OPINION
' The defendants The Bear Stearns Companies LLC (F/K/A The Bear Stearns Companies Inc.) (“Bear Stearns”), Alan D. Schwartz, Samuel L. Molinaro, James Cayne, and Warren Spector (the “Individual Defendants”) (collectively, the “Bear Stearns Defendants”) and Deloitte & Touche LLP (“Deloitte”) (collectively, with the Bear Stearns Defendants, the “Defendants”) have moved pursuant to Federal Rules of Civil Procedure 9(b) and 12(b)(6) to dismiss the Complaint filed by plaintiff SRM Global Master Fund Limited Partnership (“SRM” or the “Plaintiff’). Based on the conclusions set forth below, Defendants’ motions are granted.
I. Prior Proceedings
In the immediate wake of Bear Stearns’ near-collapse in mid-March 2008, a series of securities fraud putative class actions were filed against Defendants in the Southern District of New York and other jurisdictions by purchasers of Bear Stearns common stock and stock options, and transferred to this Court by the Judicial Panel on Multidistrict Litigation for coordinated or consolidated pretrial proceedings. See Transfer Order, In re Bear Stearns Cos., Inc. Sec., Deriv. & ERISA Litig., No. 08 MDL 1963 (J.P.M.L. Aug. 19, 2008). Those actions were consolidated on January 5, 2009 (the “Class Action”). In re Bear Stearns Cos. Inc. Sec., Deriv. & ERISA Litig., 08 M.D.L. No.1963(RWS),
The Court denied Defendants’ motions to dismiss the consolidated class action complaint on January 19, 2011. In re Bear Stearns Cos. Inc. Sec., Deriv. & ERISA Litig.,
SRM is a highly sophisticated “multibillion dollar hedge fund that takes ‘a contrarian and long-term investment’ approach in ‘companies or sectors that have been through periods of stress and are out of favor with the market.’ ” SRM Global Fund Ltd. P’ship v. Countrywide Fin. Corp., No. 09 Civ. 5064(RMB),
SRM has been represented by its present counsel since at least May 2009, when SRM sued Countrywide Financial seeking recovery foe losses that SRM allegedly suffered in the financial crisis because of an investment in Countrywide. (Complaint, SRM, No. 09 Civ. 5064(RMB) (S.D.N.Y. May 29, 2009), ECF No. 1.) SRM submitted a request for exclusion from the Class Action Settlement Class in August 2012. SRM filed its complaint for the instant action on April 24, 2013 (“Complaint” or “Compl.”).
The instant motions were heard and marked fully submitted on October 23, 2013.
II. Allegations of the Complaint
The Complaint contains many of the same factual allegations as the Class Action Complaint. The facts regarding Bear Stearns’ collapse is set forth in detail in this Court’s opinion in Bear Stearns I,
SRM alleges losses of two types. First, SRM alleges that it “owned shares of Bear [Stearns] stock at least as early as March 2007,” and “continued to invest in Bear [Stearns]” until its near collapse. (Compl. ¶ 12.) Following Bear Stearns’ near-collapse, it sold its “investment in Bear [Stearns]” between April 1, 2008 and June 2, 2008, and thereby “incur [red] losses of more than $200 million.” (Compl. ¶ 6.) According to Defendants, SRM’s request for exclusion from the Class Action Settlement Class states that SRM had made its last purchase of Bear Stearns common stock on September 24, 2007 and sold all of its Bear Stearns common stock on the same day, before Bear Stearns’ stock price decreased significantly. (Def. Bear Stearns Br., at 6; Carey Aff., Ex. 9.)
Second, SRM alleges losses from its “purchase [of] security-based swaps representing approximately 3.5 million shares of Bear Stearns common stock” (“Bear Stearns Swaps”) between September 24, 2007 and March 12, 2008 (the “Swap Transactions”). (Id. ¶ 13.) SRM purchased its Bear Stearns Swaps by placing orders with UBS Securities LLC (“UBS”) and Merrill Lynch, Pierce, Fenner & Smith Inc. (“Merrill Lynch”). (Id. ¶ 14.) SRM’s Bear Stearns Swaps were “total return swaps,” which are synthetic instruments designed to mimic all aspects (i.e., the “total return”) of a stock as though the stock had been purchased itself. SRM’s Bear Stearns Swaps were the functional equivalent of shares of Bear Stearns common stock. (Opp., at 4-5.)
