Landesbank Baden-Wurttemberg v. Goldman, Sachs & Co.

11-4443 Landesbank Baden-Wurttemberg v. Goldman, Sachs & Co. 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 Daniel Patrick Moynihan 3 United States Courthouse, 500 Pearl Street, in the City of 4 New York, on the 19th day of April, two thousand twelve. 5 6 PRESENT: DENNIS JACOBS, 7 Chief Judge, 8 ROSEMARY S. POOLER, 9 SUSAN L. CARNEY, 10 Circuit Judges. 11 12 - - - - - - - - - - - - - - - - - - - -X 13 14 LANDESBANK BADEN-WURTTEMBERG, 15 16 Plaintiff-Appellant, 17 18 -v.- 11-4443 19 20 GOLDMAN, SACHS & CO., TCW ASSET 21 MANAGEMENT COMPANY, 22 23 Defendants-Appellees. 24 25 - - - - - - - - - - - - - - - - - - - -X 26 27 1 1 FOR APPELLANT: Arthur R. Miller, Of Counsel 2 (William H. Narwold, Motley Rice 3 LLC, Hartford, CT; Vincent I. 4 Parrett, William S. Norton, John 5 Brandon Walker, Motley Rice LLC, 6 Mount Pleasant, SC, on the 7 brief) 8 New York, NY 9 10 11 FOR APPELLEE GOLDMAN, SACHS 12 & CO.: Theodore Edelman (Richard H. 13 Klapper, William B. Monahan, 14 Christopher J. Dunne, W. Rudolph 15 Kleysteuber, Jacob E. Cohen, on 16 the brief) 17 Sullivan & Cromwell LLP 18 New York, NY 19 20 FOR APPELLEE TCW ASSET 21 MANAGEMENT COMPANY: Mark A. Kirsch (Christopher M. 22 Joralemon, on the brief) 23 Gibson, Dunn & Crutcher LLP 24 New York, NY 25 26 Appeal from a judgment of the United States District 27 Court for the Southern District of New York (Pauley, J.). 28 29 UPON DUE CONSIDERATION, IT IS HEREBY ORDERED, ADJUDGED 30 AND DECREED that the district court’s judgment is AFFIRMED. 31 32 Landesbank Baden-Wurttemberg (“Landesbank”) appeals 33 from the dismissal of its common law claims for fraud, 34 negligent misrepresentation, and unjust enrichment. We 35 assume the parties’ familiarity with the underlying facts, 36 the procedural history, and the issues presented for review. 37 38 We review de novo the grant of a motion to dismiss 39 pursuant to Federal Rule of Civil Procedure 12(b)(6). 40 Harris v. Mills, 572 F.3d 66, 71 (2d Cir. 2009). 41 “[A]lthough a court must accept as true all of the 42 allegations contained in a complaint, that tenet is 43 inapplicable to legal conclusions, and threadbare recitals 44 of the elements of a cause of action, supported by mere 2 1 conclusory statements, do not suffice.” Id. at 72 (internal 2 quotation marks and brackets omitted). “To survive a motion 3 to dismiss, a complaint must plead enough facts to state a 4 claim to relief that is plausible on its face.” ECA & Local 5 134 IBEW Joint Pension Trust of Chi. v. JP Morgan Chase Co., 6 553 F.3d 187, 196 (2d Cir. 2009) (internal quotation marks 7 omitted). 8 9 [1] Landesbank asserts claims for common law fraud against 10 the defendants, Goldman, Sachs & Co. (“Goldman”) and TCW 11 Asset Management Company (“TCW”), in connection with the 12 marketing and sale to a subsidiary of Landesbank of notes in 13 a collateralized debt obligation known as Davis Square 14 Funding VI (“Davis Square”).1 15 16 Under New York law, “[t]he elements of a cause of 17 action for fraud require a material misrepresentation of a 18 fact, knowledge of its falsity, an intent to induce 19 reliance, justifiable reliance by the plaintiff and 20 damages.” Eurycleia Partners, LP v. Seward & Kissel, LLP, 21 12 N.Y.3d 553, 559 (2009). A claim for common law fraud is 22 subject to the particularity pleading requirements of 23 Federal Rule of Civil Procedure 9(b), “which requires that 24 the plaintiff (1) detail the statements (or omissions) that 25 the plaintiff contends are fraudulent, (2) identify the 26 speaker, (3) state where and when the statements (or 27 omissions) were made, and (4) explain why the statements (or 28 omissions) are fraudulent.” Eternity Global Master Fund 29 Ltd. v. Morgan Guar. Trust Co. of N.Y., 375 F.3d 168, 187 30 (2d Cir. 2004) (internal quotation marks omitted). 31 32 “[W]e have repeatedly required plaintiffs to plead the 33 factual basis which gives rise to a strong inference of 34 fraudulent intent.” O’Brien v. Nat’l Prop. Analysts 35 Partners, 936 F.2d 674, 676 (2d Cir. 1991) (internal 36 quotation marks omitted). A strong inference of fraudulent 37 intent “may be established either (a) by alleging facts to 38 show that defendants had both motive and opportunity to 39 commit fraud, or (b) by alleging facts that constitute 40 strong circumstantial evidence of conscious misbehavior or 41 recklessness.” Lerner v. Fleet Bank, N.A., 459 F.3d 273, 1 For simplicity, both Landesbank and its subsidiary are referred to herein as Landesbank. 3 1 290-91 (2d Cir. 2006) (quoting Shields v. Citytrust Bancorp, 2 Inc., 25 F.3d 1124, 1128 (2d Cir. 1994)). 