W.R. Huff Asset Mgt. Co. v. Deloitte & Touche Llp

• Decision Date: 03 December 2008
• Docket Number: Docket No. 06-1749(CON).,Docket No. 06-1664-CV(L).
• Citation: 549 F.3d 100
• Parties: W.R. HUFF ASSET MANAGEMENT CO., LLC, Plaintiff-Appellee, v. DELOITTE & TOUCHE LLP, Credit Suisse Securities (USA) LLC, Credit Suisse, New York Branch, The Royal Bank of Scotland plc, The Bank of Nova Scotia, Toronto Dominion Texas, LLC (f/k/a Toronto Dominion Texas, Inc.), Mizuho International PLC, ABN AMRO Inc., Banc of America, N.A., Fleet Securities, Inc. (n/k/a Bank of America, N.A.), Banc of America Securities LLC, Barclays Capital Inc., Barclays Bank PLC, BNY Capital Markets, Inc., The Bank of New York Company, Inc., CIBC World Markets Corp., CIBC, Inc., Citibank, N.A., Citigroup Inc., Citicorp USA, Inc., Citigroup Global Markets, Inc., Salomon Smith Barney Inc. (n/k/a Citigroup Global Markets, Inc.), Calyon Securities (USA), Inc. (f/k/a Credit Lyonnais Securities (USA) Inc.), Calyon New York Branch (successor by operation of law to Credit Lyonnais New York Branch), Deutsche Bank Alex. Brown, Inc., Deutsche Bank AG, Harris Nesbitt Corp., JPMorgan Chase & Co., Morgan Stanley & Co., Inc., JPMorgan Securities Inc., Scotia Capital (USA), Inc., Cowen & Co., LLC (f/k/a SG Cowen Securities Corporation), Societe Generale, also known as a French Banking Institution, Suntrust Capital Markets, Inc., SunTrust Bank, TD Securities (USA), Inc., ABN AMRO Bank N.V., BMO Nesbitt Burns Corp. (n/k/a Harris Nesbitt Burns Corp.); Credit Lyonnais Securities (USA) Inc., SG Cowen Securities Corp., and Buchanan Ingersoll & Rooney Professional Corporation, Defendants-Appellants.
• Court: U.S. Court of Appeals — Second Circuit

549 F.3d 100

W.R. HUFF ASSET MANAGEMENT CO., LLC, Plaintiff-Appellee, v.DELOITTE & TOUCHE LLP, Credit Suisse Securities (USA) LLC, Credit Suisse, New York Branch, TheRoyal Bank of Scotland plc, TheBank of Nova Scotia, Toronto Dominion Texas, LLC (f/k/a Toronto Dominion Texas, Inc.), Mizuho International PLC, ABN AMRO Inc., Banc of America, N.A., Fleet Securities, Inc. (n/k/a Bank of America, N.A.), Banc of America Securities LLC, Barclays Capital Inc., Barclays Bank PLC, BNY Capital Markets, Inc., The Bank of New York Company, Inc., CIBC World Markets Corp., CIBC, Inc., Citibank, N.A., Citigroup Inc., Citicorp USA, Inc., Citigroup Global Markets, Inc., Salomon Smith Barney Inc. (n/k/a Citigroup Global Markets, Inc.), Calyon Securities (USA), Inc. (f/k/a Credit Lyonnais Securities (USA) Inc.), Calyon New York Branch (successor by operation of law to Credit Lyonnais New York Branch), Deutsche Bank Alex. Brown, Inc., Deutsche Bank AG, Harris Nesbitt Corp., JPMorgan Chase & Co., Morgan Stanley & Co., Inc., JPMorgan Securities Inc., Scotia Capital (USA), Inc., Cowen & Co., LLC (f/k/a SG Cowen Securities Corporation), Societe Generale, also known as a French Banking Institution, Suntrust Capital Markets, Inc., SunTrust Bank, TD Securities (USA), Inc., ABN AMRO Bank N.V., BMO Nesbitt Burns Corp. (n/k/a Harris Nesbitt Burns Corp.); Credit Lyonnais Securities (USA) Inc., SG Cowen Securities Corp., and Buchanan Ingersoll & Rooney Professional Corporation, Defendants-Appellants.

Docket No. 06-1664-CV(L).

Docket No. 06-1749(CON).

United States Court of Appeals, Second Circuit.

Argued: November 7, 2007.

Decided: December 3, 2008.

