In re Actions

• Decision Date: 25 July 2016
• Docket Number: 09 CV 1714 (DAB)
• Parties: In re DEUTSCHE BANK AG SECURITIES LITIGATION This Document Relates to: ALL ACTIONS
• Court: U.S. District Court — Southern District of New York

In re DEUTSCHE BANK AG SECURITIES LITIGATION

This Document Relates to: ALL ACTIONS

09 CV 1714 (DAB)

UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK

July 25, 2016

OPINION

DEBORAH A. BATTS, United States District Judge.

This Action involves a series of securities offerings between May 2007 and May 2008 where allegedly false or misleading offering materials were used to sell $5.4 billion of preferred securities in violation of Sections 11, 12(a)(2) and 15 of the Securities Act of 1933. Before the Court is Defendants' Motion to Dismiss the Third Consolidated Amended Complaint. For the reasons stated below, Defendants' Motion to Dismiss is GRANTED IN PART and DENIED IN PART.

I. Background and Operative Complaint

A. Procedural History

This Action arises out of six putative class action cases filed between February and May 2009 against Deutsche Bank AG ("DB," "Deutsche Bank," or "the Company") and other related entities and individuals. This Court consolidated those Actions by Order dated August 11, 2009. (ECF No. 19.) On November 23, 2009, this Court appointed Co-Lead Plaintiffs and Co-Lead Counsel and directed the filing of a Consolidated Amended complaint ("CAC"). (ECF No. 27.) The CAC alleged violations of Sections 11, 12(a)(2) and 15 of the Securities Act by certain DB and individual defendants, underwriters, and the auditor relating to a Form F-3 Registration Statement and Prospectus filed with the Securities Exchange Commission on October 10, 2006, and various prospectus supplements to that Registration Statement used to conduct six offerings of preferred securities between October 2006 and May 2008. (CAC ¶¶ 1-2 (ECF No. 34).) The CAC alleged that the securities were sold pursuant to materially false and misleading offering materials which misrepresented or omitted material facts, including: (1) that the Company had as much as €20 billion in exposure to high-risk subprime and nonprime residential mortgage markets through Residential Mortgage Backed Securities ("RMBS") and Collateralized Debt Obligation ("CDO") assets, in violation of Generally Accepted Accounting Principles ("GAAP"), SEC regulations and International Financial Reporting Standards ("IFRS"); (2) that the Company's disclosures concerning market risks and credits risks were false and misleading in that they misrepresented DB's true exposure to RMBS/CDO securities and other mortgage-related assets; (3) that the Company's assertionsconcerning its compliance with GAAP were false and misleading as DB's 2005 and 2006 Form 20-Fs did not comply with GAAP in that they omitted and/or misrepresented DB's true exposure to RMBS/CDO securities and other mortgage-related assets; (4) that the Company engaged extensively in high-risk proprietary trading, i.e., gambling on the Company's own account using huge, undisclosed leverage; and (v) that the Company's 2007 Form 20-F disclosures were false and misleading in that they failed to reflect the actual risk associated with Deutsche Bank's proprietary trading practices. (Id. ¶ 3.) The CAC explicitly "exclude[d] and disclaim[ed] any allegation that could be construed as alleging fraud or intentional or reckless misconduct, as [the Section 11 and 12(a)(2) Claims were] based solely on claims of strict liability and/or negligence under the Securities Act." (Id. ¶¶ 189, 203; see also id. ¶ 1.)

Defendants subsequently moved to dismiss the CAC. On August 19, 2011, this Court granted in part and denied in part Defendants' Motion to Dismiss. (ECF No. 59.) Specifically, the Court granted with prejudice the motion to dismiss with respect to Plaintiffs' Section 11, 12(a)(2) and 15 claim relating to the October 2006 Offering, finding that Plaintiffs' allegations regarding failure to disclose a group concentration of risk constituted an unsupported legal conclusion. (Id. at 10-11.) The Court also found that, contrary to the allegations,Defendants did actually disclose DB's intention to increase activities in mortgage-backed securities and that increased trading activities could lead to losses. (Id. at 11-12.)

