Vivine H Wang v. The Bear Stearns Companies LLC et al, No. 1:2011cv05643 - Document 95 (S.D.N.Y. 2014)
Court Description: OPINION 104219. Based upon the conclusion set forth above, the motion of the Defendants is granted, and the Complaint is dismissed with leave granted to replead within 20 days. It is so ordered. Re: 79 MOTION to Dismiss filed by Garrett Bland, Joey Zhou. (Signed by Judge Robert W. Sweet on 4/15/2014) (rjm) Modified on 4/17/2014 (nt).
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UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK -- ------------x VIVINE H. WANG, Plaintiff, -against- 11 Civ. 5643 OPINION THE BEAR STEARNS COMPANIES LLC, J.P. MORGAN SECURITIES LLC, J.P. MORGAN CLEARING CORP., DELOITTE & TOUCHE LLP, ALAN D. SCHWARTZ, ALAN C. GREENBERG, JOEY ZHOU, and GARRETT BLAND, Defendants. -----------------------------------x A P PEA RAN C E S: Attorne for the Plaintiff GHODS LAW FIRM 2100 N. Broadway #300 Santa Ana, CA 92706 By: Mohammed K. Ghods, Esq. William Stahr, Esq. Jeremy A. Rhyne, Esq. s Joe Zhou and Garrett Bland PAUL, WEISS, RIFKIND, WHARTON & GARRISON LLP 1285 Avenue of the Americas New York, NY 10019 By: Brad S. Karp, Esq. Eric S. Goldstein, Esq. Jessica S. Carey, Esq. Jonathan Hurwitz, Esq. Sweet, D.J. Defendants Joe Y. Zhou ("Zhou") and Garrett Bland ("Bland") (collectively, the "Defendants") have moved pursuant to Federal Rules of Civil Procedure 9(b) and 12(b) (6) to dismiss the claims against them in t (t " complaint filed on March 29, 2011 "Complaint") by plaintiff Vivine H. Wang ("Wang" or the aintiff"). Upon t conclusions set rth below, the motion is granted and the Complaint is dismissed as to Zhou and Wang with leave granted to lead within 20 days. Prior Proceedings Wang purchased 150,000 shares of The Bear Stearns Company Inc. ("Bear Stearns") between March 6, 2008 and March 14, 2008 through a Bear Stearns brokerage account upon the order of her husband, Roger Wang ("Roger Wang," collectively with Plaintiff the "Wangs"). The purchase and its circumstances are the subject of the Complaint. The Wangs refused payment on the purchase. After the Wangs refused to pay for purchases of Bear Sterns stock, Bear Stearns liquidated Wang's brokerage account 1 and filed an tration claim to recover the money owed. ~~ 38-39).1 Wang re ed to icipate the arbitration, and Bear Stearns was eventually awarded $3,048,514.87 on June 9, 2009. (~ 40). The award was confirmed and a judgment was entered by a district court California on January 13, 2010. Stearns was also subsequently awarded attorne ' Bear fees and costs. While Bear Stearns's arbitration against was proceeding, in April 2008, Roger Wang fil against Bear Stearns, Zhou, and Bland Wang a complaint California state court, connection with the March 2008 alleging state law violations purchases of Bear Sterns stock in his wife's account. (No. BC388727 (Cal. Super. Ct., Los Angeles)). Roger Wang alleged he, not his wife, authorized the purchases, although the account was so ly in her name. Roger Wang's s asserted a putative States District Court , which ass claim, was removed to the United r the Cent District of Cali rnia (08 Civ. 5523 (C.D. Cal.), Doc. No. 42), and then transferred by the nated or consolidat MOL Panel to this Court for proceedings pretrial the other related actions pending here. Citations in the form"' refer to paragraphs in the Complaint. Citations in the form "CA, n refer to in the Consolidated Class Action (08 MDL 1963 (S.D.N.Y.), Doc. No. 61), which Wang incorporated by reference into her Complaint. (See' 43). U 2 ed with Roger Wang's action was subsequently consoli ed securit tigation, No. 08 C Cos., Inc. Securities "Securities Action"). ~ ion In re Bear Stearns actions under the (08 M.D.L. . 2793 1963 (S.D.N.Y.), Doc. No. 31 21). In the Securities Action, court-appointed Lead Plaintiff led a Consol 2009, which ass Class Action Complaint on February 27, December 14, 2006 and Ma entities that, purchas or otherwise acqui stock [of Bear Stearns]." (CA On f of "all persons and claims on ~ the publi 14, 2008 y traded common 1). 29, 2011, Wang led the instant Complaint in the United States District Court for the Central strict of California. On August 15, 2011, the MDL Panel transferred Wang's action to this Court for coo proceedings with the Securit Wang's appl consolidat ion to have ed or consoli s Action. On ruary 6, 2012, r action coordinat , with the Securities Action was ed pretrial ,rather than ed. (See 11 Civ. 5643 (S.D.N.Y.), Doc. No. 53). er motion and discovery in the Securities Action, the parties reached a settlement, the Court in the orders ch was approved by final judgments dated November 29, 3 2012. (08 M.D.L. 1963 (S.D.N.Y.), Doc. Nos. 337-338). On August 22, 2012, Vivine Wang opted-out of t class action settlement. 2 Allegations of the Complaint The Compla makes the following allegations. Vivine Wang is an individual res Bland worked fice. in Cali rnia. (91 1). Zhou r Bear Stearns in its Century City, Cali (9191 18, 19). Wang all dealer, the agent of a bro advisor" (91 18), and inning s that Zhou worked as a Ubro r-dealer, and/or an or Managing Director." the mid-1990s, advice to the Wang family. r- stment and as a broker-dealer and/or advisor with the title of uS ia stment (91 19). Zhou provided investment (91 23). In early 2008, a er some time working with a different broker, Wang and her husband contacted Zhou and asked to "place some stock orders with Bear Stearns." (91 24). Zhou told r that a new account would need to be opened, and then met with Wang to execute the necessary paperwork. (Id.). On February 29, 2008, Wang entered into a Customer Agreement th Bear Stearns, which set fo the terms and Roger Wang did not opt out, and thus any claims he had are barred. 