Litwin v. Blackstone Group, L.P.
2011 U.S. App. LEXIS 2641
| 2d Cir. | 2011Background
- Blackstone IPO raised over $4.5 billion; insiders received most net proceeds.
- Plaintiffs allege omissions/misstatements in Blackstone's Registration Statement and Prospectus related to FGIC, Freescale, and real estate investments.
- FGIC investment was 23% equity, about $331 million, with alleged known risk of future fee claw-backs.
- Freescale investment valued at $3.1 billion; Freescale’s loss of exclusive Motorola contract allegedly material.
- Real estate disclosures allegedly understated market risks impacting the Real Estate segment and overall revenues.
- District Court dismissed under Rule 12(b)(6); plaintiffs appealed challenging materiality and Item 303 duties.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Materiality under Sections 11 and 12(a)(2) | Omissions/misstatements were material, especially for Corporate Private Equity segment. | Omissions were immaterial; combined effects offset and no significant market reaction. | Omissions were plausible material and the claim survives. |
| Item 303 disclosure duty met | Known trends in real estate and market conditions required disclosure under Regulation S-K §303. | Public knowledge or non-specific trends do not mandate disclosure. | Plaintiffs adequately pleaded Item 303 disclosures were required. |
| FGIC and Freescale omissions materiality | FGIC and Freescale omissions materially affected Blackstone's revenues, especially for a key segment. | Materiality could be discounted due to percentage thresholds and portfolio diversification. | Omissions related to FGIC and Freescale plausibly material. |
| Real estate investments disclosures | Omissions linked to residential market downturn and securitization risks could affect real estate returns. | Aggregate portfolio view and lack of specific links foreclose materiality. | Real estate omissions/misstatements plausibly material; district court erred. |
Key Cases Cited
- Basic Inc. v. Levinson, 485 U.S. 224 (U.S. Supreme Court 1988) (materiality requires substantial likelihood information would alter decision)
- Ganino v. Citizens Utils. Co., 228 F.3d 154 (2d Cir. 2000) (materiality cannot be determined by a formulaic threshold; consider qualitative factors)
- Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308 (U.S. Supreme Court 2007) (consider entire complaint and incorporated documents; materiality must be plausible)
- In re Morgan Stanley Info. Fund Sec. Litig., 592 F.3d 347 (2d Cir. 2010) (plausible claims require more than mere possibility; apply pleading standard)
- ECA & Local 134 IBEW Joint Pension Trust v. JP Morgan Chase Co., 553 F.3d 187 (2d Cir. 2009) (integrated materiality considerations; quantitative thresholds are starting points)
- Slayton v. Am. Express Co., 460 F.3d 215 (2d Cir. 2006) (pleading standards for securities claims; consider complaint as a whole)
- Rombach v. Chang, 355 F.3d 164 (2d Cir. 2004) (fraud pleading standards; Section 11/12 claims need not allege fraud)