In re Wilmington Trust Securities Litigation
29 F. Supp. 3d 432
D. Del.2014Background
- Consolidation of multiple securities fraud class actions against Wilmington Trust Corporation (WTC) and related defendants occurred by order dated March 7, 2011.
- Consolidated class action complaint filed May 16, 2011; initial dismissal without prejudice granted March 29, 2012.
- Plaintiffs filed a second amended complaint May 10, 2012; third and fourth amendments followed incorporating FBI affidavits and Criminal Information/Terranova materials.
- FAC contains seven counts: four under the Exchange Act and three under the Securities Act.
- Allegations center on underreporting of past-due/nonperforming loans, defective underwriting and loan extensions, and a widespread fraud scheme involving WTC officers and auditors.
- The court has jurisdiction under 15 U.S.C. §§ 77v, 78aa and 28 U.S.C. §§ 1331, 1337.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Exchange Act claims survive under PSLRA pleading standards | Plaintiffs allege material misstatements/omissions with particularity and strong scienter | Defendants contend insufficient specificity and scienter to meet PSLRA requirements | Exchange Act claims survive Iqbal/PSLRA standards |
| Whether misrepresentations/omissions about past-due loans and reserves were material | Misstatements distorted credit risk and reserve adequacy affecting investors | Disclosures and puffery negate materiality or misrepresentations | Yes, sufficiently material under pleading standards |
| Whether loss causation is adequately pled | Disclosures and market reactions link misstatements to stock declines | Loss causation not sufficiently shown | Loss causation adequately pled under Third Circuit standard |
| Whether the Safe Harbor (forward-looking statements) applies to North's earnings-call statements | Disclosures were material and made with scienter; disclaimer not meaningful | Statements were forward-looking with implied caution | Safe Harbor not dispositive; North’s motions denied on this point |
| Whether Securities Act claims (Sections 11/12(a)(2)) survive | Offering documents contained material misstatements/omissions incorporated by reference | Some defendants not liable; some claims premised on negligence not fraud | Securities Act claims survive except as to duPont and Roselle (dismissed with prejudice) |
Key Cases Cited
- Twombly v. Bell Atl., 550 U.S. 544 (U.S. 2007) (un pleading standard; plausibility requirement)
- Iqbal v. Ashcroft, 556 U.S. 662 (U.S. 2009) (two-step PSLRA/Rule 12(b)(6) analysis; plausibility)
- Avaya, Inc. v. Int'l—, 564 F.3d 242 (3d Cir. 2009) (strong inference of scienter; particularity burdens under PSLRA)
- Horizon Lines, Inc. v. City of New York, 686 F. Supp. 2d 404 (D. Del. 2009) (PSLRA pleading requirements and safe harbor context)
- Suprema Specialties, Inc. Sec. Litig., 438 F.3d 256 (3d Cir. 2006) (GAAP/GAAS considerations; fraud-based implications under Section 11/12(a)(2))
- Shapiro v. UJB Fin. Corp., 964 F.2d 272 (3d Cir. 1992) (materiality of loan-related misstatements; objective standards for reserves)
- Cal. Public Employees’ Ret. Sys. v. Chubb Corp., 394 F.3d 126 (3d Cir. 2004) (PSLRA requirements and falsity/ scienter framework)
- Tellabs, Inc. v. Makor Issues & Rights, 551 U.S. 308 (U.S. 2007) (standard for weighing inferences in scienter analysis)