Ohio Police & Fire Pension Fund v. Standard & Poor's Financial Services LLC
700 F.3d 829
6th Cir.2012Background
- Five Ohio public employee pension funds invested hundreds of millions in 308 MBS (2005–2008) rated AAA by major Agencies; the MBS structure included trusts, overcollateralization, excess spread, and tranches; ratings were used to determine credit enhancement and pricing; the Funds sued under Ohio blue-sky laws and negligent misrepresentation alleging ratings were false/misleading and reliance caused losses; district court dismissed the entire complaint with prejudice; this appeal followed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Agencies’ fees constitute profits under ORC 1707.41(A) | Funds contend Agencies profit from ratings due to the sale of securities. | Agencies’ fees were fixed costs, not profits tied to sale outcomes. | No liability; fees are fixed costs, not profits. |
| Whether the rescission remedy under ORC 1707.43(A) lies on predicate violations | If arrangers violated 1707.41(A) or Agencies violated 1707.44(B), rescission is available. | No predicate violation proven; 1707.44(B)(4) not pled; 1707.41(A) not violated by Agencies. | Dismissed; no viable predicate violations pled. |
| Whether negligent misrepresentation claims survive under Ohio or New York law | Agencies owed a duty and made actionable misrepresentations regarding ratings. | No duty owed; ratings are non-actionable opinions; no plausible misrepresentation. | Dismissed; no duty or actionable misrepresentation under either regime. |
| Whether the district court correctly denied leave to amend | Amendment could cure pleading defects. | Amendment would be futile; claims fail as a matter of law. | Protected; dismissal with prejudice affirmed. |
Key Cases Cited
- OPFPF v. Standard & Poor's Fin. Servs., LLC, 813 F. Supp. 2d 871 (S.D. Ohio 2011) (district court on §1707.41(A) evaluation of profits vs. fixed fees)
- Federated Mgmt. Co. v. Coopers & Lybrand, 738 N.E.2d 842 (Ohio Ct. App. 2000) (profits vs. fees distinction under blue-sky laws)
- Baker v. Conlan, 585 N.E.2d 543 (Ohio Ct. App. 1990) (limited useful guidance on 'proceeds' concept under §1707.41(A))
- Anschutz Corp. v. Merrill Lynch & Co., 690 F.3d 98 (2d Cir. 2012) (no duty to diffuse investors in ratings absent privity or near-privity)
- Mayer v. Mylod, 988 F.2d 635 (6th Cir. 1993) (opinions actionable under §10(b) when speaker does not believe the opinion)