OPINION AND ORDER
Plaintiff Pharos Capital Partners, L.P. brings this action against defendant Credit Suisse Securities LLC for fraud in connection with a failed $12 million equity investment. In 2002 Pharos purchased preferred stock in'National Century Financial Enterprises, Inc. Credit Suisse acted as a co-placement agent on the stock offering, and, according to Pharos, should have told Pharos that National Century was not operating its business in a manner consistent with what was represented to Pharos.
Credit Suisse moves for summary judgment on the grounds that the parties entered into a Letter Agreement in which Pharos acknowledged that it was “a sophisticated institutional investor” who was “relying exclusively” on its own due diligence investigation and who would bear the risk of “an entire loss” of its investment. The Agreement further stated that any non-public information known by Credit Suisse about National Century “need not be provided” to Pharos.
Though Pharos offers many purported reasons for discounting the plain language of the Agreement, “what matters when litigation breaks out is what the parties actually signed.” Rissman v. Rissman,
I. BACKGROUND
Pharos is a limited partnership that makes private equity investments for its limited partner investors. In 2002 Pharos had four managing partners, whose unanimous consent was required for any proposed investment. Credit Suisse (“CS”) Ex. 73 at PHAROS00002030; Pharos (“Ph.”) Ex. 22, Crants Dep. at 49. Those managing partners were Bob Crants, Mike Devlin, Dale LeFebvre, and Kneeland Youngblood. Ph. Ex. 22, Crants Dep. at 49-50. Crants, a Princeton graduate, and Devlin, a Duke Law School graduate, first met while working at Goldman Sachs. Ph. Ex. 22, Crants Dep. at 20-22; Ph. Ex. 34, Devlin Dep. at 14-15. Before forming Pharos, they formed several other firms together. Ph. Ex. 22, Crants Dep. at 20-22. LeFebvre graduated from Harvard Law School and Harvard Business School, and worked for Morgan Stanley before joining Pharos. CS Ex. 73 at PHAROS00002022. Youngblood came to Pha
On February 25, 2002, Bob Crants sent the following email to Heather Nicolau of Credit Suisse,
We haven’t seen any deals from you in a while and were wondering what you were working on and what is in the pipeline. Clearly, we are looking for healthcare primarily, but we would like to see anything that is over $10 MM in revenues. I look forward to hearing from you. Thanks. Bob
CS Ex. 76.
At the time of the email, Credit Suisse was acting as a co-placement agent for National Century in connection with a $190 million private placement of securities. Credit Suisse and National Century had entered into an Engagement Letter whereby Credit Suisse agreed to act as placement agent, along with the Shattan Group, LLC, and use reasonable efforts to arrange for the private placement of equity securities. CS Ex. 54.
Nicolau responded to Crants,
We are currently raising equity and mezzanine for a company called NCFE. It is a profitable healthcare receivables company. Would you be interested in participating in a transaction for this type of company? I can send you some information.
We are also working with a number of public companies. Do you invest in public companies in addition to private?
CS Ex. 76.
Crants explained to Nicolau that Pharos did not invest in public companies, and added,
[W]e actually know quite a bit about the healthcare receivables business & would love to take a look. I look forward to getting some materials on it.
Id. Nicolau then sent Pharos a private placement memorandum (“PPM”) for the preferred stock offering. CS Ex. 78, Nicolau Dep. at 115; Ph. Ex. 21.
After receiving the PPM, Pharos requested that Credit Suisse send any “easy to forward due diligence materials.” Ph. Ex. 292. A “data room” of due diligence materials was maintained for potential investors in the private placement offering. Ph. Ex. 299, Nicolau Dep. at 66. Credit Suisse directed the Shattan Group to send three boxes of the data room materials to Pharos on March 1, 2002. Ph. Exs. 52, 241. The materials included: yearly financial audits; unaudited financial data, including income statements and balance sheets; operational materials for National Century and its note-issuing entities, NPF VI and NPF XII; PPMs for note issuances by NPF VI and NPF XII; and debt information. CS Exs. 82-84.
Pharos reviewed the due diligence materials and had follow-up communications with Credit Suisse. Ph. Ex. 22, Crants Dep. at 104. Dale LeFebvre emailed Credit Suisse’s David Hurwitz on March 5, 2002 asking if the National Century deal was “all it’s cracked up to be.” CS Ex. 213. Hurwitz responded,
I do believe NCFE is what it is cracked up to be. It’s extremely profitable and has been for many years. They are the dominant player in the industry and still have great growth opportunities. I do not remember our group (and we’ve raised over $5 billion in equity) ever having worked with a company that generates as much cash flow as NCFE. I think there are some initiatives the company needs to undertake regarding systematizing their business, but I believe the company has already made some important steps forward in this regard.
