Vallejo Sanitation & Flood Control Dist. v. Fuld (In re Lehman Bros. Sec. & Erisa Litig.), 09 MD 2017(LAK).
| Court | United States District Courts. 2nd Circuit. United States District Courts. 2nd Circuit. Southern District of New York |
| Citation | 903 F.Supp.2d 152 |
| Docket Number | No. 09 MD 2017(LAK).,09 MD 2017(LAK). |
| Parties | In re LEHMAN BROTHERS SECURITIES AND ERISA LITIGATION. This Document Applies to: Vallejo Sanitation and Flood Control District v. Fuld, et al., 09 Civ. 6040(LAK) Monterey County Treasurer, on Behalf of the Monterey County Investment Pool v. Fuld, et al., 09 Civ.1944(LAK) Contra Costa Water District v. Fuld, 09 Civ. 6652(LAK) City of Burbank v. Fuld, 09 Civ. 3475(LAK) City of San Buenaventura v. Fuld, 09 Civ. 3476(LAK) City of Auburn v. Fuld, 09 Civ. 3474(LAK) The San Mateo County Investment Pool v. Fuld, 09 Civ. 1239(LAK) Zenith Insurance Co. v. Fuld, 09 Civ. 1238(LAK). |
| Decision Date | 15 October 2012 |
903 F.Supp.2d 152
In re LEHMAN BROTHERS SECURITIES AND ERISA LITIGATION.
This Document Applies to:
Vallejo Sanitation and Flood Control District v. Fuld, et al., 09 Civ. 6040(LAK)
Monterey County Treasurer, on Behalf of the Monterey County Investment Pool v. Fuld, et al., 09 Civ.1944(LAK)
Contra Costa Water District v. Fuld, 09 Civ. 6652(LAK)
City of Burbank v. Fuld, 09 Civ. 3475(LAK)
City of San Buenaventura v. Fuld, 09 Civ. 3476(LAK)
City of Auburn v. Fuld, 09 Civ. 3474(LAK)
The San Mateo County Investment Pool v. Fuld, 09 Civ. 1239(LAK)
Zenith Insurance Co. v. Fuld, 09 Civ. 1238(LAK).
No. 09 MD 2017(LAK).
United States District Court,
S.D. New York.
Oct. 15, 2012.
[903 F.Supp.2d 161]
Joseph W. Cotchett, Jordanna G. Thigpen, Mark C. Molumphy,
[903 F.Supp.2d 162]
Nanci E. Nishimura, Imiatz A. Siddiqui, Cotchett, Pitre & McCarthy, for Plaintiffs.
Martin J. Auerbach, Law Offices of Martin J. Auerbach, Esq., James G. Kreissman, for Defendant Ian Lowitt.
Mitchell A. Lowenthal, Cleary Gottlieb Steen & Hamilton LLP, for Underwriter Defendants Except HVB Capital Markets, Inc. and M.R. Beal & Co.
Mark P. Ressler, Kasowitz, Benson, Torres & Friedman, LLP, for Defendant HVB Capital Markets, Inc.
Simpson Thatcher & Bartlett LLP, for Defendants Richard S. Fuld, Jr., Joseph M. Gregory, Erin Callan, Ian Lowitt, John F. Akers, Roger S. Berlind, Marsha Johnson Evans, Roland A. Hernandez, and Henry Kaufman.
Andrew J. Levander, Kathleen N. Massey, Adam J. Wasserman, Dechert LLP, for Defendants John F. Akers, Roger S. Berlind, Marsha Johnson Evans, Roland A. Hernandez, and Henry Kaufman.
Jamie L. Wine, Latham & Watkins LLP, for Defendant Ernst & Young LLP.
Joseph A. Mendola, M.R. Beal & Company, for Defendant M.R. Beal & Co.
Guy Petrillo, Joshua Klein, Petrillo Klein & Boxer LLP, for Defendant Christopher M. O'Meara.
Joshua J. Pollack, Proskauer Rose LLP, Alfred U. Pavlis, Finn Dixon & Herling LLP, for Defendant Erin Callan.
LEWIS A. KAPLAN, District Judge.
