City of Pontiac General Employees' Retirement System v. MBIA, Inc.
2011 U.S. App. LEXIS 3813
| 2d Cir. | 2011Background
- MBIA insured bonds and faced liquidity risk after a 1998 default by a major policyholder.
- MBIA engaged in a nunc pro tunc reinsurance arrangement with European reinsurers, funding a $170 million loss in exchange for upfront and future premiums.
- MBIA initially booked the 1998 transaction as income and restated in 2005 to treat it as a loan; this became a focus of SEC and AG investigations.
- The proposed class consisted of MBIA stock purchasers from August 5, 2003 to March 30, 2005, alleging SEC Rule 10b-5 violations based on how the 1998 transaction was accounted for.
- The district court dismissed as time-barred under SOX § 804, and the Second Circuit vacated to reconsider in light of Merck & Co. v. Reynolds, with remand on Rule 9(b) and repose defenses.
- The appellate court remands for reconsideration of statute of limitations in light of Merck, and directs rulings on statute of repose and Rule 9(b).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Effect of Merck on limitations start | Merck requires discovery of scienter to trigger limitations. | Merck limits discovery but existing notice should suffice. | Remanded to apply Merck to entire record. |
| What facts constitute the violation for purposes of discovery | Scienter facts are part of violation facts required to plead. | Merck does not enumerate all necessary facts; pleading standards matter. | Not decided; remand to determine when sufficient facts to plead exist. |
| Accrual timing relative to class period | Statute begins when discovery occurs, potentially after August 2003 class period. | Earlier inquiry notice suffices to run limitations. | Remanded; accrual and transactional causation must be reconsidered. |
| Repose and Rule 9(b) sufficiency | Repose and 9(b) standards must be addressed if limitations may be tolled. | Repose and Rule 9(b) defenses remain viable on remand. | Remanded to decide these defenses. |
Key Cases Cited
- Merck & Co. v. Reynolds, 130 S. Ct. 1784 (2010) (discovery of scienter governs limitations trigger; not automatic upon notice)
- Shah v. Meeker, 435 F.3d 244 (2d Cir. 2006) (pre-Merk inquiry notice framework)
- Levitt v. Bear Stearns & Co., 340 F.3d 94 (2d Cir. 2003) (inquiry notice triggers and timing rule)
- In re Worldcom Sec. Litig., 496 F.3d 245 (2d Cir. 2007) (statute of limitations policy against stale claims)
- Ma v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 597 F.3d 84 (2d Cir. 2010) (accrual and limitations principles in securities actions)
- Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723 (Supreme Court, 1975) (accrual concept in securities law)
- Lattanzio v. Deloitte & Touche LLP, 476 F.3d 147 (2d Cir. 2007) (reliance and transactional causation considerations)
- P Stolz Family P'ship v. Daum, 355 F.3d 92 (2d Cir. 2004) (contrast between limitations and repose timing)