled to adequately state Section SRM has Defendants. aims against d. SRM's Common Law Fraud Claims Are Dismissed i. Under common law actual or 19 ). New fraud imputed 2013) . fraud". The Common Law Fraud Claims Are Time-Barred York is SRM' s six years discovery. six-year Peidra law, v. common period Vanover, law the from N.Y. runs 579 fraud statute of accrual C.P.L.R. from fIt N.Y.S.2d claims are or limitations two 213(8) § years 677 from (McKinney commission 675, for (2d time-barred of the Dep't to t extent they are based on alleged misstatements before April 23, 2007 as SRM's complaint was filed on April 24,2013. Its fraud SRM also al that Deloitte provided "unqualified opinions" on the quarterly financial statements included in Bear Stearns' Forms 1 'lI 346.) Deloitte's s in the 10-Qs stated that Deloitte's review was "substantially less in scope than an audit" and expressly disclaimed "the expression of an opinion regarding [Bear Stearns'] financial statements taken as a whole." (Bear Stearns 10-Q dated 1 9, 2007, 08 M.D.L. No. 1963 (RWS) , ECF No. 69-19, at 32; see also 08 M.D.L. No. 1963 (RWS), ECF Nos. 69­ 20 and 69-21.) Moreover, Bear Stearns' 10-Qs did not contain an opinion by Deloi tte on Bear Stearns' quarterly financial statements. Quarterly review reports with this language "by cannot be considered as either an unqualified opinion or as a by the Plaintiffs." ~~:-~~~~~-~~~~~~~~~~~~~~~~~ In 815 F. Supp. 620,669 (S.D.N.Y. 1993). 42 claims there re must have accrued a er April 23, order 2007 to be timely. SRM's 1 prior action premised st a wrongdo p 39-108, claims to inst April 23, the 2007. exclusively on alleged or to April 23, 134 38, 199, 263, 2007. 279 81, (See, e.g., 309-10, ls. 70, 455, 419 20, 430-31, report notes, 445 46, those criti 2006. claims and 327, are supposed CompI. 317, this 24-34, 'J['J[ 330, 337, SRM relies heavily on Defendants e.g., 461-62, CompI. 470.) <[[<[[ But, 49, 50, as the ., Ex. A at 20-21, ECF No. 1-3.) identi after (See, sms were only made on two occasions, See SRM has the in the report indicating that the SEC questioned Bear Stearns' mortgage and VaR in 2005 SRM's statements 419-20,430-31,445-46,455,46162,470.) statements Defendants alleged mis il 23, 2007 in sentations made by its Complaint, (see CompI. <[[<[[ 171,172,174,176,193,195,197,202,203,210,211, 345, t a s 346) f and cont that its common law fraud claims are ly if it alleged "any misrepresentations or omissions on or i1 24, er rting contrary. its See, 2007." position, ., at 31.) However, and there e. g. , are 50 43 SRM cites no case authorities F. Supp. to 2d 227, 245 (S.D.N.Y. in 1999) ("To the extent of C.P.L.R. § limitations 213, as fraud, (S.D.N.Y. reli those No. Nov. applicable 97 are statements, Civ. 21, 5154 2000) riod specifically secu CMGAY, 2000 time-barred). alleges it s pr on r to the in SRM's can only rely on Form opinion 10-K, of has *46 six-year document ciding that to SRM purchase the Bear Stearns 2006 2007, SRM alleged filing, and r discovery rule. common law te' s February 2007 'l1'l1 345-346.) Appeals at iff's claims that the Complaint's Delo on Bear Stearns' (Compl. Court filed 1810107, it "discovered" t two- cannot avail itself of t Deloi t te is v. Bast filing of the Complaint. ed t fraud within two-years prior rly, y see r common law which was filed on February 13, s not sufficiently Simi law, prior to t The reli 'l1 73), (CompI. more than six also York WL (finding that pIa ies or the Bear Stearns Swaps Form 10-K, New granted"); on alleged misrepresentations limitations York under the motions to dismiss the claim to Rothschild, 2008. ions all Complaint rely on statements made prior to the six-year statute 2006 [common law fraud] fraud opinion 13, Form 10-K, 2007, c ims in Bear Stearns' and Deloitte's filed on January 29, For claims against auditors, held 44 that against each year's the New audit is a s cause of action accrues on the date rate engagement, and t each year's malpractice common for law under e issued. 