IN RE THORNBURG MORTG., INC. SECURITIES LITIGATION, No. CIV 07-0815 JB/WDS.

• Court: United States District Courts. 10th Circuit. District of New Mexico
• Citation: 695 F. Supp.2d 1165
• Docket Number: No. CIV 07-0815 JB/WDS.
• Parties: In re THORNBURG MORTGAGE, INC. SECURITIES LITIGATION.
• Decision Date: 27 January 2010

695 F. Supp.2d 1165

In re THORNBURG MORTGAGE, INC. SECURITIES LITIGATION.

No. CIV 07-0815 JB/WDS.

United States District Court, D. New Mexico.

January 27, 2010.

695 F. Supp.2d 1170

Frederick S. Fox, Aviah Cohen Pierson, Kaplan Fox & Kilsheimer, Nancy Kaboolian, Abbey Spanier Rodd Abrams & Paradis, LLP, Curtis V. Trinko, Law Offices of Curtis V. Trinko, LLP, Fred T. Isquith,

695 F. Supp.2d 1171

Rachel S. Poplock, Martin E. Restituyo, Gregory Nespole, Wolf Haldenstein Adler Freeman & Herz, LLP, New York, NY, and Richard A. Lockridge, Nathan D. Prosser, Karen H. Riebel, Lockridge Gindal Nauen & Holstein, Minneapolis, MN, and Evan J. Smith, Brodsky & Smith, L.L.C., Mineola, NY, and David R. Scott, Scott & Scott, LLC, Colchester, CT, and Arthur Shingler, III, Scott & Scott, LLP, Francis M. Gregorek, Rachele R. Rickert, Patrick Moran, Betsy C. Manifold, Wolf Haldenstein Adler Freeman & Herz, LLP, San Diego, CA, and Charlotte Itoh, Cody Kelley, Kelley Law Offices, Shane C. Youtz, Turner W. Branch, Branch Law Firm, Albuquerque, NM, and Andrew Zivitz, Benjamin Sweet, Michelle Newcomer, Richard Russo, Jr., Sean M. Handler, Stewart L. Berman, D. Seamus Kaskela, Barroway Topaz Kessler Meltzer & Check, LLP, Radnor, PA, for Plaintiffs

Amy L. Neuhardt, Boies, Schiller & Flexner, LLP, Washington, DC, and Donald L. Flexner, Philip C. Korologos, Boies, Schiller & Flexner, LLP, New York, NY, for Defendants Garrett Thornburg, Anne-Drue M. Anderson, David A. Ater, Joseph H. Badal, Eliot R. Cutler, Ike Kalangis, Francis I. Mullin, III, Stuart C. Sherman, and Paul G. Decoff.

Frank T. Herdman, Rubin Katz Law Firm, P.C., David F. Cunningham, Thompson, Hickey, Cunningham, Clow & April, P.A., Santa Fe, NM, and William H. Forman, Scheper Kim & Overland, LLP, Los Angeles, CA, for Defendants Thornburg Mortgage, Inc., Garrett Thornburg, Larry A. Goldstone, Clarence G. Simmons, Anne-Drue M. Anderson, David A. Ater, Joseph H. Badal, Eliot R. Cutler, Michael B. Jeffers, Ike Kalangis, Owen M. Lopez, Francis I. Mullin, III, and Stuart C. Sherman.

Clinton W. Marrs, Tax, Estate & Business Law, N.A., LLC, Albuquerque, NM, for Defendants Larry A. Goldstone and Clarence G. Simmons.

Robert Badal, WilmerHale, Los Angeles, CA, for Defendants Thornburg Mortgage, Inc., Larry A. Goldstone, Clarence G. Simmons, Michael B. Jeffers, and Owen M. Lopez.

Joel Sher, Shapiro Sher Guinot & Sandler, Baltimore, MD, and Mary R. Jenke, Walsh Anderson Brown Aldridge & Gallegos, Albuquerque, NM, for Thornburg Mortgage, Inc.