Deloitte was the independent outside auditor for Bear Stearns, and it provided audit, audit-related, tax and other services to Bear Stearns during fiscal years 2006 and 2007. SRM alleges that Deloitte “consented to and caused the incorporation by reference of its unqualified opinions on Bear[ Stearns’] financial statements for fiscal years 2006 and 2007” which contained misrepresentations and omissions that caused SRM loss. (Compl. ¶ 23.)
SRM alleges that its losses occurred, in part, due to SRM’s reliance on Bear Stearns Defendants’ false and misleading representations and omissions regarding Bear Stearns’ Value at Risk (“VaR”) amounts. (Compl. ¶¶ 59, 66.) SRM alleges that Bear Stearns knew the Securities and Exchange Commission (“SEC”) had stated that Bear Stearns’ VaR models were seriously flawed and the VaR models were never updated to reflect the housing and subprime mortgage downturn. From the VaR published in Bear Stearns’ SEC filings, SRM concluded that Bear Stearns was subject to substantially less risk than was in fact the case, and SRM purchased and retained Bear Stearns stock and the Bear Stearns Swaps. (Id. ¶¶ 73,177.) According to the Complaint and in conflict with SRM’s request for exclusion from the Class Action Settlement Class, between April 1 and June 2, 2008, after Bear Stearns had collapsed, it is alleged that SRM sold its holdings of Bear Stearns stock and the Bear Stearns Swaps, at a significant loss. Plaintiff alleges losses of more than $200 million on its investment. (Compl. ¶ 243.)
Based on its allegations, SRM asserts claims against the Bear Stearns and Deloitte Defendants for alleged violations of: (i) Section 10(b) of the Securities Exchange Act of 1934 (the “Exchange Act”) and Rule 10b-5 promulgated thereunder (id. ¶¶ 519-23); (ii) Section 18 of the Exchange Act, based on misrepresentations supposedly made in documents filed pursuant to the Exchange Act (id. ¶¶ 524-30); and (iii) common law fraud (id. ¶¶ 535-48). SRM also asserts a claim against the Individual Defendants for alleged “control person” liability under Section 20(a) of the Exchange Act. (Compl. ¶¶ 531-34.)
III. Discussion
a. The Rule 9(b) and 12(b) Standard
The Bear Stearns Defendants and Deloitte have moved to dismiss the Complaint pursuant to the Federal Rules of Civil Procedure 9(b) and 12(b)(6). On a motion to dismiss pursuant to Rule 12(b)(6), all factual allegations in the complaint are accepted as true, and all inferences are drawn in favor of the pleader. Mills v. Polar Molecular Corp.,
To survive a motion to dismiss pursuant to Rule 12(b)(6), “a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’ ” Ashcroft v. Iqbal,
Rule 9(b) requires that averments of fraud be “state[d] with particularity.” Fed.R.Civ.P. 9(b); see also ATSI Commc’ns, Inc. v. Shaar Fund, Ltd.,
b. SRM’s Section 10(b) Claims Are Dismissed
i. The 10(b) Claims Are Time-Barred
Private actions under Section 10(b) of the Exchange Act are subject to a two-year statute of limitations and a five-year statute of repose. “[A] private right of action that involves a claim of fraud, deceit, manipulation, or contrivance in contravention of a regulatory requirement concerning the securities laws [defined to include the Exchange Act] ... may be brought not later than the earlier of (1) 2 years after the discovery of facts constituting the violation; or (2) 5 years after such violation.” 28 U.S.C. § 1658(b). See P. Stolz Family P’ship L.P. v. Daum,
As described in the Complaint, SRM’s claims are based on an alleged valuation fraud that revealed itself when Bear Stearns nearly collapsed in mid-March 2008. SRM asserts that Defendants made false and misleading statements about Bear Stearns’ risk management and financial condition between December 14, 2006 and March 12, 2008. (Compl. ¶¶ 39-237; see also id. ¶¶ 484-515.) Under the five-year statute of repose, any Section 10(b) claims based on even the latest of these statements were required to be brought before March 12, 2013.
