City of Pontiac Policemen'S v. Ubs AG, Peter A. Wuffli, Clive Standish, David S. Martin, Marcel Ospel, Marcel Rohner, Marco Suter, Walter Stuerzinger, Ramesh Singh, Huw Jenkins, James Stehli, John Costas, Michael Hutchins, Deutsche Bank AG, BNP Paribas, Credit Suisse, J.P. Morgan Sec. Ltd.

• Decision Date: 06 May 2014
• Docket Number: No. 12–4355–cv.,12–4355–cv.
• Citation: 752 F.3d 173
• Court: U.S. Court of Appeals — Second Circuit
• Parties: CITY OF PONTIAC POLICEMEN'S AND FIREMEN'S RETIREMENT SYSTEM, Arbejdsmarkedets Tillaegspension, Union Asset Management Holding AG, Counsel of the Borough of South Tyneside, Plaintiffs–Appellants, Oregon Public Employees Board, and Alaska Laborers–Employers Retirement Fund, Movants–Appellants, v. UBS AG, Peter A. Wuffli, Clive Standish, David S. Martin, Marcel Ospel, Marcel Rohner, Marco Suter, Walter Stuerzinger, Ramesh Singh, Huw Jenkins, James Stehli, John Costas, Michael Hutchins, Deutsche Bank Ag, Bnp Paribas, Credit Suisse, J.P. Morgan Securities Ltd., Morgan Stanley & Co. International PLC, Goldman Sachs International, Deutsche Bank Ag, London Branch, UBS Securities LLC, Ernesto Bertarelli, Stephan Haeringer, Gabrielle Kauffmankohler, Sergio Marchionne, Rolf A. Meyer, Peter Voser, Lawrence A. Weinbach, Joerg Wolle, Helmut Panke, Peter Spuhler, Defendants–Appellees.

752 F.3d 173

CITY OF PONTIAC POLICEMEN'S AND FIREMEN'S RETIREMENT SYSTEM, Arbejdsmarkedets Tillaegspension, Union Asset Management Holding AG, Counsel of the Borough of South Tyneside, Plaintiffs–Appellants,

Oregon Public Employees Board, and Alaska Laborers–Employers Retirement Fund, Movants–Appellants,

v.UBS AG, Peter A. Wuffli, Clive Standish, David S. Martin, Marcel Ospel, Marcel Rohner, Marco Suter, Walter Stuerzinger, Ramesh Singh, Huw Jenkins, James Stehli, John Costas, Michael Hutchins, Deutsche Bank Ag, Bnp Paribas, Credit Suisse, J.P. Morgan Securities Ltd., Morgan Stanley & Co. International PLC, Goldman Sachs International, Deutsche Bank Ag, London Branch, UBS Securities LLC, Ernesto Bertarelli, Stephan Haeringer, Gabrielle Kauffmankohler, Sergio Marchionne, Rolf A. Meyer, Peter Voser, Lawrence A. Weinbach, Joerg Wolle, Helmut Panke, Peter Spuhler, Defendants–Appellees.

No. 12–4355–cv.

United States Court of Appeals,Second Circuit.

Argued: Dec. 12, 2013.

Decided: May 6, 2014.

Gregory M. Castaldo (Andrew L. Zivitz, Sharan Nirmul, Richard A. Russo, Jr., Kessler Topaz Meltzer & Check, LLP, Radnor, PA; Jennifer L. Joost, Kessler Topaz Meltzer & Check, LLP, San Francisco, CA; Geoffrey C. Jarvis, Grant & Eisenhofer P.A., Wilmington, DE; Jay W. Eisenhofer, Charles T. Caliendo, Brenda F. Szydlo, Grant & Eisenhofer P.A., New York, NY; Samuel H. Rudman, Robert M. Rothman, Robbins Geller Rudman & Dowd LLP, Melville, NY; Gregg S. Levin, Motley Rice LLC, Mt. Pleasant, SC; William H. Narwold, Motley Rice LLC, Hartford, CT, on the brief) Kessler Topaz Meltzer & Check, LLP, Radnor, PA, for Plaintiffs–Appellants.

