In re Bear Stearns Companies Inc. Sec.
| Decision Date | 19 January 2011 |
| Docket Number | No. 08 MDL 1963.,08 MDL 1963. |
| Citation | 763 F.Supp.2d 423 |
| Parties | In re BEAR STEARNS COMPANIES, INC. SECURITIES, DERIVATIVE, AND ERISA LITIGATION.This Document Relates To: Securities Action, 08 Civ. 2793 Derivative Action, 07 Civ. 10453 ERISA Action, 08 Civ. 2804. |
| Court | U.S. District Court — Southern District of New York |
OPINION TEXT STARTS HERE
Keller Rohrback LLP, by: David S. Preminger, Esq., New York, NY, by: Lynn L. Sarko, Esq., Derek W. Loeser, Esq., Erin M. Riley, Esq., Gretchen S. Obrist, Esq., Seattle, WA, Barroway Topaz Kessler Meltzer Check LLP, by: Joseph H. Meltzer, Esq., Edward W. Ciolko, Esq., Peter H. LeVan Jr., Esq., Shannon O. Lack, Esq., Radnor, PA, for the Securities Plaintiffs.Dealy & Silberstein, LLP, by: Milo Silberstein, Esq., New York, NY, for the Securities Plaintiffs.Berman Devalerio, by: Jeffrey C. Block, Esq., Patrick T. Egan, Esq., Justin Saif, Esq., Boston, MA, by: Joseph J. Tabacco, Jr., Esq., Julie J. Bai, Esq., San Francisco, CA, Labaton Sucharow LLP, by: Thomas A. Dubbs, Esq., James W. Johnson, Esq., Michael W. Stocker, Esq., New York, NY, for Lead Securities Plaintiff State of Michigan Retirement Systems.Brower Piven, P.C., by: David A.P. Brower, Esq., New York, NY, Robbins Umeda LLP, by: Marc M. Umeda, Esq., George C. Aguilar, Esq., Shane P. Sanders, Esq., Gregory E. Del Gaizo, Esq., San Diego, CA, for the Derivative Plaintiff.Barroway Topaz Kessler Meltzer Check LLP, by: Joseph H. Meltzer, Esq., Edward W. Ciolko, Esq., Julie Siebert–Johnson, Esq., Peter H. LeVan Jr., Esq., Shannon O. Lack, Esq., Mark K. Gyandoh, Esq., James A. Maro, Jr., Esq., Radnor, PA, Keller Rohrback LLP, by: David S. Preminger, Esq., New York, NY, by: Lynn L. Sarko, Esq., Derek W. Loeser, Esq., Erin M. Riley, Esq., Gretchen S. Obrist, Esq., Seattle, WA, for the ERISA Plaintiffs.Dealy & Silberstein, LLP, by: Milo Silberstein, Esq., New York, NY, for ERISA Plaintiffs.Paul, Weiss, Rifkind, Wharton & Garrison LLP, by: Eric. S. Goldstein, Esq., Brad S. Karp, Esq., Lewis R. Clayton, Esq., Douglas M. Pravda, Esq., New York, NY, Steptoe & Johnson LLP, by: Paul J. Ondrasik, Jr., Esq., F. Michael Kail, Esq., Washington, DC, for Defendants The Bear Stearns Companies Inc., JPMorgan Chase & Co., Michael Minikes, Kathleen Cavallo, Stephen Lacoff, and Robert Steinberg.Kramer Levin Naftalis & Frankel LLP, by: David S. Frankel, Esq., New York, NY, for Defendant James E. Cayne.
Skadden, Arps, Slate, Meagher & Flom LLP, by: Jay B. Kasner, Esq., Susan Saltzstein, Esq., New York, NY, for Defendant Alan D. Schwartz.Simpson Thacher & Bartlett LLP, by: Michael Chepiga, Esq., William T. Russell, Jr., Esq., New York, NY, for Defendant Samuel L. Molinaro, Jr.Schulte Roth & Zabel LLP, by: Ronald Richman, Esq., Jill L. Goldberg, Esq., New York, NY, for Defendant Alan C. Greenberg.Wachtell, Lipton, Rosen & Katz, by: David B. Anders, Esq., Meredith L. Turner, Esq., New York, NY, for Defendant Warren J. Spector.Greenberg Traurig, LLP, by: Richard A. Edlin, Esq., Ronald D. Lefton, Esq., New York, NY, for Defendant Jeffrey Mayer.Gibson, Dunn & Crutcher LLP, by: Randy M. Mastro, Esq., Robert F. Serio, Esq., New York, NY, for Defendants Henry S. Bienen, Carl D. Glickman, Michael Goldstein, Donald J. Harrington, Frank T. Nickell, Paul A. Novelly, Frederic V. Salerno, Vincent Tese and Wesley S. Williams, Jr.Wiggin & Dana LLP, by: Scott D. Corrigan, Esq., Jeffrey P. Wade, Esq., New York, NY, for Defendant Michael Alix.Willkie Farr & Gallagher LLP, by: Michael R. Young, Esq., Antonio Yanez, Jr., Esq., New York, NY, for Defendant Jeffrey M. Farber.Cravath, Swaine & Moore LLP, by: Max R. Shulman, Esq., New York, NY, for Defendant Deloitte & Touche LLP.
II.