SRM has contended that the pendency of the Class Action tolled the statute of repose for its Section 10(b) claims pursuant to American Pipe & Construction Co. v. Utah,
Statutes of limitations limit the availability of remedies and, accordingly, may be subject to equitable considerations, such as tolling, or a discovery rule. In contrast, statutes of repose affect the underlying right, not just the remedy, and thus they run without interruption once the necessary triggering event has occurred, even if equitable considerations would warrant tolling or even if the plaintiff has not yet, or could not yet have, discovered that she has a cause of action.
Id. at 106 (quoting Fed. Hous. Fin. Agency v. UBS Ams. Inc.,
Thus, “in contrast to statutes of limitations, statutes of repose ‘create a substantive right in those protected to be free from liability after a legislatively-determined period of time.’ ” Id. (citation omitted). The Second Circuit stated that “[t]his conceptual distinction carries significant practical consequences ... as most important here, a statute of repose is ‘subject only to legislatively created exceptions’ and not to equitable tolling.” Id. (quoting Stolz,
Like Section 13, Section 10(b) is subject to two time periods: a two-year statute of limitations, which is subject to tolling or extension based on the plaintiffs lack of knowledge, and a five-year statute of repose, which is not. Here, the second time period of Section 10(b), the statute of repose, states that “[A] private right of action ... may be brought not later than ... 5 years after such violation.”
SRM has contended that Indy-Mac’s holding is confined to the Section 13 statute of repose, because that was the only statute directly at issue. (Opp., at 12-17.) However, the Second Circuit’s reasoning in IndyMac was based on general principles applicable to all statutes of repose. The Second Circuit reasoned that “in contrast to statutes of limitations, statutes of repose create a substantive right in those protected to be free from liability” that are “subject only to legislatively created exceptions.” IndyMac,
SRM has also contended that “there is nothing in Section 1658(b)(2) creating a ‘substantive’ right different in kind from the right created by [Section 16581(b)(1).” (Opp., at 16.) But courts have repeatedly found that Section 1658(b)(2) is a statute of repose, see Stolz,
SRM has contended that the Second Circuit “emphasize[d]” the particular language in Section 13 in deciding whether the statute of repose could be tolled. (Opp., at 12.). However, the Court cited the specific language of the statute only in explaining why the statute was one of repose rather than of limitations. See Indy-Mac
SRM also has relied on a statement in American Pipe suggesting that the application of tolling should turn “not [on] whether a time limitation is ‘substantive’ or ‘procedural’ but whether tolling the limitation in a given context is consonant with the legislative scheme,” and argues that tolling would be consonant with the statutory scheme applicable to Section 10(b) claims. (Opp. 16 (quoting American Pipe,
SRM also has contended that American Pipe tolling was “statutorily enacted into the Exchange Act’s limitations period” as part of the Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley”), Pub.L. No. 107-204, 116 Stat. 745 (codified in scattered sections of 15 and 18 U.S.C.). According to SRM, Congress did “not [ ] make any substantive change” to the “basic standards of the law on a statute of limitation” except increasing the time in which plaintiffs could assert Section 10(b) claims. (Opp., at 12, 15.) However, if Sarbanes-Oxley did not change the statute of repose, aside from lengthening it, then it did not codify American■ Pipe tolling, as SRM suggests. Moreover, the statute of repose in Section 13 of the Securities Act was amended around the same time as Section 10(b)’s statute of repose, also by a statute that made no substantive changes but merely updated certain references. See Securities Litigation Uniform Standards Act of 1998, § 301,112 Stat. 3227 (1998). Yet, as Indy-Mac holds, American Pipe tolling does not apply to Section 13.