Clifford K. Atkinson, John Thal, Atkinson & Thal, P.C., Albuquerque, NM, for Defendants AG Edwards & Sons, Inc., BB & T Capital Markets, UBS Securities, Citigroup Global Markets Inc., Friedman, Billings, Ramsey & Co., Oppenheimer & Company, Inc., RBC Dain Rauscher Corp., Stifel, Nicolaus & Company, Inc., and Bear Sterns & Co.

Jonathan C. Dickey, Gibson, Dunn & Crutcher, LLP, New York, NY, and Dean J. Kitchens, Lindsay R. Pennington, Gibson, Dunn & Crutcher, LLP, Los Angeles, CA, for Defendants AG Edwards & Sons, Inc., BB & T Capital Markets, Citigroup Global Markets Inc., Oppenheimer & Company, Inc., RBC Dain Rauscher Corp., and Stifel, Nicolaus & Company, Inc.

David Bohan, David Stagman, Katten Muchin Rosenman, LLP, Chicago, IL, for Defendants UBS Securities and Bear Sterns & Co.

William Pittard, Williams & Connolly, LLP, Washington, D.C., for Defendant Friedman, Billings, Ramsey & Co.

AMENDED MEMORANDUM OPINION AND ORDER¹

JAMES O. BROWNING, District Judge.

THIS MATTER comes before the Court on the Motion to Dismiss Consolidated

695 F. Supp.2d 1172

Amended Complaint by Defendants Thornburg Mortgage, Inc., Garrett Thornburg, Larry A. Goldstone, Joseph H. Badal, Paul G. Decoff, Clarence D. Simmons, Ann-Drue M. Anderson, David A. Ater, Eliot R. Cutler, Ike Kalangis, Owen M. Lopez, Francis I. Mullin, Jr., and Stuart C. Sherman, filed September 22, 2008 (Doc. 126). The Court held a hearing on April 22, 2009. The primary issues are: (i) whether the Plaintiffs sufficiently allege facts giving rise to the strong inference of scienter necessary to support liability under the Securities Exchange Act of 1934 ("Exchange Act"), 15 U.S.C. §§ 78a-78oo; (ii) whether the Plaintiffs adequately allege any false or misleading statements of fact to support liability under the Exchange Act; (iii) whether any of the Defendants are subject to control-person liability under Section 20(a) of the Exchange Act, 15 U.S.C. § 78t(a); (iv) whether, under the facts alleged, Paul G. Decoff, Defendant Thornburg Mortgage, Inc.'s ("TMI's") Senior Executive Vice President and Chief Lending Officer, and/or Defendant Clarence D. Simmons, TMI's Senior Executive Vice President and Chief Financial Officer, are proper parties defendant to the Plaintiffs' claim under Section 11 of the Securities Act of 1933 ("Securities Act"), 15 U.S.C. § 77k; (v) whether, under the facts alleged, any of the Defendants are proper parties defendant to the Plaintiffs' claim under Section 12(a)(2) of the Securities Act, 15 U.S.C. § 77l (a)(2); and (vi) whether the Plaintiffs properly allege controlperson liability against any Defendant under Section 15 of the Securities Act, 15 U.S.C. § 77o. Because TMI is in the midst of a pending bankruptcy proceeding, the Court will reserve judgment as to the claims against TMI and the claims that are dependent upon TMI's liability. Otherwise, the motion is granted in part and denied in part. The Court dismisses the Plaintiffs' claims based on the Securities Act of 1933 against all of the Defendants. The Court also dismisses the Plaintiffs' Section 10(b) claims against Defendants Garrett Thornburg, Joseph H. Badal, Decoff, Simmons, Ann-Drue M. Anderson, David A. Ater, Eliot R. Cutler, Ike Kalangis, Owen M. Lopez, Francis I. Mullin, Jr.,² and Stuart C. Sherman. The Court dismisses the Plaintiffs' Section 20(a) claims against Thornburg, Badal, Anderson, Ater, Cutler, Kalangis, Lopez, Mullin, and Sherman. The Court reserves ruling on this motion as to the Plaintiffs' Section 10(b) claim against TMI and the Plaintiffs' Section 20(a) claims against Goldstone, Simmons, and Decoff