Robert J. Giuffra, Jr. (Matthew A. Schwartz, Justin J. DeCamp, Thomas C. White, on the brief) Sullivan & Cromwell LLP, New York, NY, for UBS Defendants–Appellees.

Barry R. Ostrager (Jonathan K. Youngwood, Craig S. Waldman, on the brief) Simpson Thacher & Bartlett LLP, New York, NY, for Underwriter Defendants–Appellees.

Before: CABRANES, HALL and CHIN, Circuit Judges.

JOSÉ A. CABRANES, Circuit Judge:

In this appeal we consider, as a matter of first impression, whether the bar on extraterritorial application of the United States securities laws, as set forth in Morrison v. National Australia Bank Ltd., 561 U.S. 247, 130 S.Ct. 2869, 177 L.Ed.2d 535 (2010), precludes claims arising out of foreign-issued securities purchased on foreign exchanges, but cross-listed on a domestic exchange (the so-called “listing theory”). We also consider whether the alleged misstatements at issue here are actionable under the securities laws.

We conclude that: (1) the Supreme Court's decision in Morrison precludes claims brought pursuant to the Securities Exchange Act of 1934 (“Exchange Act”) by purchasers of shares of a foreign issuer on a foreign exchange, even if those shares were cross-listed on a United States exchange; (2) claims brought under the Securities Act of 1933 (“Securities Act”) based on disclosures made in connection with a UBS June 13, 2008 registered rights offering were properly dismissed because they are immaterial and/or inactionable “puffery,” as that term is defined in our case law; and (3) Exchange Act claims arising out of defendants' statements regarding positions in, and valuation of, mortgage-related assets were properly dismissed for failure to adequately plead a material misrepresentation or scienter.

Accordingly, we affirm the September 13, 2011 and September 28, 2012 judgments of the United States District Court for the Southern District of New York (Richard J. Sullivan, Judge ) dismissing all claims with prejudice.

BACKGROUND

Plaintiffs, a group of foreign and domestic institutional investors,¹ bring this putative class action against UBS AG (“UBS”) and a number of UBS officers and directors (together with UBS, “UBS Defendants”),² alleging violations of §§ 10(b) and 20(a) of the Exchange Act ³ in connection with the purchase of UBS “ordinary shares” between August 13, 2003 and February 23, 2009 (the “Class Period”). These shares were listed on foreign exchanges and the New York Stock Exchange (“NYSE”). Plaintiffs allege that the UBS Defendants violated the Exchange Act by making, in conjunction with issuance of the ordinary shares, fraudulent statements regarding: (1) UBS's mortgage-related assets portfolio (the “CDO/RMBS Fraud”); and (2) UBS's purported compliance with United States tax and securities laws by UBS's Swiss-based global cross-border private banking business (the “Tax Fraud”).⁴

Plaintiff Alaska Laborers–Employers Retirement Fund (“Alaska Laborers”) also brings this action on behalf of a class that purchased ordinary shares of UBS in connection with the Company's June 13, 2008 Rights Offering (the “Offering”), alleging that the UBS Defendants and a group of Underwriters ⁵ violated §§ 11, 12(a)(2), and 15 of the Securities Act ⁶ by making misleading statements regarding the alleged Tax Fraud in connection with the Offering.

A. The CDO/RMBS Fraud

Plaintiffs allege that UBS accumulated and overvalued $100 billion in residential mortgage backed securities (“RMBS”) and collateralized debt obligations (“CDOs” and, together with RMBS, “mortgage-related assets”) ⁷ between February 13, 2006 and April 21, 2008, without disclosing this to shareholders and in contravention of its representations regarding its risk management policies.