Also in March 2002, Crants had a telephone conversation with Credit Suisse’s Todd Fasanella, who responded to several lines of inquiry. Crants asked about how the NPF reserve accounts worked; Fasanella gave an answer consistent with what the PPM described. Ph. Ex. 22, Crants Dep. at 124. Crants asked about the market for the NPF notes, and Fasanella said the market had “infinite depth” for AAA-rated notes. Id. at 125. Fasanella stated that “there would be a cost” if the notes were downgraded because there would be less demand for sub-AAA notes. Id. Crants confirmed with Fasanella that National Century itself was not rated and that the NPF trusts were bankruptcy remote. Id. at 125-27. When Crants asked about what would happen if one of National Century’s clients went bankrupt, Fasanella gave an “incomplete answer.” Id. at 126.
Pharos reported to Credit Suisse on March 12, 2002 that it had completed its due diligence investigation, and had three remaining items to attend to: (1) conducting a site visit at National Century’s offices in Columbus, Ohio; (2) obtaining a list from National Century of three customer references; and (3) reviewing the final terms of equity financing. Ph. Ex. 30. Pharos also stated that it would be able to close on the deal as early as the next week. Id.
At the request of Pharos, Credit Suisse helped arrange a site visit on March 19, 2002, see Ph. Ex. 30, and forwarded to National Century a list of questions for which Pharos wanted “to hear the responses directly from management.” CS Ex. 81. Three Pharos representatives met directly with three National Century representatives, including CEO Lance Poulsen, for two to three hours. CS Ex. 70, Devlin Dep. at 77-78. They toured National Century’s offices and were shown a PowerPoint presentation. No one from Credit Suisse was present, although David Hurwitz listened on the phone while the parties met in the conference room. Id.
The next day, Mike Devlin emailed David Hurwitz to say that Pharos “loved the company and the management team” and was ready to close the deal at quarter’s end. Ph. Ex. 251. Devlin also sent an email that day to Lance Poulsen saying that Pharos was “deeply impressed” with National Century, “wantfed] to be a part of it,” and would be ready to close by quarter’s end, pending review of closing documents. CS Ex. 112. On March 25, 2002, Crants informed Hurwitz that Pharos had completed its due diligence and was “enthusiastic about closing.” Ph. Ex. 252.
The deal between Pharos and National Century did not close as quickly as Pharos had anticipated. Investment bank Goldman Sachs had been considering since May 2001 whether to serve as lead investor on the private equity offering. Pharos was aware of Goldman’s potential involvement. CS Ex. 120. Indeed, co-investors typically rely on the presence of a lead investor in private equity transactions. CS Ex. 121, Expert Report of John A. Krasznekewicz at ¶ 68. After conducting due diligence, Goldman decided not to invest in the National Century offering. CS Ex. 122, DeLuise Dep. at 33, 41.
Pharos continued update its due diligence during April, May, and June of 2002. Ph. Ex. 22, Crants Dep. at 117. Pharos had direct contact with Lance Poulsen during this time. Poulsen emailed Mike Devlin on May 10, 2002 to explain that Goldman likely would pull out as an investor. CS Ex. 113. Devlin responded, “Notwithstanding Goldman, our commitment and enthusiasm towards NCFE remains un
Thanks for the material. The numbers look great, congratulations. Regarding Goldman’s questions, we’ve waded through all of that and just don’t see a material issue. Clearly there’s been some complex deals done with some current and former clients, but from our point of view, that’s somewhat to be expected, and certainly justifiable when the primary beneficiary is NCFE!
CS Ex. 111. Poulsen and Devlin had another email exchange in early June evidencing that the parties were preparing to close on the deal. CS Ex. 114; see also Ph. Exs. 37, 80, 129 (showing that Pharos and National Century were negotiating closing documents in late May and early June of 2002).
On June 12, 2012, Heather Nicolau of Credit Suisse emailed Mike Devlin a “standard letter” that she requested Pharos to sign. Ph. Ex. 294. The letter stated that Pharos was “relying exclusively” on its own due diligence and would bear the risk of an entire loss and that Credit Suisse had made no representations as to National Century or the credit quality of the securities and had no duty to disclose nonpublic information to Pharos. Id. Devlin forwarded the letter to Bob Crants, saying, “Clearly we’re not signing this [as is]. It’s an odd and obnoxious concept really.” Ph. Ex. 20. Pharos referred the matter to its legal counsel, who drafted a version that struck out much of the proposed agreement and contained some other minor revisions. Ph. Ex. 296; CS Ex. 60, Franck Dep. at 159. Counsel’s version struck out the language stating that Pharos was relying exclusively on its own due diligence and would bear the risk of an entire loss. Ph. Ex. 296. It also struck out the language stating that Credit Suisse had made no representations about National Century and owed no duty to disclose non-public information. Id.; see also Ph. Ex. 22, Crants Dep. at 178-85.
