13-1980-cv
In re: Merrill Lynch & Co., Inc.
UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT
SUMMARY ORDER
RULINGS BY SUMMARY ORDER DO NOT HAVE PRECEDENTIAL EFFECT. CITATION TO A SUMMARY ORDER FILED
ON OR AFTER JANUARY 1, 2007, IS PERMITTED AND IS GOVERNED BY FEDERAL RULE OF APPELLATE
PROCEDURE 32.1 AND THIS COURT’S LOCAL RULE 32.1.1. WHEN CITING A SUMMARY ORDER IN A
DOCUMENT FILED WITH THIS COURT, A PARTY MUST CITE EITHER THE FEDERAL APPENDIX OR AN
ELECTRONIC DATABASE (WITH THE NOTATION “SUMMARY ORDER”). A PARTY CITING A SUMMARY ORDER MUST
SERVE A COPY OF IT ON ANY PARTY NOT REPRESENTED BY COUNSEL.
1 At a stated term of the United States Court of Appeals
2 for the Second Circuit, held at the Thurgood Marshall United
3 States Courthouse, 40 Foley Square, in the City of New York,
4 on the 24th day of June, two thousand fourteen.
5
6 PRESENT: DENNIS JACOBS,
7 PIERRE N. LEVAL,
8 ROSEMARY S. POOLER,
9 Circuit Judges.
10
11 - - - - - - - - - - - - - - - - - - - -X
12 LOUISIANA PACIFIC CORPORATION,
13 Plaintiff-Appellant,
14
15 -v.- 13-1980-cv
16
17 MERRILL LYNCH & CO., INC., and MERRILL
18 LYNCH, PIERCE, FENNER & SMITH,
19 INCORPORATED,
20 Defendants-Appellees.1
21 - - - - - - - - - - - - - - - - - - - -X
22
1
The Clerk of Court is directed to amend the case
caption as above.
1
1 FOR APPELLANT: SHAWN RAITER (with Paul A. Sand
2 on the brief), Larson King, LLP,
3 St. Paul, Minnesota.
4
5 Mark A. Fuchs, Vice President,
6 General Counsel and Corporate
7 Secretary, Louisiana Pacific
8 Corporation, Nashville,
9 Tennessee, on the brief.
10
11 FOR APPELLEES: ANDREW STERN (with Alex J.
12 Kaplan and Tom A. Paskowitz on
13 the brief), Sidley Austin LLP,
14 New York, New York.
15
16 Appeal from a judgment of the United States District
17 Court for the Southern District of New York (Preska, C.J.).
18
19 UPON DUE CONSIDERATION, IT IS HEREBY ORDERED, ADJUDGED
20 AND DECREED that the judgment of the district court be
21 AFFIRMED.
22
23 Plaintiff-appellant Louisiana Pacific Corporation
24 (“Louisiana Pacific”) appeals from a final judgment, entered
25 on April 17, 2013, dismissing with prejudice all of
26 Louisiana Pacific’s claims against Merrill Lynch & Co., Inc.
27 (“Merrill”), and Merrill Lynch, Pierce, Fenner & Smith
28 Incorporated (“MLPFS”) (collectively, “Defendants”). See
29 La. Pac. Corp. v. Money Mkt. 1 Institutional Inv. Dealer,
30 851 F. Supp. 2d 512 (S.D.N.Y. 2012).2 We assume the
31 parties’ familiarity with the underlying facts, the
32 procedural history of the case, and the issues on appeal.
33
34 Between February 2007 and July 2007, Louisiana Pacific
35 purchased more than $50 million in auction rate securities
36 (“ARS”) at auctions managed by Defendants. When Defendants
2
Louisiana Pacific also brought suit against
Deutsche Bank Securities, Inc. (“Deutsche Bank”) and Money
Market 1 Institutional Investment Dealer (“MM1”). These
matters were transferred to the Southern District of New
York for coordinated pretrial proceedings by the Judicial
Panel on Multidistrict Litigation, after which Louisiana
Pacific’s claims against Deutsche Bank were severed and
remanded to the Northern District of California. Louisiana
Pacific obtained a default judgment against MM1.
2
1 withdrew their support from the ARS market on February 13,
2 2008, Louisiana Pacific was left holding illiquid long-term
3 financial instruments. See generally Wilson v. Merrill
4 Lynch & Co., 671 F.3d 120, 123-28 (2d Cir. 2011).
5
6 On these basic facts, Louisiana Pacific asserts claims
7 against MLPFS for market manipulation and material
8 misstatements or omissions under section 10(b) of the
9 Exchange Act and Rule 10b-5 promulgated thereunder. See 15
10 U.S.C. § 78j(b); 17 C.F.R. § 240.10b-5. It also asserts a
11 control-person liability claim against Merrill Lynch & Co.
12 under section 20(a) of the Exchange Act. See 15 U.S.C.
13 § 78t(a). Finally, it asserts claims against Defendants
14 under California law and common law.
15
16 We review de novo the district court’s dismissal of
17 these claims, accepting all non-conclusory factual
18 allegations as true and drawing all reasonable inferences in
19 the Louisiana Pacific’s favor. Generally, a complaint must
20 plead sufficient facts to “raise a right to relief above the
21 speculative level” and to “state a claim to relief that is
22 plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S.
23 544, 555, 570 (2007). Louisiana Pacific’s securities fraud
24 claims must be pleaded “with particularity” and, to the
25 extent an allegation is made on information and belief, “all
26 facts on which that belief is formed” must also be pleaded
27 with particularity. 15 U.S.C. § 78u-4(b)(1) (2012); see
28 also ATSI Communs., Inc. v. Shaar Fund, Ltd., 493 F.3d 87,
29 101 (2d Cir. 2007) (“Because a claim for market manipulation
30 is a claim for fraud, it must be pled with particularity
31 under [Federal Rule of Civil Procedure] 9(b).”).