The acquisition of the $100 billion portfolio began with the 2006 launch of Dillon Read Capital Management (“DRCM”), an internal hedge fund ⁸ run by John Costas, the CEO of UBS's Investment Bank (“IB”). According to plaintiffs, DRCM began acquiring billions of dollars' worth of RMBS/CDOs, which added “pressure to grow IB Fixed Income.” Accordingly, the IB began acquiring the same types of assets on a larger scale. Following significant write-downs on DRCM's subprime portfolio, UBS closed DRCM and reintegrated its $20 billion portfolio into the IB.

Plaintiffs allege that UBS concealed the scope of the IB's subprime portfolio (disclosing $23 billion rather than $100 billion) and, as the subprime market began to collapse in February 2007, concealed the losses in that portfolio by failing to revalue the mortgage-related assets. Plaintiffs allege that UBS belatedly announced its first mortgage-related write-down of $4 billion on October 1, 2007, and ultimately wrote down the portfolio by $48 billion.

B. The Tax Fraud

Plaintiffs also allege that UBS made materially misleading statements regarding an alleged scheme in which UBS Swiss bankers traveled in and out of the United States to illegally advise American clients on the purchase of investments.⁹ Specifically, in May 2008, following the indictment of certain UBS employees in connection with the tax scheme, UBS made two disclosures, which revealed that the United States Department of Justice (“DOJ”) and the Securities and Exchange Commission (“SEC”) were investigating UBS's conduct with regard to the cross-border services it provided to American clients between 2001 and 2007.¹⁰

On February 19, 2009, UBS entered into a Deferred Prosecution Agreement ¹¹ with the DOJ and the Internal Revenue Service (“IRS”), which revealed that UBS had violated United States tax laws, and disclosed that UBS had paid a $780 million fine and admitted participation in a conspiracy to defraud the IRS.

C. Procedural History

On September 13, 2011, the District Court dismissed the claims of foreign and domestic plaintiffs who purchased the UBS shares on foreign exchanges. ¹² On September 28, 2012, the District Court dismissedall remaining claims against the UBS Defendants under the Exchange Act for failure to adequately plead the elements of fraud, and dismissed Alaska Laborers' claims under the Securities Act for failure to adequately allege a material misstatement and for lack of statutory standing under § 12(a)(2) of the Securities Act.¹³

This timely appeal followed.

DISCUSSION

We review de novo a district court judgment granting a motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6), accepting all factual allegations in the complaint as true.¹⁴ “To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face.” ¹⁵ In making this determination, we may consider “any written instrument attached to [the Complaint] as an exhibit or any statements or documents incorporated in it by reference, as well as public disclosure documents required by law to be, and that have been, filed with the SEC, and documents that the plaintiffs either possessed or knew about and upon which they relied in bringing the suit.” ¹⁶

A. Viability Under Morrison v. National Australia Bank of Claims Based on Foreign Shares Purchased on a Foreign Exchange

Three foreign institutional investors—plaintiffs Union, IFM, and ATP—and one domestic investor—plaintiff OPEB—purchased their UBS (foreign-issued) ordinary shares on a foreign exchange. The District Court, relying on the Supreme Court's decision in Morrison v. National Australia Bank, dismissed these claims. We address the claims of the foreign and domestic plaintiffs separately.

1. “Foreign Cubed” Claims¹⁷

Morrison answered in the negative the question “whether [§ 10(b) ] provides a cause of action to foreign plaintiffs suing foreign [ ] defendants for misconduct in connection with securities traded on foreign exchanges.” ¹⁸ It held instead that § 10(b) only provided a private cause of action arising out of “[1] transactions in securities listed on domestic exchanges, and [2] domestic transactions in other securities.” ¹⁹

Plaintiffs argue that, by its express terms, the Morrison bar is limited to claims arising out of securities “ [not] listed on a domestic exchange.” ²⁰ Under plaintiffs' so-called “listing theory,” ²¹ the fact that the relevant shares were cross-listed on the NYSE brings them within the purview of Rule 10(b), under the first prong of Morrison—“transactions in securities listed on...