On July 8, 2002, Pharos signed a Letter Agreement that incorporated some of the revisions proposed by Pharos but retained the language regarding reliance, risk, representations, and disclosure. Ph. Ex. 293. The Agreement provided that in connection with the purchase of preferred stock in National Century, Pharos represented to and agreed with Credit Suisse (“the Agent”):
(a) that we are a sophisticated institutional investor and have such knowledge and experience in financial and business matters and expertise in assessing credit risk, that we are capable of evaluating the merits, risks and suitability of investing in the Securities, that we have conducted our own due diligence investigation of the Company, that we are relying exclusively on our due diligence investigation and our own sources of information and credit analysis with respect to the Securities and that we are able to bear the economic risks of and an entire loss of our investment in the Securities;
(b) that (i) neither the Agent nor any Affiliate (as defined herein) has been requested to or has provided us with any information or advice with respect to the Securities nor is such information or advice necessary or desired, (ii) neither the Agent nor any Affiliate has made or makes any representation as to Company or the credit quality of the Securities, and (in) the Agent and any Affiliate may have acquired, or during the term of the Securities may acquire, non-public information with respect to the Company,*821 which we agree need not be provided to us;
(f) that, in connection with the issue and purchase of Securities, neither the Agent nor any of its Affiliates have acted as our financial advisor or fiduciary
Ph. Ex. 293.
Mike Devlin signed the Agreement for Pharos. He formerly had served as a transactional attorney at a Wall Street law firm and also a vice president of a business development group at Goldman Sachs. CS Ex. 70, Devlin Dep. at 13-15, 35-37. Devlin testified that he had reviewed the Agreement carefully before signing it and had worked with counsel in connection with the Agreement. Id. at 294. Despite believing the Agreement to be factually inaccurate, “we certainly decided to sign it.... To do this transaction and to have an ongoing relationship with CSFB.” Id. at 303. Bob Crants testified that though Pharos “questioned quite considerably” whether to sign the Agreement, “the discussion about signing it stopped because we did want to close.” Ph. Ex. 22, Crants Dep. at 186.
National Century and Pharos entered into a Preferred Stock Purchase Agreement on July 8, 2002 whereby Pharos purchased $12 million worth of National Century Series B Convertible Preferred Stock. Ph. Ex. 304. Credit Suisse received a placement fee of $450,000 in connection with the Pharos investment. Ph. Ex. 297. It is undisputed that the stock fully lost its value when National Century filed for bankruptcy on November 18, 2002. It is further undisputed that National Century committed a massive fraud, as has been described in full detail in several court opinions. See, e.g., U.S. v. Poulsen,
Pharos originally filed suit against Credit Suisse and other defendants in March 2003 in this court. The Pharos action later became consolidated with many other cases as part of the National Century multidistrict investment litigation. Credit Suisse is the only defendant remaining in the Pharos action. Pharos alleges that Credit Suisse had knowledge of the material aspects of National Century’s fraud and misrepresented to Pharos how National Century ran its operations. These misrepresentations allegedly were made in offering materials Pharos received and in two communications Credit Suisse had with Pharos in March 2002 (the Hurwitz email and the Fasanella phone call). Pharos further alleges that Credit Suisse should have disclosed facts about National Century’s fraud when Pharos conducted its due diligence investigation. In an earlier order, the court dismissed the conspiracy claim brought by Pharos against Credit Suisse, but allowed the fraud-based claims and Ohio Securities Act claims to survive Credit Suisse’s motion to dismiss. See In re Nat’l Century Fin. Enterprises, Inc., Inv. Litig.,
This matter is now before the court on Credit Suisse’s motion for summary judgment.
