SRM Global Master Fund Ltd. Partnership v. Bear Stearns Companies
829 F.3d 173
2d Cir.2016Background
- SRM Global Master Fund purchased Bear Stearns securities and entered swap agreements in 2007–2008 and alleges it relied on misstatements in Bear’s 2006 and 2007 Form 10-Ks (audited by Deloitte).
- Bear, its officers, and Deloitte were defendants in earlier consolidated putative class actions arising from Bear’s 2008 collapse; SRM opted out of the class settlement and filed its own complaint in April 2013.
- SRM asserted claims under Section 10(b) and Rule 10b-5, Section 20(a), and New York common-law fraud (including "holder" claims).
- Defendants moved to dismiss as time-barred under the five-year statute of repose, 28 U.S.C. § 1658(b)(2). SRM argued American Pipe tolling applied because an earlier putative class complaint was filed in March 2008.
- The district court rejected tolling, dismissed the federal securities claims as time-barred, dismissed Section 20(a) for lack of a primary violation, and dismissed the state-law fraud claims for failure to plead actual reliance. SRM appealed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether American Pipe tolling applies to 28 U.S.C. § 1658(b)(2) (five-year statute of repose for private securities claims) | American Pipe tolls the repose period because a putative class action was filed within five years | Statute of repose is substantive and not subject to equitable tolling or Rule 23-based expansion; American Pipe cannot extend repose | American Pipe tolling does not apply to § 1658(b)(2) — federal claims time-barred |
| Whether SRM alleged any misrepresentations within § 1658(b)(2)’s five-year window | Earlier disclosures and alleged misstatements sufficed to plead timely misrepresentations | Complaint pleads no actionable misrepresentations within five years of SRM’s filing | No actionable misrepresentations within five years; Section 10(b)/Rule 10b-5 dismissed |
| Whether Section 20(a) claim survives absent a primary Section 10(b) violation | Section 20(a) could stand on other allegations | Section 20(a) requires a primary violation; if §10(b) dismissed, §20(a) fails | Section 20(a) dismissed for lack of primary violation |
| Whether SRM adequately pleaded New York common‑law fraud (including holder claims) by alleging reliance | SRM alleged it relied on the 10-Ks in deciding to buy, hold, or unwind swaps | Allegations are general and do not plead that SRM actually bought/sold/unwound in reliance; holder claims inadequately pleaded | Common-law fraud and holder claims dismissed for failure to plead justifiable reliance |
Key Cases Cited
- American Pipe & Constr. Co. v. Utah, 414 U.S. 538 (1974) (class-action tolling principle)
- Merck & Co. v. Reynolds, 559 U.S. 633 (2010) (statute of repose concept in securities law)
- Police & Fire Ret. Sys. of City of Detroit v. IndyMac MBS, Inc., 721 F.3d 95 (2d Cir. 2013) (American Pipe does not toll Securities Act repose; controlling precedent applied)
- P. Stolz Family P'ship L.P. v. Daum, 355 F.3d 92 (2d Cir. 2004) (distinguishing statutes of limitations from statutes of repose)
- Wal‑Mart Stores, Inc. v. Dukes, 564 U.S. 338 (2011) (Rule 23 cannot abridge or enlarge substantive rights under Rules Enabling Act)
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) (pleading standard for plausibility)
- ECA, Local 134 IBEW Joint Pension Tr. of Chi. v. JP Morgan Chase Co., 553 F.3d 187 (2d Cir. 2009) (Section 20(a) requires an underlying primary violation)
- ACA Fin. Guar. Corp. v. Goldman, Sachs & Co., 25 N.Y.3d 1043 (2015) (New York requires justifiable reliance to plead fraud)