D.J. Wu v. John Stomber
750 F.3d 944
D.C. Cir.2014Background
- Carlyle Capital, an investment fund, privately offered shares in June 2007 to accredited investors to raise capital for purchasing RMBS.
- The portfolio consisted largely of AAA-rated, Fannie Mae- and Freddie Mac-guaranteed RMBS during 2006–2008.
- The company collapsed in 2008 amid the housing crisis; investors sued for violations of federal securities laws and common-law claims.
- The district court dismissed the consolidated DC case and the NY action as duplicative; plaintiffs appealed de novo.
- The Offering Memorandum disclosed a first-quarter gain and subsequent losses; plaintiffs alleged omission of a June 11 marked decline not disclosed.
- Supplemental Memorandum issued June 29 updated losses through June 26 and formed part of the offering context; plaintiffs argued non-disclosure.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether there were material misstatements or omissions under Rule 10b-5 | Wu contends June 11 figure omission misled investors | Stomber asserts disclosure of June 13 and June 29 figures sufficed | No, disclosures adequately informed investors; no material misstatement found |
| Which law governs the common-law fraud claims (Dutch vs DC law) | Dutch law should apply due to Dutch listing and regulator filings | DC tort law applies under most-significant-relationship and forum-choice rules | DC tort law applies; Dutch law does not apply to these claims |
| Choice of law for the NY action transferred to DC | New York law governs fraud claims | DC law applies when conduct and injury relate to DC nexus | DC law applies; claims fail under both DC and New York standards |
Key Cases Cited
- Washkoviak v. Student Loan Marketing Association, 900 A.2d 168 (D.C. 2006) (most-significant-relationship approach to choice of law)
- GEICO v. Fetisoff, 958 F.2d 1137 (D.C. Cir. 1992) (apply DC tort law in ambiguous choice-of-law cases)
- In re Thelen LLP, 736 F.3d 213 (2d Cir. 2013) (locus of tort for conduct-related claims in NY choice-of-law)
- Odyssey Re (London) Ltd. v. Stirling Cooke Brown Holdings Ltd., 85 F. Supp. 2d 282 (S.D.N.Y. 2000) (location of injury governs tort law)
- Premium Mortgage Corp. v. Equifax, Inc., 583 F.3d 103 (2d Cir. 2009) (material misrepresentation or omission required)
- Hydro Investors, Inc. v. Trafalgar Power Inc., 227 F.3d 8 (2d Cir. 2000) (series of tests for securities fraud claims)