II. STANDARD OF REVIEW
Under Fed.R.Civ.P. 56(c), summary judgment is proper “if the pleadings, the discovery and disclosure materials on file,
The “mere existence of some alleged factual dispute between the parties will not defeat an otherwise properly supported motion for summary judgment; the requirement is that there be no genuine issue of material fact.” Anderson v. Liberty Lobby, Inc., All U.S. 242, 247-48,
A district court considering a motion for summary judgment may not weigh evidence or make credibility determinations. Daugherty,
III. CLAIMS FOR PRIMARY LIABILITY
Pharos alleges that primary liability must be placed on Credit Suisse for the loss of its equity investment in National Century. This is so, Pharos argues, because it relied on Credit Suisse’s misrepresentations and material omissions about National Century and how the NPF note-issuing programs were operated. Pharos advances three causes of action against Credit Suisse for primary liability: fraud, negligent misrepresentation, and violations of the Ohio Securities Act.
A. Fraud and Negligent Misrepresentation
The parties argue at length over whether the law of New York or Ohio should apply to the fraud and negligent misrepresentation claims. Credit Suisse believes that New York law should apply because it dealt with Pharos from its New York offices and because the Letter Agreement
Justifiable reliance is an element of both a fraud and a negligent misrepresentation claim. See Lama Holding Co. v. Smith Barney Inc.,
After examining the relevant factors, the court finds as a matter of law that Pharos cannot establish justifiable reliance. Pharos was a private equity fund with about $160 million in committed capital in 2002. CS Ex. 77. It was Pharos who first approached Credit Suisse, looking for an investment deal in the healthcare sector. When Credit Suisse mentioned that it was raising equity for National Century, Pharos said it already knew “quite a bit about the healthcare receivables business” and wanted to take a look. CS Ex. 76. Pharos, which considers itself skilled at doing due diligence, had access to “bankers boxes full of materials,” conducted “extensive due diligence,” communicated directly with National Century’s management, and met with them in person during a site visit. Ph. Ex. 22, Crants Dep. at 78, 103; CS Ex. 64, Pl.’s First Am. Answer to Interrog. No. 4.
This is not a case where Pharos was shielded from adverse information about National Century. Pharos knew that Goldman Sachs had decided not to serve as lead investor. It received a lengthy document outlining some of the areas of concern that Goldman had, particularly National Century’s practice of engaging in related-party transactions, and Pharos stated that it did not see a “material issue.” CS Exs. 110, 111. Pharos admits that it also learned, during its due diligence, that National Century had failed to maintain reserve accounts in the NPF programs at the levels required by the Master Indentures governing those programs. Ph. Ex. 22, Crants Dep. at 90-94. Pharos knew as well that National Century’s equity offering sought to raise $190 million and
The Letter Agreement was the product of negotiations between the parties. When Credit Suisse circulated a proposed agreement, Pharos found it to be “obnoxious” and engaged counsel to craft revisions. Ph. Ex. 20. After Credit Suisse incorporated some of the revisions, Pharos “elected to sign the document” and close on the deal with National Century. Ph. Ex. 22, Crants Dep. at 173, 186 (“[0]ur changes were not taken.... And at that point the discussion about signing it stopped because we did want to close.”). Pharos confesses that it does not “offer up signatures unnecessarily” and that it was “quite confident that [Credit Suisse] had information that [Pharos] didn’t have.” Id. at 118,186.
The language of the Letter Agreement is clear. It states that Pharos is a “sophisticated institutional investor” who was “relying exclusively” on its own due diligence investigation, its own sources of information, and its own credit analysis in deciding to invest in National Century preferred stock. Ph. Ex. 293. Indeed, Pharos represented in the Agreement that Credit Suisse’s information and advice was not “necessary or desired,” that Credit Suisse had made no representations about National Century or the credit quality of the securities, and that any non-public information Credit Suisse possessed about National Century “need not be provided” to Pharos. Id. The parties referred to the Letter Agreement as a “big boy” agreement because Pharos in essence said that it knew what it was doing and could take care of itself. See Extra Equipamentos E Exportacao Ltda. v. Case Corp.,
Thus, the clear language of the Letter Agreement and the surrounding factors render any claimed reliance by Pharos unjustifiable. The case law strongly supports this conclusion in the context of sophisticated parties who have agreed to no-reliance language.
To allow Pharos to proceed any further with its fraud and negligent misrepresentation claims would upset the risk allocation the parties bargained for. Pharos agreed that it was relying exclusively on its own investigation and analysis and that it would bear, as to Credit Suisse, 100% of the risk of loss. The Seventh Circuit in Rissman emphasized that securities transactions would be “impossibly uncertain” if courts fail to protect the primacy of written agreements entered into by sophisticated parties.
