966 F. Supp. 2d 374
S.D.N.Y.2013Background
- Plaintiffs are Singapore retail investors who bought Pinnacle Performance Limited credit-linked notes (CLNs) issued in 2006–2007; the CLNs were issued by Cayman-SPV Pinnacle and collateralized by MS ACES synthetic CDOs selected by Morgan Stanley affiliates.
- Plaintiffs allege Defendants marketed the Notes as safe while selecting a high-risk portfolio and that Morgan Stanley entities had conflicts by shorting the underlying CDOs, causing fraud and related claims.
- Judge Sand previously denied dismissal of Plaintiffs’ fraud, fraudulent inducement, and related claims, and granted a preliminary counter‑injunction against Defendants’ attempt to obtain an anti‑suit injunction in Singapore; the Second Circuit affirmed the injunction but remanded for findings on personal jurisdiction over Pinnacle.
- After jurisdictional discovery, Pinnacle moved to dismiss for lack of personal jurisdiction; Morgan Stanley moved to dismiss the Amended Complaint on multiple Rule 12 and Rule 9(b) grounds and on forum/non‑comity grounds.
- The Court denied Pinnacle’s Rule 12(b)(2) motion, finding Pinnacle purposefully availed itself of New York by repeatedly using New York correspondent bank accounts to receive investor funds and purchase the MS ACES CDOs, satisfying N.Y. C.P.L.R. § 302(a)(1) and due process.
- The Court denied most of Morgan Stanley’s dismissal arguments based on the law of the case, holding prior rulings rejecting forum‑selection, forum non conveniens, and many pleading challenges remain controlling; one claim (aiding and abetting breach of the implied covenant) was dismissed as unavailable under New York law.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Personal jurisdiction over Pinnacle under N.Y. C.P.L.R. §302(a)(1) | Pinnacle opened and repeatedly used New York bank accounts to receive investor funds and buy underlying assets; claims arise from those transactions | Pinnacle had no New York presence; accounts were in‑house bookkeeping entries opened by counterparties and not purposeful use of NY banks | Court: Jurisdiction proper — repeated use of NY correspondent accounts for Note series shows purposeful availment and articulable nexus to claims; due process satisfied |
| Applicability of forum selection clauses / forum non conveniens / international comity | Plaintiffs: prior ruling that offering documents contain no applicable forum clause; New York is appropriate forum | Morgan Stanley: forum clause and comity require dismissal in favor of Singapore; recent authority and facts warrant reconsideration | Court: Law of the case controls; no cogent reason to revisit Judge Sand’s prior denial; motion denied |
| Sufficiency of fraud pleadings (Rule 9(b) / plausibility) | Plaintiffs reiterate prior allegations that offering materials omitted material facts and concealed conflicts and design of Notes to fail | Morgan Stanley: subsequent events (one series paid out) and discovery undermine fraud theory; offering materials disclosed risks | Court: Law of the case applies; external evidence about a successful series is outside complaint and not considered on 12(b)(6); allegations remain plausible and adequate under Rule 9(b) |
| Reliance element of fraud | Plaintiffs relied on offering materials and sales brochures in investing | Morgan Stanley: named Plaintiffs testified they did not read or recall the prospectus; reliance therefore implausible as a matter of law | Court: Deposition testimony is extrinsic and not considered on Rule 12(b)(6); prior finding that offering materials did not negate fraud stands; reliance allegations survive |
Key Cases Cited
- Burger King Corp. v. Rudzewicz, 471 U.S. 462 (1985) (establishes minimum contacts and reasonableness tests for personal jurisdiction)
- Licci ex rel. Licci v. Lebanese Canadian Bank, SAL, 673 F.3d 50 (2d Cir. 2012) (use of New York correspondent bank accounts can establish purposeful availment)
- Weitzman v. Stein, 897 F.2d 653 (2d Cir. 1990) (standard for establishing jurisdiction before issuing preliminary injunction)
- Bank Brussels Lambert v. Fiddler Gonzalez & Rodriguez, 305 F.3d 120 (2d Cir. 2002) (reasonableness factors in due process analysis)
- Dorchester Fin. Secs., Inc. v. Banco BRJ, S.A., 722 F.3d 81 (2d Cir. 2013) (jurisdictional showing standard varies with procedural posture)
- Ball v. Metallurgie Hoboken-Overpelt, S.A., 902 F.2d 194 (2d Cir. 1990) (prima facie vs. factually supported jurisdictional showing standard)
- Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308 (2007) (fraud pleading requires considering all allegations collectively to assess scienter)
- Penguin Grp. (USA) Inc. v. Am. Buddha, 609 F.3d 30 (2d Cir. 2010) (plaintiff bears burden of establishing personal jurisdiction)
- In re Terrorist Attacks on Sept. 11, 2001, 714 F.3d 659 (2d Cir. 2013) (jurisdictional principles; burden on plaintiff)