19‐1132‐cv
Axar Master Fund, Ltd., et al v. Bryan K. Bedford, Joseph P. Allman
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 COURTʹS 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 ʺSUMMARY ORDERʺ). A
PARTY CITING A SUMMARY ORDER MUST SERVE A COPY OF IT ON ANY PARTY NOT REPRESENTED
BY COUNSEL.
At a stated term of the United States Court of Appeals for the Second
Circuit, held at the Thurgood Marshall United States Courthouse, 40 Foley Square, in
the City of New York, on the 23rd day of March, two thousand twenty.
PRESENT: GERARD E. LYNCH,
DENNY CHIN,
Circuit Judges,
PAUL A. ENGELMAYER,
District Judge.*
‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐x
AXAR MASTER FUND, LTD., MAN GLG SELECT
OPPORTUNITIES MASTER LP,
Plaintiffs‐Appellants,
‐v‐ 19‐1132‐cv
BRYAN K. BEDFORD, JOSEPH P. ALLMAN,
Defendants‐Appellees,
* Judge Paul A. Engelmayer, of the United States District Court for the Southern
District of New York, sitting by designation.
MARK L. PLAUMANN, ROBERT L. COLIN,
DANIEL P. GARTON, NEAL S. COHEN,
Defendants.
‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐x
FOR PLAINTIFFS‐APPELLANTS: SHARAN NIRMUL, Kessler Topaz Meltzer &
Check, LLP, Radnor, Pennsylvania.
FOR DEFENDANTS‐APPELLEES: JAY B. KASNER (Scott D. Musoff, Michael M.
Powell, Austin R. Winniford, on the brief),
Skadden, Arps, Slate, Meagher & Flom LLP,
New York, New York.
Appeal from the United States District Court for the Southern District of
New York (Kaplan, J.).
ON CONSIDERATION WHEREOF, IT IS HEREBY ORDERED,
ADJUDGED, AND DECREED that the judgment and order of the district court
are AFFIRMED.
Plaintiffs‐appellants Axar Master Fund, Ltd., and Man GLG Select
Opportunities Master LP (ʺplaintiffsʺ) appeal from a judgment entered March 30, 2018,
dismissing their securities fraud claims, under sections 10(b) and 20(a) of the Securities
Exchange Act of 1934, 15 U.S.C. §§ 78j(b), 78t(a), and common law fraud claims against
defendants‐appellees Bryan K. Bedford and Joseph P. Allman (ʺdefendantsʺ). Plaintiffs
also appeal a post‐judgment order entered March 27, 2019, denying their motion to
amend, or alternatively set aside, the judgment pursuant to Federal Rules of Civil
Procedure 59(e) and 60(b) and for leave to file an amended complaint pursuant to
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Federal Rule of Civil Procedure 15(a). We assume the partiesʹ familiarity with the
underlying facts, the procedural history of the case, and the issues on appeal.
The facts alleged in the complaint are assumed to be true. Plaintiffs are
investment funds and minority shareholders of Republic Airways Holdings Inc.
(ʺRepublicʺ), a regional airline that carries passengers for several major airlines.
Plaintiffsʹ suit arises from Republicʹs difficulties in flying the hours required under its
codeshare agreements with three major airline partners, including Delta Airlines
(ʺDeltaʺ). As a consequence of these operational struggles, Republic attempted to
modify its codeshare agreements with its partners. Delta initially objected, but
eventually agreed to reduce Republicʹs flying hours. Between May and August 2015,
Republic made a variety of statements both in its filings with the Securities Exchange
Commission (the ʺSECʺ) and on quarterly earning calls that described its ongoing
discussions with partners to reduce its flying schedules, including a disclosure in a May
2015 SEC filing that Republic had ʺagreed with our [partners] to reduce schedules . . . in
the second half of 2015.ʺ Appʹx at 28.
In October 2015, Delta sued Republic for breach of contract based on
Republicʹs failure to maintain adequate pilot staffing levels under the codeshare
agreement. In response to the litigation, Republic made several public statements
refuting Deltaʹs allegations that it was in breach of contract and characterizing Deltaʹs
lawsuit as ʺunfoundedʺ and ʺwithout merit.ʺ Appʹx at 33, 34. Republic disclosed in an
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SEC filing that it was working with its codeshare partners ʺto reduce levels of flying
during the second half of 2015 and beyond,ʺ and also warned that there could be ʺno
assurance that these efforts to reach consensual agreements . . . [would] be successful.ʺ
Appʹx at 161.