Pharos offers a number of reasons why its claims should survive summary judgment. Each reason is unavailing. It argues that the reasonableness of reliance is a fact-intensive issue that cannot be resolved at the summary judgment stage. The court agrees that the issue depends on context, see Brown,
Pharos next contends that Credit Suisse had an independent duty to disclose material information to Pharos because Credit Suisse chose to act as National Century’s placement agent. Picking up from language in this court’s order on Credit Suisse’s motion to dismiss, Pharos contends that Credit Suisse assumed a duty to disclose because it chose to speak by providing the PPM to Pharos. See In re Nat’l Century Fin. Enterprises, Inc., Inv. Litig.,
Again citing this court’s opinion on the motion to dismiss, Pharos argues that disclaimers are not enforceable when the party making them is engaged in fraud. See Nat’l Century,
Pharos next argues under New York law that disclaimers are enforceable only if they track the substance of the alleged misrepresentation. See Danann Realty Corp. v. Harris,
Also under New York law, Pharos contends that disclaimers do not preclude a party from claiming reliance on an alleged misrepresentation of a fact that is peculiarly within the other party’s knowledge. See DIMON Inc. v. Folium, Inc.,
As a prospective equity investor, Pharos had access to boxes of data room materials, conducted extensive due diligence, and communicated directly with National Century’s management. After becoming aware that Goldman had withdrawn as lead investor, Pharos received a detailed listing of Goldman’s concerns and National Century’s responses, and Pharos told National Century that it did not see a material issue with the related-party transactions. See Tr. of Nov. 16, 2009 Hearing at 158 (counsel for Pharos admitting that it had knowledge of certain related-party transactions). Pharos moreover knew of the Fitch downgrade and the delayed 2001 audited financial statement, yet it remained unwavering in its enthusiasm to invest in National Century. Pharos then represented in the Letter Agreement that it, being a sophisticated investor, had the “knowledge and expertise” to independently conduct due diligence and assess the merits and risks of the equity investment. Pharos further stated in the Agreement
Finally, Pharos argues that the Letter Agreement should be disregarded because it was not signed until “late” in the process and Pharos was led to believe that the Agreement was “standard” and had to be signed in order to complete the stock purchase. Pharos fails to cite any legal basis for why these considerations would invalidate the Agreement, but they could charitably be construed as an argument that Pharos was under duress. “To avoid a contract on the basis of duress, a party must prove coercion by the other party to the contract. It is not enough to show that one assented merely because of difficult circumstances that are not the fault of the other party.” Blodgett v. Blodgett,
Thus, the court finds that Credit Suisse is entitled to summary judgment as to the fraud and negligent misrepresentation claims.
B. Ohio Revised Code Section 1707.41
The Ohio Securities Act provides,
[A]ny person that, by a written or printed circular, prospectus, or advertisement, offers any security for sale, or receives the profits accruing from such sale, is liable, to any person that purchased the security relying on the circular, prospectus, or advertisement, for the loss or damage sustained by the relying person by reason of the falsity of any material statement contained therein or for the omission of material facts, unless the offeror or person that receives the profits establishes that the offeror or person had no knowledge of the publication prior to the transaction complained of, or had just and reasonable grounds to believe the statement to*828 be true or the omitted facts to be not material.
O.R.C. § 1707.41(A). Pharos asserts that Credit Suisse violated this provision because the PPM Credit Suisse supplied to Pharos contained material misrepresentations.
Pointing again to the Letter Agreement, Credit Suisse argues that the § 1707.41 claim fails because Pharos cannot establish justifiable reliance. Pharos responds, in passing in its response brief, that reliance need not be justifiable; Pharos clarified at oral argument that its position is based on the absence of the words “reasonably” or “justifiably” in front of “relying” in § 1707.41(A). See Tr. of Nov. 16, 2009 Hearing at 167.
The court has found little ease law on the issue, but the cases do not favor Pharos’s interpretation. Two Ohio courts of appeals, though not directly ruling on the issue, have imposed a reasonableness requirement. In Federated Mgmt. Co. v. Coopers & Lybrand, the court held that summary judgment could not be granted against a § 1707.41 claim because the plaintiff had demonstrated that a jury could find both that the plaintiff had relied on a prospectus and that “the reliance was reasonable.”
Courts interpreting Ohio securities law have often looked to parallel provisions of federal law. See, e.g., In re Columbus Skyline Securities, Inc.,
Pharos has not cited any authority for why a party whose reliance is unjustifiable should still have recourse under § 1707.41(A). Putting aside a fraud-on-the-market theory, the requirement of reasonable reliance is an important one for claims of primary liability under securities law. See Aschinger v. Columbus Showcase Co.,
As discussed above in connection with the fraud and negligent misrepresentation claims, Pharos cannot establish justifiable reliance; thus, summary judgment is granted on the § 1707.41(A) claim.