3 4 The complaint in this case does not ascribe to Goldman 5 or TCW any particular motive for committing fraud beyond a 6 general profit motive common to all corporations, which does 7 not suffice. See Novak v. Kasaks, 216 F.3d 300, 307 (2d 8 Cir. 2000). Landesbank argues that a strong inference of 9 fraudulent intent arises because the defendants “knew facts 10 or had access to information suggesting that their public 11 statements were not accurate.” ECA, 553 F.3d at 199 12 (internal quotation marks omitted). The complaint alleges 13 that Goldman had access to confidential due diligence 14 reports which showed that the quality of the mortgages 15 underlying the collateral for the Davis Square notes did not 16 justify the notes’ triple-A ratings. However, an allegation 17 that defendants had access to information that was 18 inconsistent with their alleged misstatements “must 19 specifically identify the reports or statements containing 20 this information.” Novak, 216 F.3d at 309; see also San 21 Leandro Emergency Med. Grp. Profit Sharing Plan v. Philip 22 Morris Cos., 75 F.3d 801, 812-13 (2d Cir. 1996). The only 23 due diligence report specifically identified in the 24 complaint is dated from 2007, after the issuance of the 25 Davis Square notes, and the due diligence conveyed in that 26 report therefore does not bear on the defendants’ knowledge 27 at the time of issuance. The generalized references in the 28 complaint to other due diligence reports commissioned by 29 Goldman are insufficient to sustain Landesbank’s pleading 30 burden as to intent. 31 32 [2] Landesbank argues that the complaint sufficiently 33 states a claim for negligent misrepresentation under New 34 York law. “[T]he elements of negligent misrepresentation 35 are: (1) carelessness in imparting words; (2) upon which 36 others were expected to rely; (3) and upon which they did 37 act or failed to act; (4) to their damage. Most relevant, 38 the action requires that (5) the declarant must express the 39 words directly, with knowledge or notice that they will be 40 acted upon, to one to whom the declarant is bound by some 41 relation or duty of care.” Dall. Aerospace, Inc. v. CIS Air 42 Corp., 352 F.3d 775, 788 (2d Cir. 2003) (citation omitted). 43 “[T]he law of negligent misrepresentation requires a closer 44 degree of trust between the parties than that of the 4 1 ordinary buyer and seller in order to find reliance on such 2 statements justified.” Id. In determining whether a 3 complaint adequately pleads justifiable reliance, we 4 “consider whether the person making the representation held 5 or appeared to hold unique or special expertise; whether a 6 special relationship of trust or confidence existed between 7 the parties; and whether the speaker was aware of the use to 8 which the information would be put and supplied it for that 9 purpose.” Kimmell v. Schaefer, 89 N.Y.2d 257, 264 (1996). 10 “[A] sparsely pled special relationship of trust or 11 confidence is not fatal to a claim for negligent 12 misrepresentation where the complaint emphatically alleges 13 the other two factors enunciated in Kimmell.” Eternity 14 Global Master Fund, 375 F.3d at 188 (internal quotation 15 marks omitted). 16 17 The Offering Circular by which the Davis Square notes 18 were marketed disclaimed both the existence of a special 19 relationship of trust or confidence between the defendants 20 and Landesbank and any particular expertise on the part of 21 the defendants with respect to the credit quality of the 22 Davis Square notes. It cautioned investors to consider and 23 assess for themselves the likely level of defaults on the 24 underlying collateral, and disclaimed a fiduciary or 25 advisory role. The Offering Circular also required 26 Landesbank to represent that it was a “sophisticated 27 investor” and had sufficient access to financial and other 28 information to make an informed investment decision, 29 including an opportunity to ask questions and request 30 additional information concerning Davis Square. The 31 relationship between Landesbank and the defendants was that 32 of buyer and seller in a standard arm’s length transaction; 33 and by its own representations Landesbank possessed 34 sufficient expertise to evaluate the risks of its 35 investment. The complaint therefore fails to plead 36 justifiable reliance. See Dall. Aerospace, 352 F.3d at 789 37 (“[Plaintiff] cannot claim it relied on [defendant’s] 38 special expertise because it is clear that [plaintiff] 39 itself had the relevant expertise at issue.”). 40 41 Landesbank argues that its representations affirming 42 its status as a “sophisticated investor” with means to make 43 an informed investment decision do not “undermine [its] 44 allegation of reasonable reliance,” because “the allegedly 5 1 misrepresented facts [were] peculiarly within [defendants’] 2 knowledge.” Warner Theatre Assocs. Ltd. P’ship v. Metro. 3 Life Ins. Co., 149 F.3d 134, 136 (2d Cir. 1998). However, 4 as previously discussed, Landesbank’s complaint fails to 5 allege facts plausibly establishing existence of such 6 knowledge. This argument is therefore meritless. 7 8 [3] Landesbank also seeks to recover under a theory of 9 unjust enrichment. “To prevail on a claim for unjust 10 enrichment in New York, a plaintiff must establish 1) that 11 the defendant benefitted; 2) at the plaintiff’s expense; and 12 3) that equity and good conscience require restitution.” 13 Kaye v. Grossman, 202 F.3d 611, 616 (2d Cir. 2000) (internal 14 quotation marks omitted). Landesbank has failed to state a 15 claim for either fraud or negligent misrepresentation, and 16 has not otherwise shown that it is entitled to restitution 17 as a matter of equity. 18 19 We have considered Landesbank’s remaining arguments and 20 find them to be without merit. For the foregoing reasons, 21 the judgment of the district court is hereby AFFIRMED. 22 23 24 25 FOR THE COURT: 26 CATHERINE O’HAGAN WOLFE, CLERK 27 6