Ohio Police & Fire Pension Fund v. Standard & Poor's Financial Services, LLC
813 F. Supp. 2d 871
S.D. Ohio2011Background
- Five Ohio state pension funds sued rating agencies for $457M in losses from MBS purchases; purchases totaled 308 across residential and commercial MBS from ~100 issuers between 2005–2008; ratings were AAA or equivalent at issuance; plaintiffs relied on ratings in investment guidelines; complaints allege inflated ratings due to issuer-pays model, conflicts of interest, outdated models, and insufficient monitoring; defendants are S&P, McGraw-Hill, Moody’s, and Fitch (NRSROs); theories include Ohio Securities Act claims and negligent misrepresentation; court granted motion to dismiss.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Section 1707.41 claim viability with in-state nexus | Ohio funds in Ohio rely on ratings issued for in-state transactions | No nexus; ratings were not seller actions | Claim dismissed under § 1707.41 |
| Secondary liability under § 1707.43 | Rating bears responsibility for aiding unlawful sale | Predicate violation not pled; no direct misrepresentations by sellers | Claim dismissed under § 1707.43 |
| Negligent misrepresentation duty and misrepresentation | Ratings were false or misleading; duty to mislead investors | No special relationship; ratings are predictive opinions; no duty owed | Dismissed for lack of duty and non-actionable opinions |
| Choice of law and preemption impact on negligent misrepresentation | New York or Ohio law; Martin Act preemption discussed | Even under either law, duty and misrepresentation fail | Dismissed under both New York and Ohio law-based analyses |
Key Cases Cited
- In re Lehman Bros. Sec. and ERISA Litig., 684 F. Supp. 2d 485 (S.D.N.Y. 2010) (ratings not actionable misrepresentations when opinions were honestly held)
- In re Nat’l Century Fin. Ent., Inv. Litig., 580 F. Supp. 2d 630 (S.D. Ohio 2008) (special relationship requirements; limited class not shown here)
- In re Merrill Lynch Auction Rate Sec. Litig., 2011 WL 536437 (S.D.N.Y. 2011) (noting limitations of negligent misrepresentation against rating agencies)
- Abu Dhabi Commercial Bank v. Morgan Stanley & Co., Inc., 651 F. Supp. 2d 155 (S.D.N.Y. 2009) (preference for not treating ratings as actionable misrepresentations in some contexts)
- Plumbers’ Union Local No. 12 Pension Fund v. Nomura Asset Acceptance Corp., 632 F.3d 762 (1st Cir. 2011) (ratings as predictive opinions; liability limited when no duty or misrepresentation)
- Credit Alliance Corp. v. Arthur Andersen & Co., 65 N.Y.2d 536 (1985) (duty and misrepresentation requirements for negligent misrepresentation)