IV. CLAIMS FOR SECONDARY LIABILITY
A. Ohio Revised Code Section 1707.43
1. Predicate Violation Based on Section 1707.41
Ohio law imposes joint and several liability on any person who “has participated in or aided the seller in any way” in making a sale that violates Chapter 1707. O.R.C. § 1707.43(A). Secondary liability cannot be imposed if the plaintiff fails to establish a primary violation of Chapter 1707. In the complaint, Pharos alleged that National Century committed a primary violation of § 1707.41 by issuing a PPM containing misrepresentations about how National Century operated.
Credit Suisse’s motion for summary judgment contends that Pharos cannot prove a predicate violation of § 1707.41 by National Century because discovery failed to uncover any false statements in the PPM on which Pharos relied. After Pharos initially received the PPM, it proceeded to conduct extensive due diligence and had numerous direct interactions with National Century’s management. Certain aspects of what Pharos claims was misrepresented in the PPM, such as the related-party transactions and the failure to maintain reserve accounts at certain levels, were later disclosed by National Century. See Ph. Ex. 22, Crants Dep. at 88-94 (acknowledging that Pharos knew of related-party transactions and of reserve accounts dipping below required levels). Credit Suisse argues that Pharos, having learned so much, cannot show that it relied on any alleged misrepresentations made in the initial document. Credit Suisse challenges Pharos to “identify] a single false statement in the PPM that it reasonably relied on” when it finally bought the stock. CS Mot. for Summ. J. at 90.
Pharos has no good answer to Credit Suisse’s challenge. Indeed Pharos devotes a single paragraph to the matter and contends that Credit Suisse admitted in its briefs that Pharos relied on the PPM. But this mischaracterizes what Credit Suisse said about the PPM. Credit Suisse concedes that it sent the PPM to Pharos and argues that Pharos read certain disclaimers in the PPM (that Credit Suisse was not guaranteeing the accuracy of the information in the PPM, that investors should conduct their own due diligence, and that they should rely only on representations made in a final purchase agreement). See CS Ex. 57; CS Ex. 61, Crants Dep. at 72-73; CS Ex. 70, Devlin Dep. at 265-66. However, nowhere has Credit Suisse conceded that Pharos reasonably relied on false statements in the PPM.
Pharos also points to the fact that National Century committed a massive fraud — a point Credit Suisse does not dispute. See CS Mot. for Summ. J. at 36-42. Even so, the fact that National Century defrauded some investors does not mean that it defrauded Pharos in particular or in the manner proscribed by § 1707.41. That section is not violated unless there is reliance upon a false statement in written offering materials. Pharos has failed to direct the court to any evidence from which a jury could reasonably find that Pharos justifiably relied on a false statement made by National Century in the PPM.
The court is unable to locate facts from which a jury could reasonably find that Pharos, in making its decision to invest, relied on a misrepresentation by National Century in the PPM. Pharos sometimes cites the PPM as a document that it received and reviewed. See, e.g., Ph. Ex. 34, Devlin Dep. at 264; CS Ex. 71, LeFebvre Dep. at 174. However, Pharos does not pinpoint any specific alleged misrepresentations by National Century in the PPM on which it relied. For instance, in response to interrogatories asking Pharos on which documents it relied, Pharos stated that it received the PPM but cited other documents (a legal opinion letter, unaudited financial forecasts attributed to Credit Suisse, the Hurwitz email) as the particular ones it relied on when deciding to invest. CS Ex. 63, PL’s Answer to Interrog. Nos. 4 and 5; CS Ex. 64, PL’s First Am. Answer to Interrog. No. 4. Pharos also relied on the strength of National Century’s management, see Ph. Ex. 251 (Devlin saying the day after the site visit that “we loved the company and the management team”), and took comfort in the fact that Poulsen himself was putting his own money in the deal, see Ph. Ex. 23, Crants Dep. at 242. Managing partner Bob Crants, who was Pharos’s Rule 30(b)(6) corporate representative, stated in his deposition that Pharos relied on the PPM. Ph. Ex. 22, Crants Dep. at 65-66. Yet his testimony went no further than this — a general statement that Pharos relied on the PPM. Crants did not identify any allegedly false representation within the PPM, and attributable to National Century, on which Pharos reasonably relied.
It is appropriate at the summary judgment stage for the court to expect Pharos to demonstrate reliance with a greater degree of specificity than a general statement that it relied on the PPM. Indeed, more than that is required at the pleading stage. See Fed.R.Civ.P. 9(b) (complaint must “state with particularity the circumstances constituting fraud”); U.S. ex rel. Marlar v. BWXT Y-12, L.L.C.,
The court thus finds that Pharos has failed to establish a primary violation of § 1707.41 for purposes of its § 1707.43 secondary liability claim against Credit Suisse.