THE MOTION OF THE BEAR STEARNS DEFENDANTS TO DISMISS THE SECURITIES COMPLAINT IS DENIED
Summary of the Securities Complaint
Leveraging
The Hedge Funds
Valuation and Risk
False and Misleading Statements
Accounting Standards Violations
467
GAAP Overview
467
Fraud Risk Factors
468
Audit Risk Alerts
469
Internal Controls
470
Financial Statements
472
Banking Regulations Violations
477
Capital Requirements
477
Incorrect Marks
478
VaR Misrepresentations
479
Scienter
479
Loss Causation
483
Additional Allegations
484
The Applicable Standards
484
Pleading Scienter
485
Pleading Loss Causation
488
The Allegations of Materially False and Misleading Statements by the Bear Stearns Defendants Are Adequate
Statements Regarding Asset Values
488
Statements Regarding Risk Management
489
Statements Regarding the BSAM Write-downs
495
Statements Regarding Bear Stearns' Liquidity
497
The Alleged Misstatements by the Bear Stearns Defendants are Material
The Securities Complaint Has Adequately Pleaded Scienter Against the Bear Stearns Defendants
Motive and Opportunity
499
Conscious Misbehavior or Recklessness
501
The Allegations of Loss Causation are Adequate
505
The Securities Complaint Has Adequately Pleaded Control Person Liability under § 20(a)
III.
THE MOTION BY DELOITTE TO DISMISS THE SECURITIESCOMPLAINT IS DENIED
The Allegations
510
The Applicable Standard
511
The Securities Complaint Has Adequately Alleged Deloitte's Misstatements and Scienter
Valuation Models and Fair Value Measurements
512
The Hedge Funds
516
The Collapse of Bear Stearns Is Evidence Of Scienter
517
Reckless Disregard Rather Than Hindsight
518
The Securities Complaint Has Adequately Alleged Material Misstatements
518
The Securities Complaint Has Adequately Alleged Loss Causation
520
IV.
THE MOTION TO DISMISS THE DERIVATIVE COMPLAINT IS GRANTED
522
522
Summary of the Derivative Complaint
523
The Hedge–Fund Collapse
524
Individual Defendants' Allegedly False and MisleadingStatements Issued During the Relevant Period
The Improper Buyback and Insider Selling
525
The Acquisition of Bear Stearns by JPMorgan
526
The Counts
528
Derivative Plaintiff Does Not Have Standing
535
Derivative Plaintiff Does Not Come within the “Fraud Exception”
535
Derivative Plaintiff Fails to Establish a Double Derivative Suit
537
The Derivative Claims Fail to Satisfy Rule 23.1(b)(3)'s Demand Requirement
1.
Derivative Plaintiff Fails to Establish the Futility of a Demand on the JPMorgan Board
The Class Claim is Dismissed on Res Judicata and Collateral Estoppel Grounds
Count XIII is Dismissed Under Res Judicata
543
Count XIII is Dismissed through Collateral Estoppel
546
The Derivative Defendants' Motion to Dismiss the § 10b, § 20A, § 20(a), and Common Law Claims Is Not Reached
V.
THE MOTION TO DISMISS THE ERISA COMPLAINT IS GRANTED
547
547
The Plan
549
Summary of the ERISA Complaint
551
The Counts
551
Bear Stearns Stock was an Imprudent Investment
555
Notice of Excessive Risk
555
Concealment of Risk
561
Failure to Provide Complete and Accurate Information
562
Conflicts of Interest
563
Causation
564
The Applicable Standard
564
The ERISA Complaint Fails to State a Prudence Claim in Count I
The Plan Agreement Does Not Establish a Duty to Divest the Plan of Bear Stearns Stock
The ESOP Committee Does Not Have the Fiduciary Duty to Diversify or Divest Plan Investments
Bear Stearns is Not a Fiduciary of the Plan
567
Bear Stearns' Ability to Make Contributions to the Plan in Stock or Cash Does Not Establish a Duty of Prudence
Bear Stearns is Not Liable as an ERISA Fiduciary Through the Fiduciary Duties of its Employees
Bear Stearns Had No Discretion and Duty to Divest the ESOP of Bear Stearns Stock
Defendants Had No Duty to Disclose and No Liability forMisleading Statements
Defendants Had No Duty to Disclose Bear Stearns'Financial Condition
575
Defendants Were Not Acting as Plan Fiduciaries When They Allegedly Made Affirmative Misrepresentations
There Is No Liability for Defendants' Duty to Monitor and No Co–Fiduciary Liability
VI.
LEAD PLAINTIFF'S MOTIONS TO MODIFY THE STAY AND STRIKE EXTRANEOUS DOCUMENTS ARE DENIED
Lead Plaintiff's Motion to Modify the Stay of Discovery is Denied as Moot
Lead Plaintiff's Motion to Strike Extraneous Documents is Denied
581
VII.
584 By Order dated August 18, 2008, the MDL Panel assigned a number of actions filed in United States District Courts for the Southern and Eastern Districts of New York to this Court. An Order dated January 6, 2009 consolidated the actions, appointed lead counsel, and scheduled the filing of consolidated complaints in the actions captioned In re Bear Stearns Companies, Inc. Securities, Derivative and ERISA Litigation.
These actions arose out of the March 2008 collapse of Bear Stearns, a well-regarded investment bank founded in 1923. This was an early and major event in the turmoil that has affected the financial markets and the national and world economies.
Motions to dismiss pursuant to Federal Rules of Civil Procedure 9(b) and 12(b)(6) have been made by the Defendants with respect to each of the three consolidated complaints. The motions to dismiss the Securities Complaint are denied, and the motions to dismiss the Derivative Complaint and the ERISA Complaint are granted. The Lead Securities Plaintiff's motions to modify the PSLRA stay and to strike certain documents are denied.
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