872 Pricewaterhou (accrual is opinion audit N.E.2d N. Y. fraud cia 842, 845 C. P.L.R. aga t Williamson v. 2007) 214 (6)). § (N.Y. Thus, Deloi tte based on 2006 audit opinion, the six-year period began to run on February 13, 2007, and February 13, Complaint. SRM 2013, The was more statute red of of Bear Stearns months 1 commence tations aims against bringing common law fraud purchase two than to stock as a be action re thus SRM bars filed SRM by its from Deloitte based on the result of the 2006 audit opinion. For 2007 audit opinion, to run on January 29, 2008, six-year period began and the six- r limitations riod will run out on January 30, 2014. To the extent SRM's common law fraud opinion, t ims against Deloitte are bas on the 2007 audit yare timely.5 SRM last Bear Stearns common stock in 2007, (see Decl., Ex. Q' I before the 2007 audit opinion. Given such, SRM cannot ....) claims its of Bear Stearns common stock by assert reliance on the 2007 audit unless under "holder" clairr, liability I discussed below. 45 SRM fares er for no its claims bas on the 2006 audit opinion with the alternative limitations period, rs two could from with C. P.L.R. when reasonable 213 (8). § scovered have the a intiff alleged added fraud federal Deloitte in the Class Action. 61.) Under two-year fraud, discove in ry 27, a the or N.Y. " reasonably diligent plaintiff could nearly collapsed, or by Lead "discove diligence Here, the plainti which is 2008, Bear 2009, when the securities rule, Stearns ss Action fraud claim inst 1963 (08 M.D.L. No. scovery when (RWS), ECF No. SRM' s cIa based on the 2006 audit are untimely. SRM's pendency of common the law ass Action tolling e Casey it v. & Co., claims as not only applies Merck fraud to 653 a F.3d 95, not matter apply ral are to law 100 tol of New SRM's causes (2d of Cir. by York state the law. claims act See 2011) ("[A] federal court evaluating the timeliness of state law claims must the re look to the law to what extent, filing j state to the statute of 1 of a putative ction."). 46 termine whether, and ions should be tolled by class action another In certain a circumstances, New York limitations may be tolled by the pendency of a New York currently s not re jurisdictional tolling"). Supp. 2d 272, fraud 281-82 as the court cross-jurisdictional import Liab. aff'd, Ca e v. 694 Lit (refus a law 70 sing to t ss action New say [there and because Supp. & Co., 814 F. 1 state law filed in York would re] the adopt declin[ing] 2d 253, 678 "federal that s re to California 2013) law).6 (S.D.N.Y. 2010), (2d 134 Cir. 2012). tolling under not ru ze on the cross-juris (quot generally ctional t No. "); Vincent v. Mone (S.D.N.Y. F.3d courts ined to import cross-juri state 258 cross-jurisdictional ze currently toll F. Merck to rginia of "cannot (so-called "cross­ Deutsche Bank AG, (re earlier tolling , but doctrine into New York's law"); see also In re Fosamax Prods. disi See Soward v. of of ized tolling where that class (S. D. N. Y. 2011) cause aims S.D.N.Y., ass act outside New York state court action is fil statute ional (S. J. N. Y. 2001) recogni zed cross-j urisdictional Ameri to a state statute of limitations, and the Second Circuit's clarification that the limi tation is not governed 47 been ling into the law issue" and "few states ass action ctional 915 F. Supp. 2d 553, 569­ Fosamax Cross-juris have in t a ling case is involving at issue 130 F. supp. 2d 450 tolling directly but was decided before toll of state statutes of See 653 F. 3d at 100 whenever a court originally filed Classical considers the that outsi timeliness state's Convertible of v. law claims See courts. d. Corp., 878 F. Supp. 2d 1009, 1017 state Count (C. D. Cal. 2011) de were both fil equent act because cross-jurisdictional ass action where class a action is in the same tolling filed "includes outsi Fin. (holding that cross-jurisdictional tolling applies even where the and Centaur ral court, all the situations state court system") . Judges in cross-jurisdictional tolling autho can be appl this district tolling only have under state if is it ati ve state court decisions. example, Honorable cross-jurisdictional declined John tOlling lling policy reasons aga clearly recognize because such recognized by In Vincent v. ------------------~------ Koeltl r law, to re California to recognize law, c i such tolling: [U] nless states simultaneously adopt the rule of cross-ju ctional class action tolli any state which independently does so will invite into its courts a sproportionate share of suits which the federal courts have re ed to certi as class actions a er the statute 0 limitations s run. (expressly from Primavc::ra) i Soward, 814 _____=="-----=-=-= as having been superseded by _--"'­ 48 2d at 281-82 915 F. Supp. F.3d 1177, Supp. 2d at 569-70 1187 2d at approach. (9th Cir. 258. See, 2009)); Other Wade v. Cir. 1999) Halifax PLC, see also In re Fosamax, federal e.g., (4th 287-88 (quoting Hatfield v. courts Danek have Med., (refusing 694 F. taken the