National Credit Union Administration Board v. Morgan Stanley & Co., Inc. et al
MEMORANDUM OPINION & ORDER. Morgan Stanley's May 12 motion for reconsideration is denied as forth in the Memorandum Opinion & Order. (Signed by Judge Denise L. Cote on 5/13/2014) (gr)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
NATIONAL CREDIT UNION ADMINISTRATION
BOARD, as Liquidating Agent of
Southwest Corporate Federal Credit
Union and Members United Corporate
Federal Credit Union,
MORGAN STANLEY & CO., INC. and MORGAN
STANLEY CAPITAL I INC.,
13 Civ. 6705 (DLC)
OPINION & ORDER
For the Plaintiff:
David Fredrick, Wan J. Kim, Gregory G. Rapawy, and Andrew C.
Kellogg, Huber, Hansen, Todd, Evans & Figel, P.L.L.C.
Sumner Square, 1615 M Street, N.W., Suite 400
Washington, DC 20036
Erik Haas, Peter W. Tomlinson, Phillip R. Forlenza, and Michelle
Paterson Belknap Webb & Tyler LLP
1133 Avenue of the Americas
New York, NY 10036
George A. Zelcs
Korein Tillery LLC
205 North Michigan Avenue, Suite 1950
Chicago, IL 60601
Stephen M. Tillery, Greg G. Gutzler, Peter H. Rachman, and
Robert L. King
Korein Tillery LLC
505 North Seventh Street, Suite 3600
St. Louis, MO 63101
For the Defendants:
James P. Rouhandeh, Paul S. Mishkin, Daniel J. Schwartz, and
Jane M. Morril
Davis Polk & Wardwell LLP
450 Lexington Avenue
New York, NY 10017
DENISE COTE, District Judge:
An Opinion of April 28, 2014 granted in part NCUA’s motion
to strike affirmative defenses pleaded by Morgan Stanley in this
Nat’l Credit Union Admin. Bd. v. Morgan Stanley & Co.,
13 Civ. 6705 (DLC), 2014 WL 1673351 (S.D.N.Y. Apr. 28, 2014)
(“April 28 Opinion”).
Familiarity with the April 28 Opinion is
Through a motion of May 12, Morgan Stanley seeks
reconsideration of that portion of the April 28 Opinion which
struck its loss causation defenses under 815 Ill. Comp. Stat.
Ann. 5/12 (2013) (“Illinois Blue Sky Law”).
Opinion, 2014 WL 1673351, at *4-*7.
See April 28
The motion for
reconsideration is denied, for the following reasons.
The standard for granting a motion for reconsideration is
“strict, and reconsideration will generally be denied unless the
moving party can point to controlling decisions or data that the
Analytical Surveys, Inc. v. Tonga Partners,
L.P., 684 F.3d 36, 52 (2d Cir. 2012) (citation omitted)
(addressing a Rule 59 motion).
“A motion for reconsideration
should be granted only when the defendant identifies an
intervening change of controlling law, the availability of new
evidence, or the need to correct a clear error or prevent
Kolel Beth Yechiel Mechil of Tartikov,
Inc. v. YLL Irrevocable Trust, 729 F.3d 99, 104 (2d Cir. 2013)
It is “not a vehicle for relitigating old
issues, presenting the case under new theories, securing a
rehearing on the merits, or otherwise taking a second bite at
Analytical Surveys, 684 F.3d at 52 (citation
The decision to grant or deny the motion for
reconsideration is within “the sound discretion of the district
Aczel v. Labonia, 584 F.3d 52, 61 (2d Cir. 2009)
The motion for reconsideration is premised on Morgan
Stanley’s contention that the April 28 Opinion contains a “clear
error” because there exists a substantial dispute as to whether
Section 12(G) of the Illinois Blue Sky Law contains a loss
causation requirement, and for that reason its affirmative
defense of loss causation to the Section 12(G) claims should not
See 815 Ill. Comp. Stat. Ann. 5/12(G).
a substantial ground for dispute, Morgan Stanley contends that
the April 28 Opinion erred in interpreting Platinum Partners
Value Arbitrage Fund, Ltd. P’ship v. Chicago Bd. Options Exch.,
976 N.E.2d 415 (Ill. App. Ct. 1st Dist. 2012).
Platinum Partners did not address the elements of a claim
under Section 12(G).