32
33 A. Federal Securities Fraud Claims
34
35 To state a misrepresentation claim under section 10(b)
36 and Rule 10b-5, the complaint must “allege that the
37 defendant[s] (1) made misstatements or omissions of material
38 fact, (2) with scienter, (3) in connection with the purchase
39 or sale of securities, (4) upon which the plaintiff relied,
40 and (5) that the plaintiff’s reliance was the proximate
41 cause of its injury.” Stoneridge Inv. Partners, LLC v.
42 Scientific-Atlanta, 552 U.S. 148, 157 (2008). To state a
43 market manipulation claim, the complaint must “allege (1)
44 manipulative acts; (2) damage (3) caused by reliance on an
45 assumption of an efficient market free of manipulation; (4)
46 scienter; (5) in connection with the purchase or sale of
47 securities; (6) furthered by the defendant’s use of the
3
1 mails or any facility of a national securities exchange.”
2 ATSI, 493 F.3d at 101.
3
4 Having conducted an independent and de novo review of
5 the record in light of these principles, we affirm the
6 dismissal of these claims. See La. Pac. Corp., 851 F. Supp.
7 2d at 525-28 (S.D.N.Y. 2012).
8
9 Louisiana Pacific’s misstatement and manipulation
10 claims boil down to two basic points: (1) MLPFS’s support
11 bidding affected the clearing rate of the auctions and (2)
12 MLPFS’s ARS market activities created a false appearance of
13 liquidity and thereby artificially inflated prices paid for
14 ARS. We have thrice rejected this theory of liability on
15 the grounds that investors were sufficiently on notice of
16 the liquidity risks inherent in ARS (and the market was
17 therefore not misled) because the SEC cease-and-desist order
18 dated May 31, 2006 and Defendants’ online disclosure of its
19 ARS practices and procedures sufficiently disclosed that
20 auction managers could--and did--intervene in, and set
21 clearing rates for, their own auctions. See Cellular South
22 Inc. v. Merrill, Lynch, Pierce, Fenner & Smith, Inc., 516 F.
23 App’x 30, 32 (2d Cir. 2013) (summary order), Anschutz Corp.
24 v. Merrill Lynch & Co., 690 F.3d 98, 108-09 (2d Cir. 2012);
25 Wilson, 671 F.3d at 131-32.
26
27 Like the plaintiffs in Anschutz, Louisiana Pacific has
28 attempted has attempted to save its claims by leveraging a
29 passage in Wilson leaving open the possibility that a
30 “hypothetical complaint” might state a claim by alleging
31 that, “as of the time of [plaintiff’s] purchase, Merrill
32 [and/or MPFLS] presently intended to place bids in every
33 single auction, knew that each auction would fail if it did
34 not place these bids, and signaled to its ARS investors that
35 these securities were genuinely liquid.”3 Wilson, 671 F.3d
3
Plaintiffs may be placing more weight on that
passage than it can bear. As explained in Wilson, “[e]ven
if we were to construe the complaint as attempting to plead
that Merrill, at least for a time, placed support bids in
every single auction for Merrill ARS, we do not see how that
allegation can be actionable given Merrill’s disclosure that
it ‘may routinely’ place such bids.” 671 F.3d at 133; see
also Anschutz, 690 F.3d at 110 (explaining that after the
website disclosure, investors who had purchased “had the
option to buy, sell, or hold the ARS at issue. By that
time, [such investors] w[ere] fully informed of Merrill
4
1 at 139. Louisiana Pacific’s allegations, however, are
2 materially indistinguishable from those in Anschutz and
3 Wilson. “In short, the [complaint] fails to state a claim
4 for violation of the federal securities laws, not because it
5 lacks magic words prescribed by Wilson, but because, like
6 the complaint[s] we rejected in [Wilson and Anschutz],”
7 Louisiana Pacific’s “generalized and conclusory allegations
8 are not ‘well-pleaded.’” Anschutz, 690 F.3d at 110 (citing
9 Wilson, 671 F.3d at 139); see also Appellees’ Br. 30-38
10 (comparing the material allegations of Louisiana Pacific’s
11 complaint with those filed by the Wilson and Anschutz
12 plaintiffs).4
13
14 B. State Law & Common Law Claims
15
16 After a de novo review of the record, we conclude that
17 Louisiana Pacific’s state law and common law claims were
18 properly denied for substantially the same reasons stated by
19 the district court. See La. Pac. Corp., 851 F. Supp. 2d at
20 530-31.
21
22 For the foregoing reasons, and finding no merit in
23 Louisiana Pacific’s other arguments, we hereby AFFIRM the
24 judgment of the district court.
25
26 FOR THE COURT:
27 CATHERINE O’HAGAN WOLFE, CLERK
28
Lynch’s ARS practices, and [those that still decided to hold
[have no actionable claim for fraud].”). How Rule 10b-5
claims against these Defendants could survive such holdings
is unclear. Cf. Gurary v. Winehouse, 190 F.3d 37, 45 (2d
Cir. 1999) (“The gravamen of manipulation is deception of
investors into believing that prices at which they purchase
and sell securities are determined by the natural interplay
of supply and demand, not rigged by manipulators.”).
4
Having concluded that Louisiana Pacific failed to
state a claim for any primary violation of the securities
laws, we affirm the district court’s dismissal of its
Section 20(a) claim alleging that Merrill Lynch & Co. is
liable as a controlling person. See SEC v. First Jersey
Sec., Inc., 101 F.3d 1450, 1472 (2d Cir. 1996).
5