same 182 F.3d 281, Inc., recognize to 564 cross- jurisdictional tolling in the absence of clear guidance from the Virginia Supreme Patterson (D. R. 1. of v. take Novartis 2012) relief' Court, Pharm. ("Without a that on cross because of forum-shopping Corp., 909 'well-plot ted' the Massachusetts jurisdictional F. Supp. concerns); 2d 116, path showing an Supreme Judicial class-action tolling, 123 'avenue Court would and with no apparent consensus among the few states that have addressed the question, this Court frontier' and . import . refuses to embark into an 'unexplored cross jurisdictional class-action tolling into Massachusetts state law."). SRM has not distinguished the cases cited by the Bear Stearns Defendants and Deloitte. 24; Opp., [federal at 30-31.) courts J state that has 281-82. (Def. Bear Stearns Br., As established by those authorities, have refused to extend the yet to consider it." Soward, Moreover, SRM has conceded 49 that New doctrine 814 F. York at 23­ "most into a Supp. 2d at courts "have not yet Given spoken authoritatively on such, Court declines by aims were toll fraud law the fraud claims are Defendants and Del this to issue." find that (Opp., SRM' s Class Action, 30.) cormnon law and SRM's cormnon against time-ba at Bear Stearns tte to the extent they rely on any alleged misrepresentations made before April 24, 2007. ii. To with SRM Has Failed To Adequately Plead Reliance plead rticularity sstatements. cormnon t t it law a actually See relied 1994) Int'l, (RPP), No. 27, 92 Civ. 1993) 8710 1221 Devane v.Chester, cormnon for Rule 10b-5 Rothschild Registry, 1993 law 'in ," [misrepresentation] SRM's supposed 1199, WL 338205, ("[O]n Rule 9{b) motion must establish that it or its agent 1989)). Supp. . incorporate the standa Turtur v. (quoting the all Internationale 850 F. into a cormnon law fraud claim") i (S.D.N.Y. Aug. must (holding that applying a presumption of reliance would "improperly Inc., upon Et Arabe ____~~~__~~~~~~~~~~__~~~, (S.D.N.Y. plaintiff 709 F. 9(b) pleading requirements. 50 *6 plaintiff ct read and relied on (alteration Supp. claims at are 1255, in original) 1264 (S.D.N.Y. subj ect to the Rule ously noted, As to dist sh the makes no attempt tual allegations supporting its Section 18 claim from its Section 10 (b) Compl. SRM IS Compla and common law fraud 524.) And as noted above, SRM has not sufficiently pled ~ its Complaint. Only one document, reliance Form 10-K, has been pled with particular Stearns se it securit ties. . actually ~ by SRM as a document 73.) Moreover, any purchas icular s on any F. were Supp. defect "lack[ed] 386 supporting relied on the alleged they factual that were matter "condit generally. district [] (Opp., of at supporting Such ims. lar eadings are See Int'l Fund ions all "incredibly indicating Rule 9 (b) of rei broad" how and plaintiffs rson's a 27.) s SRM s mind" that cited to argument, 51 s not apply to the claim, reliance element of its common law a Stearns srepresentations.") . SRM has contended t is Bear e in reliance on any part (holding because s not allege particular SRM's common law fraud 2d at purchase Bear SRM alleged misstatements in the 2006 Form 10-K. not adequate Bear Stearns' 2006 in deciding whether it shou upon which it rei 822 (See and no has cause reI may case alleged from conceded s that "[aJ dmittedly, have Court) scattered decisions suggested that (including decisions of 9(b) 's ies to allegations of reliance. II particularity (Opp., irement at 27 n.16.) s is district have consistently held that rel s a state of mind; i y is s not it involves specific action or ion, and therefore must be pleaded with particular y. See e Partners, L.P. v. Bear, Stearns & Co., 58 F. Supp. 2d 228, 258 unde ie (S.D.N.Y. 1999) (plaintiffs must plead "facts [that] . reliance"); Int'l Fund, 822 F. Supp. 2d at 38 (S.D.N.Y. 2011) (dismissing claims cause pla conc to insuffi in iffs' state s, s common law Section a 18 reliance claim SRM has to not and common allegations relief") . 7 87 law fraud were "too Given SRM's sufficiently pled reliance claims. iii. SRM's Cannot Bring A Common Law Fraud Claim Against Deloitte For The Swap Transactions SRM also has of reliance are sufficient under the test applied in cases "transaction causation." (Opp. 28.) All of those cases concer::1 claims under Section 10 (b) and Rule 10b-5, which are subj ect to a 0:1 of reliance. See .ll,.TSI Commc' ns 493 F. 3d 87; Lentell v. Merrill LY::1ch & Inc., 396 F.3d 172 (2d Cir. 2005); Emergent 343 F.3d 189, 197 (2d Cir. 2003) (applying the "transaction causation" standard to federal Section 10(b) claims). SRM's Section 18 and common law fraud claims are not subject to that presumption, and actual reliance therefore must be eaded with the particularly required by Rule 9(b). 