12-3859
Liberty Mutual Ins. Co. 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.
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 15th day of May, two thousand thirteen.
PRESENT:
DENNIS JACOBS,
Chief Judge,
ROBERT D. SACK,
Circuit Judge,
JED S. RAKOFF,*
District Judge.
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IN RE: FANNIE MAE 2008 SECURITIES LITIGATION 12-3859
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JOHN A GENOVESE, ROBERT M. ROLLINS, NICHOLAS
CRISAFI, STELLA CRISAFI, FOGEL CAPITAL
*
Judge Jed S. Rakoff, of the United States District
Court for the Southern District of New York, sitting by
designation.
MANAGEMENT, INC., DENNIS SANDMAN, KAREN
ORKIN, ANTHONY ESPOSITO, FRANK MCALONAN,
WILLIAM R. WHITE, STEVE LATIMER, BRIAN
JARMAIN, MALKA KRAUSZ, DONALD W. MCCAULEY,
DAVID L. FRANKFURT, FRANKFURT FAMILY LTD.,
THE DAVID FRANKFURT 2000 FAMILY TRUST, THE
DAVID FRANKFURT 2002 FAMILY TRUST, CHERYL
STRONG, WILLIAM BERMAN, STEPHEN H.
SCHWEITZER, LINDA P. SCHWEITZER, LYNN
WILLIAMS, STEVEANN WILLIAMS, SUSAN KRAUS,
PHILLIP MELTON, DANIEL KRAMER, DAVID GWYER,
COMPREHENSIVE INVESTMENT SERVICES, INC.,
MARY P. MOORE, INDIVIDUALLY AND ON BEHALF
OF ALL OTHERS SIMILARLY SITUATION, EDWARD
SMITH,
Plaintiffs,
LIBERTY MUTUAL INSURANCE COMPANY, LIBERTY
MUTUAL FIRE INSURANCE COMPANY, PEERLESS
INSURANCE COMPANY, SAFECO CORPORATION,
LIBERTY LIFE ASSURANCE COMPANY OF BOSTON,
Plaintiffs-Appellants,
v.
STEPHEN B. ASHLEY, DANIEL H. MUDD,
STEPHEN M. SWAD, ROBERT, J. LEVIN, LEHMAN
BROTHERS, INC., J.P. MORGAN SECURITIES
INC., CITIGROUP GLOBAL MARKET INC.,
MERRILL LYNCH, PIERCE FENNER & SMITH
INCORPORATED, MORGAN STANLEY & CO.,
INCORPORATED, UBS SECURITIES LLC,
WACHOVIA CAPITAL MARKETS LLC, WASHINGTON
MUTUAL BANK, FA, FEDERAL NATIONAL HOME
MORTGAGE ASSOCIATION, DENNIS BERESFORD,
DENNIS BERESFORD, LOUIS FREEH, BRENDA
GAINES, FREDERICK B. HARVEY, III, DAVID
HISEY, KAREN HORN, BRIDGET MACASKILL,
PETER NICULESCU, LESLIE RAHL, JOHN SITES,
JR., GREG SMITH, H. PATRICK SWYGERT, JOHN
WULFF, BANC OF AMERICA SECURITIES LLC,
2
BARCLAYS CAPITAL INC., DEUTSCHE BANK
SECURITIES INC., FTN FINANCIAL SECURITIES
CORP., WELLS FARGO SECURITIES LLC, BEAR
STEARNS & CO., INC., FEDERAL NATIONAL
MORTGAGE ASSOCIATION, AKAK FANNIE MAE,
FITCH RATINGS, MOODY’S INVESTORS SERVICE,
INC., HERBERT M. ALLISON, DAVID C. BENSON,
BRIAN COBB, JUDITH C. DUNN, JOHN DOES, 1 -
10, LINDA K. KNIGHT, ANTHONY F. MARRA,
BRIAN P. MCQUAID, ANNE F. PANKAU, DAVID
H. SIDWELL, BETTY THOMPSON, CHRISTINA A.
WOLF, ROBERT T. BLAKELY, ENRICO
DALLAVECCHIA, JPMORGAN CHASE & CO., FANNIE
MAE,
Defendants,
GOLDMAN, SACHS & CO.,
Defendant-Appellee.
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FOR APPELLANT: JAMES R. SAFLEY, Robins, Caplin,
Miller & Ciresi L.L.P, Minneapolis,
Minnesota (Christopher P. Sullivan,
Thomas B. Hatch, Robins, Caplin,
Miller & Ciresi L.L.P, Boston,
Massachusetts, on the brief).
FOR APPELLEE: JONATHAN K. YOUNGWOOD, Simpson
Thacher & Bartlett LLP, New York,
New York (Craig S. Waldman, Shannon
Price Torres, Simpson Thacher &
Bartlett LLP, New York, New York,
on the brief).
1 Appeal from a judgment of the United States District
2 Court for the Southern District of New York (Crotty, J.).
3
4 UPON DUE CONSIDERATION, IT IS HEREBY ORDERED,
5 ADJUDGED, AND DECREED that the judgment of the district
6 court is AFFIRMED.
7
3
1 Liberty Mutual Insurance Company (“Liberty”)1 appeals
2 from a judgment of the United States District Court for
3 the Southern District of New York (Crotty, J.) dismissing
4 its Second Amended Complaint for failure to state a claim
5 upon which relief may be granted. We assume the parties’
6 familiarity with the underlying facts, procedural history
7 of the case, and issues on appeal.
