Phelps v. Stomber, 883 F. Supp. 2d 188

CCC was a Guernsey-registered, closed-end investment fund that used highly leveraged repo financing to invest in RMBS and sold Class B shares outside the US and RDSs in the US to sophisticated investors; total capital raised through private placements was about $600 million.
The Offering Memorandum disclosed extensive leverage, a 20% liquidity cushion, and that the cushion could be changed without shareholder vote; it warned the cushion might not satisfy margin calls under severe conditions.
Pre-offering events included board approval to use the liquidity cushion for RMBS purchases, a bridge loan of $191 million, and a postponement of the Offering with a Supplemental Offering Memorandum updating terms and numbers.
After the Offering, CCC faced a liquidity crisis with margin calls and haircuts, the cushion fell toward zero, and CCC ultimately collapsed and liquidated in March 2008.
Plaintiffs asserted four sets of claims (federal offering, federal aftermarket, common law offering, common law aftermarket), plus a UK FSMA claim and a Dutch law alternative; the action was consolidated with related cases in this District.
The court granted motions to dismiss the consolidated complaint in full, applying Morrison to bar aftermarket claims and finding lack of falsity, loss causation, or reliance for the Offering and common law claims; the Wu action was deemed duplicative and dismissed.

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether federal offering claims survive under 10(b)/10b-5	Plaintiffs contend omissions/misstatements were material and caused losses.	Defendants argue the Offering disclosed risks; alleged omissions are not actionable.	Counts I–VI dismissed for failure to plead falsity and loss causation.
Whether aftermarket federal claims are barred by Morrison	UST claims arose from US-based purchases.	Morrison bars extraterritorial application; aftermarket purchases occurred on a foreign exchange.	Counts VII–VIII dismissed under Morrison.
Whether common law offering claims are pled with sufficient reliance	Affirmative reliance presumption available; misrepresentations alleged.	No actionable misrepresentation or adequate reliance pleaded; Affiliated Ute not applicable to common law claims.	Counts III–IV dismissed for lack of pleaded misrepresentation and reliance; Affiliated Ute not applied to common law claims.
Whether UK/Netherlands claims survive and choice-of-law applies	FSMA claim should apply; Netherlands for aftermarket.	UK/Netherlands nexus insufficient; US/DC law should apply.	FSMA claim dismissed; DC law applied to aftermarket common law claims; Dutch claim dismissed; DC law applied to offering/common law claims.
Whether Wu case is duplicative and should be dismissed	Wu raises similar claims.	Duplication to evade limitations; transfer not warranted.	Wu case dismissed as duplicative.

Morrison v. National Australia Bank Ltd., 563 U.S. 781 (2010) (bright-line transactional test for Section 10(b))
Dura Pharmaceuticals, Inc. v. Broudo, 544 U.S. 334 (2005) (loss causation requires that the loss be caused by the misrepresentation being revealed)
XM Satellite Radio Holdings, Inc. Sec. Litig., 479 F. Supp. 2d 165 (D.D.C. 2007) (materiality and pleading requirements in 10b-5 cases; loss causation standards)
Affiliated Ute Citizens of Utah v. United States, 406 U.S. 128 (1972) (Affiliated Ute presumption of reliance in omissions cases (federal))
Kowal v. MCI Communications Corp., 16 F.3d 1271 (D.C. Cir. 1994) (reliance and materiality pleading standards in DC fraud cases; not all forms of presumption apply to common law claims)
In re Interbank Funding Corp. Sec. Litig., 668 F. Supp. 2d 44 (D.D.C. 2009) (discusses use of Affiliated Ute presumption in related context)
In re Airgate PCS, Inc. Sec. Litig., 389 F. Supp. 2d 1360 (N.D. Ga. 2005) (consideration of supplements in evaluating misstatements/omissions)