2. Predicate Violation Based on Section 1707.44
Pharos argues that even if it cannot establish a primary violation of § 1707.41, it can still show that National Century violated paragraphs (B)(4), (G), and (J) of § 1707.44, which provide:
(B) No person shall knowingly make or cause to be made any false representation concerning a material and relevant fact, in any oral statement or in any prospectus, circular, description, application, or written statement, for any of the following purposes: ... (4) Selling any securities in this state;
(G) No person in purchasing or selling securities shall knowingly engage in any act or practice that is, in this chapter, declared illegal, defined as fraudulent, or prohibited;
(J) No person, with purpose to deceive, shall make, issue, publish, or cause to be made, issued, or published any statement or advertisement as to the value of securities, or as to alleged facts affecting the value of securities, or as to the financial condition of any issuer of securities, when the person knows that the statement or advertisement is false in any material respect.
O.R.C. § 1707.44(B)(4), (G), and (J).
Credit Suisse protests that the complaint does not allege predicate violations of § 1707.44 and that a party may not present a legal theory for the first time after the close of discovery and in response to a properly-supported motion for summary judgment. The Sixth Circuit has made clear that a party may not “expand its claims to assert new theories” in response to a motion for summary judgment. Bridgeport Music, Inc. v. WM Music Corp.,
In Count Two of the Second Amended Complaint, Pharos specifically identified § 1707.41 as the section that National Century violated and as underpinning its secondary liability claim against Credit Suisse. See Sec. Am. Compl. at ¶¶ 99-105. The complaint made no mention of § 1707.44, which differs from § 1707.41 in important ways. As applied to this case, § 1707.44 has a broader imposition of liability than does § 1707.41. Section 1707.41 contains a reliance requirement, but paragraphs (B)(4), (G), and (J) of § 1707.44 do not appear to require a plaintiff to prove reliance upon a false statement. See Wilson v. Ward,
The court has reviewed Pharos’s responses to interrogatories and has revisited the briefing associated with Credit Suisse’s earlier motion to dismiss. Nothing in those materials gave notice to Credit Suisse that Pharos would assert that National Century had committed a violation of paragraphs (G) or (J) of § 1707.44. Even now that Pharos has attempted to raise those paragraphs in opposition to the motion for summary judgment, it does so only in passing. It quotes those statutory provisions in footnotes and makes no effort to match the language of the provisions to record evidence that would support a finding that paragraphs (G) and (J) were violated.
Pharos did mention paragraph (B)(4) of § 1707.44 in responding to Credit Suisse’s original motion to dismiss. Pharos cited both § 1707.41 and § 1707.44(B)(4) in arguing that its § 1707.43 should claim should survive dismissal. (Doc. 63 in Case No. 2:03-cv-362 at 32-33). After filing this brief, Pharos twice was granted leave to amend its complaint; however, Pharos chose not to allege a primary violation of § 1707.44(B)(4) in either its first or second amended complaints. Instead, it expressly claimed a primary violation of § 1707.41, alleging that defendants had aided unlawful sales “in violation of Chapter 1707.41” and had aided “National Century’s misdeeds under Chapter 1707.41.” (Doc. 105 in Case No. 2:03-cv-362 at ¶¶ 90, 93; doc. 64 in Case No. 2:03-md-1565 at ¶¶ 100, 103).
The court finds that the operative pleading, the Second Amended Complaint, does not give Credit Suisse notice of an alleged primary violation of § 1707.44(B)(4). Credit Suisse has tailored its defense to the elements of § 1707.41. Pharos may not now avoid summary judgment by expanding its § 1707.43 claim to include the new alleged violation. See Bridgeport Music,
The court thus finds that Credit Suisse is entitled to summary judgment against Pharos’s claim under O.R.C. § 1707.43.
B. Aiding and Abetting Fraud
The Restatement (Second) of Torts § 876 provides for liability for persons acting in concert with a wrongdoer. In particular, it imposes liability on one who: (1) knows that the primary party’s conduct constitutes a breach of duty and (2) substantially assists or encourages the primary party’s conduct. See Restatement (Second) of Torts § 876(b). Many states, New York included, expressly recognize a cause of action for aiding and abetting tortious conduct. See Lerner v. Fleet Bank, N.A.,
The Pharos action, though consolidated by the Judicial Panel on Multidistrict Litigation into the National Century MDL, was originally filed in this court and Ohio’s choice-of-law rules apply. See generally Rosen v. Chrysler Corp.,
The primary inquiry in a making a choice-of-law decision for a tort claim is which state “has the most significant relationship to the occurrence and the parties.” Restatement (Second) of Conflict of Laws § 145(1); Morgan,
(a) the place where the injury occurred,
(b) the place where the conduct causing the injury occurred,
(c) the domicil, residence, nationality, place of incorporation and place of business of the parties, and
(d) the place where the relationship, if any, between the parties is centered.
