Wang v. Bear Stearns Cos.
| Decision Date | 16 April 2014 |
| Docket Number | No. 11 Civ. 5643.,11 Civ. 5643. |
| Court | U.S. District Court — Southern District of New York |
| Parties | Vivine H. WANG, Plaintiff, v. The BEAR STEARNS COMPANIES LLC, J.P. Morgan Securities LLC, J.P. Morgan Clearing Corp., Deloitte & Touche LLP, Alan D. Schwartz, Alan C. Greenberg, Joey Zhou, and Garrett Bland, Defendants. |
Vivine H. WANG, Plaintiff,
v.
The BEAR STEARNS COMPANIES LLC, J.P. Morgan Securities LLC, J.P. Morgan Clearing Corp., Deloitte & Touche LLP, Alan D. Schwartz, Alan C. Greenberg, Joey Zhou, and Garrett Bland, Defendants.
No. 11 Civ. 5643.
United States District Court, S.D. New York.
Signed April 15, 2014
Filed April 16, 2014
Motion granted.
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Ghods Law Firm, by: Mohammed K. Ghods, Esq., William Stahr, Esq., Jeremy A. Rhyne, Esq., Santa Ana, CA, for the Plaintiff.
Paul, Weiss, Rifkind, Wharton & Garrison LLP, by: Brad S. Karp, Esq., Eric S. Goldstein, Esq., Jessica S. Carey, Esq., Jonathan Hurwitz, Esq., New York, NY, for Defendants Joe Zhou and Garrett Bland.
SWEET, District Judge.
Defendants Joe Y. Zhou (“Zhou”) and Garrett Bland (“Bland”) (collectively, the “Defendants”) have moved pursuant to Federal Rules of Civil Procedure 9(b) and 12(b)(6) to dismiss the claims against them in the complaint filed on March 29, 2011 (the “Complaint”) by plaintiff Vivine H. Wang (“Wang” or the “Plaintiff”). Upon
[14 F.Supp.3d 540]
the conclusions set forth below, the motion is granted and the Complaint is dismissed as to Zhou and Wang with leave granted to replead within 20 days.
Prior ProceedingsWang purchased 150,000 shares of The Bear Stearns Company Inc. (“Bear Stearns”) between March 6, 2008 and March 14, 2008 through a Bear Stearns brokerage account upon the order of her husband, Roger Wang (“Roger Wang,” collectively with Plaintiff the “Wangs”). The purchase and its circumstances are the subject of the Complaint. The Wangs refused payment on the purchase.
After the Wangs refused to pay for purchases of Bear Sterns stock, Bear Stearns liquidated Wang's brokerage account and filed an arbitration claim to recover the money owed. ( See ¶¶ 38–39).1 Wang refused to participate in the arbitration, and Bear Stearns was eventually awarded $3,048,514.87 on June 9, 2009. (¶ 40). The award was confirmed and a judgment was entered by a district court in California on January 13, 2010. Bear Stearns was also subsequently awarded attorneys' fees and costs.
While Bear Stearns's arbitration against Vivine Wang was proceeding, in April 2008, Roger Wang filed a complaint against Bear Stearns, Zhou, and Bland in California state court, alleging state law violations in connection with the March 2008 purchases of Bear Sterns stock in his wife's account. (No. BC388727 (Cal.Super. Ct., Los Angeles)). Roger Wang alleged that he, not his wife, authorized the purchases, although the account was solely in her name. Roger Wang's suit, which asserted a putative class claim, was removed to the United States District Court for the Central District of California (08 Civ. 5523 (C.D.Cal.), Doc. No. 42), and then transferred by the MDL Panel to this Court for coordinated or consolidated pretrial proceedings with the other related actions pending here.
Roger Wang's action was subsequently consolidated with related securities actions under the caption In re Bear Stearns Cos., Inc. Securities Litigation, No. 08 Civ. 2793 (the “Securities Action”). (08 M.D.L.1963 (S.D.N.Y.), Doc. No. 31 ¶ 21). In the Securities Action, court-appointed Lead Plaintiff filed a Consolidated Class Action Complaint on February 27, 2009, which asserted claims on behalf of “all persons and entities that, between December 14, 2006 and March 14, 2008 ... purchased or otherwise acquired the publicly traded common stock [of Bear Stearns].” (CA ¶ 1).
On March 29, 2011, Wang filed the instant Complaint in the United States District Court for the Central District of California. On August 15, 2011, the MDL Panel transferred Wang's action to this Court for coordinated or consolidated pretrial proceedings with the Securities Action. On February 6, 2012, Wang's application to have her action coordinated, rather than consolidated, with the Securities Action was granted. ( See 11 Civ. 5643 (S.D.N.Y.), Doc. No. 53).
After motion practice and discovery in the Securities Action, the parties reached a settlement, which was approved by the Court in the orders and final judgments dated November 29, 2012. (08 M.D.L.1963 (S.D.N.Y.), Doc. Nos. 337–338). On August 22, 2012, Vivine Wang opted-out of
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the class action settlement.2
Allegations of the ComplaintThe Complaint makes the following allegations. Vivine Wang is an individual residing in California. (¶ 1). Zhou and Bland worked for Bear Stearns in its Century City, California office. (¶¶ 18, 19). Wang alleges that Zhou worked as a “broker-dealer, the agent of a broker-dealer, and/or an investment advisor” (¶ 18), and Bland as a broker-dealer and/or investment advisor with the title of “Senior Managing Director.” (¶ 19).