4 ¢ ¢ ¢ ¢ ¢1; ----~~····-·······----------------------!'!.Iiili conditions on which Bear account. st (Chepiga Decl. earns "open[ed] and maintain[ed]" her ~ 3, Ex. 2). The Customer Agreement ed: (a) A Bear Stearns entity will execute transactions accepted by it and/or will provide such other clearance, settlement and custody services in connection with the maintenance of your Account(s) at Bear Stearns. (b) Bear Stearns is acting as a ker-dealer and custodian, and not as (1) an investment adviser under the Investment Advisors Act of 1940, or (2) a "fiduciary" as defined in Section 3(21) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA") or Section 4975 of the Internal Revenue Code of 1986, as amended ("Code"), with respect to your Account(s) under this Agreement.. . Nei t r Bear Stearns nor its employees are authorized to prov , and shall not provide, legal, tax or accounting advice or services and you will not solicit or rely upon any such advice from them whether in connection with transactions in any of your accounts or otherwise. You have consulted or will consult with your own technical, legal, regulatory, tax, business, investment, financial and accounting advisors to the extent you deem necessary in determining the investment and trading strategy appropriate for you and the appropriateness of each transaction. (Id. at '1I l(a), (b)). rtly after the new account was opened, Roger Wang began placing verbal orders through Zhou for purchases financial companies. stock ('1I'1I 25 29). On March 6, 2008, he ordered 5 10,000 shares of Bear Stearns corrunon stock ("BSC"). (~27). He placed additional orders for 20,000 BSC shares on March 10 and 11 respect ly. (~~ 28-29). On March 11, 2008, Roger Wang attended a meeting (for the Asia Society) that was hosted at the offices of Bear Stearns Century City, California. (~ 30). At this meeting Roger Wang was seated at a table with Bland. Bland is alleged to have told Roger Wang: "that Bear Stearns was financially sound, that its stock value should be at least $85.00 per share, and that now was a great time to invest in the stock." (Id.). In addition, Bland allegedly told Roger Wang "to buy as much BSC stock as he could." (Id.). Early infiltrate the week of March 10, rumors had begun to market about Bear Stearns's liquidity. (CA ~ 263). On March 10, 2008, the Company's liquidity pool stood at $18.1 billion. (CA ~ 4 ). At the end of the day on March 11, at $15.8 billion 2008, the Company's liquidity remai (adjusted 273, the release of customer protection funds) (CA ~ ting letter from SEC Chairman Cox to the Chairman of the Basel Corrunittee on Banking Regulat dated March 20, 2008), well within the range of the preceding weeks. 6 ..IIIIIIIIIII~ --------------------------------~.IM Clients continued pulling their funds on March 12 and 13, drawing down the Company's liquidity pool. (CA ~~ 280-81). By the evening of Thursday, March 13, 2008, Bear Stearns's liquidity had declined to $2 billion. (CA ~ 280). Because Bear Stearns could not open for business the next day without financing, cil it negotiat with JPMorgan for a $30 billion funding backstopped by the federal government. (CA ~ 285). At 9:00 am on the morning of Friday, March 14, 2008, before the market opened, Bear Stearns issued a press release announcing deterioration of s liquidity position, and the secured (~ loan facility from JPMorgan. price of Bear Stearns stock share. (CA ~ 33). Following this release, the 11 from $57 per share to $30 per 11). At some po after the market opened on March 14, Roger Wang, allegedly unaware of Bear Stearns's press release, contacted Zhou and placed a verbal order for 200,000 additional shares of BSC. "part (~~ 31-34). The order, however, was only lly filled," and, as a result, Wang was to receive 100,000 shares of BSC at approximately $34 per share and "at no time that day or ever did . . . Zhou warn, caution, or advise Plaintiff or her husband against buying any more BSC stock." (~ 31). In placing this order on March 14, Roger Wang is also 7 leged to have relied on Bland's "favorable recommendation" from three days earl r. (Id.). Over the ensuing weekend, the loan facility did not calm market's fears. On Sunday, March 16, 2008, Bear Stearns announced an agreement for JPMorgan to purchase the Company for the equivalent of $2 r share. (tjl 35). According to the Complaint, this announcement is when the Wangs "learned of the fraud./I 35). The Wangs immediately stopped payment "on the (tjl scheduled wire transfer for their final stock trades," and refused to pay ir purchases of BSC stock. (tjl 35). The following day, March 17, a representative of Bear Stearns demanded payment from the Wangs, but was referred to their lawyer. 36). (tjl Based on se allegations, the Plaintiff s brought claims against the Defendants for violation of Securities Exchange Act of 1934, Section 10 (b), 15 U.S.C. § 78j (b) (<j[<j[ 49 58) breach of fiduciary duty; conspiracy to induce breach of fiduciary duty defraud (<j[<j[ (<j[tjl 64-69); fraud and ceit and conspiracy to 70-79); violations of California Corporations Code Sections 25400 and 25401 (<j[tjl 80-86); and violations of California Corporations Code Section 17200 8 (tjltjl 87-91). The Relevant Standards On a motion to dismiss pursuant to Rule 12 (b) (6), factual all are accepted as true, and tions al in the compla 12 F.3d 1170, is not whether a 1174 plaintiff will is entitled to of 378 (2d Ci r. 1995 ) v. 2d 90 survive "a complaint must 12 (b) (6), ed as true, to a motion 544, Plaintiffs claims Twombly, 1, 173 L. Ed. 2d 868 550 O.S. must across 5500 .S. 570, 127 S. al 570. dismiss as true a legal O.S. 232, to Rule pursuant sufficient ctual matter, 662, Ct. 1955, Though s conceivable the conclusion 9 129 S. 167 L. sufficient from 678, ausible (quoting Bell Atl. Co Court ctual allegations of a complaint as true, accept 375, (1974)). 