Louis R. Cohen (Paul R.Q. Wolfson, on the brief), Wilmer Cutler Pickering Hale and Dorr LLP, Washington, DC, for Defendants-Appellants Credit Suisse Securities (USA) LLC; Credit Suisse, New York Branch; The Royal Bank of Scotland plc; and Mizuho International plc.

Max R. Shulman, Cravath, Swaine & Moore LLP, New York, NY, for Defendant-Appellant Deloitte & Touche LLP.

Steven R. Schoenfeld, Torys LLP, New York, NY, for Defendant-Appellant Toronto Dominion (Texas) LLC.

Andrew J. Frackman (Tancred V. Schiavoni, on the brief) O'Melveny & Myers LLP, New York, NY, for Defendant-Appellant ABN AMRO Bank N.V.

Michael Luskin (Trevor Hoffman, on the brief), Luskin, Stern & Eisler LLP, New York, NY, for Defendant-Appellant The Bank of Nova Scotia.

Robert J. Ward, Mayer, Brown, Rowe & Maw LLP, New York, NY, for Defendants-Appellants Bank of Montreal and BMO Nesbitt Burns Corp.

Mitchell A. Lowenthal, Cleary Gottlieb Steen & Hamilton LLP, New York, NY, for Defendants-AppellantsABN AMRO Inc.; Banc of America Securities LLC; Banc of America, N.A.; Barclays Capital Inc.; Barclays Bank PLC; BNY Capital Markets, Inc.; The Bank of New York Company, Inc.; CIBC World Markets Corp.; CIBC Inc.; Citibank, N.A.; Citigroup Inc.; Citicorp USA, Inc.; Citigroup Global Markets Inc.; Calyon Securities (USA) Inc.; Calyon New York Branch; Deutsche Bank Alex.Brown Inc.; Deutsche Bank AG; BMO Capital Markets Corp.; J.P. Morgan Securities Inc.; JPMorgan Chase & Co.; Morgan Stanley & Co. Incorporated; Scotia Capital (USA) Inc.; Cowen & Company, LLC; Societe Generale; SunTrust Capital Markets, Inc.; SunTrust Bank; and TD Securities (USA) Inc.

Gregory A. Markel(Stacey A. Lara, on the brief), Cadwalader, Wickersham & Taft LLP, New York, NY, for Defendant-AppellantWachovia Bank, N.A.

Joseph Friedman(William M. Wycoff, Robert J. Ridge, J. Alexander Hershey, on the brief), Thorp Reed & Armstrong, LLP, for Defendant-AppellantBuchanan Ingersoll & Rooney Professional Corporation.

Lawrence M. Rolnick, (Thomas E. Redburn, on the brief).

Lowenstein Sandler PC, Roseland, NJ, for Plaintiff-Appellee.

Before: CABRANES, SACK, and KATZMANN, Circuit Judges.

JOSÉ A. CABRANES, Circuit Judge:

We are asked to determine whether an investment advisor that has (a) discretionary authority to make investment decisions for its clients, and (b) a power of attorney from its clients to bring this lawsuit, has constitutional standing to sue for violations of federal securities laws on behalf of its clients, who are the beneficial owners of the underlying securities, and not in its own name.This question is before us on an interlocutory appeal of two orders of the United States District Court for the Southern District of New York(Lawrence M. McKenna, Judge)—entered August 30, 2005 and October 19, 2005—denying a motion to dismiss the complaint for lack of standing pursuant to Federal Rule of Civil Procedure 12(b)(1), and adhering to that ruling on a motion for reconsideration.SeeIn re Adelphia Commc'ns Corp. Sec. & Derivative Litig.,Nos. 03 MDL 1529(LMM), 03 Civ. 5752, 03 Civ. 5753, 2005 WL 2087811(S.D.N.Y.Aug. 30, 2005)("Huff I");In re Adelphia Commc'ns Corp. Sec. and Derivative Litig.,Nos. 03 MDL 1529(LMM), 03 Civ. 5752, 03 Civ. 5753, 2005 WL 2667201(S.D.N.Y.Oct. 19, 2005)("Hufff II").See alsoIn re Adelphia Commc'ns Corp. Sec. and Derivative Litig.,Nos. 03 MDL 1529(LMM), 03 Civ. 5752, 03 Civ. 5753, 2006 WL 708303, at *4-5(S.D.N.Y.Mar. 20, 2006)(ordering certification for immediate appeal pursuant to 28 U.S.C. § 1292(b)).

