In Re Enron Corporation Securities, MDL-144 6

CourtUnited States District Courts. 5th Circuit. United States District Courts. 5th Circuit. Southern District of Texas
Writing for the CourtMELINDA HARMON
PartiesIn Re Enron Corporation Securities, Derivative & "ERISA" Litigation MARK NEWBY, et al., Plaintiffs v. ENRON CORPORATION, et al., Defendants WESTBORO PROPERTIES, LLC, et al., Plaintiffs, v. CREDIT SUISSE FIRST BOSTON, INC., et al., Defendants.
Decision Date06 January 2011
Docket NumberMDL-144 6,CIVIL ACTION NO. H-03-1276,CIVIL ACTION NO. H-01-3624

In Re Enron Corporation Securities, Derivative & "ERISA" Litigation
MARK NEWBY, et al., Plaintiffs
v.
ENRON CORPORATION, et al., Defendants
WESTBORO PROPERTIES, LLC, et al., Plaintiffs,
v.
CREDIT SUISSE FIRST BOSTON, INC., et al., Defendants.

MDL-144 6
CIVIL ACTION NO.
H-01-3624
CIVIL ACTION NO.
H-03-1276

UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF TEXAS
HOUSTON DIVISION

Date: January 6, 2011


OPINION AND ORDER OF DISMISSAL

The above referenced action, H-03-1276, alleges that a Defendant Deutsche Bank Securities, Inc. ("Deutsche Bank" or "the bank")1 fraudulently induced Plaintiffs Westboro Properties LLC

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and Stonehurst Capital, Inc. in 1999 and 2000 to purchase beneficial ownership interests ("Osprey Certificates") in the Osprey Trust, a special purpose entity ("SPE") allegedly secured by worthless or nearly worthless assets purchased from Enron Corporation purportedly through "arms-length" transactions and dumped into Osprey, as part of a larger conspiracy with Enron to manipulate Enron's financial statements and defraud investors. Pending before the Court in H-03-1276 is Deutsche Bank's motion to dismiss (instrument #39) Plaintiffs' Second Amended Complaint (#33), pursuant to Federal Rules of Civil Procedure 12(b)(6) and 9(b). All other Defendants have settled with Plaintiffs.

Initially Plaintiffs argue that Texas law applies here, because (1) Texas has the most significant relationship with Defendants allegedly wrongful conduct and is the reason why these cases were referred to the Southern District of Texas; (2) an out-of-state plaintiff may sue under the Texas Securities Act ("TSA") if the complained-of conduct took place in Texas; and (3) Texas has a strong public policy interest in enforcing its securities laws. Given that Enron Corp, was based in Houston, Texas and was inextricably intertwined in each of the transactions at issue here, where many of the important documents were drafted and decisions made, the nucleus of the litigation is in this district.

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Plaintiffs seek equitable and/or monetary relief for violations of Sections 581-33A and 581-33F of the TSA, Tex. Rev. Civ. Stat. Ann. § 581-1 et seq.; common-law aiding and abetting, fraud, and civil conspiracy; and Sections 12(a)(2) and 15 of the Securities Act of 1933, 15 U.S.C. §§ 77l(a)(2) and 77o. Plaintiffs also request attorneys' fees and exemplary damages. They claim they are entitled to unlimited exemplary damages under the Texas Civil Practice & Remedies Code § 41.008(c) because each Defendant violated and/or conspired with Enron to violate Texas Penal Code §§ 32.43 (commercial bribery) and/or 32.47 (fraudulent concealment of a writing).

Alternatively, Plaintiffs assert their claims under New York common law.

After careful review of the parties' submissions and the applicable law, for the reasons stated below the Court concludes that Plaintiffs have failed to state a claim against Deutsche Bank under Federal Rules of Civil Procedure 9(b) and 12(b) and that this action should accordingly be dismissed.

Standards of Review

When a district court reviews a motion to dismiss pursuant to Fed. R. Civ. P. 12(b)(6), it must construe the complaint in favor of the plaintiff and take all well-pleaded facts as true. Kane Enterprises v. MacGregor (US), Inc., 322 F.3d 371, 374 (5th Cir. 2003), citing Campbell v. Wells Fargo Bank, 781 F.2d 440, 442 (5th Cir. 1986).

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"While a complaint attacked by a Rule 12(b)(6) motion to dismiss does not need detailed factual allegations,... a plaintiff's obligation to provide the 'grounds' of his 'entitle[ment] to relief' requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do...." Bell Atlantic Corp. v. Twombly, 127 S. Ct. 1955, 1964-65 (2007)(citations omitted). "Factual allegations must be enough to raise a right to relief above the speculative level." Id. at 1965, citing 5 C. Wright & A. Miller, Federal Practice and Procedure § 1216, pp. 235-236 (3d ed. 2004)("[T]he pleading must contain something more... than... a statement of facts that merely creates a suspicion [of] a legally cognizable right of action"). "Twombly jettisoned the minimum notice pleading requirement of Conley v. Gibson, 355 U.S. 41... (1957)["a complaint should not be dismissed for failure to state a claim unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief"], and instead required that a complaint allege enough facts to state a claim that is plausible on its face." St. Germain v. Howard, 556 F.3d 261, 263 n.2 (5th Cir. 2009), citing In re Katrina Canal Breaches Litig., 495 F.3d 191, 205 (5th Cir. 2007)("To survive a Rule 12(b)(6) motion to dismiss, the plaintiff must plead 'enough facts to state a claim to relief that is plausible on its face.'"), citing Twombly, 127 S. Ct. at 1974). "'A claim has facial plausibility when the pleaded factual content allows the court to draw the reasonable inference that the