556 O.S. (2009) line at F.3d 416 Rhodes, 56 aim to relief that is on its face.'" As 1937, 1949, to contain 'state a "'The issue dence to support the cla (quo t To their 1993). ultimately prevail but whet r 236, 94 S. Ct. 1683, 40 L. (2007)). r. (2d _V~i~l~-L~r~~~P~o~n_d~__I_n_c~.__ _ _~T~o_w_n _~o_f ~D~a_r~i~e~n, v_. _ __ ,,, ar pleader. Mills v. s are drawn in favor of all . to to must Ct. . v. 2d 929 "nudge [ plausible." accept the is "'not bound to couched as a factual legation.'" Iqbal, 129 S.Ct. at 1950 (quoting Twombly, 550 U.S. at 555). "To state a cIa § on which reI f can be grant 10(b) and Rule 10b-5, a plaintiff must plead, the defendant made a under er alia, that lse representation as to a material fact, or omitted material information, and acted with senter." ~S~.~~~~~~~L==L~C__~.~H~e~n~n_e_s~s~e~e~~~.~L~L~C, v 573 F.3d 98, 108 (2d Cir. 2009). A plaintiff must also satisfy heightened pleading requirements set forth in Rule 9(b) of the Federal Rules of Civil Procedure and the PSLRA. See Boca Raton ------~----------------------------------------- 35-36 (2d Cir. 2012). Ru I 506 F. App. 32, 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 Fundi Ltd., 493 F.3d 87 1 99 (2d Cir. 2007). To satisfy this requirement, a plaintiff must: "(1) specify the statements that the plaintiff contends were fraudulent, (2) identify the spea ker I (3) state where and when the statements were made, and (4) explain why the statements were fraudulent." Rombach v. Chang, 355 F.3d 164, 170 (2d Cir. 2004) (internal quotation marks and tat omitted). General, conclusory, or speculative allegations, unsupported by specific facts, are legally insufficient. Id. at 176. 10 The Allegations of Section lO(b) Violations Are Inadequate Wang's Section 10(b) al fraud with y, sc icula ions inadequately allege er, and reliance on any misstatements or omissions. The Complaint does not plead ud with particularity. With respect to Zhou, Plaintiff does not allege any affirmative s that Zhou failed to "caution sstatements. Instead, she al or her husband a or advise Plainti stock" on Ma 14, 2008 "or ever." [i.e., an omission] under inst buying any more BSC (~ 31). However, "[s]ilence sent a duty to disclose, is not misleading 10b-5." In re I ial Public Offe --------------------------------~----------~- ting Basic v. 241 F. Supp. 2d 281, 380 (S.D.N.Y. 2003) Levinson, 485 U.S. 224, 380 (1988)). adequately aIle Compla that Zhou had any duty to does not se Wang or caution her about purchases of SSC shares in view of the discla r in the Customer ement t t Wang signed. 11 ....... _----------------------- - -.....- . . - - - - -........ It is not alleged that Zhou had a duty to speak in order to correct any prior statements. _S_e_e~__~_., 116 F. Supp. 2d 446, In re N. 460-61 (S.D.N.Y. y to correct or update, by definition, only arises 2000) with re ct to 'prior' public statements."). Zhou did not have a duty to correct any misstatement allegedly made by anyone else at Bear Stearns, since there is no allegation that he was invo in any way in the making of those statements. See v. J.P.Morgan Sec., Inc., 710 F.3d 454, 467-68 2013) fai (defendant did not (2d Cir. a duty to disclose where 's to allege the de n int rect involvement" in )i In re Union Carbide Corp. Consumer Prods. Bus. Sec. 666 F. Supp. 547, 563 (S.D.N.Y. 1987) of direct participation in t (absent evi preparation or issuance of documents, officers had no duty to disclose or correct any misstatements or omiss of material fact in documents issued by corporation) . Plaintiff s that the Complaint any affirmative misstatement by Zhou but has al s not allege Zhou should have warned her not to purchase any additional BSC stock on Friday, March 14, 2008 in view of the 9 a.m. announcement that Bear Stearns's liquidity had significantly 12 eriorated and t firm was receiving extraordinary financing from JPMorgan. (~~ 31, 33). The Comp1a Stearns also has alleged that the Bear ss release on t morning of March 14 meant, "[iJn effect, Bear Stearns' credit up, liquidity was in cilities had essentially dried a huge problem, and the company was rapidly heading towards complete financ I collapse./I 33). (~ Even if the allegedly omitted, publicly available formation about Bear Stearns's financial condition on March 14 was material, Zhou had no duty to sclose that information to the Wangs. The Customer Agreement signed by aintiff specifically disclaimed any such duty. Plaintiff has contended that the Customer Agreement only disclaimed fiduciary dut s in the context of ERISA or retirement accounts, but the Customer Agreement is not so limited. It explicitly notes on t first page that "Bear Stearns is acting as a broker-dealer and custodian Bro rage activities are regulated under different laws and rules than advisory activit do not g rise to the fiduciary duties that an investment adviser has to its clients./I 13 . _ . _ - - - - - - _ .... _-_ ..... s and generally _-------------------- Wang has alleged that Zhou placed certain orders for BSC stock at her husband's request and that Zhou was incentivized to commit fraud order to earn commissions on the trades. Wang does not allege that Zhou received any greater commissions from Wang's purchases of Bear Stearns stock than he did from Wang's other stock purchases at this time, and such generalized allegations do not give rise to a strong inference of scienter. See Chi v. JP Mo Local 134 IBEW Joint Pension Trust of Chase Co. ------~----------~~------------ 553 F.3d 187, 200-01 (2d Cir. 2009) . In the absence of motive, the Plaintiff must provide "correspondingly greater" circumstantial allegations of s enter. PI ntiff has not alleged that Zhou was in possession of any material information about Bear Stearns's financial condition that was not publicly disclosed. Although Wang cites several "early warning signs such as that, on March 11, ING Group NV allegedly informed Bear Stearns that it was pulling $500 million financing," (Opp. at 9; CA , 269), there is no connection alleged between Zhou and those allegations nor an explanation for why a retail broker in the Bear Stearns's Los Angeles office would have had any knowledge of these events in real time. A corporation's knowledge cannot be attributed to 14 Inc. Sec. Lit . See, e. g. , 1 1897, 2006 WL 314524, at *8 9 (S.D.N.Y. Feb. 10, No. 05 2006), rev'd in part on other grounds, 531 F.3d 190 (2d eir. 2008) . Wang does not dispute that she and her husband are ghly sophisticated investors who placed unsolicited orders th Zhou for increasing amounts of BSe stock in March 2008 as the rumors about Bear Stearns's ial condition intensifi and its stock price Wang also does not dispute purchased Bse stock on s 14 following the public announcement of Bear Stearns's serious liquidity problems. Plaintiffs alleged reI on Zhou is unreasonable as a matter of law. Further, omission by Zhou would only as fraud under §10(b) to Merrill actionable extent it was "material." See In re Rate Sec. Lit 851 F. Supp. 2d 512, 535-36 (S.D.N.Y. 2012). To establish materiality a plaintiff must demonstrate "a substantial likelihood of the omitted investor as ct would have been ~-------- the reasonable ng significantly altered the total mix of 15 ---- the disclosure information made availab ." Hutchison v. Deutsche Bank Sec. Inc., 647 F.3d 479, 485 (2d Cir. 2011) (quotations omitted, emphasis added). Wang fails to allege that a representation from Zhou regarding the instability of Bear Stearns would have affected the decision to purchase stock. Moreover, Wang has acknowledged that the substance of Zhou's alleged omission on March 14 had already been disclosed to the market at the time of the purchases that day. (~~ 33-34). Any failure on Zhou's part to reference the release relating to the loan facility with JP Morgan in a later conversation with Roger Wang after the release cannot be material as a matter of law. See In re Merrill Lynch, 851 F. Supp. 2d at 535-36 (defendants prior disclosure of the substance of the alleged omission to the market rendered an omission immaterial) . To the extent that Wang's claims against Zhou are based on a failure to "ever" caution her or her husband about buying more BSC shares, not just on March 14, Wang has not alleged with any particularity why omissions on other occasions were materially misleading. 16 with respect to Bland, Plaintiff claims that Bland represented to Roger Wang during a conference on March 11 that Bear Stearns was a sound investment, that "its stock value should be at least $85.00 per share, . that [it] was a great time to invest in the stock," and that he would have purchased more shares at the time if he could. ('][ 30). However, Bland's alleged statements are opinion. See Rombach v. Chang, 164, 174 355 F.3d (2d Cir. 2004). Prior cases have found statements virtually identical to Bland's to be inactionable as fraud: ¢ "[Bank] is in very good shape as it moves into its next stage of development." City of Sterling Heights Police & Fire Ret. Sys. v. Abbey Nat'l, PLC, 423 F. Supp. 2d 348, 358 (S.D.N.Y. 2006); ¢ "[Company has a ] strong balance sheet." In re DRDGOLD Ltd. Sec. Litig., 472 F. Supp. 2d 562, 568-69 (S.D.N.Y. 2007) (statement "more properly characterized as optimistic statements of opinion as opposed to fact"); . problems reflect ¢ "[Company is] in very good shape what every other reinsurer faced. We have put it behind us . ." Malin v. XL Capital Ltd., 499 F. Supp. 2d 117, 144 (D. Conn. 2007); ¢ Plaintiffs "were going to make good money on new issues." New v. L.F. Rothschild, Uterberg, Towbin, 651 F. Supp. 160, 163-64 (S.D.N.Y. 1986) (finding that statements were nothing more than "the common puff of a salesman"); and ¢ "[Bank] set the standard for best practices in risk management techniques." ECA, Local 134 IBEW Joint Pension Trust of Chi. v. JP Morgan Chase Co., 553 F.3d 187, 205 06 (2d Cir. 2009) (" almost every investment bank makes these statements."). 17 Such corporate opt only when speaker sm has been held to be actionable ded "guarantees or statements of fact, . specific or if [he] does not genuinely or them. u In re Int'l Bus. Machines Co reasonably bel Litig., 163 F.3d 102, 107 (2d Cir. 1998). Wang rna all statements of , and she provides no adequate all Bland did not subject scienter. s no ever made any guarantees or specific ion that The P . Sec. ly believe ion that statements when made. intiff has also failed to adequately Under the PSLRA, "Congress required with part lege intiffs to arity facts giving rise to a strong-i.e., a powerful or cogent-inference u of fraudulent intent. Tellabs, Inc. v. Makor Issues & Ct. 2499, 2510 (2007) 551 U.S. 308, 323, 127 S. (citations omitted) i 15 U.S.C. 4 (b) (2). A "strong inference u of sc § 78u r can be established by demonstrating facts either: "(1) showing that the defendants had motive opportunity to commit the [ legedJ constituting strong circumstantial evidence of cons misbehavior or rec essness. Fund, Ltd., 493 F.3d 87, U ATSI Commc'ns, ous 99 (2d Cir. 2007)i see also ECA, 553 'strong' inference of scienter, cts give raj court must ta into account plausible opposing inferences,u such t 18 (2) Inc. v. The Shaar F.3d at 198. "[IJn determining whether the pleaded rise to a or f "a reasonable person would deem the inference of scienter cogent and at st as compelling as any