BACKGROUND

In the first half of 2002, Adelphia Communications Corporation("Adelphia") disclosed for the first time the existence of billions of dollars of debt that led, ultimately, to the company's dissolution in bankruptcy.Many investors in Adelphia filed civil lawsuits alleging various forms of securities fraud by Adelphia, its management, underwriters, outside auditors, and others.SeeIn re Adelphia Commc'ns Corp. Sec. and Derivatives Litig.,No. 03 MDL 1529(LMM), 2005 WL 1278544, at *1(S.D.N.Y.May 31, 2005)(describing the background of the litigation).

Plaintiff-appelleeW.R. Huff Asset Management Co., LLC("Huff") is an investment advisor for institutional investors such as public employee pension funds.Huff alleges that defendants-appellants— all firms that provided underwriting, auditing, or legal services—prepared, facilitated, or certified inaccurate and misleading disclosures in Adelphia's financial statements, in violation of sections 11and12(a)(2) of the Securities Act of 1933,15 U.S.C. §§ 77k,77l(a)(2), andsections 10(b)and18 of the Securities Exchange Act of 1934,15 U.S.C. §§ 78j (b),78r.

Huff brings this lawsuit as "the investment adviser and attorney-in-fact on behalf of certain purchasers of ... debt securities issued by Adelphia."(2d Am.Compl. 1.)Huff does not allege that it was an investor in Adelphia; instead, Huff claims that it provided investment advice to its clients and, from 1999 until 2002, purchased Adelphia securities on their behalf.These clients, not Huff, have suffered financial losses as a result of Aldelphia's collapse.¹Indeed, Huff explicitly disclaims that it "suffered an injury individually in a way that is separate from its agency function."(Transcript of Feb. 20, 2003 Hearing, 19.)See alsoid. at 14("We are not seeking damages except on behalf of the beneficial owners of the securities from whom we secured powers of attorney.").²

Defendants challenged Huff's constitutional standing to sue on behalf of its investment clients in a motion to dismiss the complaint pursuant to Rule 12(b)(1) of the Federal Rules of Civil Procedure, which concerns a federal court's lack of subject matter jurisdiction.³Relying in part on Indemnified Capital Invs., SA. v. R.J. O'Brien & Assocs., Inc.,12 F.3d 1406, 1410(7th Cir.1993)(concluding that an investment advisor did not have standing where beneficial owners did not assign their rights to sue to the investment advisor), the District Court initially concluded that Huff's status as attorney-in-fact satisfied the requirements of constitutional standing.SeeHuff I,2005 WL 2087811, at *3.

Defendants brought a motion for reconsideration, arguing that the District Court had overlooked our decision in Advanced Magnetics, Inc. v. Bayfront Partners Inc.,106 F.3d 11(2d Cir.1997), in which we held that a company that possessed powers of attorney from aggrieved shareholders, but did not have a valid assignment of the shareholders' claims, lacked constitutional standing to sue on behalf of the shareholders.Seeid. at 17-18("The grant of a power of attorney ... is not the equivalent of an assignment of ownership; and, standing alone, a power of attorney does not enable the grantee to bring suit in his own name.").Nonetheless, the District Court adhered to its original decision and distinguished Advanced Magnetics on the ground that Huff was not only an "attorney-in-fact," but also an investment advisor with unfettered discretion to make investment decisions.SeeHuff II,2005 WL 2667201, at *1("Here ... in addition to the powers of attorney Huff was given by its clients, Huff was also the clients' investment advisor with unrestricted decision making power over the clients' investments, including those in Adelphia securities.").The District Court cited, as an analogous decision, Weinberg v. Atlas Air Worldwide Holdings, Inc.,216 F.R.D. 248, 255(S.D.N.Y.2003), in which an investment advisor that brought a lawsuit on behalf of its clients was found to have statutory standing to sue as a "purchaser" of securities because the investment advisor was the attorney-in-fact and had unrestricted authority to make investment decisions for its clients.SeeHuff II,2005 WL 2667201, at *1.

On appeal,⁴defendants-appellants argue that the District Court misapplied Advanced Magnetics because the central inquiry of that case was whether an investment advisor's clients properly assigned title or ownership of their securities claims to the named plaintiff, not whether the named plaintiff had previously purchased securities for its clients.SeeAdvanced Magnetics,106 F.3d at 17(observing that a valid assignment must "transfer at least title or ownership ... to accomplish a completed transfer of the entire interest of...