7 52 An auditor who consents to the filing of its audit opinion with the SEC is exposed to potential liability for fraud to prospective investors in registered securities. However, extension of that liability to purchasers of unregistered swaps whose existence the auditor did not expect and had no reason to expect inappropriately stretches that liability: an auditor's liability for common law fraud is limited to the "the persons or class of persons" to whom the auditor intends to communicate its representations. 47 (N.Y. Torts 1931) 531 § Ultramares Corp. (Cardozo, (liability engaging "in the intends or has influenced" ) only with type of fraud limited transaction reason 174 N.E. see also Restatement J.); for Touche, v. in expect to to their 446­ (Second) class which 441, [the of of persons defendant J conduct to be An auditor can be liable in negligence to parties a relationship party "so whom close the as auditor to is in approach privity, of that or a pri vi ty" . Ultramares, 174 N.E. at 446. Deloitte did not expect, to and expect, the Complaint previously common reliance by parties has explained, stock, and the not swaps Swap and did not have any reason engaging averred are any swap such different Transactions 53 in expectation. from were transactions, a purchases As of fundamentally fferent common type of stock transaction and ot when it opinions Bear Stearns I from such an L.L.P. v. 583 (Tex. client, audi t (holding its Liabil notes) in the lated" in iss S audit cannot arise e. Ernst 10-K filed re 1 iance to by its on that by company B lit & 578-80, consented into A, because aUditing y who Form se of notes issued by B) defendant te 51 S.W.3d 573, the notes after B me the Delo of See auditor of notes of -'-----'----'-----"--­ reason to expect Jf rchasers on (the Jf an purchase s inclusion transaction. that no plaintiff purchas upon" the and secur filings. opinion opinion by obligat to SEC ed company A, become sale Pac. Mut. Life Ins. Co. 2001) inclusion of consented unantic the registered r anticipated in from (the when A had transaction sued was not "the type the company A IS financial statements) . SRM contends that the pass on notice of t Deloitte's However, right of underlyi the potential reports for as previously noted, act for securities swap or reI of the CFMA put Deloitte by third swap transactions. parties (Opp., at on 35.) the CFMA did not create a private transactions its tors, put on notice by a statute that 54 against and issuers Deloitte d not apply. Indeed, of cannot t CFMA prohibited the SEC from imposing on swaps requirements reporting § 302(a), 114 Stat. applicable to the registration and securities. at 2763A-451 to -452 See CFMA (codified at 15 U.S.C. §77b-1). Gi ven foreseen by that the Deloi tte as Swap Transactions could not a which transaction have relied on its audit reports, for the Swap Transactions based on any representations states audit parties that opinion it made are the after Swap been would Deloitte is not liable to SRM in its Bear Stearns audit reports. SRM in have the In addition, issuance Transactions. of it made the only trades Deloitte' s (Carey Aff., Ex. 2007 9.) Given the expiration of the statute of limitations on any common law fraud supra, claim based on Deloit te 's 2006 audit opinion, see SRM has failed to state a claim against Deloitte for its Bear Stearns securities and the Swap Transactions under common law fraud and the claims are dismissed. iv. Defendants' Motions To Dismiss The Holder Claims Are Granted SRM claims, in Bear contends, for purposes of its common law fraud that it was defrauded into making its initial investment Stearns and also in retaining 55 its investment. (See, e.g., Compl. barred all 541-42, errerr retain of "in the plaintiffs caused them that prior (S.D.N.Y. that id. majority's also New at York reasoning, ho obal 944 LP Sup. Ct. such could SPC never Ltd. 2010), claims. ("Under be v. See, the viable.") i Titan 529 'ho r claim' would be precluded v. 'holder' induced such cIa by Jones, cIa the t 966 2012) N. Y. S. 2d such cause of i.e., defendants that the to it decreased in value, certain iled a matter the hold First Department held investment be paradigm of that Div. aintiff would have dispo that "as App. are not actionable under New In Starr Foundation, a fraud claim assert (N.Y. ("[T]o the extent wrongfully . Irvin i as asserting were York law."). 