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UBS ASSET MGMT. v. WOOD GUNDY CORP.

February 7, 1996

UBS ASSET MANAGEMENT (NEW YORK) INC. and THE CHASE MANHATTAN BANK, N.A., Plaintiffs, against WOOD GUNDY CORP. and RICHARDSON GREENSHIELDS OF CANADA, LIMITED, Defendants.


The opinion of the court was delivered by: STANTON

 Plaintiffs UBS Asset Management (New York) Inc. ("UBSAM") and The Chase Manhattan Bank, N.A. ("Chase") sue defendants Wood Gundy Corp. ("Wood Gundy") and Richardson Greenshields of Canada, Limited ("Richardson"), asserting violations of the securities laws and various common law claims.

 Richardson moves pursuant to Federal Rules of Civil Procedure 12(b)(6) and 9(b) for an order dismissing the complaint.

 The complaint alleges the following:

 Wood Gundy is a registered broker-dealer located in New York. Richardson is a Canadian broker-dealer not registered in the United States.

 Plaintiffs' claims arise out of their purchase of unrated debt securities ("the Debt Securities") issued by Confederation Life Insurance Company ("Confed"), a Canadian life insurance company, for certain fiduciary pension fund accounts ("the Accounts") for which UBSAM acted as investment advisor and Chase acted as investment manager and trustee.

 Late in the summer of 1993, Wood Gundy contacted UBSAM to solicit sales of the Confed Debt Securities. Wood Gundy forwarded to UBSAM offering materials, including a circular and an information memorandum, which stated that Confed's Debt Securities were commercial paper issued pursuant to an exemption from the Securities Act, and that the size of Confed's Debt Securities program would be up to one billion Canadian dollars. Over the next nine months, Wood Gundy sold the debt securities to UBSAM and Chase, acting on behalf of the Accounts.

 In June of 1994, Wood Gundy ceased selling the Debt Securities, and Richardson "substituted for Wood Gundy," selling the Debt Securities to UBSAM and Chase from June 15, 1994 until July 29, 1994. (Complaint at P 34.)

 On August 11, 1994, Confed was seized by Canadian authorities because it was insolvent, and the Debt Securities became virtually worthless.

 Plaintiffs filed this action on July 11, 1995.

 DISCUSSION

 Plaintiffs assert against Richardson claims based on sections 12(1) and 12(2) of the Securities Act of 1933, sections 10(b), 15(a)(1), and 29(b) of the Exchange Act of 1934 and SEC Rule 10b-5, as well as common law claims of actual and constructive fraud and breach of an implied covenant of good faith and fair dealing. Richardson moves to dismiss those claims pursuant to Fed. R. Civ. P. 12(b)(6) and 9(b).

 A. Standard for Motion to Dismiss

 In considering a motion to dismiss under Fed. R. Civ. P. 12(b)(6),

 
"a court must accept the allegations contained in the complaint as true, and draw all reasonable inferences in favor of the non-movant; it should not dismiss the complaint unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief."

 Sheppard v. Beerman, 18 F.3d 147, 150 (2d Cir. 1994) (internal quotation marks omitted).

 B. Claimed Exemptions

 Richardson claims that the complaint establishes as a matter of law that Richardson was entitled to several exemptions from the securities laws that require dismissal of various of plaintiffs' claims.

 The burden of establishing an exemption is on the person who claims it. SEC v. Ralston Purina, Inc., 346 U.S. 119, 126, 97 L. Ed. 1494, 73 S. Ct. 981 (1953).

 1. Exempted Securities

 Richardson argues that plaintiffs' claims based on sections 10(b), 15(a)(1), and 29(b) of the Exchange Act and section 12(2) of the Securities Act fail to state a claim because, on the face of the complaint, the Debt Securities were not securities as defined by section 3(a)(10) of the Exchange Act, which excludes from the definition of security "any note . . . which has a maturity at the time of issuance of not exceeding nine months, exclusive of days of grace, or any renewal thereof the maturity of which is likewise limited." 15 U.S.C. ยง 78c(a)(10). In Zeller v. Bogue Elec. Mfg. Co., 476 F.2d 795 (2d Cir.), cert. denied, 414 U.S. 908, 38 L. Ed. 2d 146, 94 S. ...


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