The cases SRM has cited stand for the proposition that, in some circumstances, Congress is presumed to be aware of and adopt existing statutory interpretations when it legislates, but “that presumption applies only to ‘settled judicial constructions.’ ” In re Century Brass Prods., Inc.,
Even if there was a settled judicial construction that American Pipe tolling applied to Section 10(b)’s statute of repose, there is no evidence that Congress intended to adopt that construction in Sarbanes-Oxley, or indeed to make any substantive changes to the statute. To the contrary, as SRM accepts, the legislative history shows that Congress was “not suggesting changing the basic standards of the law on a statute of limitation” and intended only to extend the length of that statute. (Opp., at 15 (citing 148 Cong. Rec. S6524, S6535 (daily ed. July 10, 2002)).) Nothing in the text or legislative history of this unrelated and intentionally narrow amendment suggests that Congress intended to
SRM also has referenced a Judiciary Committee Report for Sarbanes-Oxley, which, it claims, states that Section 10(b)’s statute of repose “was not subject to equitable tolling, but made no such statement regarding legal tolling, e.g. under American Pipe.” (Opp., at 15.) However, the report made clear that no tolling applied, whether legal or equitable. S.Rep. No. 107-146, at 29 (2002) (“Where there is a bifurcated limitations period, with an inner limit running from the time when the fraud was or should have been discovered, the inner limit ‘by its terms, begins after discovery of the facts constituting the violation, making tolling unnecessary. The [outer limit] is a period of repose inconsistent with tolling.’ ” (citing Lampf
Moreover, American Pipe tolling can apply to a statute of limitations only when the earlier-filed class action “involved exactly the same cause of action subsequently asserted”. Johnson v. Railway Express Agency, Inc.,
Cullen v. Margiotta,
Given such reasoning, American Pipe tolling does not apply to SRM’s 10(b) claims, and SRM’s claims are time-barred,
ii. There Is No Private Right of Action Under Section 10(b) For The Swap Transactions
Prior to the enactment of the Commodity Futures Modernization Act of 2000 (“CFMA”), Pub.L. No. 106-554, 114 Stat. 2763 (2000) (codified in scattered sections of 7, 11, 12, and 15 U.S.Code), the anti-fraud provisions in the federal securities laws, including Section 10(b), did not regulate conduct in connection with swap transactions. Caiola v. Citibank, N.A.,
To apply the Dodd-Frank’s definition of security to Plaintiffs swaps claims would be to apply the definition retroactively to create liability under Section 10(b) that did not exist when the conduct at issue allegedly took place (in this case, between 2006 and 2008), See Caiola,
By expressly excluding swaps from the definition of “securities” in the CFMA, Congress also excluded conduct in connection with swaps from the private right of action under Section 10(b), which was for some time recognized as being limited to conduct in connection with the purchase and sale of securities. See Blue Chip Stamps v. Manor Drug Stores,
The Supreme Court has cautioned that, when interpreting the private right of action under Section 10(b), courts “must give ‘narrow dimensions ... to a right of action Congress did not authorize when it first enacted the statute and did not expand when it revisited the law.’ ” Janus Capital Grp., Inc. v. First Deriv. Traders, — U.S. -,
Even if a private right of action for parties to swap transactions under Section 10(b) were implied, that action should be narrowly circumscribed to apply only against persons directly involved in swap transactions, as in Caiola, where a customer alleged that the defendant bank defrauded him in the representations it made about its hedging strategy for the swaps the customer entered into with the bank. See Caiola,
SRM has not disputed that prior to the CFMA “virtually all lower federal courts ... in the hundreds of reported cases ... over the past quarter century have reaffirmed ... that ... 10(b) and Rule 10b-5 private damage actions [are] limited to purchasers and sellers of securities.” Blue Chip Stamps v. Manor Drug Stores,
The cases that SRM has cited are inapposite. One case, United States v. O’Hagan,
Further, SRM has not identified text or legislative history of the CFMA indicating that Congress intended, when it amended Section 10(b), to extend the private right of action against a securities issuer or auditor to parties of security-based swap agreements. Instead, Congress expressly distinguished between the two. SRM has quoted statements in the CFMA indicating that rules and judicial precedents decided under Section 10(b) “that prohibit fraud ... shall apply to security-based swap agreement to the same extent as they apply to securities,” 15 U.S.C. § 78j(b); (Opp., at 22), but this language refers to the scope of the conduct “prohibit[ed]” by Section 10(b), not the enforcement of that prohibition through an implied right of action.