With respect to the 2007 and February 2008 offerings, the Court declined to adopt Defendants' argument that they had no duty to "disaggregate" or quantify the particular types or quality of the Company's mortgage-related holdings, noting that the CAC alleged specific facts about the Company's subprime holdings and trends in the subprime market that put those holdings at risk. (Id. at 15-19.) With respect to the May 2008 Offering, the Court found that the factual allegations of trading vastly in excess of stated VaR limits were sufficient to state a claim. (Id. at 23.) The Court then granted without prejudice the motions to dismiss with respect to Plaintiffs' remaining claims under Section 12(a)(2), denied the motions in all other aspects, and set a schedule for filing of a Second Consolidated Amended Complaint and Answer.¹ (See id. at 30)

Four days later, on August 23, 2011, the Second Circuit issued an opinion in Fait v. Regions Financial Corp., 655 F.3d 105 (2d Cir. 2011), holding that estimates of goodwill and loan loss reserves are not "facts," but instead "opinions." (Fait, 655 F.3d at 110, 113.) Defendants subsequently moved forreconsideration of this Court's August 19, 2011 Order, arguing that Fait constituted an intervening change in the governing law. (ECF No. 60.) Before the Court ruled on the Motion for Reconsideration, Plaintiffs filed a Second Consolidated Amended Complaint (ECF No. 65).

On August 9, 2012, this Court granted Defendants' Motion to Reconsider and dismissed the CAC with prejudice and without leave to replead. (ECF No. 70.) In doing so, the Court emphasized that "Plaintiffs concede that the claims in the Complaint 'exclusively rely on theories of strict liability and negligence'" (id. at 5 (quoting CAC ¶ 1)), and that Plaintiffs "specifically aver that none of their claims are based on knowing misconduct by the Defendants," a fact that "alone is fatal to Plaintiffs' claims after Fait." (Id. (citation omitted)).) Plaintiffs then moved the Court to reconsider its August 9, 2012 Order and sought leave to file a proposed Third Consolidated Amended Compl aint. This Court denied Plaintiffs' Motion for Reconsideration with prejudice and without leave to amend on May 15, 2013. (ECF No. 78.)

Plaintiffs appealed from the August 9, 2012 Order and the August 17, 2012 Judgment dismissing the CAC with prejudice, and the May 15, 2013 denial of their motion for reconsideration and request for leave to file a Third Consolidated AmendedComplaint. The Second Circuit affirmed this Court's dismissal of the CAC without leave to replead:

With respect to the dismissal of the CAC, the district court was correct to hold that DB's estimation of the extent of its investment in and exposure to residential mortgage-backed securities, as well as its statements about its Value-at-Risk ("VaR") metrics, amounted only to statements of opinion. SeeFait at 655 F.3d at 110-11 ("Estimates of goodwill depend on management's determination of the fair value of the assets acquired and liabilities assumed, which are not matters of objective fact.... In other words, the statements regarding goodwill at issue here are subjective ones rather than objective factual matters.") (internal quotation marks and citations omitted). As such, to have survived a motion to dismiss, Plaintiffs needed to have alleged that Defendants' statements about market risk, proprietary lending risk, and exposure to the real estate market were "both objectively false and disbelieved by the defendant[s] at the time [these statements] w[ere] expressed." Id. at 110. There are no allegations in the CAC that DB disbelieved its own disclosures about credit trading, market risk and its exposure to the subprime and nonprime markets, or its own VaR metrics and internal valuation models. Further, though Plaintiffs allege that Defendants were under an affirmative obligation to disclose their Q20 billion exposure to nonprime and subprime assets, there is no requirement that offering documents identify every type of asset that a security contains. SeeHunt v. Alliance N. Am. Gov't Income Trust, Inc., 159 F.3d 723, 730 (2d Cir.1998) (declining to require more particularized disclosures even though the specific type of asset at issue allegedly posed far greater risk than the general category of assets described, and holding that the challenged prospectuses "contained disclosures broad enough to cover these instruments"). Thus, we affirm the district court's dismissal of the CAC.

We also hold that the district court did not abuse its discretion in denying Plaintiffs' motion, brought pursuant to Rules 59 and 60 of the Federal Rules of Civil Procedure, which asked the district court to setaside the judgment, reconsider its prior decision, and grant Plaintiffs leave to file a TCAC. Where "a party does not seek leave to file an amended complaint until after judgment is entered, Rule 15's liberality must be tempered by considerations of finality." Williams, 659 F.3d at 213. The district court correctly held that there was no intervening change in controlling law between the court's August 2012 decision and judgment and Plaintiffs' September 2012 motion for reconsideration. And, as noted by the district court, the "new" evidence Plaintiffs claimed to incorporate had been available prior to entry of the August 2012 judgment. As such, Plaintiffs did not meet the strict standard governing applications for reconsideration or for setting aside the August 2012 judgment. SeeAnalytical Surveys, Inc. v. Tonga Partners, L.P., 684 F.3d 36, 52 (2d Cir. 2012) ("It is well-settled that Rule 59 is not a vehicle for relitigating old issues, presenting the case under new theories, securing a rehearing on the merits, or otherwise taking a second bite at the apple." (internal quotation marks omitted)), cert. denied, --- U.S. ----, 133 S. Ct. 1805, 185 L.Ed.2d 812 (2013).

(Kaess v. Deutsche Bank AG, 572...