Ashland, Inc. v. Morgan Stanley & Co., Inc.
2011 U.S. App. LEXIS 15532
| 2d Cir. | 2011Background
- Ashland Inc. and AshThree LLC allege Morgan Stanley misrepresented SLARS liquidity and sales were safe investments.
- ARs at issue were SLARS backed by student loans; Morgan Stanley allegedly would intervene to prevent auction failure.
- Ashland bought SLARS in 2007 on several occasions based on Morgan Stanley assurances of liquidity.
- In 2008, after market illiquidity became evident, Ashland discovered failures and Morgan Stanley stopped propping auctions.
- District court dismissed FAC in full, citing SEC-disclosed ARS liquidity disclosures and lack of reasonable reliance.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Section 10(b) reliance on alleged misstatements | Ashland argues Byrne's assurances were relied upon. | Morgan Stanley contends SEC disclosure defeats reasonable reliance. | Reliance not reasonable; claim fails |
| Common law claims require reasonable reliance | Ashland asserts common law fraud etc. based on same misrepresentations. | Morgan Stanley maintains reliance element not satisfied under NY law. | Common law claims dismissed for lack of reasonable reliance |
| Holder standing for ARS purchases | Ashland contends ARS holders can sue under securities laws. | Morgan Stanley argues lack of holder standing under Blue Chip Stamps framework. | Not reached; court relies on lack of reasonable reliance |
| Martin Act preemption | Ashland challenges preemption analysis for NY law claims. | Morgan Stanley contends preemption governs state claims. | Not decided |
| Unjust enrichment claim | Ashland seeks disgorgement of fees as unjust enrichment. | Morgan Stanley argues no equity basis given sophisticated investor notice of risk. | Unjust enrichment claim dismissed |
Key Cases Cited
- Stoneridge Inv. Partners, LLC v. Scientific-Atlanta, Inc., 552 U.S. 148 (U.S. 2008) (elements of securities fraud; reliance must be proven)
- Brown v. E.F. Hutton Grp., Inc., 991 F.2d 1020 (2d Cir. 1993) (reasonable reliance requires diligence)
- Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723 (U.S. 1975) (purchaser-seller standing limitation)
- Harsco Corp. v. Segui, 91 F.3d 337 (2d Cir. 1996) (factors for reasonable reliance analysis)
- Primetime 24 Joint Venture v. Nat'l Broad., Co., 219 F.3d 92 (2d Cir. 2000) (de novo review allows affirming on alternative grounds)
- Crigger v. Fahnestock & Co., 443 F.3d 230 (2d Cir. 2006) (reliance required for common law fraud)
- Kaye v. Grossman, 202 F.3d 611 (2d Cir. 2000) (promissory estoppel requires reliance)
- King v. Crossland Sav. Bank, 111 F.3d 251 (2d Cir. 1997) (negligent misrepresentation requires reliance)
- Diesel Props S.r.l. v. Greystone Bus. Credit II LLC, 631 F.3d 42 (2d Cir. 2011) (unjust enrichment standard)