Beginning in the mid–1990s, Zhou provided investment advice to the Wang family. (¶ 23). In early 2008, after some time working with a different broker, Wang and her husband contacted Zhou and asked to “place some stock orders with Bear Stearns.” (¶ 24). Zhou told her that a new account would need to be opened, and then met with Wang to execute the necessary paperwork. ( Id.).
On February 29, 2008, Wang entered into a Customer Agreement with Bear Stearns, which set forth the terms and conditions on which Bear Stearns “open [ed] and maintain[ed]” her account. (Chepiga Decl. ¶ 3, Ex. 2). The Customer Agreement stated:
(a) A Bear Stearns entity will execute transactions accepted by it and/or will provide such other clearance, settlement and custody services in connection with the maintenance of your Account(s) at Bear Stearns.
(b) Bear Stearns is acting as a broker-dealer and custodian, and not as (1) an investment adviser under the Investment Advisors Act of 1940, or (2) a “fiduciary” as defined in Section 3(21) of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”) or Section 4975 of the Internal Revenue Code of 1986, as amended (“Code”), with respect to your Account(s) under this Agreement.... Neither Bear Stearns nor its employees are authorized to provide, and shall not provide, legal, tax or accounting advice or services and you will not solicit or rely upon any such advice from them whether in connection with transactions in any of your accounts or otherwise. You have consulted or will consult with your own technical, legal, regulatory, tax, business, investment, financial and accounting advisors to the extent you deem necessary in determining the investment and trading strategy appropriate, for you and the appropriateness of each transaction.
( Id. at ¶ 1(a), (b)).
Shortly after the new account was opened, Roger Wang began placing verbal orders through Zhou for purchases of stock in financial companies. (¶¶ 25–29). On March 6, 2008, he ordered 10,000 shares of Bear Stearns common stock (“BSC”). (¶ 27). He placed additional orders for 20,000 BSC shares on March 10 and 11 respectively. (¶¶ 28–29).
On March 11, 2008, Roger Wang attended a meeting (for the Asia Society) that was hosted at the offices of Bear Stearns in Century City, California. (1 30). At this meeting Roger. Wang was seated at a table with Bland. Bland is alleged to have told Roger Wang: “that Bear Stearns was financially sound, that its stock value should be at least $85.00 per share, and that now was a great time to invest in the stock.” ( Id.). In addition, Bland allegedly told Roger Wang “to buy as much BSC stock as he could.” ( Id.).
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Early in the week of March 10, rumors had begun to infiltrate the market about Bear Stearns's liquidity. (CA ¶ 263). On March 10, 2008, the Company's liquidity pool stood at $18.1 billion. (CA ¶ 492). At the end of the day on March 11, 2008, the Company's liquidity remained at $15.8 billion (adjusted for the release of customer protection funds) (CA ¶ 273, citing letter from SEC Chairman Cox to the Chairman of the Basel Committee on Banking Regulation dated March 20, 2008), well within the range of the preceding weeks.
Clients continued pulling their funds on March 12 and 13, drawing down the Company's liquidity pool. (CA ¶¶ 280–81). By the evening of Thursday, March 13, 2008, Bear Stearns's liquidity had declined to $2 billion. (CA ¶ 280). Because Bear Stearns could not open for business the next day without financing, it negotiated with JPMorgan for a $30 billion funding facility backstopped by the federal government. (CA ¶ 285). At 9:00 am on the morning of Friday, March 14, 2008, before the market opened, Bear Stearns issued a press release announcing the deterioration of its liquidity position, and the secured loan facility from JPMorgan. (¶ 33). Following this release, the price of Bear Stearns stock fell from $57 per share to $30 per share. (CA ¶ 11).
At some point after the market opened on March 14, Roger Wang, allegedly unaware of Bear Stearns's press release, contacted Zhou and placed a verbal order for 200,000 additional shares of BSC. (¶¶ 31–34). The order, however, was only “partially filled,” and, as a result, Wang was to receive 100,000 shares of BSC at approximately $34 per share and “at no time that day or ever did ... Zhou warn, caution, or advise Plaintiff or her husband against buying any more BSC stock.” (¶ 31). In placing this order on March 14, Roger Wang is also alleged to have relied on Bland's “favorable recommendation” from three days earlier. ( Id.).
Over the ensuing weekend, the loan facility did not calm the market's fears. On Sunday, March 16, 2008, Bear Stearns announced an agreement for JPMorgan to purchase the Company for the equivalent of $2 per share. (¶ 35). According to the Complaint, this announcement is when the Wangs “learned of the fraud.” (¶ 35). The Wangs immediately stopped payment, “on the scheduled wire transfer for their final stock trades,” and refused to pay for their purchases of BSC stock. (¶ 35). The following day, March 17, a representative of Bear Stearns demanded payment from the Wangs, but was referred to their lawyer. (¶ 36).
Based on these allegations, the...
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