In re National Century Financial Enterprises, Inc., 2:03-md-1565.

CourtUnited States District Courts. 6th Circuit. United States District Courts. 6th Circuit. Southern District of Ohio
Citation504 F.Supp.2d 287
Docket NumberNo. 2:03-md-1565.,2:03-md-1565.
PartiesIn re NATIONAL CENTURY FINANCIAL ENTERPRISES, INC., Investment Litigation.
Decision Date07 May 2007

Kathy D. Patrick, Jeffry J. Cotner, Scott Humphries, Gibbs & Bruns, LLP, Houston, TX, for City of Chandler Arizona et al.

David L. Elsberg, Miller & Wrubel P.C., Alexander C. Barnard, Rex Lee, Kevin Janus, Quinn Emanuel Urquhart Oliver & Hedges LLP, New York City, A. William Urquhart, Quinn Emanuel Urquhart Oliver & Hedges, Los Angeles, CA, for Ing Bank N.V.

George E. Ridge, Cooper Ridge & Lantinberg, Jacksonville, FL, Robert N. Kaplan, Kaplan Fox & Kilsheimer LLP; New York City, James Edward Arnold, Clark Perdue Arnold & Scott, Columbus, OH, Kenneth J. Vianale, Vianale & Vianale LLP, Boca Raton, FL, for Michael Mahoney, Louis Janssen, Larry R. White, John P. Houlihan.

Harold G. Levison, Kasowitz, Benson, Torres & Friedman LLP, New York City, Richard B. Harper, McCarter & English, Newark, NJ, for Metropolitan Life Insurance Company.

Steven E. Fineman, Hector D. Geribon, Lieff Cabraser Heimann And Bernstein LLP, New York City, for New York City Fire Department Pension Fund, New York City Police Pension Fund, New York City Employees' Retirement. System, Teachers' Retirement System for the City of New York.

Unencumbered Assets Trust and Erwin I. Katz, Ltd., Trustee, Pro se.

John Edward Haller, Katie L. Tournoux, Shumaker, Loop & Kendrick, LLP, Columbus, OH, Robert H.B. Cawood, Roy L. Mason, Mason, Cawood & Hobbs, P.A., Annapolis, MD, for Barbara Poulsen, Lance K. Poulsen, Flohaz Partners, L.L.C., Healthcare Capital LLC, Intercontinental Investment Associates, Kachina, Inc., South Atlantic Investments, L.L.C., Thor Capital Holdings, L.L.C. Thor Capital Holdings LLC, Kuld Corp. Scott Humphries, Gibbs & Burns LLP, Houston, TX, for State of Arizona, Crown Cork & Seal Company Inc.

R. Eric Bilik, C. Todd Willis, McGuire-Woods LLP, Jacksonville, FL, David M. Wells, for Suzanne K. Hosch, Cedric Johnson, Sam Romeo, Albert Marston.

Brian Edward Dickerson, Maguire & Schneider L.L.P., for E & D Investments, Elyse Ayers, Ayers LLC, Donald NMI Ayers.

Lynne M. Longtin, Robert Frederic Brown, Arthur Edmund Phelps, Jr., Rendigs Fry Kiely & Dennis LLP, Cincinnati, OH, Luan K. Phan, Paz & Phan LLP, Los Angeles, CA, for Mitchell Stein, TSI Technologies and Holdings LLC., Swabb Financial LLC.

William A. Escobar, John M. Callagy, Kelley Drye & Warren LLP, Douglas H. Flaum, Lara Turcik, Shazeb Lari, Israel David, Fried, Frank, Harris, Shriver & Jacobson LLP, New York City, William Chester Wilkinson, Thompson Hine LLP, Jessica L. Davis, Roetzel & Andress, Columbus, OH, for JP Morgan Chase & Co., JP Morgan Partners, LLC, JP Morgan Chase Bank, Beacon Group III-Focus Value Fund, L.P., Beacon Group, LLC, J.P. Morgan Chase Partners, L.P., JP Morgan Chase Bank, N.A.

Stanley H. Wakshlag, Kenny Nachwalter, PA, Brian Paul Miller, Akerman Senterfitt, Miami, FL, for John F. Andrews.

Roger Philip Sugarman, Kegler Brown Hill & Ritter Columbus, OH, for Shattan Group LLC.

Benjamin Scot Zacks, Zacks Law Group, Columbus, OH, for Cheyenne-Blaze LLC., Rebecca NMI Parrett, Rebecca S. Parrett.

Matthew B. Andelman, Craig D. Singer, Williams & Connolly, Washington, DC, for Joanne D. Purcell, Cary W. Purcell, Purcell & Scott Co. LPA, Scott & Purcell, C L.P.A.

Matthew L. Fornshell, Schottenstein Zox & Dunn, Columbus, OH, Kyle A. Lonergan, Barry Ostrager, Mary Kay Vyskocil, Simpson Thacher & Bartlett, LLP, New York City, for Eric R. Wilkinson, Thomas G. Mendell, Harold W. Pote.

Evan A. Davis, Cleary Gottlieb Steen & Hamilton LLP, New York City, for Deloitte & Touche, L.L.P.

McNamara and McNamara, L.L.P., Columbus, OH, for Deloitte & Touche, L.L.P.

Jason M. Koral, William H. O'Brien, William J. Schwartz, Cooley Godward Kronish, Mina Audrey Kim, Kronish Lieb Weiner & Hellman LLP, Robert Colby Allsbrook, King & Spalding LLP, Susan F. Dicicco, McKee Nelson LLP, New York City, Sherri Blank Lazear, Thomas Leslie Long, Baker & Hostetler, Columbus, OH, for Credit Suisse First Boston Corporation.

