Tutor Perini Corporation v. Banc of America Securities LLC
842 F.3d 71
| 1st Cir. | 2016Background
- Tutor Perini (a corporate cash manager) opened a nondiscretionary account with Banc of America Securities (BAS). BAS recommended and sold Tutor Perini auction-rate securities (ARS) beginning in late 2006 and through early 2008.
- ARS were pitched as short-term, highly liquid investments; BAS materials and salesperson McGrath emphasized liquidity and said BAS routinely made support bids (but had no obligation to).
- From mid-2007 into early 2008 the ARS market deteriorated: falling indices reduced "headroom," issuers sought temporary max-rate waivers, investor demand fell, and broker-dealer inventories (including BAS’s) swelled. BAS internally discussed contagion, selective auction failures, and reducing balance-sheet exposure.
- Despite internal warnings, BAS continued recommending and selling certain formulaic (variable-max-rate) student-loan ARS to Tutor Perini in January–February 2008. Auctions then failed en masse and Tutor Perini was left with illiquid securities.
- Tutor Perini sued BAS and Bank of America, N.A. (BANA) in federal court asserting federal securities fraud (omissions and suitability), Massachusetts blue‑sky claims, negligent and intentional misrepresentation, and a Chapter 93A claim. District court granted summary judgment to defendants; the First Circuit affirmed in part, vacated in part, and remanded.
Issues
| Issue | Plaintiff's Argument (Tutor Perini) | Defendant's Argument (BAS/BANA) | Held |
|---|---|---|---|
| Whether BANA is a controlling person liable under securities/control-person theories | BANA controlled BAS decisions (employees and dual employees decided waivers and which auctions to fail) | No factual pleading or proof that BANA actually exercised control over BAS | Affirmed dismissal as to BANA — no control-person claim pled or argued below |
| Whether BAS omitted material facts about ARS market (Mass. blue‑sky, state claims) | BAS failed to disclose contemporaneous, material facts (rising inventories, shrinking headroom, waivers, internal plans to fail auctions) while actively recommending ARS | BAS disclosed generic auction-failure risks in prospectuses and website; public press also reported some ARS problems; plaintiff should have known or had access to some data | Vacated summary judgment — triable issues exist on omissions and whether disclosures were so incomplete/misleading (Grand‑Canyon scenario) |
| Whether federal securities fraud (omission-based) and presumption of reliance apply | Omitted material facts; scienter and causation issues exist; reliance presumption applies where duty to disclose exists | Prospectuses and public sources disclosed risks; no duty to disclose more; reliance not established | Vacated summary judgment as to omission-based federal claim — factual disputes preclude summary judgment; reliance is a jury question here |
| Whether suitability/unsuitability claim survives for nondiscretionary account | BAS recommended ARS unsuited to Tutor Perini’s liquidity needs; recommendations plus omissions establish suitability claim | Tutor Perini directed trades in a nondiscretionary account; suitability claims do not lie where customer directs transactions; prospectuses warned of liquidity risk | Affirmed dismissal of unsuitability claim — plaintiff waived responding to the nondiscretionary-account bar and provided no authority to overcome it |
| Negligent and intentional misrepresentation (state law) | Misrepresentation/omission claims support negligent and intentional misrepresentation causes of action | District court rejected misrepresentation claims; argued no false statements identified | Negligent-misrepresentation claim vacated from summary judgment (omissions raise triable issues); intentional-misrepresentation claim affirmed dismissed (plaintiff waived argument on appeal) |
| Chapter 93A unfair/deceptive practice claim | Deceptive omissions and misleading sales practices support Chapter 93A relief | District court tied Chapter 93A dismissal to securities claims dismissal | Vacated dismissal of Chapter 93A claim (because securities-omission claims present triable issues) |
Key Cases Cited
- Collazo–Rosado v. Univ. of P.R., 765 F.3d 86 (1st Cir. 2014) (standard of review on summary judgment and drawing inferences for nonmoving party)
- Tropigas de P.R., Inc. v. Certain Underwriters at Lloyd's of London, 637 F.3d 53 (1st Cir. 2011) (definition of genuine issue and materiality)
- Aldridge v. A.T. Cross Corp., 284 F.3d 72 (1st Cir. 2002) (control-person liability requires actual exercise of control)
- Marram v. Kobrick Offshore Fund, Ltd., 809 N.E.2d 1017 (Mass. 2004) (Massachusetts blue‑sky statute elements; buyer need not show reliance or seller’s bad faith)
- Patsos v. First Albany Corp., 741 N.E.2d 841 (Mass. 2001) (broker duty in nondiscretionary accounts to inform client of risks of particular securities)
- Hill v. Gozani, 638 F.3d 40 (1st Cir. 2011) (risk disclosures are not insulating when they are generic or understated; near-certain risks may still be actionable)
- Backman v. Polaroid Corp., 910 F.2d 10 (1st Cir. 1990) (disclosure completeness principle; truthful partial disclosures can be misleading if they omit impending disaster)
- Stoneridge Inv. Partners, LLC v. Scientific‑Atlanta, Inc., 552 U.S. 148 (U.S. 2008) (omission-based liability and presumption of reliance where duty to disclose exists)
- In re Smith & Wesson Holding Corp. Sec. Litig., 669 F.3d 68 (1st Cir. 2012) (elements of an omissions-based federal securities claim)
- First Marblehead Corp. v. House, 473 F.3d 1 (1st Cir. 2006) (negligent-misrepresentation under Massachusetts law can be based on omissions)