On February 25, 2016, Republic filed for bankruptcy protection under
Chapter 11. On March 24, 2016, Republic restructured its agreement with Delta,
modifying the compensation and operational terms between the parties, affording
Republic debtor‐in‐possession financing, providing for dismissal of Deltaʹs breach of
contract claims, and awarding Delta a $170 million unsecured claim in the bankruptcy
proceeding. In response to the public announcement of the Delta restructuring,
Republicʹs share prices increased. Plaintiffs ‐‐ through an ad hoc committee of equity
holders ‐‐ objected to Deltaʹs $170 million unsecured claim as an overpayment to resolve
the litigation that Republic had asserted was meritless. The bankruptcy court rejected
plaintiffsʹ objection and approved the settlement in its entirety. Plaintiffs appealed and
a district court affirmed the bankruptcy courtʹs order.
Plaintiffs filed the instant suit on January 20, 2017, alleging that Republic
‐‐ through statements made by its executives and filed with the SEC ‐‐ misrepresented
both its beliefs that the Delta litigation was meritless and the status of negotiations with
Delta and other codeshare partners. Plaintiffs asserted securities and common law
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fraud claims and control person liability against defendants. Defendants moved to
dismiss the complaint for failure to plead with particularity and failure to state a claim.
On March 29, 2018, the district court granted defendantsʹ motion to
dismiss. The district court held that the complaint failed to state a claim for securities
fraud because plaintiffs failed to allege an actionable misrepresentation and, in the
alternative, failed to plead loss causation, and that the same deficiencies required
dismissal of plaintiffsʹ common law fraud and control person liability claims. On April
27, 2018, plaintiffs filed a motion to amend, or alternatively to set aside, the judgment
pursuant to Rules 59(e) and 60(b) and for leave to file an amended complaint pursuant
to Rule 15(a). On March 26, 2019, the district court issued a memorandum opinion
denying plaintiffsʹ motion in all respects. This appeal followed.
DISCUSSION
I. Dismissal of Fraud Claims
We review de novo a district courtʹs dismissal for failure to state a claim,
assuming all well‐pleaded factual allegations to be true. S. Cherry St., LLC v. Hennessee
Grp., 573 F.3d 98, 103‐04 (2d Cir. 2009). To state a claim under Section 10(b) and Rule
10b‐5, a plaintiff ʺmust prove (1) a material misrepresentation or omission by the
defendant; (2) scienter; (3) a connection between the misrepresentation or omission and
the purchase or sale of a security; (4) reliance upon the misrepresentation or omission;
(5) economic loss; and (6) loss causation.ʺ Pac Inv. Mgmt. Co. v. Mayer Brown LLP,
5
603 F.3d 144, 151 (2d Cir. 2010) (quoting Stoneridge Inv. Partners v. Scientific‐Atlanta, Inc.,
552 U.S. 148, 157 (2008)).
Even assuming without deciding that plaintiffs plausibly alleged an
actionable misrepresentation, we affirm the district courtʹs dismissal of plaintiffsʹ
complaint on the ground that plaintiffs failed to plausibly allege loss causation. ʺLoss
causation is the causal link between the alleged misconduct and the economic harm
ultimately suffered by the plaintiff.ʺ Lentell v. Merrill Lynch & Co., 396 F.3d 161, 172 (2d
Cir. 2005) (internal quotation marks omitted). A plaintiff can establish loss causation by
showing that ʺthe loss was foreseeable and caused by the materialization of the risk
concealed by the fraudulent statement.ʺ ATSI Commc’ns, Inc. v. Shaar Fund, Ltd.,
493 F.3d 87, 107 (2d Cir. 2007). To plead loss causation, plaintiffs must allege ʺthat the
subject of the fraudulent statement or omission was the cause of the actual loss
suffered.ʺ Suez Equity Invʹrs, L.P. v. Toronto‐Dominion Bank, 250 F.3d 87, 95 (2d Cir.
2001). In other words, plaintiffs must allege ʺthat the misstatement or omission
concealed something from the market that, when disclosed, negatively affected the
value of the security.ʺ Lentell, 396 F.3d at 173.