527, rule.") 2012) rather than sell rtually App. ssenting) J. , Fund such a out-of-pocket action may be plaintiffs Master (N.Y. recognize cIa N.Y.S.2d ("[UJnder New York law, (N.Y. r 336 ----------------------~~------------~----- III the not (Moskowitz, 261 Tradex does to 2004). Starr Foundation v. Am. 901 N.Y.S.2d 246,250 suggests " which at ions or omiss securi ties 318 23 Int'l 346 cl a New York may wron g d 0 i n g ." .:::.I.;;...n~. .=.--,,-_--,-=-=-=~~~~=-:..::.~_~-"--'._=~:..;L;.. F. Supp. 2d 310, under However, srepre ownership the al see 546.) " cIa "hoI allege that material to 543, kind 56 of of of an defendant disclosed law" because claim" barred it by was "New York's longst recovery of erminable II e," out-of-pocket ng and which . speculat precludes losses . 901 N.Y.S.2d at 248-49 ("[Plaintiff] might have re from selling its shares during a period when it chose to iz hold, under (assuming disclosures never existed. speculative' Court of hypothetical fferent than not recognizes such a Civ. 1534(PAE), WL conditions actually made) that 'undeterminable more resolved of fraud. 2013 t and fficult to imagine."). s is Appeals mar from those bargain lost A seeks to recover the value it whet r The New York New York See Matana v. Merkin, 3940825, at *11 (S.D.N.Y. law No. 13 July 30, s long 2013) . SRM has asserted zed an ted holder fraud authority ims," Starr the only profits." de barred rd. at post-Starr "a y of whether losses." Matana at York case it law 33), has Court of Appeals holding that seeking to recover lost However, Matana recognized t "[t]he . as precluding ho di seek s 57 to 2013 WL as aim they not cites, holder *11. York SRM has characterized Matana, sion in Starr may be ss s only (Opp., New recognizing such a claim. 3940825, "New that recover plaintiff's lost a r pro claim s or e, "even assuming that New York law would permit pled holder reasons. Id. Partners, 651, claim," at L. P. 672 plaintiff's *11-12. v. n.108 the issue Gaming (S.D.N.Y. was not 2011) has that Court sought to relevant SRM, 8, as alleged defendants' 35 losses Similarly, 944 were imprudent misconduct, F. a Supp. holder moreover, N. Y. S. 2d "see king they because No. had decision However, that 2d claim in allegedly Starr. by in profits, "[ d] amages but investment, was barred by Starr. Id. at *2, 58 Tradex, by Sup. Ct. 2012 WL plaintiffs' losses associated allegedly an lost misleading (N.Y. Irvin for all investments" including in SRM noting suffered supposedly 652127/2010 Prime recover plaintiffs of the 527, to "neither SRM also characterizes Irvin, lost i. e., claim"; recent n.22.) that plaintiffs the (See Complaint 'II 37, entire holder claim, with because Tradex involving unrelated Prime Mover Court made clear, Tradex, investment 2010).) 6634476, at sought an statements. mention in for 793 Inc., suggesting 'holder' distinguish (Opp., retaining Dec. not plaintiffs profits." like did failed Tech., but as the argued nor pleaded such a Mover satisfactorily SRM has also cited Prime Mover Capital Elixir may have been viable, claim a initial *11. caused by $200,000 Given the uncertainty of the New York law with respect to holder claims, Judge Moskowitz's views in his dissent Starr on the current state of holder claims in New York lS in most persuasive, and SRM's holder claims are dismissed. e. The Section 20 Control Person Claims Are Dismissed SRM has asserted a claim against the Individual Defendants for "control person" liability under Section 20(a) the Exchange Act. plead, To state a claim under Section 20(a), inter alia, a Act. ATSI Commc'ns, 12 F. 3 d 3 4 6 , 3 5 0 n. 2 pled a timely, such, Joint F.3d 187, 493 F.3d at 108; Dodds v. Cigna Secs., ( 2 d Ci r. 1 9 9 3) . As no ted above, dismiss Inc., SRM has not viable primary violation of the Exchange Act; Pension 207 SRM must timely predicate violation of the Exchange SRM's claim under Section 20(a) IBEW of (2d Trust Cir. of Chi. 2009) under Section 20 (a) fails. v. JP (granting for failure primary violation of the Exchange Act) . 59 See ECA & Local 134 Morgan Chase defendant's to as Co., 553 motion adequately allege to a IV. Conclusion Based on the conclusions set mot above, to dismiss are granted. It is so ordered. New York, NY ~Y , 2014 (~~J ROBERT W. SWEET 60 Defendants'

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