Anschutz Corp. v. Merrill Lynch & Co.
2012 U.S. App. LEXIS 17006
| 2d Cir. | 2012Background
- Anschutz sues Merrill Lynch entities and others for federal/state market manipulation, control person liability, fraud, and negligent misrepresentation arising from the ARS market collapse.
- The district court dismissed Anschutz’s federal §10(b)/Rule 10b-5 and California Corporations Code claims, and dismissed negligent misrepresentation claims against Moody’s and S&P.
- Merrill Lynch underwrote Ambac ARS offerings, engaged in placing support bids in auctions, and drafted disclosure and marketing materials; it asserted bids to prevent auction failures and influence clearing rates.
- ARS at issue included Dutch Harbor and Anchorage Finance with put options; Merrill allegedly knew bids affected liquidity and exposed investors to liquidity risk not disclosed.
- SEC's May 2006 Order penalized several banks for intervening in ARS auctions; Merrill Lynch disclosed ARS practices in August 2006; by August 2007 it ceased support bids, and auctions subsequently failed.
- Rating agencies Moody’s and S&P rated the ARS Aa2/AA; Anschutz alleged the ratings were false/misleading and relied on them in purchasing decisions; NY law governs negligent misrepresentation claims.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the federal market manipulation claim survives | Anschutz alleges pervasive, undisclosed support bidding manipulated auctions. | Wilson v. Merrill Lynch controls; disclosures render claims non-actionable. | Claim dismissed; Wilson control applies. |
| Whether California Corporations Code claims survive | Merrill’s conduct injured Anschutz in California or occurred there. | No California injury or California-conduct nexus; extraterritoriality bars claim. | Claims dismissed. |
| Choice of law for negligent misrepresentation against Rating Agencies | California or New York law could apply to misrepresentation in ratings. | New York has stronger connections; NY law governs. | New York law applies. |
| Under NY law, whether negligent misrepresentation claim against Rating Agencies is viable | Rating agencies issued false ratings; duty to provide correct information exists. | No privity-like relationship; ratings are opinions; no duty under NY law. | Claim failed under New York law. |
Key Cases Cited
- Wilson v. Merrill Lynch & Co., 671 F.3d 120 (2d Cir. 2011) (website disclosures control market manipulation theory; privity requirements discussed)
- Diamond Multimedia Sys., Inc. v. Superior Court, 968 P.2d 539 (Cal. 1999) (California remedy applies when injury occurs in California)
- J.A.O. Acquisition Corp. v. Stavitsky, 8 N.Y.3d 144 (N.Y. 2007) (negligent misrepresentation requires privity-like duty in NY)
- Time Warner Inc. Secs. Litig., 9 F.3d 259 (2d Cir. 1993) (pleading standards for securities fraud (duty and misstatement requirements))
- Ossining Union Free Sch. Dist. v. Anderson LaRocca Anderson, 73 N.Y.2d 417 (N.Y. 1989) (duty in misrepresentation claims; privity-like relationship concept)