Anschutz Corp. v. MERRILL LYNCH AND CO. INC.
785 F. Supp. 2d 799
N.D. Cal.2011Background
- TAC filed an amended complaint naming seven defendants, with claims against some transferred to the SDNY and others remaining in this court.
- DBSI faces Exchange Act §10(b)/Rule 10b-5, California Corporations Code §§25500, 25501, and common law fraud claims; Rating Agencies face negligent misrepresentation claims; Fitch Ltd. seeks dismissal for lack of personal jurisdiction.
- TAC alleges DBSI manipulated the structured ARS market by placing 100% bid participation in every auction to create artificial liquidity and depressed interest rates.
- The Pivot Master Trust and Capstan Master Trust issued ARS backed by SPV CDS with Deutsche Bank AG; proceeds funded SPV investments; alleged to offload risk to investors.
- Rating Agencies allegedly rated the structured ARS AAA despite knowledge of illiquidity and DBSI’s auction-manipulation, creating conflicts of interest and misleading investors.
- The court's disposition includes partial denial of DBSI’s motion to dismiss, denial of DBSI’s motion to strike, denial of the Rating Agencies’ motion to dismiss, and dismissal without prejudice of Fitch Ltd.’s personal jurisdiction challenge.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Market manipulation claim sufficiency | TAC pleads DBSI manipulated auctions to prop up liquidity. | Disclosures in PPMs negate manipulation; claims fail Rule 9(b) and scienter. | TAC's manipulation claim survives DBSI motion. |
| Omissions claim under Rule 10(b) versus Affiliated Ute | Desai/Desai-like analysis allows omissions claim alongside manipulation. | Desai bars relying on the Affiliated Ute presumption for mixed claims. | Omissions claim dismissed without leave to amend. |
| California Corporations Code privity and scienter | Credit Suisse purchases still create privity; scienter adequately pled. | Privity and scienter not shown for CA25500/25501 claims. | TAC has standing under CA 25501; scienter adequately pled. |
| CRARA preemption of California negligent misrepresentation claims | CRARA does not preempt state-law misrepresentation claims based on rating conduct. | CRARA preempts state-law claims against NRSROs. | Preemption rejected; CA negligent misrepresentation claims may proceed. |
| Personal jurisdiction over Fitch Ratings, Ltd. | FRL participated in rating process and should be subject to jurisdiction. | FRL had no meaningful role; declarations show lack of rating activity. | FRL's motion should be dismissed for lack of personal jurisdiction. |
Key Cases Cited
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (U.S. 2007) (plausibility pleading standard for Rule 12(b)(6))
- Ashcroft v. Iqbal, 129 S. Ct. 1937 (U.S. 2009) (twombly plausibility standard; exclude conclusory allegations)
- Zucco Partners, LLC v. Digimarc Corp., 552 F.3d 981 (9th Cir. 2009) (exacting particularity for market manipulation claims)
- ATSI Communs., Inc. v. Shaar Fund, Ltd., 493 F.3d 87 (2d Cir. 2007) (requirement to plead manipulation with specificity; inferencing scienter)
- In re Lehman Bros. Sec. & Erisa Litig., 684 F. Supp. 2d 485 (S.D.N.Y. 2010) (rating-related misrepresentation considerations in complex financings)