In re Bank of Am. Corp.. Sec.
| Citation | 757 F.Supp.2d 260 |
| Decision Date | 27 August 2010 |
| Docket Number | No. 09 MD 2058 (PKC).,09 MD 2058 (PKC). |
| Parties | In re BANK OF AMERICA CORP. SECURITIES, DERIVATIVE, AND EMPLOYEE RETIREMENT INCOME SECURITY ACT (ERISA) LITIGATION.This Document Relates to: All Consolidated Securities and Derivative Actions. |
| Court | United States District Courts. 2nd Circuit. United States District Courts. 2nd Circuit. Southern District of New York |
OPINION TEXT STARTS HERE
Plaintiffs allege that, at the peak of the 2008 financial crisis, Bank of America Corporation (“BofA”) hastily agreed to the acquisition of Merrill Lynch & Co., Inc. (“Merrill”), just as Merrill was careening toward insolvency. Plaintiffs assert that in the days and months that followed, the defendants concealed and misstated critical aspects of the transaction, specifically matters related to bonuses, staggering losses accrued in the fourth quarter of 2008, and pressure to consummate the acquisition from officials at the Federal Reserve and the Treasury Department.
This Memorandum and Order addresses six motions to dismiss directed to two different complaints. In the shareholders' direct action (the “Securities Action”), a consolidated amended class action complaint asserts that defendants violated federal securities laws, and alleges claims on behalf of all persons who purchased or acquired BofA shares between September 15, 2008 and January 21, 2009 (the “Securities Complaint,” or “Sec. Compl.”). Plaintiffs in the derivative action (the “Derivative Plaintiffs” and the “Derivative Action”) assert, on behalf of nominal defendant BofA, claims under both the federal securities laws and state law. In addition to their derivative claims, the Derivative Plaintiffs also assert a direct claim for breach of fiduciary duty.
All Securities Defendants move to dismiss the Securities Complaint pursuant to Rules 9(b) and 12(b)(6), Fed.R.Civ.P., and the Private Securities Litigation Reform Act of 1995, 15 U.S.C. § 78u–4 (the “PSLRA”). The BofA directors and the BofA officers named in the Derivative Complaint (together, the “BofA Derivative Defendants”) have moved to dismiss most of the claims pursuant to Rules 9(b), 12(b)(6) and 23.1. BofA, as nominal defendant, also has filed a motion to dismiss, and joins in the arguments of the BofA Derivative Defendants. The financial advisors retained by BofA in connection with the transaction (the “Financial Advisors”) separately move to dismiss the four derivative claims asserted against them.
While there are distinctions between the Securities Complaint and the Derivative Complaint, they share the same core allegations. They also share certain theories of liability under Section 14(a) and Rule 14a–9. In discussing the two complaints' assertions under Section 14(a) of the Securities Exchange Act of 1934, 15 U.S.C. § 78a, et seq., (the “'34 Act”) and Rule 14a–9, the allegations of each are separately analyzed. Elsewhere, when the complaints set forth different factual assertions and theories of liability, they are specifically denoted. No allegation in either complaint is imputed to the other.
For the reasons explained below, the motions to dismiss the Securities Complaint are granted in part and denied in part. The BofA Derivative Defendants' and BofA's motions to dismiss the Derivative Complaint are granted in part and denied in part. The Financial Advisors' motion to dismiss is granted in its entirety.
FACTUAL HISTORY
Parties to the Securities Action
Parties to the Derivative Action
Negotiations Leading up to BofA's Acquisition of Merrill
Negotiations over Merrill's Bonus Pool
Fairness Opinion and the BofA Board's Recommendation of the Merger
BofA Announces Secondary Offering
BofA and Merrill Incur Significant Losses in the Fourth Quarter of 2008
Joint Proxy Did Not Disclose Merrill's Growing Fourth Quarter Losses or the Bonus Arrangement
Consideration of the Invocation of the MAC Clause and the Offer of Federal Capital Support
BofA Announces Fourth Quarter Results and Federal Financial Support
Claims Asserted in the Securities Complaint
RULE 12(b)(6), RULE 9(b) AND THE PSLRA'S PLEADING THRESHOLD
II.
THAIN AND MERRILL'S MOTIONS TO DISMISS COUNT II OF THE SECURITIES COMPLAINT ARE GRANTED IN PART AND DENIED IN PART
Thain and Merrill Had No Disclosure Duty to BofA Shareholders
Thain and Merrill's Motions to Dismiss the Section 14(a) and Rule 14a–9 Claims Are Denied
III.