SRM has contended that Dodd-Frank “was a mere clarification of what was already in CFMA,” and that it should apply retroactively. (Opp., at 24); see also Leshinsky v. Telvent GIT, S.A.,
SRM has cited Leshinsky for the proposition that Dodd-Frank merely clarifies the CFMA. However, Leshinsky involved an unrelated issue concerning DoddFrank’s whistleblower protection provisions and stated that “[t]he Court today does not express any view about the retroactive application of Dodd-Frank in general, or of any other specific provisions of Dodd-Frank.”
iii. The Section 10(b) Elements
To state a claim under Section 10(b) of the Exchange Act, plaintiffs must plead that defendants “ ‘(1) made misstatements or omissions of material fact; (2) with scienter; (3) in connection with the purchase or sale of securities; (4) upon which plaintiffs relied; and (5) that plaintiffs’ reliance was the proximate cause of their injury.’ ” Lentell v. Merrill Lynch & Co., Inc.,
As previously noted, SRM’s Section 10(b) claims are time-barred and SRM does not have a private right of action against Defendants for the Swap Transactions. The court declines to opine on whether SRM would have otherwise met the 10(b) elements against the Defendants at this time.
c. SRM’s Section 18 Claims Are Dismissed
i. The Section 18 Claims Are Time-Barred
Section 18 provides that “[n]o action shall be maintained to enforce any liability created under this section unless brought within one year after the discovery of the facts constituting the cause of action and within three years after such cause of action accrued.” 15 U.S.C. § 78r(c). The one-year limitations period begins when “plaintiff is put on either actual notice or constructive notice, also known as inquiry notice, of the facts giving rise to his claim.” In re Alstom SA Sec. Litig.,
As previously noted, SRM’s claims accrued more than three years prior to the filing of the Complaint. The last Exchange Act filing cited by SRM is Bear Stearns’ 2007 10-K, filed on January 29, 2008. (Compl. ¶¶ 211-212.) The last of SRM’s Section 18 claims therefore accrued at that time, and became time-barred on January 29, 2011. Even if SRM’s claims accrued when it made its last purchase of Bear Stearns stock (September 24, 2007) or entered into its last Swap Transaction (March 12, 2008), those claims are still time-barred, because the three-year period expired, at the latest, on June 2, 2011.
American Pipe tolling does not save SRM’s Section 18 claims. Section 18’s three-year post-accrual time period is a statute of repose, see Fujisawa Pharm. Co. v. Kapoor,
SRM has not disputed that its Section 18 claim is subject to a three-year subject of repose and that its claim was filed well after the repose period expired. (Opp., at 26.) IndyMac’s reasoning applies with equal force to Section 18’s statute of repose as Section 10(b)’s, and SRM’s Section 18 claims are time-barred for the same reason.
ii. There Are No Section 18 Claims For The Swap Transactions
“The Section 18 cause of action requires plaintiffs to plead ‘that (1) a false or misleading statement was contained in a document filed pursuant to the Exchange Act (or any rule or regulation thereunder); (2) defendant made or caused to be made the false or misleading statement; (3) plaintiff relied on the false statement; and (4) the reliance caused loss to the plaintiff.’ ” Int’l Fund,
As contended by the Defendants, at all relevant times, Section 18 provided a right of action only where a plaintiff had “purchased or sold a security,” not a security-based swap agreement. (Def. Bear Stearns Br., at 19.) SRM has not responded to this contention. Accordingly, for the same reasons applicable to SRM’s Section 10(b) claims, SRM does not have a private right of action for its Section 18 claims for the Swap Transactions.