opposing inference one could draw from the facts alleged." Tellabs, 551 U.S. at 336, 127 S. Ct. at 2509-10. The Complaint is devo of ual allegations suggesting that Zhou and Bland had motive to commit fraud. There is an allegation that Zhou and Bland misstated or omitted material facts "in an effort to maintain the artificiallyinflated ice BSC common stock." ('3I 51). has held in numerous cases that "similar all The Second Circu ions of a generalized motive that could be imputed to any for-prof endeavor are not concrete enough to infer scienter." In re Merrill (no 851 F. Supp. at 528; see ECA, 553 F.3d at 200-01 ference of scienter could be drawn from all ions that defendants had a "desire to maximize corporation's profits," or "were motivated because inflated stock price or improved corporate formance would increase their compensation") i Acito v. IMCERA . Inc. ------------~~------ 47 F. 3d 47, 54 In addition, Wang has fail (2d Cir. 1995). to allege opportunity that either Zhou or Bland were actually in possession of, or had access to, material information about Bear Stearns's liquidity or the value of its stock price that had not already been 19 ~~---'-"""----- -------------------------------_. publicly disclosed. Absent credible allegations that Zhou or Bland had access to nonpublic facts about Bear Stearns's un lding financial condition, Wang's claim cannot satisfy the PSLRA and t particular y requirements of Rule 9(b). See In re Dynex Capital, Inc. Sec. Litig., No. 05 Civ. 1897, 2006 WL 314524, at *8-9 (S.D.N.Y. Feb. 10, 2006) (dismissing claims where complaint failed to allege that corporate officers "saw or had access to specific reports or statements that indicated malfeasance, or that contradicted their public statements"), rev'd in part, 531 F.3d 190 (2d r. 2008). With respect to Bland, there is no circumstantial evidence from which to infer that Bland did not subjectively believe that March 11, 2008 was in fact a good time to invest in Bear Stearns. That Bland's prediction turned out to be wrong is not relevant. See Podany v. Robertson Stephens, Inc., 318 F. Supp. 2d 146, 155 (S.D.N.Y. 2004) ("[LJiability premised on objective wrongness of an opinion alone would risk holding federal securities law defendants liable for good-faith, if negligent, errors."). Wang has not alleged any circumstantial evidence that would compensate for her failure to allege motive and opportunity. "When, as here, [plaintiff] ha[s] 20 iled to plead motive and opportunity . . . the strength of t circumstantial allegations must be correspondingly greater." Chase Sec. Liti ., 363 F. Supp. 2d 595, 624 (S.D.N.Y. 2005) (citing Kalnit v. Eichler, 264 F.3d 131,142 (2d Cir. 2001)). Strong circumstantial evidence of sc er would require ific allegations tending to s rt that Zhou and Bland either: access to information (1) possessed knowledge or that renders their alleged statements or (2) "ignored obvious signs of omissions misleading; " Novak v. Kasaks, 216 F.3d 300, 308-09 (2d Cir.), cert. , 531 U.S. 1012 (2000). There is no allegation that or B information; nor do Wang's all tions give rise to a strong inference of recklessness or A plaintiff all had access to sbehavior. ng fraud must also plead reasonable reliance on the misstatements or omissions. SEC v. DiBella, 587 F.3d 553, 563 (2d Cir. 2009). The reasonableness of reliance ctors; no single one is "dispositive." Brown turns on several v. E.F. Hutton Inc. ------------------~~------ 991 F.2d 1020, 1032 (2d Cir. 1993). Factors include: "(I) The sophistication and expertise of t plainti in i of longstanding to the re relat ies matters; and s (2) the siness or personal relationships; i (5) tion; (3) access (4) the existence of a f concealment of the fraud; 21 (6) the stence to detect the fraud; (7) whether the plaintiff initiated the stock transaction or sought to expedite the transaction; and (8) the generality or specificity of the misrepresentations." In re ________~__ , 851 F. Supp. 2d at 536-37. Roger Wang is the chairman and CEO of the Golden Eagle International Group, which owns and operates high-end retail department stores throughout China and is traded on the Hong Kong exchange. In its 2013 list of billionaires, Forbes magazine estimated Roger Wang's net worth to be $3.8 billion. Decl. ~ (Chepiga 2, Ex. 1). The Wangs are financially sophisticated, given their business experience and wealth and satisfy the definition of "Accredit Investor" under the federal securities laws. See 17 C.F.R. § 230.501. The Customer Agreement provided that Bear Stearns and its employees were acting only as a broker-dea r and custodian with respect to Wang's account, not an investment advisor or fiduciary. The specific misstatements or omissions alleged by Wang do not adequately allege reasonable reliance. With respect to Zhou, Wang concedes that Bear Stearns issued a press release at 9:00 a.m. on the morning of March 14, prior to any purchases that day in her account. (~~ the market the liquidi deterioration at Bear Stearns. As a 33, 34). This release disclosed to 22 sophisticated investor, Wang cannot claim justifi on Zhou's failure to mention an already public See e. . Ie reliance ss release. ' t Income Trust Hunt v. AlIi F.3d 723, 730 (2d Cir. 1998) light of adequate ng (f been misled") disclosures, "no reasonable investor c see also --------~------~-----Heliot 189 F. at 980-81 articles). This is true (no duty to r or not Wang was ss of actually aware of the release. Starr ex reI. Estate of (quoting Brown, s diligence, the investor With re ct to too generic to i on Inc., 412 F.3d 103, 109-10 (2d Cir. 2005) 991 F.2d at 1032) justifiably rely on a i market was aware of" from news disclose information " v. Georgeson S'holder, 159 Inc. ("[A]n