C. William Phillips, Covington & Burling LLP, New York City, James M. Garland, Gary Rubman, Covington & Burling, Washington, DC, for Bank One Capital Markets, Inc., Bank One National Association, Bank One, N.A.

OPINION AND ORDER ON CERTAIN MOTIONS TO DISMISS FILED BY THE OUTSIDE DIRECTORS

GRAHAM, District Judge.

This matter is before the Court on motions to dismiss filed by Harold W. Pote, Eric R. Wilkinson, and Thomas G. Mendell (the "Outside Directors"). Several investor plaintiffs have filed claims against the Outside Directors for their alleged roles in the collapse of National Century Financial Enterprises, Inc. The claims include ones under federal and state securities laws, as well as common law claims for breach of fiduciary duty, fraud, negligent misrepresentation, aiding and abetting, and conspiracy.

For the reasons set forth below, the motions are granted in part and denied in part.

I. BACKGROUND
A. Allegations

The underlying factual allegations regarding National Century's operations have been discussed in prior orders. See June 10, 2004, Feb. 27, 2006, and Oct. 3, 2006 Orders. At issue here are the allegations against National Century's former outside directors, Harold W. Pote, Eric R. Wilkinson, and Thomas G. Mendell. A discussion of those allegations must start with an introduction of the companies the Outside Directors allegedly had ties to: the Beacon Group, LLC (the "Beacon Group"); the Beacon Group HI — Focus Value Fund, L.P. (the "Focus Value Fund"); JPMorgan Chase & Co., JPMorgan Chase Bank, and JPMorgan Partners, LLC (collectively "JPMorgan").

Plaintiffs allege that the Beacon Group, an investment banking firm from New York, and its subsidiary, the Focus Value Fund, acquired a 20% interest in National Century in 1998. Under the terms of the equity investment, the Beacon Group was entitled to appoint: (1) two of six seats on National Century's board of directors; (2) two of three seats on the board of directors of NPF VI, a wholly-owned subsidiary of National Century; (3) two of three seats on the board of directors of NPF XII, a wholly-owned subsidiary of National Century; (4) and the chairman position of National Century's audit committee.

At the time of the investment, Pote, Wilkinson, and Mendell served as officers of the Beacon Group. Plaintiffs allege that Pote and Wilkinson were appointed as the initial outside directors1 of National Century, NPF VI, and NPF XII. Mendell later replaced Wilkinson in those positions. Plaintiffs further allege that Pote served as chairman of National Century's audit committee.

According to Plaintiffs, Chase Manhattan Corporation (a predecessor of JPMorgan) acquired the Beacon Group in July 2000. Pote, Wilkinson, and Mendell each became officers of JPMorgan. Pote became Executive Vice President for Regional Banking at JPMorgan Chase Bank, while Wilkinson and Mendell became managing directors of JPMorgan Partners, LLC.

As outlined in previous orders, National Century allegedly engaged in a massive scheme to defraud investors. Plaintiffs allege that the Outside Directors knew of the fraud at National Century and helped conceal it. Plaintiffs further allege that the Outside Directors are responsible for misrepresentations contained in the offering materials that National Century issued to induce investors to purchase notes in its note programs, NPF VI and NPF XII. Plaintiffs also allege the Outside Directors knew that National Century was violating the Master Indentures governing the note programs but failed to act to protect the interests of investors.

B. Plaintiffs and Their Claims

Many of the plaintiffs in this multidistrict litigation brought suit against the Outside Directors. Several plaintiffs, including the Arizona Noteholders, the Unencumbered Assets Trust, and the New York City Pension Funds have settled their claims with the Outside Directors. Still remaining, and at issue in this opinion, are claims brought against the Outside Directors by Metropolitan Life Insurance Company ("MetLife"), Lloyds TSB Bank PLC, ING Bank N.V., and Pharos Capital Partners, L.P. The claims and cross-claims asserted against the Outside Directors by National Century's founders will be addressed in a separate opinion.

1. MetLife

MetLife is a New York corporation with its principal place of business in New York. Between June 2001 and July 2002, MetLife invested a total of $102.6 million in NPF XII notes. In August 2002, Met-Life's affiliate, Metropolitan Insurance and Annuity Company, invested $18.46 million in NPF XII notes.

MetLife originally filed suit in New Jersey federal court. MetLife asserts statutory claims against the Outside Directors under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, 15 U.S.C. §§ 78j(b) & 78t(a), and under the Blue Sky laws of Ohio and New Jersey, Ohio Rev. Code §§ 1707.41 & 1707.43, N.J. Stat. Ann. § 49:3-71. MetLife additionally brings common law claims for breach of fiduciary duty, fraud, negligent misrepresentation, and negligence.

2. Lloyds

Lloyds is a British public limited company with its principal place of business in London, England. Lloyds invested a total of $128 million in NPF XII notes in March 2001 and November 2002.

Lloyds originally filed suit in New Jersey federal court. Lloyds asserts claims against the Outside Directors under Section 20(a) of the Securities Exchange Act and under Ohio's and New Jersey's Blue Sky laws. Lloyds also asserts a common law claim for breach of, fiduciary duty.

3. ING Bank

ING Bank is a banking association organized under the laws of the Netherlands. ING invested $500 million in NPF VI notes on June 20, 2001.

ING originally brought suit in New York federal court. ING asserts claims against the Outside Directors for breach of fiduciary...

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