886 F. Supp. 2d 340
S.D.N.Y.2012Background
- Cellular South bought about $26 million of auction rate securities (ARS) from Merrill Lynch between August 2007 and January 2008, including Freddie Mac, Fannie Mae, and Bank of America ARS.
- Merrill acted as underwriter, placement agent, and auction dealer for the ARS at issue.
- Plaintiff asserts federal and state securities law claims along with common law claims for contract and misrepresentation, based on Merrill’s disclosures and alleged misstatements.
- Merrill moved to dismiss under Fed. R. Civ. P. 9(b), 12(b)(6), and PSLRA § 21D(b).
- The court previously decided similar claims in related MDL cases and found disclosures released Merrill from liability for post-disclosure purchases.
- The court granted Merrill’s motion to dismiss the First Amended Complaint with prejudice, closing related actions.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether post-disclosure misstatement/omission claims survive | Plt argues Merrill misrepresented ARS liquidity and manipulated markets. | Merrill contends disclosures and SEC order foreclose liability for post-disclosure purchases. | Claims dismissed; disclosures relieve liability. |
| Whether Rule 11/PSLRA findings are warranted | Plaintiff contends PSLRA-based findings should address misconduct. | No basis for Rule 11 findings; claims lack merit. | No Rule 11 violation found. |
| Whether North Carolina and Mississippi securities claims survive | Counts allege fraud under state statutes parallel to federal claims. | State claims fail for lack of actionable misrepresentation/omission. | State claims dismissed for failure to plead fraud with particularity. |
| Whether common law claims (breach of contract, misrepresentation, promissory estoppel) survive | Alleges independent contract and promissory promises separate from ARS documents. | No independent contract; reliance on forward-looking statements not justifiable; estoppel fails. | All common law claims dismissed; promissory estoppel dismissed. |
Key Cases Cited
- Goldstein v. Pataki, 516 F.3d 50 (2d Cir. 2008) (reliance on pleaded facts and plausibility standard)
- ATSI Commc’ns, Inc. v. Shaar Fund, Ltd., 493 F.3d 87 (2d Cir. 2007) (heightened pleading for securities claims (PSLRA) standards)
- ATSI Commc’ns, Inc. v. Shaar Fund, Ltd., 579 F.3d 143 (2d Cir. 2009) (Rule 11 findings under PSLRA context)
- Merrill Lynch ARS Litig. (Merrill IV), 851 F.Supp.2d 512 (S.D.N.Y. 2012) (disclosures relieve liability for post-disclosure purchases)
- In re IPO Sec. Litig., 544 F.Supp.2d 277 (S.D.N.Y. 2008) (must plead facts showing falsity when statements were made)
- Cook v. Farley, 15 So.2d 352 (Miss. 1943) (forward-looking promises and estoppel principles limitations)
- Favre Property Mgmt., LLC v. Cinque Bambini, 863 So.2d 1037 (Miss. Ct. App. 2004) (elements of breach of contract require valid contract existence)