stor may not sentation if, through minimal ld have discovered the truth."). , his statements of opinion are a reasonable investor to rely on them. In 75 F.3d 801, 811 Circuit t it was to per t "general announcements by Philip Morris stic' about its earnings and 'expected' Ma rm well . investor . " . . [could not] have misled a reas (company's statement "continued prosperity" was not a 23 - - - -........... ¢ ~-~~~~ .... Ie See also Lasker v. N.Y. State Elec. & Gas 85 F.3d 55, 59 (2d Cir. 1996) wou (2d Cir. 1996), the Second ~----------------------~ inst stock price declines, and just "the type of 'puffery' that this and other circuits have consistently held to be inactionable"). Any reliance on Bland's alleged statements is not adequate because Wang only alleges reliance on Bland's statements in connection with purchases on March 14. Friday, March 14, and's favorab (i 31 ("On . with reasonable reliance on Defendant recommendation . Plaintiff's husband .")). As an initial matter, placed another verbal order . these purchases took place three days after Bland is alleged to have spoken wi Roger Wang and hours after Bear stearns issued s press release on the morning of March 14 notifying the market of the serious liquidity problems result of a run on the bank and t JPMorgan. experienced as a financing being provided by (ii 33-34). In light of these intervening developments, which were widely reported in the press, it was not reasonable for a sophisticated investor like Wang to have relied on statements that Bland allegedly made back on Tuesday, March lIon Friday, March 14. 3 3In her opposition, the Plaintiff has alleged for the first time that she also relied on Bland's statements in connection with the March 11 purchases of BSC stock. However, Plaintiff cannot amend the Complaint in an opposition brief. 352 F. Supp. 2d 501, 516 (S.D.N.Y. 2005) ("It is long-standing in this circuit that parties cannot amend their pleadings through issues raised solely in their briefs."). 24 Moreover, Wang's allegation that Bland informed Roger Wang at a luncheon on March 11, 2008 that Bear stearns was a s investment, "its stock value should be at least $85.00 per In the stock [of Bear re," it "was a great time to Stearns],n and Bl would have pur ric statement of corporate if he could constitutes a t sed more shares at the only if Bland provided "guarantees U or imism acti "specific statements of fact n or not "genuinely or reasonablyn believe the statements. See In re Int'l Bus. Machs. Corporate Sec. Litig., 163 F.3d 102, 107 (2d Cir. 1998). The "hallmark of an objective nion is that does not express 'matters of , which can be asses standard' but instead conveys a against an 'objective 1 f or 'judgment' whose 'determination is inherently subjective.,n Billho r v. Flamel Techs., S.A., No. 07 Civ. 9920 (RWS), 2012 WL 3079186, at *10 (S.D.N.Y. Ju 30, 2012) (quoting Fait v. Regions Fin. Corp., 655 F.3d 105, 110 13 (2d reflect his own subjective r. 2011)). Bland's alleged statements 1 fs. While the intiff has contended it would be inappropriate to find that these statements were opinions as opposed to factual statements, such findings are routinely made by courts on motions to dismiss. See, e.g., Plumbers Union Reins No. 12 Pension Fund v. Swiss 753 F. Supp. 2d 166, 182 (S.D.N.Y. 2010); In re 25 DRDGOLD Ltd. Sec. Litig., 472 F. Supp. 2d 562, 568-69 (S.D.N.Y. 2007) . Plaintiff's allegations do not give rise to a plausible inference that Bland did not subjectively believe his alleged March 11, 2008 statements to Roger Wang about Bear Stearns. The contention that Bland must have known that Bear Stearns was in a precarious financial position because two lenders allegedly pulled a small amount of financing from Bear Stearns prior to March 11 fails to connect Bland to the withdrawals of financing and does not allege any facts demonstrating that Bland knew or should have known of those events. The allegations of scienter fall well short of the Rule 9(b) and PSLRA heightened pleading standards. The Allegations of State Law Violations are Time-Barred and Inadequately Pled Count V of the Complaint asserts claims against Zhou and Bland for securities fraud under §§ 25400 and 25401 of California Corporations Code. Under California law, Wang had "two years after the discovery of the facts constituting the violation" to 26 assert her state law securit s fraud claims. Wang alleges substantive violations of both §§ 25400 and 25401, §§ 25500 and 25501, respect for which ly, provide causes of action. In turn, Section 25506 provides a two-year limitations period from the time of discovery for any causes of action arising under §§ 25500 and 25501. See Cal. Corp. Code § 25506 (b) shall be maintained to enforce any liabil Section 25500, 25501, or 25502 . un (" [N] y creat action 0 under ss brought before the expiration of five years after the act or transaction constituting the olation or the expiration of two years a the discovery by the plaintiff of the er cts constituting the violation, whichever shall first expire."). Wang discovered r claims on March 16, 2008, when the merger between Bear Stearns and JPMorgan was announced and when Wang stopped payments on purchases of BSC because she had "learned of t Wang's Complaint was not fraud." (~ 35). led until March 29, 2011, more than three years later, and thus is time-barred. Wang does not contest that she filed her Complaint against Zhou and Bland more than three years after her discovery of the alleged fraud, but contends that either or California's equitable tolling principles apply to save her state law cia . Wang's claims were not tolled during the pendency of the Securities Action. "[A] federal court evaluating 27 the timeliness of state law claims