iii. SRM Has Failed To Adequately Plead Reliance For Its Section
18 Claims
The reliance alleged in a Section 18 claim must be “actual reliance, i.e., ‘that [it] actually read and relied on the filed document. Constructive reliance is not sufficient.’ ” Int’l Fund Mgmt.,
SRM’s Section 18 claim fails to plead reliance with the specificity required. Although “SRM expressly disavowed] any claim of fraudulent or intentional conduct in connection with its Section 18 claim, (Opp., at 26), Rule 9(b) applies whenever “the wording and imputations” of a claim involves fraud, and the rule “is not limited to allegations styled or denominated as fraud.” Rombach,
The Complaint contains the most particularized allegation in its discussion of SRM’s reliance on alleged misrepresentations in the Bear Stearns 2006 Form 10-K. (Compl. ¶ 73.) SRM alleges that it “read” and “relied” on the alleged misrepresentations in the 2006 10-K “in deciding whether it should purchase Bear Securities,” (id.), which it admits occurred over a yearlong- period from March 2007 through March 2008, (Opp., at 4-5, 9 n. 5). SRM does not link its review of any particular statements in that document or any other document to any actual purchases of Bear Stearns securities and does not identify a particular transaction that it allegedly made in reliance on the document or any other document. SRM’s generic response that “every SRM purchase of Bear securities was in reliance on the specific misrepresentations and omissions identified in the Complaint,” (Opp., at 29), is not sufficiently particularized.
d. SRM’s Common Law Fraud Claims Are Dismissed i. The Common Law Fraud Claims Are Time-Barred
Under New York law, the statute of limitations for common law fraud is six
All of SRM’s claims against the Defendants in this action accrued prior to April 23, 2007. SRM’s claims are premised almost exclusively on alleged statements and supposed wrongdoing prior to April 23, 2007. {See, e.g., Compl. ¶¶ 24-34, 39-108, 134-38, 199, 263, 279-81, 309-10, 317, 327, 330, 337, 419-20, 430-31, 445-46, 455, 461-62, 470.) SRM relies heavily on statements in the report indicating that the SEC questioned Bear Stearns’ mortgage and VaR models. {See, e.g., Compl. ¶¶ 49, 50, 70, 419-20, 430-31, 445-46, 455, 461-62, 470.) But, as the report notes, those criticisms were only made on two occasions, in 2005 and 2006. {See Compl., Ex. A at 20-21, ECF No. 1-3.)
SRM has identified alleged misrepresentations made by the Defendants after April 23, 2007 in its Complaint, {see Compl. ¶¶ 171, 172, 174, 176, 193, 195, 197, 202, 203, 210, 211, 345, 346), and contends that its common law fraud claims are timely if it alleged “any misrepresentations or omissions on or after April 24, 2007.” (Opp., at 31.) However, SRM cites no case supporting its position, and there are authorities to the contrary. See, e.g., Fromer v. Yogel,
Similarly, SRM’s common law fraud claims against Deloitte can only rely on Deloitte’s opinion in Bear Stearns’ 2006 Form 10-K, filed on February 13, 2007, and Deloitte’s opinion in Bear Stearns’ 2007 Form 10-K, filed on January 29, 2008. (Compl. ¶¶ 345-346.) For claims against auditors, the New York Court of Appeals has held that each year’s audit is a separate engagement, and the cause of action accrues on the date each year’s audit opinion is issued. See Williamson v. PricewaterhouseCoopers LLP,
SRM fares no better for its claims based on the 2006 audit opinion with the alternative limitations period, which is two years from when the plaintiff “discovered the fraud, or could with reasonable diligence have discovered it.” N.Y. C.P.L.R. § 213(8). Here, a reasonably diligent plaintiff could have discovered the alleged fraud in 2008, when Bear Stearns nearly collapsed, or by February 27, 2009, when the Class Action Lead Plaintiff added a federal securities fraud claim against Deloitte in the Class Action. (08 M.D.L. No.l963(RWS), ECF No. 61.) Under the two-year discovery rule, SRM’s claims based on the 2006 audit are untimely.
