Pennsylvania Public School Employees' Retirement System v. Morgan Stanley & Co.
772 F.3d 111
| 2d Cir. | 2014Background
- Cheyne SIV collapse and rating by S&P and Moody's; Morgan Stanley involved in structuring and marketing of notes; Cheyne SIV notes issued to sophisticated investors; PSERS and Commerzbank joined later as plaintiffs; district court denied class certification, dismissed Commerzbank standing and PSERS for lack of diversity; appellate court remanded on standing and preserved certification questions to New York Court of Appeals.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Is PSERS properly dismissed for lack of complete diversity? | PSERS is an arm of Pennsylvania, non-diverse; supplemental jurisdiction should apply. | Complete diversity required; PSERS destroys diversity and jurisdiction. | Yes; PSERS dismissal affirmed. |
| Was the district court abuse in denying class certification? | Common issues predominate; numerosity sufficient for class. | Numerosity and predominance not met; individual issues overwhelm. | No abuse; denial affirmed. |
| Can Commerzbank establish standing via assignment of fraud claims, and can Morgan Stanley be liable if standing exists? | Transfers from DAF to Dresdner to Commerzbank conferstanding; Morgan Stanley aided/caused fraud. | Standing not shown; misstatement at issue attributed to rating agencies; liability uncertain. | Standing question unsettled; certification to NY Court of Appeals warranted; if standing, further question on Morgan Stanley liability may be certified. |
Key Cases Cited
- Exxon Mobil Corp. v. Allapattah Servs., Inc., 545 U.S. 546 (U.S. 2005) (complete diversity is an absolute prerequisite to federal jurisdiction and can contaminate the action when destroyed by a non-diverse party)
- Merrill Lynch & Co. v. Allegheny Energy, Inc., 500 F.3d 171 (2d Cir. 2007) (contamination theory; diversity requirements track bright-line rule)
- Robidoux v. Celani, 987 F.2d 931 (2d Cir. 1993) (Robidoux factors inform joinder vs. class certification decisions)
- In re Lorazepam & Clorazepate Antitrust Litig., 631 F.3d 537 (D.C. Cir. 2011) (complete diversity principle reaffirmed after Exxon)
- Amgen Inc. v. Conn. Ret. Plans & Trust Funds, 133 S. Ct. 1184 (2013) (fraud-on-the-market-like considerations do not collapse reliance in NY state law)