must look to the law of the relevant state to determine whether, and to what extent, the statute of limitations should be tolled by the filing of a putative class action in another jurisdiction." Casey v. Merck & Co., 653 F.3d 95, 100 (2d Cir. 2011). "California has not adopted such American Pipe tolling where the class action was filed in a foreign jurisdiction." See Hatfield v. Halifax PLC, 564 F.3d 1177, 1187 (9th Cir. 2009) (quoting Clemens v. Daimler Chrysler Corp., 534 F.3d 1017, 1025 (9th Cir. 2008)); Centaur Classical Convertible Arbitrage Fund Ltd. v. Countrywide Fin. Corp., 878 F. Supp. 2d 1009, 1017 (C.D. Cal. 2011) (rejecting argument that prohibition against cross-jurisdictional tolling should not apply because the class action and subsequent action were both filed in the same federal court, because cross jurisdictional tolling "includes all situations where a class action is filed outside the . . state court system"). American Pipe is not the law in California. Wang has acknowledged that in Clemens v. Daimler Chrysler Corp., 534 F.3d 1017 (9th Cir. 2008), the Ninth Circuit refused to extend American Pipe to allow an earlier class action brought in a foreign jurisdiction to toll the statute of limitations for a subsequently filed California action, but she contends that tolling principles should still apply here. Wang 28 has contended t t Zhou and by the filing of Defendants have not Securities Action in this District, and udiced "in gathering evidence of en p identifying witnesses." (Opp. at 25). Zhou and Bland are not mentioned in the Securit s Action complaint, Action complaint is not bas pI and were on notice of her claims the Securities on a broker relationship with any iff, and Zhou and Bland's alleged misrepresentations and omissions are separate from those at issue in the Securities Action. Wang has acknowledged these differences. 68 at 5 her" " See . No. (arguing her case presents "unique circumstances" due to rect ient relationship th Bear Stearns" and the lse material information [she received] managers and employees (including de from Bear Stearns ndants Zhou and Bland)")). The Securities Action did not provide Zhou and Bland with notice of Wang's claims aga t them and allowing Wang's claims to proceed would prejudice Defendants. Counts III and IV of the Complaint allege, respectively, fraud state law breach of fiduciary duty and common law ims against Zhou and Bland. Under California law, claims for duty that sound in wi ud and common law fraud must be brought n three years from the date the Plaintiff "discover[ed] the 29 - . - - - .... ------~~----.. ch of fiduciary ---------------- fraud or facts that would lead a reasonably prudent person to suspect fraud." See Deveny v. Entropin, Inc., 42 Cal. Rptr. 3d 807, 816 (Cal. Ct. App. 2006); Fuller v. First Franklin Fin. Corp., C070452, 2013 WL 1820047, at *4 (Cal. Ct. App. May 1, 2013) . Since Wang's breach of fiduciary duty and common law fraud aims are based on the same allegations as her Section 10(b) claims, her allegations must comport with the particularity requirements of Rule 9(b). See Sollberger v. Wachovia Sec., LLC, No. SACV 09-0766 AG (ANx) , 2010 WL 2674456, at *7 (C.D. Cal. June 30, 2010); 9262,2010 WL 931888, at *7 v. Wasserman (S.D.N.Y. Mar. 12, 2010) No. 08 Civ. ("Rule 9(b) also applies to breach of fiduciary duty claims where the breach is premised on defendant's fraudulent conduct, such as an attempt to induce action or inaction on the part of . . investors by means of falsehoods or material omissions. ff (internal quotations omitted)); Jackson v. Fischer, No. C 11 2753 PJH, 2013 WL 1089860, at *16 (N.D. Cal. Mar. 15, 2013) (" [I]n ral court, allegat of [common law] fraud civil cases are subject to the particularity requirements of Rule 9(b) ."). As set forth above, Wang has failed to plead fraud with the particularity required by Rule 9(b), and, accordingly, her claims for breach of fiduciary duty and common law fraud must be 30 dismissed. See kson, 2013 WL 1089860, at *16; In re Merrill 851 F. . 2d at 541. Wang's Complaint also ils to allege that either Zhou or Bland had a fiduciary duty to warn her aga i rnia law, t additional purchases of stock. Under duty that a bro r owes his customers is entirely dependent on nature of the rties' relationship, and does not include the duty to disclose, advise or warn about an the broker was act Pens scope of a stment unless in an advisory capacity_ Brown v. Cal. Admin. & Consultants Inc., 45 Cal. App. 4th 333, 348 (Cal. Ct. App. 1996). Courts here, a contract dis v. MCA Inc. lined to f d such a relationship. See Yerkovich 211 F.3d 1276 (9th Cir. 2000) existence of a contract expressly disc fiducia a duty to warn where, as (citing iming the existence of a relationship as evidence that no such relationship existed), cert. denied, 531 U.S. 871 (2000); Petersen v. Sec . Settlement, 226 Cal. (same) . . 3d, 1445, 1454 55 (Cal. Ct. Customer Agreement signed by Wang made plain that Bear Stearns would not acting as an 31 - - - - - -........ . 