It did, however, address the elements of a
claim under two other provisions of the Illinois Blue Sky Law,
Sections 12(F) and 12(I).
These two provisions are patterned on
Sections 17(a)(3) and 17(a)(1), respectively, of the federal
Securities Act of 1933 (“Securities Act”).
15 U.S.C. § 77q(a).
Section 12(G) of the Illinois statute is patterned on Section
17(a)(2) of the Securities Act, which is the criminal analogue
to Section 12(a)(2) of the Securities Act.
See April 28
Opinion, 2014 WL 1673351, at *5.
According to Morgan Stanley, the April 28 Opinion erred
when it observed that Sections 12(F) and (I), in contrast to
Section 12(G), “sound in fraud.”
Id. at *6.
asserts that Section 12(F) does not “sound in fraud,” that
Platinum Partners nonetheless analogized Section 12(F) to
federal securities fraud Rule 10b-5, and that Platinum Partners
found that Section 12(F) contains a loss causation requirement.
Platinum Partners, 976 N.E.2d at 423.
From this analysis of
Section 12(F), Morgan Stanley reasons that Section 12(G) -which is clearly not a fraud provision -- must contain a loss
causation requirement as well, or that there is at least a
substantial ground for dispute as to whether it does.
To begin, there was no error in the April 28 Opinion’s
discussion of Platinum Partners.
The Illinois appellate court
itself described the Section 12(F) claim as a “fraud-based
claim”; recognized that Section 12(F) was patterned after
Section 17(a)(3); and concluded that Section 12(F) (like Section
17(a)(3)) required a plaintiff to prove each of the elements of
a Rule 10b-5 fraud claim, except for the existence of scienter.
Platinum Partners, 976 N.E.2d at 423.
One of these Rule 10b-5
elements is that the plaintiff’s reasonable reliance on the
defendant’s misstatement “proximately caused the plaintiff’s
injuries,” id., which includes a requirement of loss causation.
See Dura Pharms. Inc. v. Broudo, 544 U.S. 336, 342 (2005)
(defining loss causation for Rule 10b-5 claims).
Morgan Stanley’s current motion boils down to a complaint
that it was error to describe a Section 12(F) claim as a claim
sounding in fraud because Section 12(F) does not include a
But, for the reasons outlined here and in
Platinum Partners itself, there can be no reasonable dispute
that Section 12(F) does, notwithstanding the lack of a scienter
requirement, sound in fraud.
Moreover, a close analysis of Platinum Partners does not
assist Morgan Stanley.
If anything, Platinum Partners confirms
the analysis in the April 28 Opinion.
Because Section 12(F) of
the Illinois Blue Sky Law was patterned after Section 17(a)(3)
of the Securities Act, the Illinois appellate court applied
federal law in interpreting Section 12(F).
976 N.E.2d at 423.
The April 28 Opinion follows that approach.
Section 12(G) of the Illinois Blue Sky Law was patterned after
Sections 17(a)(2) and 12(a)(2) of the Securities Act, and there
was no loss causation defense under these sections of the
See April 28 Opinion, 2014 WL 1673351, at *5.
It follows that there is no loss causation defense under Section
12(G) of the Illinois Blue Sky Law.
Finally, Morgan Stanley’s exclusive reliance on Platinum
Partners provides another reason to deny the present motion.
The motion for reconsideration ignores the multiple independent
reasons for why no loss causation defense exists under Section
12(G) of the Illinois Blue Sky Law: the text of Section 12(G) of
the Illinois Blue Sky Law, the Illinois appellate authority
directly addressed to Section 12(G), and the legislative history
for that section of Illinois law, all as described in the April
Id. at *4-*5.
Morgan Stanley has not shown that
there could be a substantial ground for dispute regarding the
availability of a loss causation defense for a Section 12(G)
claim under the Illinois Blue Sky Law, or that its motion for
reconsideration should be granted.
Morgan Stanley’s May 12 motion for reconsideration is
New York, New York
May 13, 2014
United States District Judge
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