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
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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
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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