Plaintiffs failed to sufficiently allege loss causation because they alleged
no plausible connection between the alleged misrepresentations and their claimed
investment loss. Plaintiffs asserted that defendantsʹ purported misstatements concealed
a risk that Republicʹs equity would be diluted by claims granted to Delta and other
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partners during bankruptcy reorganization, and that this alleged risk materialized
when Republic entered into those restructuring agreements. Plaintiffs vaguely asserted
that because the settlement agreements granted unsecured claims to Republicʹs
codeshare partners exceeding Republicʹs equity value at the beginning of the
bankruptcy proceedings, this resulted in ʺdirect and proximateʺ losses.1 In other words,
plaintiffs argued that the sum of the settlement agreements would ʺdilute [the] equity
recovery on a dollar‐for‐dollar basisʺ of ʺplaintiffsʹ existing investments in Republic.ʺ
Appʹx at 53. This dilution theory was fundamentally flawed, however, because
plaintiffs failed to allege how Republicʹs reorganization plan caused them any economic
injury that is not wholly speculative. As the district court observed, ʺ[p]laintiffs fail[ed]
to allege that they will receive even one cent less than they would have received had
Republic not entered into the settlements.ʺ S. Appʹx at 29. We find persuasive the
district courtʹs conclusion in the separate bankruptcy proceeding that the restructuring
settlement would impact plaintiffs only if ʺin the absence of the additional $170 million
allowed unsecured claim, [Republicʹs] valuation indicates that there is hope for some
1 Specifically, plaintiffs alleged that ʺRepublicʹs purported equity value of $590 million as
of January 31, 2016 would be substantially offset by at least $975 million to potentially over $1
billion dollars in claims in the Bankruptcy Case.ʺ Appʹx at 52‐53. Plaintiffs pointed to three
settlement agreements: (1) the March 24, 2016 settlement with Delta, granting Delta an
unsecured claim of $170 million; (2) the May 27, 2016 settlement with United Airlines, granting
United a $193 million general unsecured claim; and (3) the September 2, 2016 settlement with
American Airlines, granting American a $250 million general unsecured claim. According to
plaintiffs, the ʺ$613 million of previously undisclosed liabilitiesʺ diluted the value of plaintiffsʹ
investments in Republic, thus resulting in ʺsubstantial losses.ʺ Appʹx at 53.
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recovery by the equity holders. But [plaintiffs] cannot make such a showing and have
not even tried. . . . [Plaintiffs] have no idea whether [Republic] is already sufficiently
under water that even in the absence of this settlement they would never stand to
recover a penny.ʺ In re: Republic Airways Holdings Inc., No. 16‐cv‐3315 (KBF), 2016 WL
2621990, at *2 (S.D.N.Y. May 6, 2016). Accordingly, after analyzing plaintiffsʹ dilution
theory, the district court correctly dismissed the complaint on the alternative ground
that plaintiffs failed to plausibly allege loss causation.2
II. Denial of Leave to Amend, or Alternatively to Set Aside, the Judgment and of
Leave to Amend the Complaint
Next, plaintiffs argue that the district court erred in denying its motion to
amend, or alternatively set aside, the judgment pursuant to Rules 59(e) and 60(b) and
for leave to file an amended complaint pursuant to Rule 15(a). ʺA party seeking to file
an amended complaint postjudgment must first have the judgment vacated or set aside
pursuant to Fed. R. Civ. P. 59(e) or 60(b).ʺ Ruotolo v. City of New York, 514 F.3d 184, 191
(2d Cir. 2008). Leave to amend shall be ʺfreely give[n] . . . when justice so requires.ʺ
Fed. R. Civ. P. 15(a)(2). Leave to amend need not be granted, however, where the
proposed amendments would be futile in that they could not cure the complaintʹs
2
Because the elements of claims for federal securities fraud and New York common law
fraud are nearly identical, we also affirm the district courtʹs dismissal of plaintiffsʹ common law
fraud claims after concluding that plaintiffs failed to state a claim for federal securities fraud.
See, e.g., Newman v. Family Mgmt. Corp., 530 F. Appʹx 21, 24 (2d Cir. 2013) (summary order).
Plaintiffs have waived their control person liability claim under Section 20(a) of the Securities
Exchange Act by failing to challenge the district courtʹs dismissal of that claim on appeal.
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deficiencies. Krys v. Pigott, 749 F.3d 117, 134 (2d Cir. 2014). Where the district courtʹs
denial of leave to amend ʺis based on a legal interpretation, such as futility,ʺ we review
the district courtʹs ruling de novo. Balintulo v. Ford Motor Co., 796 F.3d 160, 164 (2d Cir.