+-----------------+
¦Table of Contents¦
+-----------------¦
¦ ¦
+-----------------+
+----------------------------------+
¦Background ¦164¦
+------------------------------+---¦
¦ ¦ ¦
+----------------------------------+
+------------------------------------+
¦ ¦I.¦Parties ¦164¦
+------------------------------------+
+------------------------------------------+
¦ ¦ ¦A.¦Plaintiffs ¦164 ¦
+--+--+--+----------------------------+----¦
¦ ¦ ¦B.¦Defendants ¦164 ¦
+------------------------------------------+
+--------------------------------------------------------------------+
¦ ¦ ¦ ¦ ¦
+---+----+----------------------------------------------------+------¦
¦ ¦II. ¦The CFAC ¦166 ¦
+---+----+----------------------------------------------------+------¦
¦ ¦ ¦ ¦ ¦
+---+----+----------------------------------------------------+------¦
¦ ¦III.¦Motions to Dismiss ¦166 ¦
+--------------------------------------------------------------------+
+----------------------------------+
¦ ¦ ¦
+------------------------------+---¦
¦Discussion ¦167¦
+----------------------------------+
+----------------------------------------------------+
¦ ¦ ¦ ¦ ¦
+---+---+---------------------------------------+----¦
¦ ¦I. ¦Legal Standard ¦167 ¦
+---+---+---------------------------------------+----¦
¦ ¦ ¦ ¦ ¦
+---+---+---------------------------------------+----¦
¦ ¦II.¦Securities Act Claims ¦170 ¦
+----------------------------------------------------+
+-----------------------------------------------------------------------+
¦ ¦ ¦A. ¦Timeliness ¦170 ¦
+---+----+----+--------------------------------------------------+------¦
¦ ¦ ¦B. ¦The Sufficiency of the Remaining Section 11 Claims¦172 ¦
+-----------------------------------------------------------------------+
+------------------------------------------------------+
¦ ¦ ¦ ¦1.¦Legal Standards ¦172 ¦
+---+---+---+--+----------------------------------+----¦
¦ ¦ ¦ ¦2.¦The Present Case ¦172 ¦
+------------------------------------------------------+
+---------------------------------------------------------------------------+
¦ ¦ ¦ ¦ ¦a. ¦Alleged Misstatements and Omissions Dismissed¦172 ¦
¦ ¦ ¦ ¦ ¦ ¦in the E/D Class Action ¦ ¦
+----+----+----+---+---+---------------------------------------------+------¦
¦ ¦ ¦ ¦ ¦ ¦Viability in this Case of Alleged ¦ ¦
¦ ¦ ¦ ¦ ¦b. ¦Misstatements and Omissions Upheld as ¦177 ¦
¦ ¦ ¦ ¦ ¦ ¦Sufficient in the E/D Class Action ¦ ¦
+----+----+----+---+---+---------------------------------------------+------¦
¦ ¦ ¦ ¦ ¦c. ¦Section 11 Claims against Callan ¦180 ¦
+----+----+----+---+---+---------------------------------------------+------¦
¦ ¦ ¦ ¦ ¦d. ¦Section 11 Claims against Ernst & Young ¦180 ¦
+---------------------------------------------------------------------------+
+------------------------------------------+
¦ ¦ ¦C.¦Section 15 Claims ¦183 ¦
+------------------------------------------+
+--------------------------------------------------------------------+
¦ ¦ ¦ ¦ ¦
+---+----+----------------------------------------------------+------¦
¦ ¦III.¦Exchange Act Claims ¦183 ¦
+--------------------------------------------------------------------+
+----------------------------------------------------------+
¦ ¦ ¦A. ¦10b–5 Claim as to the Officer Defendants¦183 ¦
+----------------------------------------------------------+
+----------------------------------------------------------------------------+
¦ ¦ ¦ ¦1. ¦Existence of Materially False and Misleading ¦183 ¦
¦ ¦ ¦ ¦ ¦Statements or Omissions ¦ ¦
+----+----+----+---+--------------------------------------------------+------¦
¦ ¦ ¦ ¦2. ¦Scienter ¦184 ¦
+----------------------------------------------------------------------------+
+---------------------------------------------------------------------------+
¦ ¦ ¦ ¦ ¦a. ¦Motive and Opportunity ¦184 ¦
+----+----+----+---+---+---------------------------------------------+------¦
¦ ¦ ¦ ¦ ¦b. ¦Circumstantial Evidence of Conscious ¦184 ¦
¦ ¦ ¦ ¦ ¦ ¦Misbehavior or Recklessness ¦ ¦
+---------------------------------------------------------------------------+