Restatement § 145(2). In the context of a fraud-based tort, the court may also consider:
(a) the place, or places, where the plaintiff acted in reliance upon the defendant’s representations,
(b) the place where the plaintiff received the representations,
(c) the place where the defendant made the representations,
(d) the domicil, residence, nationality, place of incorporation and place of business of the parties,
(e) the place where a tangible thing which is the subject of the transaction between the parties was situated at the time, and
(f) the place where the plaintiff is to render performance under a contract which he has been induced to enter by the false representations of the defendant.
Restatement § 148(2).
From the outset, the parties acknowledge that several of the factors do not favor either the application of Ohio or New York law. Pharos is a Delaware limited partnership whose partners maintained offices in Tennessee and Texas at the time of the investment in National Century. See CS Ex. 70, Devlin Dep. at
Looking to the remaining factors, the court finds that Ohio has the most significant relationship to the occurrence and parties relevant to the aiding and abetting claim
Credit Suisse allegedly aided National Century’s fraud in several ways: it introduced Pharos to the potential investment opportunity, sent Pharos a PPM, arranged for Pharos to receive data room materials, answered Pharos’s questions about the investment, and set up the site visit. See, e.g., Sec. Am Compl. at ¶¶ 76-78; Ph. Mem. in Opp’n at 16-26. Though Credit Suisse was based in New York, its alleged assistance in the fraud came in its role as a conduit for an Ohio company to convey false information to Pharos.
In certain other actions in the National Century MDL, this court held that New York law applies to fraud claims made by noteholder investors against Credit Suisse. See In re Nat’l Century Fin. Enterprises, Inc., Inv. Litig.,
The court thus finds that Ohio law should apply to the claim for aiding and abetting fraud. Until recently the issue of whether Ohio recognizes such a cause of action has been murky. State courts repeatedly expressed doubt about whether a claim for aiding and abetting tortious conduct was cognizable. See Andonian v. A.C. & S., Inc.,
Federal court decisions have reflected this uncertainty. The Sixth Circuit twice noted that it was unclear whether Ohio would recognize a claim for aiding and abetting tortious conduct. See Aetna Cas. and Sur. Co. v. Leahey Constr. Co.,
The Ohio Supreme Court just recently settled the issue by holding that Ohio does not recognize a cause of action under Restatement (Second) of Torts § 876. The matter was presented by way of a question certified by the United States District Court for the Northern District of Ohio: “does Ohio recognize a cause of action for tortious acts in concert under the Restatement (2d) of Torts, § 876?” The Ohio Supreme Court answered: “The certified question is answered in the negative. This court has never recognized a claim under 4 Restatement 2d of Torts, Section 876 (1979), and we decline to do so under the circumstances of this case.” DeVries Dairy, L.L.C. v. White Eagle Coop. Ass’n., Inc.,
Thus, summary judgment is granted to Credit Suisse on the claim asserted by Pharos for aiding and abetting fraud.
V. CONCLUSION
Accordingly, Credit Suisse’s motion for summary judgment (doc. 1547) is granted. The court denies as moot Credit Suisse’s motions to strike evidence and exclude an expert report (docs. 1714,1729).
The Clerk shall enter judgment in favor of Credit Suisse in Case No. 2:03-cv-362 and shall close Case No. 2:03-md-1565.
Notes
. Pharos does not argue that the "relying exclusively” language in the Letter Agreement has any less import than the "no-reliance” language enforced in the cases cited below.
. Crants did testify that he believed the PPM failed to disclose the extent or magnitude of the related-party transactions and the failure to maintain reserve accounts. Ph. Ex. 23, Crants Dep. at 254-56. Crants, however, admitted to Pharos having learned of these problem areas during its due diligence and of having had follow-up communications with Poulsen, who downplayed the seriousness of these issues. Any reliance, thus, would have been on Poulsen’s later statements and not the PPM.
. The court reached the same conclusion with respect to Pharos’s claims against other defendants. See In re Nat'l Century Fin. Enterprises, Inc., Inv. Litig., No. 2:03-md-1565,