2015). We review the district courtʹs denial of plaintiffsʹ motion to alter or vacate the
judgment under Rules 59(e) or Rule 60(b) for abuse of discretion. Schwartz v. Liberty
Mut. Ins. Co., 539 F.3d 135, 150 (2d Cir. 2008) (Rule 59(e)); ISC Holding AG v. Nobel
Biocare Fin. AG, 688 F.3d 98, 109 (2d Cir. 2012) (Rule 60(b)). It is a well‐established rule,
however, ʺthat an appellate court will not consider an issue raised for the first time on
appeal.ʺ In re Nortel Networks Corp. Sec. Litig., 539 F.3d 129, 132 (2d Cir. 2008) (internal
quotation marks omitted); see also Wal–Mart Stores, Inc. v. Visa U.S.A., Inc., 396 F.3d 96,
124 n.29 (2d Cir. 2005) (ʺThe law in this Circuit is clear that where a party has shifted his
position on appeal and advances arguments available but not pressed below, . . . waiver
will bar raising the issue on appeal.ʺ).
In this case, plaintiffs waived any argument that an amended complaint
would satisfy loss causation when, in opposing the motion to dismiss, they failed to
argue (and indeed explicitly disclaimed) the artificial inflation theory they now attempt
to replead. As the district court noted, ʺplaintiffs clearly and unequivocally disclaimed
this [artificial inflation] theory of loss causation in numerous other instances prior to the
entry of judgment.ʺ S. Appʹx at 38‐39 n.13. Specifically, plaintiffs represented below
that they ʺare not seeking to recover their out‐of‐pocket losses attributable to the
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artificial inflation of the Companyʹs shares at the time of their purchases,ʺ District Ct.
Docket No. 31 at 34, and that they ʺdo not allege ʹartificial inflationʹ or seek application
of the ʹfraud on the marketʹ doctrine,ʺ id. at 32. Moreover, during oral argument,
plaintiffs represented to the district court that ʺ[w]e are not alleging that our loss results
from inflation of the share price at the time we purchased.ʺ Appʹx at 214.
Accordingly, the district court did not abuse its discretion in rejecting
plaintiffsʹ motion for the separate reason that they failed to satisfy the stringent
standards for granting reconsideration under Rule 59 or vacatur under Rule 60(b).3 See
Exxon Shipping Co. v. Baker, 554 U.S. 471, 485 n.5 (2008) (A Rule 59(e) motion ʺmay not be
used to relitigate old matters, or to raise arguments or present evidence that could have
been raised prior to the entry of judgment.ʺ); Kotlicky v. U.S. Fid. & Guar. Co., 817 F.2d 6,
9 (2d Cir. 1987) (in applying for relief under Rule 60(b), the movant must present
3 Because we conclude that the district court did not abuse its discretion in rejecting
plaintiffsʹ motion to alter or vacate the judgment under Rules 59(e) or Rule 60(b), we need not
reach the merits of plaintiffsʹ repackaged theory of loss causation based on the artificial inflation
of Republicʹs stock.
Finally, we affirm the district courtʹs denial of plaintiffsʹ motion to amend the complaint
pursuant to Rule 15(a) because there is no valid basis to vacate the previously entered
judgment. Natʹl Petrochemical Co. of Iran v. M/T Stolt Sheaf, 930 F.2d 240, 245 (2d Cir. 1991)
(ʺUnless there is a valid basis to vacate the previously entered judgment, it would be
contradictory to entertain a motion to amend the complaint.ʺ). As discussed above, plaintiffs
had the opportunity to amend their pleadings to incorporate the artificial inflation theory before
the entry of judgment and chose not to do so. Therefore, the district court did not err in
denying plaintiffsʹ motion to amend. See State Trading Corp. of India v. Assuranceforeningen Skuld,
921 F.2d 409, 418 (2d Cir. 1990) (ʺWhen the moving party has had an opportunity to assert the
amendment earlier, but has waited until after judgment before requesting leave, a court may
exercise its discretion more exactingly.ʺ).
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ʺhighly convincingʺ evidence, ʺshow good cause for the failure to act sooner,ʺ and show
that ʺno undue hardship [would] be imposed on other partiesʺ).
* * *
Accordingly, we AFFIRM the judgment and order of the district court.
FOR THE COURT:
Catherine OʹHagan Wolfe, Clerk
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Axar Master Fund, Ltd. v. Bryan K. Bedford, Joseph P. Allman
Combined Opinion