571 F. App'x 8
2d Cir.2014Background
- Louisiana Pacific purchased over $50 million in auction rate securities between Feb and Jul 2007.
- Defendants stopped supporting the ARS market on Feb 13, 2008, leaving LP holding illiquid, long-term securities.
- LP asserted federal securities claims under Section 10(b) and Rule 10b-5, plus a Section 20(a) control-person claim, and state/common law claims.
- Complaint was reviewed de novo; must plead misrepresentation with particularity and market manipulation with 9(b)-style specificity.
- District court dismissed the claims; district court’s decision was affirmed on appeal.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether 10b-5 misrepresentation/omission claims survive. | LP contends misstatements/omissions about ARS liquidity and intervention were actionable. | Merrill argues disclosures and market conditions foreclose liability; claims lack particularity and scienter. | No; claims dismissed for failure to state a plausible misrepresentation/omission claim. |
| Whether market manipulation claim survives. | LP contends manipulation through ARS bidding created false liquidity and inflated prices. | Merrill argues disclosures and notice of liquidity risks negate manipulation claim. | No; market manipulation claim insufficiently pleaded and rejected. |
| Whether control-person liability under Section 20(a) survives. | LP asserts Merrill was a controlling person responsible for primary violations. | Defendants contend no primary violation, thus no control-person liability. | No; primary claims failed, so 20(a) claim defeated. |
| Whether state and common-law claims were properly denied. | LP presses state-law theories alongside securities claims. | Defendants maintain state-law claims parallel federal claims and fail for the same reasons. | Yes; affirmed dismissal of state/common-law claims for similar insufficiency. |
Key Cases Cited
- Stoneridge Inv. Partners, LLC v. Scientific-Atlanta, 552 U.S. 148 (U.S. 2008) (elements of 10b-5 claim must be pled with sufficiency)
- ATSI Communs., Inc. v. Shaar Fund, Ltd., 493 F.3d 87 (2d Cir. 2007) (market manipulation requires particularity)
- Wilson v. Merrill Lynch & Co., 671 F.3d 120 (2d Cir. 2011) (notice of liquidity risks forecloses liability for alleged manipulation)
- Anschutz Corp. v. Merrill Lynch & Co., 690 F.3d 98 (2d Cir. 2012) (post-disclosure investors informed; generalized allegations fail)
- Cellular South Inc. v. Merrill, Lynch, Pierce, Fenner & Smith, Inc., 516 F. App’x 30 (2d Cir. 2013) (summary-order on disclosures and ARS interference)
- SEC v. First Jersey Sec., Inc., 101 F.3d 1450 (2d Cir. 1996) (controlling-person liability framework)