8
9 We review de novo a dismissal under Federal Rule of
10 Civil Procedure 12(b)(6). See In re Citigroup ERISA
11 Litig., 662 F.3d 128, 135 (2d Cir. 2011).
12
13 Liberty sues Goldman, Sachs & Co. (“Goldman”) for its
14 conduct as lead underwriter of certain stock offerings
15 made by the Federal National Mortgage Association (“Fannie
16 Mae”) in September and December 2007, transactions which
17 resulted in Liberty’s loss of $62.5 million. According to
18 the complaint, Goldman drafted and disseminated offering
19 documents falsely representing that Fannie Mae’s capital
20 exceeded statutory and regulatory requirements, and failed
21 to disclose that Fannie Mae had inadequate write-downs and
22 loss reserves for its exposure to approximately $700
23 billion in risky subprime and Alt-A mortgages. Liberty
24 alleges violations of Rule 10b-5 of the Securities
25 Exchange Act of 1934, the Massachusetts and Washington
26 securities acts, and the Massachusetts and Washington
27 unfair and deceptive trade practices statutes, as well as
28 common law fraud and negligent misrepresentation. The
29 district court concluded that all seven of Liberty’s
30 claims failed because, inter alia, Liberty had not alleged
31 an actionable misstatement or omission.2 We agree.
32
33 Liberty’s claims rely principally on Fannie Mae’s 2008
34 Form 10-K, which increased write-downs and loan loss
35 reserves by billions of dollars over previous years. Had
36 Fannie Mae taken these write-downs and set aside these
1
“Liberty” refers to all five appellants: Liberty
Mutual Insurance Company, Liberty Mutual Fire Insurance
Company, Peerless Insurance Company, Safeco Corporation, and
Liberty Life Assurance Company of Boston.
2
Liberty does not appeal the district court’s
dismissal of its 10b-5 claim (Count I).
4
1 loss reserves earlier (i.e., prior to Liberty’s
2 investment), it is alleged that the company would not have
3 met its statutory and regulatory core capital
4 requirements, could not have paid any dividends, and
5 therefore could not have attracted investors.
6
7 This is a classic example of pleading fraud by
8 hindsight: the “plaintiff has simply seized upon
9 disclosures made in later . . . reports and alleged that
10 they should have been made in earlier ones.” Denny v.
11 Barber, 576 F.2d 465, 470 (2d Cir. 1978) (Friendly, J.).
12 While “greater clairvoyance” might have led Fannie Mae to
13 record write-downs earlier, “failure to make such
14 perceptions does not constitute fraud.” Id.; see also
15 Acito v. IMCERA Grp., Inc., 47 F.3d 47, 53 (2d Cir. 1995).
16 Courts have consistently rejected such claims. See, e.g.,
17 NECA-IBEW Pension Trust Fund v. Bank of Am. Corp., No. 10
18 Civ. 440 (LAK) (HBP), 2012 WL 3191860, at *13 (S.D.N.Y.
19 Feb. 9, 2012) (Pitman, M.J.) (“[T]he mere fact that BAC’s
20 writedowns subsequently turned out to be insufficient--or
21 were substantially smaller than the write-downs taken by
22 industry peers with ‘similar’ portfolios--would not render
23 those figures false at the time that they were publicly
24 filed with the SEC.”) (footnote and citations omitted);
25 Plumbers & Steamfitters Local 773 Pension Fund v. Can.
26 Imperial Bank of Commerce, 694 F. Supp. 2d 287, 301
27 (S.D.N.Y. 2010) (dismissing claim that defendant “should
28 have recorded much larger write-downs earlier than it
29 did”).
30
31 To be sure, this does not mean that subsequent facts
32 and circumstances cannot lend support to a claim that a
33 prior allegedly fraudulent statement was false at the time
34 it was made. After all, “fraud claims by their very
35 nature involve self-concealing conduct,” S.E.C. v.
36 Gabelli, 653 F.3d 49, 59 (2d Cir. 2011), rev’d on other
37 grounds, 133 S. Ct. 1216 (2013), and thus are always
38 uncovered only after the fact. For this reason, we have,
39 in appropriate circumstances, relied on subsequent events
40 to infer a plausible claim for fraud. See, e.g., Novak v.
41 Kasaks, 216 F.3d 300, 312-13 (2d Cir. 2000) (“[T]he
42 complaint provides specific facts concerning the Company’s
43 significant write-off of inventory directly following the
44 Class Period, which tends to support the plaintiffs’
5
1 contention that inventory was seriously overvalued at the
2 time the purportedly misleading statements were made.”);
3 Rothman v. Gregor, 220 F.3d 81, 92 (2d Cir. 2000) (“[W]e
4 deem significant the amount of the write-off [the
5 defendant company] eventually did take . . . .”).
6
7 In this case, however, the representations regarding
8 Fannie Mae’s core capital necessarily incorporated
9 imperfect business judgments and predictions about the
10 future, which later proved mistaken. Given the market
11 turmoil that intervened in time between the alleged
12 misrepresentations and Fannie Mae’s subsequent write-downs
13 and loss reserve increases, any inference we might draw
14 based on those subsequent events is attenuated. Without
15 more, we cannot conclude that plaintiffs have plausibly
16 pled that the predictive judgments that informed the core
17 capital representations were so flawed when made as to
18 amount to fraud.
19
20 Finding no merit in Liberty’s remaining arguments, we
21 hereby AFFIRM the judgment of the district court.
22
23
24 FOR THE COURT:
25 CATHERINE O’HAGAN WOLFE, CLERK
26
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