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defendant is liable for the misconduct alleged.'" Montoya v. FedEx Ground Package System, Inc., _ F.3d _, No. Civ. A. L-08-39, 2010 WL 3081504, * 3 (5th Cir. Aug. 9, 2010), quoting Ashcroft v. Iqbal, 129 S. Ct. 1937, 1940 (2009). Dismissal is appropriate

when the plaintiff fails to allege "'enough facts to state a claim to relief that is plausible on its face'" and therefore fails to "'raise a right to relief above the speculative level.'" Montoya, 2010 WL 3081504 at * 3, quoting Twombly, 550 U.S. at 555, 570.

In Ashcroft v. Iqbal, 12 9 S. Ct. at 1940, the Supreme Court, applying the Twombly plausibility standard to a Bivens claim of unconstitutional discrimination and a defense of qualified immunity for government official, observed that two principles inform the Twombly opinion: (1) "the tenet that a court must accept as true all of the allegations contained in a complaint is inapplicable to legal conclusions."... Rule 8 "does not unlock the doors of discovery for a plaintiff armed with nothing more than conclusions."; and (2) "only a complaint that states a plausible claim for relief survives a motion to dismiss, " a determination involving "a context-specific task that requires the reviewing court to draw on its judicial experience and common sense."

Furthermore, the plaintiff must plead specific facts, not merely conclusory allegations, to avoid dismissal. Collins v. Morgan Stanley Dean Witter, 224 F.3d 496, 498 (5th Cir. 2000) "Dismissal is proper if the complaint lacks an allegation regarding a required element necessary to obtain relief...."

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Rios v. City of Del Rio, Texas, 444 F.3d 417, 421 (5th Cir. 2006), cert. denied, 549 U.S. 825 (2006).

In addition to the complaint, the court may review documents attached to the complaint and documents attached to the motion to dismiss to which the complaint refers and which are central to the plaintiff's claim(s). Collins, 224 F.3d at 498-99. If an exhibit attached to the complaint contradicts an allegation in the complaint the exhibit controls. United States ex rel. Riley v. St. Luke's Episcopal Hosp., 355 F.3d 370, 377 (5th Cir. 2004).

The court may also take notice of matters of public record when considering a Rule 12(b)(6) motion. Davis v. Bayless, 70 F.3d 367, 372 n.3 (5th Cir. 1995); Cinel v. Connick, 15 F.3d 1338, 1343 n.6 (5th Cir. 1994).

Fraud claims must also satisfy the heightened pleading standard set out in Federal Rule of Civil Procedure 9(b): "In allegations alleging fraud..., a party must state with particularity the circumstances constituting fraud or mistake. Malice, intent, knowledge, and other conditions of a person's mind may be alleged generally." A dismissal for failure to plead with particularity as required by this rule is treated the same as a Rule 12(b)(6) dismissal for failure to state a claim. Lovelace v. Software Spectrum, Inc., 78 F.3d 1015, 1017 (5th Cir. 1996). The Fifth Circuit interprets Rule 9(b) to require "specificity as to the statements (or omissions) considered to be fraudulent, the speaker, when and why the statements were made, and an explanation

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of why they were fraudulent." Plotkin v. IP Axess, Inc., 407 F.3d 690, 696 (5th Cir. 2005). In accord Lerner v. Fleet Bank, N.A., 459 F.3d 273, 290 (2d Cir. 2006).

The pleading standards of Twombly and Rule 9(b) apply to pleading a state law claim of conspiracy to commit fraud. U.S. ex rel. Grubbs v. Kanneganti, 565 F.3d 180, 193 (5th Cir. 2009)("a plaintiff alleging a conspiracy to commit fraud must 'plead with particularity the conspiracy as well as the overt acts... taken in furtherance of the conspiracy'"), quoting FC Inv. Group LLC v. IFX Markets, Ltd., 529 F.3d 1087, 1097 (D.C. Cir. 2008). In accord Lerner v. Fleet Bank, N.A., 459 F.3d at 290-92.

If Plaintiffs fail to state a claim for fraud underlying their civil conspiracy claim, the civil conspiracy claim must be dismissed, too. Allstate Ins. Co. v. Receivable Finance, Inc., 501 F.3d 398, 414 (5th Cir. 2007); American Tobacco Co., Inc. v. Grinnell, 951 S.W. 2d 420, 438 (Tex. 1997)("Allegations of conspiracy are not actionable absent an underlying [tort]"); Krames v. Bohannon Holman LLC, No. 3:06-CV-2370-0, 2009 WL 762205, *10 (N.D. Tex. Mar. 24, 2009). In accord Kottler v. Deutsche Bank AG, 607 F. Supp. 2d 447, 461 (S.D.N.Y. 2009)

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