DEFENDANTS' MOTIONS TO DISMISS PLAINTIFFS' '34 ACT CLAIMS FOR FAILURE TO ALLEGE ACTIONABLE MISSTATEMENTS OR OMISSIONS ARE GRANTED IN PART AND DENIED IN PART
Potential for Overlapping Damages Between the Direct and Derivative Section 14(a) Actions
Derivative Plaintiffs Fail to Allege That the Individual BofA Officers Are Liable Under Section 14(a) of the '34 Act
Motions to Dismiss for Failure to Allege Actionable Misstatements and Omissions Are Granted in Part and Denied in Part
Securities Complaint Adequately Alleges Material Misstatements Related to Merrill's Bonus Pool
Qualifying Language in the Joint Proxy and Merger Agreement Did Not Disclose BofA's Consent to the Merrill Bonuses
Press Reports and Past Merrill SEC Filings Did Not Render the Joint Proxy Immaterial or Establish Truth on the Market as a Matter of Law at the Rule 12(b)(6) Stage
For Substantially the Same Reasons, the Derivative Complaint Adequately States a Claim under Section 14(a) and Rule 14a–9
Securities Complaint Adequately Alleges the Materiality of Defendants' Omissions Concerning Fourth Quarter 2008 Losses
For Substantially the Same Reasons, the Derivative Complaint Adequately Alleges That Section 14(a) and Rule 14a–9 Required the Disclosure of Merrill's Fourth Quarter Losses
Claims in the Securities and Derivative Complaints Directed to the Merger Agreement's MAC Clause Are Dismissed
Securities Complaint Fails to Plausibly Allege That the Defendants Violated Section 10(b) and Rule 10b–5 by Failing to Disclose Developments Related to the MAC
For Substantially the Same Reasons, the Derivative Plaintiffs' Section 14(a) Claims Arising from the Terms of the MAC Are Dismissed
Derivative Plaintiffs' Allegations Concerning Non– Disclosure of the Decision to Invoke the MAC Clause Fail to State a Claim under Section 14(a) or Rule 14a–9
Claims Directed to the Adequacy of BofA's Due Diligence Are Dismissed
Securities Complaint and the Derivative Complaint Both Fail to Plausibly Allege That Defendants Ran Afoul of the '34 Act's Duty to Update
Defendants in the Securities Complaint Had No General Duty to Update Certain Statements in Light of the October and November Losses
Derivative Plaintiffs' Section 14(a) and Rule 14a–9 Claims Based on Statements Regarding the Future Capital Position of BofA and Merrill Are Dismissed
Motions to Dismiss the Securities Plaintiffs' Additional Section 10(b) and Rule 10b–5 Claims Are Granted in Part and Denied in Part
Statements in BofA's Press Release of January 1, 2009 Are Non–Actionable
Motion to Dismiss the Section 10(b) and Rule 10b–5 Claims Is Denied As to BofA's Allegedly Undisclosed Arrangement to Receive Federal Funds
Lewis's September 15 Remarks About Merrill's Liquidity Are Non–Actionable
316
Statements by Lewis Regarding Regulator Pressure and Thain's Self–Interest Are Non–Actionable
Derivative Plaintiffs' Remaining Section 14(a) Claims Against the BofA Directors Are Dismissed
Derivative Plaintiffs Have Not Adequately Alleged That the Joint Proxy Contained Misstatements or Omissions Regarding the Overvaluation of Merrill Assets and Undervaluation of Merrill Losses
Derivative Plaintiffs Have Not Adequately Alleged That Statements about Steps Taken to Improve Merrill's Financial Condition Were Misleading
Derivative Plaintiffs Have Not Adequately Alleged That Statements Regarding Additional Government Funds to Close the Merger and the Government Guarantee Were Misleading
Derivative Plaintiffs Have Not Alleged That the BofA Directors' Recommendation Regarding the Merger Was Subjectively False
Securities Complaint Pleads Scienter for the Merrill Bonus Arrangement As to Lewis, Thain, BofA and Merrill, and Negligence As to the BofA Directors
Derivative Complaint Adequately Pleads Negligence on the Part of the BofA Directors Regarding the Merrill Bonuses
Securities Complaint Fails to Allege Scienter As to Merrill's Fourth–Quarter Losses, but Both the Securities Complaint and the Derivative Complaint Adequately Allege Negligence
Securities Complaint Does Not Satisfy the PSLRA and Rule 9(b) in Its Scienter Allegations Regarding the Fourth Quarter Losses
Securities Complaint Adequately Alleges Negligence As to the Losses, and Its Section 14(a) and Rule 14a–9 Claims Survive
Derivative Complaint Adequately Alleges Negligence As to Merrill's Fourth Quarter Losses
Securities Complaint Does Not Allege Scienter for the Failure to Disclose Federal Financial Support for the Transaction
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