SRM’s common law fraud claims are not tolled by the pendency of the Class Action as a matter of New York law. American Pipe tolling does not apply to SRM’s state claims because it only applies to federal law causes of action. See Casey v. Merck & Co.,
In certain circumstances, a New York statute of limitations may be tolled by the pendency of a class action, but New York currently does not recognized tolling where that class action is filed outside New York state court (so-called “cross-jurisdictional tolling”). See Soward v. Deutsche Bank AG,
Judges in this district have declined to recognize cross-jurisdictional tolling under state law, because such tolling can be applied only if it is clearly recognized by authoritative state court decisions. In Vincent v. Money Store, for example, the Honorable John Koeltl refused to recognize cross-jurisdictional tolling under California law, citing compelling policy reasons against such tolling:
[Ujnless all states simultaneously adopt the rule of cross-jurisdictional class action tolling, any state which independently does so will invite into its courts a disproportionate share of suits which the federal courts have refused to certify as class actions after the statute of limitations has run.
SRM has not distinguished the cases cited by the Bear Stearns Defendants and Deloitte. (Def. Bear Stearns Br., at 23-24; Opp., at 30-31.) As established by those authorities, “most [federal courts] have refused to extend the doctrine into a state that has yet to consider it.” Soward,
ii. SRM Has Failed To Adequately Plead Reliance
To plead common law fraud, a plaintiff must allege with particularity that it actually relied upon the supposed misstatements. See Banque Arabe Et Internationale D’Investissement v. Maryland Nat’l Bank,
As previously noted, SRM’s Complaint makes no attempt to distinguish the factual allegations supporting its Section 18 claim from its Section 10(b) and common law fraud claims. (See Compl. ¶ 524.) And as noted above, SRM has not sufficiently pled reliance in its Complaint.
SRM has contended that Rule 9(b) does not apply to the reliance element of its common law fraud claim, because reliance is a “condition! ] of a person’s mind” that may be alleged generally. (Opp., at 27.) SRM has cited to no case from this district supporting this argument, and has conceded that “[a]dmittedly, scattered decisions (including decisions of this Court) have suggested that 9(b)’s particularity requirement applies to allegations of reliance.” (Opp., at 27 n. 16.) Courts in this district have consistently held that reliance does not simply involve a state of mind; it involves specific action or inaction, and therefore must be pleaded with particularity. See, e.g., Granite Partners, L.P. v. Bear, Stearns & Co.,
iii. SRM’s Cannot Bring A Common Law Fraud Claim Against Deloitte For The Swap Transactions
An auditor who consents to the filing of its audit opinion with the SEC is exposed to potential liability for fraud to prospective investors in registered securities. However, extension of that liability to purchasers of unregistered swaps whose existence the auditor did not expect and had no reason to expect inappropriately stretches that liability: an auditor’s liability for common law fraud is limited to the “the persons or class of persons” to whom the auditor intends to communicate its representations. Ultramares Corp. v. Touche,
Deloitte did not expect, and did not have any reason to expect, reliance by parties
SRM contends that the passage of the CFMA put Deloitte on notice of the potential reliance by third parties on Deloitte’s audit reports for swap transactions. (Opp., at 35.) However, as previously noted, the CFMA did not create a private right of action for swap transactions against issuers of the underlying securities or its auditors, and Deloitte cannot be put on notice by a statute that did not apply. Indeed, the CFMA prohibited the SEC from imposing on swaps the registration and reporting requirements applicable to securities. See CFMA § 302(a), 114 Stat. at 2763A-451 to-452 (codified at 15 U.S.C. § 77b-l).
