Searching over 5,500,000 cases.

Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.


June 25, 2002


The opinion of the court was delivered by: Scheindlin, District Judge.


This is a class action brought against Credit Suisse First Boston Corporation ("Credit Suisse" or "CSFB") on behalf of internet-related and high technology companies that hired Credit Suisse to underwrite their initial public offering of stock ("IPO"). Plaintiffs' four causes of action are state law claims related to underwriting contracts that they entered into with Credit Suisse. Three of these claims assert that Credit Suisse breached the expressed terms of the contracts as well as the implied covenants and the fiduciary duties arising under those contracts. See 2/4/02 Amended Complaint ("Am.Compl.") ¶¶ 32-55. The fourth claim alleges unjust enrichment. See id. ¶¶ 56-61.

Credit Suisse now moves to dismiss the Complaint in its entirety or in part. See infra Part III.C. For the reasons discussed below, this motion is denied.


This Court has jurisdiction over the complaint because there is diversity of citizenship between the parties. See Am. Compl. ¶ 4 (citing 28 U.S.C. § 1332). Plaintiff MDCM Holdings, Inc. ("MDCM") is a Florida corporation with its principal place of business in Florida. See id. ¶ 6. Defendant Credit Suisse is a Massachusetts corporation with its principal executive office in New York. See id. ¶ 7. Credit Suisse's Technology Group, which participated in the IPOs of the putative class members, has its headquarters in San Francisco, California. See id. The Complaint seeks relief only under New York state law, as required by the underwriting contracts. See id. ¶ 33.

The original Complaint was filed on May 25, 2001, in the Southern District of Florida. On October 5, 2001, Credit Suisse and MDCM presented the Florida district court with a joint stipulation seeking a transfer to this Court. That transfer was ordered on October 10, 2001. Venue is proper in this district because Credit Suisse maintains its principal place of business in the Southern District of New York, and a substantial part of the events giving rise to the plaintiffs' claims occurred here. See 28 U.S.C. § 1391(a), (c).


Under the Federal Rules of Civil Procedure, plaintiffs need only provide "a short and plain statement of the claim showing that the pleader is entitled to relief." Fed.R.Civ.P. 8(a)(2). "Such a statement must simply `give the defendant fair notice of what the plaintiffs claim is and the grounds upon which it rests.'" Swierkiewicz v. Sorema N.A., 534 U.S. 506, 122 S.Ct. 992, 998, 152 L.Ed.2d 1 (2002) (quoting Conley v. Gibson, 355 U.S. 41, 47, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957)). "This simplified notice pleading standard relies on liberal discovery rules and summary judgment motions to define disputed facts and issues and to dispose of unmeritorious claims." Id.

Thus, when deciding a motion to dismiss, courts "must accept as true all of the factual allegations contained in the complaint." Leatherman v. Tarrant County Narcotics Intelligence and Coordination Unit, 507 U.S. 163, 164, 113 S.Ct. 1160, 122 L.Ed.2d 517 (1993). Indeed, courts have long been required to follow "the accepted rule that a complaint should not be dismissed for failure to state a claim unless it appears beyond doubt that the plaintiff can prove no set of facts in support of [its] claim which would entitle [it] to relief." Conley, 355 U.S. at 45-46, 78 S.Ct. 99.


A. Allegations

Out of a desire to raise new capital, corporations often decide to sell ownership of the company to the public by issuing stock. The first step in this process requires a company to find an investment bank that will agree to underwrite its IPO.*fn1 Agreements between the company issuing the stock ("issuer") and the investment bank underwriting the IPO ("underwriter") are executed in a contract commonly referred to as an underwriting agreement.