+------------------------------------------+
¦ ¦ ¦B.¦Section 20(a) Claims ¦189 ¦
+------------------------------------------+
+----------------------------------------------------+
¦ ¦ ¦ ¦ ¦
+---+---+---------------------------------------+----¦
¦ ¦IV.¦Common Law Claims ¦189 ¦
+----------------------------------------------------+
+------------------------------------------+
¦ ¦ ¦A.¦Governing Law ¦189 ¦
+--+--+--+----------------------------+----¦
¦ ¦ ¦B.¦Fraud ¦190 ¦
+--+--+--+----------------------------+----¦
¦ ¦ ¦C.¦Aiding and Abetting Fraud ¦191 ¦
+--+--+--+----------------------------+----¦
¦ ¦ ¦D.¦Negligent Misrepresentation ¦192 ¦
+------------------------------------------+
+----------------------------------------------------+
¦ ¦ ¦ ¦ ¦
+---+---+---------------------------------------+----¦
¦ ¦V. ¦The Fraudulent Conveyance Claim ¦192 ¦
+---+---+---------------------------------------+----¦
¦ ¦ ¦ ¦ ¦
+---+---+---------------------------------------+----¦
¦ ¦VI.¦California Corporations Code Claims ¦193 ¦
+----------------------------------------------------+
+------------------------------------------+
¦ ¦ ¦A.¦Sections 25400 and 25500 ¦193 ¦
+------------------------------------------+
+-------------------------------------------------------+
¦ ¦ ¦ ¦1.¦Type of Securities Bought and Sold¦194 ¦
+---+---+---+--+----------------------------------+-----¦
¦ ¦ ¦ ¦2.¦Willful Intent ¦194 ¦
+-------------------------------------------------------+
+-------------------------------------------------------------+
¦ ¦ ¦B. ¦Sections 25504 and 25504.1 ¦195 ¦
+---+----+---+------------------------------------------+-----¦
¦ ¦ ¦D. ¦Section 25504.2 Claims as to Ernst & Young¦197 ¦
+-------------------------------------------------------------+
+----------------------------------+
¦ ¦ ¦
+------------------------------+---¦
¦Conclusion ¦197¦
+----------------------------------+
[903 F.Supp.2d 163]
The September 2008 collapse of Lehman Brothers Holdings Inc. (“Lehman”) spawned litigation across the country. The Lehman bankruptcy is pending in the bankruptcy court for this district. All of the securities and most of the other cases brought in or removed to federal courts have been consolidated before this Court for pretrial purposes. The cases that are the subject of this opinion are eight consolidated securities actions brought by seven California public entities and a California-based insurance company. They assert claims against Lehman's former officers, directors and auditors under the Securities Act of 1933 (the “Securities Act”), the Securities Exchange Act of 1934 (the “Exchange Act”), and California state law, and they are before me on motions to dismiss. Three circumstances are pivotal to these motions.
First, the bankruptcy court in the Lehman bankruptcy appointed an examiner to inquire into and report, broadly speaking, as to the circumstances that culminated in Lehman's failure. In 2010, the examiner rendered comprehensive a 2,200 page, nine-volume report.1
Second, the plaintiffs in a consolidated class action brought on behalf of purchasers of Lehman debt and equity securities, In re Lehman Brothers Equity/Debt Securities Litigation (“ E/D Class Action ”), amended their complaint to take advantage of the wealth of factual material in the Examiner's Report, which resulted in these plaintiffs filing an extraordinarily detailed third amended complaint (the “TAC”). In due course, the Court granted in part and denied in part extensive motions to dismiss.2
Finally, the consolidated first amended complaint in these eight actions (the “CFAC”), like the TAC in the E/D Class Action, rests very heavily on allegations drawn from the Examiner's Report, asserts
[903 F.Supp.2d 164]
claims under the Securities and Exchange Acts, and therefore is quite similar in many respects to the TAC. Like the E/D Class Action plaintiffs, these plaintiffs contend principally that Lehman's offering documents with respect to...
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