FACTUAL BACKGROUND

This case arises from what the Plaintiffs refer to as "a campaign of selective disclosure characterized by half-truths, outright falsehoods and strategic omissions." Plaintiffs' Opposition to Defendants' Motion to Dismiss Consolidated Amended Complaint Filed by Thornburg Mortgage, Inc., Garrett Thornburg, Larry A. Goldstone, Joseph H. Badal, Paul G. Decoff, Clarence D. Simmons, Anne-Drue M.

695 F. Supp.2d 1173

Anderson, David A. Ater, Eliot R. Cutler, Ike Kalangus, Owen M. Lopez, Francis I. Mullin, Jr., and Stuart C. Sherman at 3, filed December 22, 2008 (Docs. 154, 155, 156, 157)("1934 Act Response"). The Plaintiffs' Consolidated Class Action Complaint, filed May 27, 2008 (Doc. 68)("CCAC"), describes a series of public statements and filings dating back to early 2006 that the Plaintiffs assert were fraudulent material misrepresentations. The Court draws the following statement of facts from the well-pleaded, non-conclusory allegations of the CCAC, as the Court must when analyzing the propriety of a motion to dismiss under rule 12(b)(6) of the Federal Rules of Civil Procedure

1. The Parties.

This consolidated action is brought by Lead Plaintiffs (i) W. Allen Gage, individually and on behalf of J. David Wrather; (ii) Harry Rhodes; (iii) FFF Investments, LLC; (iv) Robert Ippolito, individually and as Trustee for the Family Limited Partnership Trust; (v) Nicholas F. Aldrich, Sr., individually and on behalf of the Aldrich Family, as well as by the Plaintiffs (vi) Betty L. Manning; and (vii) John Learch (collectively "the Plaintiffs"). The Plaintiffs all purchased shares of TMI stock during the Class Period³ at prices that they allege were artificially inflated. They assert that they were damaged as a result of these inflated-price purchases, now that the truth has been revealed. See CCAC ¶ 53, at 15-16. Manning acquired 550 shares of TMI common stock during the May 2007 Offering. See id. ¶ 54, at 16. She bought them on May 4, 2007 and paid $27.05 per share. See id. Learch, as trustee for the Learch trust, acquired 400 shares of 7.5% Series E Cumulative Convertible Redeemable Preferred Stock in the June 2007 Offering. See id. ¶ 55, at 16. He bought his shares on June 19, 2007 and paid $25.00 per share. See id.

The sole institutional defendant involved in this motion is TMI. Founded in 1993, TMI is a publicly traded residential-mortgage lender that focuses primarily on "jumbo" and "super-jumbo" segment, i.e., loans totaling over $417,000.00, of the adjustable-rate mortgage ("ARM") market.⁴ See CCAC ¶ 5, at 2. In essence, TMI generates business by loaning and borrowing money, and charging a higher interest rate on the money that it loans to others than its sources charge it on the money that it borrows. See id. ¶ 5, at 2-3. As the Plaintiffs put it, "TMI generates income from the small, net spread between the interest income it earns on its assets and the cost of its borrowings." Id.

TMI was formed under the laws of the State of Maryland, and has its principal place of business in Santa Fe, New Mexico. See id. ¶ 57, at 16. At all relevant times, TMI's securities have been traded on the New York Stock Exchange ("NYSE") under the symbol "TMA." Id. For federal income tax purposes, TMI is classified as a Real Estate Investment Trust, which means that, so long as TMI meets certain requirements, it is exempt from federal and state income tax at the corporate level. The requirements to maintain this tax exemption are that TMI must: (i) distribute at least eighty-five percent of its taxable income by the end of each calendar year; (ii) declare dividends of at least ninety percent of its income by the time it files its tax returns for such year; and (iii) pay such dividends no later

695 F. Supp.2d 1174

than the date of the first regular dividend payment after such...