Given that the Swap Transactions could not have been foreseen by Deloitte as a transaction in which parties would have relied on its audit reports, Deloitte is not liable to SRM for the Swap Transactions based on any representations it made in its Bear Stearns audit reports. In addition, the only trades SRM states that it made after the issuance of Deloitte’s 2007 audit opinion are the Swap Transactions. (Carey Aff., Ex. 9.) Given the expiration of the statute of limitations on any common law fraud claim based on Deloitte’s 2006 audit opinion, see supra, SRM has failed to state a claim against Deloitte for its Bear Stearns securities and the Swap Transactions under common law fraud and the claims are dismissed.
iv. Defendants’ Motions To Dismiss The Holder Claims Are Granted
E30] SRM contends, for purposes of its common law fraud claims, that it was defrauded into making its initial investment in Bear Stearns and also in retaining its investment. (See, e.g., Compl. ¶¶ 541M2, 543, 546.) However, New York may have barred all “holder” claims, a claim “in which the plaintiffs allege that material misrepresentations or omissions caused them to retain ownership of securities that they acquired prior to the alleged wrongdoing.” In re WorldCom, Inc. Sec. Litig.,
SRM has asserted that “New York law has long recognized holder fraud claims,” (Opp., at 33), but has not cited an authority from the New York Court of Appeals recognizing such a claim. SRM has characterized Matana,
Given the uncertainty of the New York law with respect to holder claims, Judge Moskowitz’s views in his dissent in Starr on the current state of holder claims in New York is most persuasive, and SRM’s holder claims are dismissed.
e. The Section 20 Control Person Claims Are Dismissed
SRM has asserted a claim against the Individual Defendants for “control person” liability under Section 20(a) of the Exchange Act. To state a claim under Section 20(a), SRM must plead, inter alia, a timely predicate violation of the Exchange Act. ATSI Commc’ns,
IV. Conclusion
Based on the conclusions set forth above, Defendants’ motions to dismiss are granted.
It is so ordered.
Notes
. Citations to “Def. Bear Stearns Br.” refer to the Bear Stearns Defendants’ Memorandum of Law in Support of their Motion to Dismiss, Citations to "Def. Deloitte Br.” refer to Deloitte’s Memorandum of Law in Support of Its Motion to Dismiss. Citations to "Opp.” refer to SRM’s Memorandum of Law in Opposition. Citations to "Bear Stearns Reply” and “Deloitte Reply” refer to the Bear Stearns Defendants’ and Deloitte’s Reply Memorandum of Laws, respectively.
. SRM concedes that an "action under section 10(b) ... is subject to a five-year statute of repose,” and that its claim was filed outside the five-year statute of repose period. (Opp., at 10-11.)
. The Second Circuit did not find it necessary
. SRM also alleges that Deloitte provided "unqualified opinions” on the quarterly financial statements included in Bear Stearns' Forms 10-Q. (Compl. ¶ 346.) Deloitte’s reports in the 10-Qs stated that Deloitte’s review was “substantially less in scope than an audit” and expressly disclaimed “the expression of an opinion regarding [Bear Stearns'] financial statements taken as a whole.” (Bear Stearns 10-Q dated April 9, 2007, 08 M.D.L. No.l963(RWS), ECF No. 69-19, at 32; see also 08 M.D.L. No.l963(RWS), ECF Nos. 69-20 and 69-21.) Moreover, Bear Steams' 10-Qs did not contain an opinion by Deloitte on Bear Stearns’ quarterly financial statements. Quarterly review reports with this language “by definition cannot be considered as either an unqualified opinion or as a qualified opinion and cannot have been relied on by the Plaintiffs.” In re Integrated. Res. Real Estate Ltd. P'ships Sec. Litig.,
. SRM last purchased Bear Steams common stock in September 2007, (see Carey Deck, Ex. 9), before the 2007 audit opinion. Given such, SRM cannot bring claims regarding its purchase of Bear Stearns common stock by asserting reliance on the 2007 audit opinion unless under "holder” claim liability, discussed below.
. Primavera Familienstifung v. Askin Cap. Mgmt., L.P.,
. SRM also has argued that its pleadings of reliance are sufficient under the test applied in cases considering “transaction causation.” (Opp. 28.) All of those cases concern claims, under Section 10(b) and Rule 10b-5, which are subject to a presumption of reliance. See ATSI Commc’ns,