1991) ~- -------- ..... stment advisor or duciary. (See Chepiga Declo '][ 3; Ex. 2 '][ 1 (b) (disclaiming Bear Stearns's role as investment advisor and providing that Plaintiff would consult with her own "investment, financial and accounting advisors to the extent [she] deem[ed] necessary in determining the investment and trading strategy appropriate for [her]")). California courts consider "the relative sophistication and experience of the customer; the customer's ability to evaluate the broker's recommendations and exercise an independent judgment thereon; nature of the account, whether discretionary or nondiscretionary; and the actual financial situation and needs of the customer." Duffy v. Cavalier, 215 Cal. App. 3d 1517, 1536, n.10 (Cal. Ct. App. 1989). Where a broker serves only to execute investment decisions made by a client, there is no "duty to notify the customer of the nature of an investment, or sky . of the poor performance of similar investments held by different customers./f Brown, 45 Cal. App. 4th at 348; see also Petersen, 226 Cal. Ct. App. 3d at 1454-55 (broker that did not provide investment advice to its customers had no duty to warn her about the risky nature of investments). Wang and her husband were wealthy and sophisticated investors with the background and financial means 32 necessary to exercise independent judgment. Inde , they appeared to have a strategy of investing in the stock of financial companies in the height of the financial panic, as Bear Stearns was not the only financial stock they were acqui ng at the time. (<]1<]1 25-29). With respect to Zhou specifically, Wang has al ged that, in the mid-1990s, Zhou "began advising [her] and her family about investments," (<]1 23); that he provided advice about "one or more purchases at issue in this case," (<]1 21); but did not "warn, caution, or advise . . . against buying more BSC stock," (<]1 31). Plaintiff does not allege that her BSC purchases were solicited by Zhou, does not describe any advice provided by Zhou, and does not state that she was rsuaded by Zhou's advice. To the contrary, at most her al that, a er some t gat ions demonstrate "using a different broker," (<]1 24), the Wangs contacted Zhou to set-up a brokerage account at Bear Stearns, and that, through him, Roger Wang placed orders for purchases of stock in several financ 1 inst utions. These allegations are insufficient to show that Zhou had a duty to advise Wang about the riskiness of her investments. 33 With respect to Bland, "Before a person can be charged with a duciary obligation, he must either knowingly undertake to act on behalf and for the benefit of another, or must enter into a relationship which imposes that undertaking as a matter of law./I . Fund v. Roth Partners ~------~~----------------~~---------- 158 Cal. App. 4th 226, 246 (Cal. Ct. App. 2007). The Complaint lacks allegations that Bland intended to act on the Wangs' behalf or exercised control over Plaintiff's account. While the Complaint alleges that Bland knew that Roger Wang was a customer of Bear Stearns, that is insuf cient to establish a duciary relationship between the Plaintiff and Bland simply because Bland was an employee of Bear Stearns. See Daniels v. Bd. of ~~ ______ ~~~~L- __ ~~~ __ ~ __ ~_ , No. B228240, 2011 WL 6004477, at *6 (Cal. Ct. App. Dec. 21, 2011) individual defendants were not a fiduc ("As employees, the ry relationship with plaintiff and they owed him no fiduciary duty as a matter of law./I) (citations omitted); Ret. Ass'n, 37 Cal. Rptr. 2d 860, 870 (Cal. Ct. App. 1995) (employee of retirement association owed no fiduciary duty to claimant) . The Plaintiff's claims for conspiracy to defraud and conspiracy to induce breach of a fiduciary duty are also time 34 ba not af as "allegation[s] of a conspiracy of a ci ct the limitations I action [do] riod for the substantive theory of liability involved." Fuller, 2013 WL 1820047, at *4. Also, since Wang's substantive cIa against Zhou and common law fraud and breach of fiduc for ilure to adequately al and reI ry duty must ing to dismiss fraud, or pled with particularity, so too should her conspiracy claims be dismissed for the same reasons. See Inc., No. SACV 12-0568, 2012 WL 2945051, at *5 (C.D. Cal. July 17, 2012) (dismissing claims for fraud and conspiracy to defraud where allegations failed to comport with particularity requirements of Rule 9(b)). In addition, aintiff has not adequately pl that Zhou and Bland were participants in a conspiracy, or with whom they conspired. See Arei II Cases, No. A130447, 2013 WL 2356108, at *11 (Cal. Ct. App. May 29, 2013) sufficient for t "act (plaintiff must allege facts court to infer that each alleged conspirator in concert and came to a mutual understanding to accomplish a common and unlawful plan, that the [alleged con irators] . It is not enough knew of an intended wrongful act, they must agree-expressly or tacitly-to achieve it."). 35 tion in a conspiracy Bare, conclusory allegations of partie are insufficient. Id. -barred and were Even if those claims were not t pled wi the requisite particula iled to allege any facts supporting a con Wang has I ty, which is not the case, , the only iracy. Complaint to which she points ragraph of contains entirely conclusory al ion that De s "engaged an unlawful conspiracy to support BSC's falling stock price (~ through the use of deceitful means." are insufficient to a conspi 45). Such allegations as a matter of law. See Arei II Cases, 157 Cal. Rptr. 3d 368, 383 (Cal. Ct. App. 2013); Geurin v. 21st Century Ins. Co., No. G029885, 2003 WL 329567, at *2 (Cal. Ct. App. Feb. 13, 2003). Count VI asserts claims Pro California Business & 17200 iness practices. To ssions § state a claim under § unlawful 17200, a intiff must plead, inter alia, a predicate violation of an underl ng law. One Broa9., Servs., Inc., 28 Cal. Rptr. 3d 933, App. 2005) (a de liable under "cannot 938 § (Cal. Ct. 17200 r committing unlawful business practices without having violated 36 another law"). Because Wang has not sufficiently plead a viable primary violation by Zhou or Bland, dismissed. r § 17200 claims must be 737 F. Supp. 2d 1018, 1033 (N.D. Cal. 2010). Conclusion Based upon the conclusion set forth above, the motion of the Defendants is granted, and the Complaint is dismissed with leave granted to replead within 20 days. It is so 0 red. New York, NY April I 2014 .:r-; 37
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