Carpenters Pension Trust Fund of St. Louis v. PLC, 2014 U.S. App. LEXIS 7864

Background

Plaintiffs (three institutional investors) sued Barclays and certain former officers, alleging Barclays submitted false, understated LIBOR submission rates from Aug 2007–Jan 2009 and that CEO Robert Diamond made misleading public statements about Barclays’ borrowing costs; plaintiffs asserted §10(b)/Rule 10b-5 and §20(a) claims.
On June 27–28, 2012 Barclays entered into settlement agreements with DOJ/CFTC/FSA admitting it had submitted inaccurate (understated) USD LIBOR rates for the 2007–2009 period and agreed to pay fines; Barclays’ ADR price fell ~12% the next trading day.
The district court dismissed the complaint under Rule 12(b)(6), holding plaintiffs failed to plead loss causation for the LIBOR-related allegations (finding any prior inflation would have been corrected by later nonfraudulent submission rates) and that Barclays’ SEC statements about "minimum control requirements" were not materially false. The court also denied leave to amend.
On appeal, the Second Circuit reviewed dismissal de novo, focusing on whether plaintiffs adequately pleaded loss causation and materiality for the two categories of alleged misstatements (LIBOR submissions and SEC internal-control statements).
The Second Circuit held plaintiffs adequately pleaded loss causation and materiality as to Barclays’ 2007–2009 LIBOR submission misstatements and Diamond’s 2008 remark, vacated dismissal of those claims and related §20(a) claims, but affirmed dismissal of claims based on Barclays’ SEC internal-control statements and affirmed denial of leave to amend as to those statements.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether plaintiffs pleaded loss causation for alleged LIBOR misrepresentations and Diamond’s 2008 remark	The June 2012 settlements constituted a corrective disclosure revealing the earlier LIBOR fraud and the June 28, 2012 stock drop shows market reaction — causal link	Any earlier inflation was "stale" and corrected by accurate 2009–2012 submission rates; the 2012 stock drop reflected regulatory fines, not disclosure of fraud	Reversed dismissal: plaintiffs pleaded corrective disclosure and loss causation plausibly; factual dispute not resolvable on 12(b)(6)
Whether the alleged LIBOR misstatements were material	Revealing understated historical borrowing costs would alter the total mix of information for reasonable investors	Any historical misstatements were immaterial or superseded by later accurate data	Materiality adequately pleaded as fact question; dismissal improper
Whether SEC statements that "minimum control requirements" existed were false/misleading	Those statements were false because Barclays lacked specific controls over LIBOR submissions until Dec 2009	Statements did not reference LIBOR and were generic; plaintiffs failed to plead with particularity how they were false	Affirmed dismissal: plaintiffs failed to plead with required specificity that SEC statements were false or misleading
Whether leave to amend should have been granted for all claims	Plaintiffs sought leave to add loss-causation and internal-control allegations	District court found amendment futile as to internal-control claims	Affirmed: leave denied as futile regarding internal-control statements; LIBOR-related claims remanded for further proceedings

Key Cases Cited

Ashcroft v. Iqbal, 556 U.S. 662 (pleading standard; plausibility)
Bell Atl. Corp. v. Twombly, 550 U.S. 544 (pleading standard)
Stoneridge Inv. Partners, LLC v. Scientific-Atlanta, Inc., 552 U.S. 148 (elements of §10(b)/Rule 10b-5 claim)
Dura Pharm., Inc. v. Broudo, 544 U.S. 336 (loss causation requirement)
Lentell v. Merrill Lynch & Co., Inc., 396 F.3d 161 (loss causation and corrective-disclosure framework)
In re Omnicom Grp., Inc. Sec. Litig., 597 F.3d 501 (corrective-disclosure and risk-materialization theories)
ATSI Commc’ns, Inc. v. Shaar Fund, Ltd., 493 F.3d 87 (control-person liability standard)
ECA & Local 131 IBEW Joint Pension Trust of Chicago v. JP Morgan Chase Co., 553 F.3d 187 (materiality is a mixed question rarely resolved on 12(b)(6))
Basic Inc. v. Levinson, 485 U.S. 224 (materiality — total mix of information)
Findwhat Investor Group v. FindWhat.com, 658 F.3d 1282 (effect of uncorrected misstatements on market price)