516 F. App'x 30
2d Cir.2013Background
- Cellular purchased about $26 million of auction rate securities between Aug 2007 and Jan 2008.
- Merrill allegedly withdrew market support on Feb 13, 2008, leaving Cellular with illiquid long-term ARS.
- Cellular asserted claims under the Exchange Act for misrepresentation/omission and market manipulation, plus state/common law claims.
- The district court dismissed Cellular's claims with prejudice; this court reviews de novo the dismissal for failure to state a claim.
- Prior Second Circuit ARS decisions held disclosures (SEC Order, Website Disclosure) could place investors on notice of ARS liquidity risk; cellular facts alleged differed from those cases.
- The court affirmed dismissal, finding the alleged statements and reports were non-actionable and that Cellular failed to plead with particularity the Withdrawal Decision and related facts.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Cellular plead a material misrepresentation or omission under 10b-5 | Cellular contends Merrill misrepresented or failed to disclose ARS liquidity risk. | Merrill argues disclosures were adequate and omissions not pled with particularity. | Dismissal affirmed; claim inadequately pled with particularity. |
| Whether Merrill's research reports violated market manipulation provisions | Cellular argues reports manipulated ARS prices. | Disclosures and reports were non-actionable puffery; no deceptive intent shown. | Dismissal affirmed; reports were non-actionable and not sufficient to show manipulation. |
| Whether state and common law claims were properly dismissed | Cellular asserts state/common law theories as alternatives to 10b-5. | Claims fail for substantially the reasons the district court gave. | Affirmed; state/common law claims appropriately denied. |
Key Cases Cited
- Anschutz Corp. v. Merrill Lynch & Co., 690 F.3d 98 (2d Cir. 2012) (addressed ARS disclosures and notice issues)
- Wilson v. Merrill Lynch & Co., 671 F.3d 120 (2d Cir. 2011) (disclosures sufficient to place investors on notice of liquidity risk)
- Ashland Inc. v. Morgan Stanley & Co., 652 F.3d 333 (2d Cir. 2011) (disclosures sufficient; ARS-related claims not actionable here)
- Stoneridge Inv. Partners, LLC v. Scientific-Atlanta, 552 U.S. 148 (U.S. 2008) (elements for misrepresentation and causation under 10b-5)
- Novak v. Kasaks, 216 F.3d 300 (2d Cir. 2000) (puffery not actionable fraud)
- Rombach v. Chang, 355 F.3d 164 (2d Cir. 2004) (conclusory allegations insufficient for fraud claims)
- Decker v. Massey-Ferguson, Ltd., 681 F.2d 111 (2d Cir. 1982) (conclusory allegations not enough to state a claim)
- Gurary v. Winehouse, 190 F.3d 37 (2d Cir. 1999) (deception required for manipulation claims)