As with most contracts between sophisticated parties, representatives of the company and the investment bank discuss many topics before signing on the bottom line. The parties generally negotiate the amount of capital that the company seeks to raise, the type of security to be issued, the price and any special features of the security, and the underwriter's compensation.*fn2 For example, the contract may "obligate the underwriter to acquire the IPO securities from the issuer at a [discounted] fixed price, and then resell the IPO securities to the public in accordance with the terms, and at a fixed offering price." Am. Compl. ¶ 15. The difference between these two prices is typically 7% of the IPO proceeds. See id. ¶ 19. The investment bank's profit in selling the issuer's stock to the public is intended to serve as compensation for its services. See id., a company that specialized in providing online mortgage services, was one of the many internet-related and high technology companies that went public in the late 1990s. In July 1999,'s Board of Directors authorized the corporation to enter into an underwriting agreement with Credit Suisse, one of the nation's leading underwriters.*fn3 See Am. Compl. ¶¶ 14, 18, 25. On August 11, 1999, and Credit Suisse executed the underwriting agreement. See 8/11/99 Underwriting Agreement at 1-17, attached as Ex. 1 to Appendix of Supplemental Materials provided by MDCM Holdings, Inc., at 1-17. The same day, shares in were issued to the public and began trading on the NASDAQ National Market under the ticker symbol "MDCM". Am. Compl. ¶ 25.

Pursuant to the underwriting agreement, sold 7,062,500 shares of common stock to Credit Suisse for $7.44 per share, exactly 7% less than the public offering price of $8.00 per share. See id. In addition, Credit Suisse exercised an option under the underwriting agreement and acquired 379,375 additional shares for the same price. See id. As a result,'s IPO generated gross proceeds of approximately $59.5 million. See id. The compensation for Credit Suisse's service was $4,167,450. See id.

Two weeks after the IPO,'s stock had almost doubled in value. See id. ¶ 26. On August 26, the stock price hit $22-3/4 per share, closing at $15-3/8 per share. See id. Such an increase was not unusual during the late 1990s: was one of many issuers whose shares dramatically increased in value after being issued to the public. See id. ¶ 22. "In 1998 and 1999," for example, "the value of IPO shares frequently surged 400-500% during the first day of trading." Andres Rueda, "The Hot IPO Phenomenon and the Great Internet Bust," 7 Fordham J. Corp. & Fin. L. 21, 23 (2001). "Indeed, data published by Professor Jay Ritter of the University of Florida notes that the 10 biggest first-day IPO percentage increases in history all took place within the Class Period herein."*fn4 Am. Compl. ¶ 28.

The complaint alleges that Credit Suisse used this phenomenon to enrich itself by requiring that customers who wanted to purchase IPO shares pay it the prospectus price plus, directly or indirectly, a share of profits that the customers realized.*fn5 See id. ¶¶ 37, 40. Credit Suisse's actual compensation was thus far greater than the amount agreed upon by the issuers in the underwriting agreements. See id. ¶¶ 30, 37, 40. Moreover, the Complaint asserts that Credit Suisse purposefully underpriced certain securities in order to guarantee that those shares would rise in value once issued to the public. See id. ¶¶ 2224. From the issuers' perspective, there was "money left on the table" because of this underpricing. Id. ¶ 22. For example, if's original offering price had been somewhere between the high and low price of August 26, 1999, the company would have realized additional gross proceeds of $54 million to $109 million. See id. ¶ 25.

B. MDCM's Class Action

On May 25, 2001, the corporation formerly known as, now called MDCM Holdings, Inc.,*fn6 sued Credit Suisse on behalf of issuers that had used the investment bank to underwrite their IPOs from January 1, 1998, to October 31, 2000. See Am. Compl. ¶ 1. The putative class is limited to companies whose securities "increased in value 15% or more above their original offering price within 30 days following the IPO."*fn7 Id. ¶ 1.

Count I of the Complaint alleges that Credit Suisse breached the explicit terms of the underwriting agreements in two ways. First, Credit Suisse did not sell the IPO shares to the public as the contract requires, but instead directed shares to favored customers. See id. ΒΆΒΆ 29, 39. Second, Credit Suisse did not sell the IPO shares for the price provided in the prospectus, but instead ...

Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.