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In re Marsh & McLennan Companies

September 27, 2006

IN RE MARSH & MCLENNAN COMPANIES, INC. SECURITIES LITIGATION


The opinion of the court was delivered by: Shirley Wohl Kram, U.S.D.J.

MDL No. 1744

OPINION AND ORDER

THIS DOCUMENT RELATES TO: ALL ACTIONS

In an Order dated July 19, 2006 (the "July 19 Order"), the Court partially granted the defendants' motions to dismiss this litigation.*fn1 At the Court's direction, the plaintiffs submitted a proposed Second Amended Complaint ("SAC") accompanied by a motion for leave to amend. The plaintiffs contend that the SAC omits all parties and counts that were dismissed by the July 19 Order and makes appropriate revisions to the allegations carried over from the Amended Complaint ("AC"). The remaining defendants--Marsh & McLennan Companies, Inc. ("MMC"), Marsh, Inc. ("Marsh"), Jeffrey Greenberg ("Greenberg"), and Roger E. Egan ("Egan") (collectively "Defendants")--oppose the SAC on several grounds. For the reasons set forth below, the motion for leave to file the SAC is granted, subject to the limitations indicated herein. In addition, the claims and parties omitted from the SAC, and those now ordered to be removed from the SAC, are hereby dismissed with prejudice.

I. The Additional Puffery Allegations Challenged by Defendants Must Be Stricken From the SAC

In the July 19 Order, the Court dismissed certain classes of the AC's allegations as mere puffery. Although the Court only cited to three paragraphs of the AC, those particular passages served as examples of the sort of broad, general statements that are insufficient to state a claim for securities fraud. July 19 Order at 41 (citing Lasker v. New York State Elec. & Gas Corp., 85 F.3d 55, 59 (2d Cir. 1996) (per curiam); In re JP Morgan Chase Sec. Litig., 363 F. Supp. 2d 595, 633 (S.D.N.Y. 2005)). The three allegations expressly cited in the July 19 Order have been omitted from the SAC. Defendants now argue that a number of additional allegations are also properly characterized as puffery, and thus must be removed from the SAC.

To begin with, the July 19 Order states that broad, general allegations "that MMC misrepresented its commitment to clients and adherence to ethical practices" rely on statements which "amount to no more than puffery," and thus are "insufficient to state a claim for securities fraud." Id. at 40-41. It then notes that some related statements were material and "sufficiently connected to the allegations of steering" to withstand a motion to dismiss. Id. at 41. In other words, actionable allegations must be particularized, material, and sufficiently related to the undisclosed misconduct alleged in the complaint. See In re JP Morgan Chase, 363 F. Supp. 2d at 633.

The July 19 Order sustained three narrow classes of alleged misrepresentations: (1) "disclosures regarding the nature of services provided in exchange for contingent commissions;" (2) "statements regarding the criteria brokers consider when placing insurance business for the Company's clients;" and (3) "disclosures that Marsh's clients were fully apprised of contingent commissions." July 19 Order at 37, 41. General statements regarding MMC's market leadership do not fall within any of these categories, nor do they stand on their own as actionable misrepresentations. For instance, statements attributing MMC's leadership position in its diverse business areas to initiatives such as "promoting a spirit of partnership throughout the company" (SAC ¶ 317) or "the selection, training and development of . . . talent" (SAC ¶¶ 323, 330, 380, 400) are too vague to have misled a reasonable investor about alleged misconduct at Marsh. Similarly, the assertion that "delivering the finest and most comprehensive professional services" is "vital to the creation of long-term value for our shareholders" is not the sort of representation that a reasonable investor would rely upon in making an investment decision. (SAC ¶ 326.)

Defendants also contest the SAC's retention of a number of allegations in which Defendants refer to MMC clients in general terms. Not every statement that mentions MMC's clients is material or sufficiently related to allegedly improper insurance placements to state a claim for securities fraud. Greenberg's assertion that risk and insurance professionals help clients manage risk (SAC ¶ 335) cannot reasonably be said to affect an investor's decision-making or to obscure the existence of steering and bid-rigging at Marsh. Nor is a broad statement about MMC's overarching capacity to assist generic MMC clients (SAC ¶ 347) anything more than puffery.

Finally, MMC contests alleged misrepresentations regarding its "commitment to client service and professional standards" (SAC ¶ 364) and "leadership responsibilities that include creating a culture of high ethical standards and commitment to compliance" (SAC ¶ 373). These are precisely the types of statements that were dismissed by the July 19 Order, and must be removed from the SAC as well. July 19 Order at 41; see also In re JP Morgan Chase, 363 F. Supp. 2d at 633 (dismissing allegations that contain nothing more than "generalizations regarding integrity, fiscal discipline and risk management").

II. Allegations of MMC's Scienter Are Sufficient

At the Court's direction, the plaintiffs have revised their complaint so as to distinguish between MMC and its subsidiary, Marsh, wherever feasible. Despite these efforts, the corporate defendants argue that the SAC fails to sufficiently distinguish between the two entities and often just substitutes the generic term, Marsh, with the phrases "MMC and Marsh, Inc." or "MMC through Marsh, Inc." In addition, MMC argues that the revisions now make clear that the plaintiffs have not adequately pleaded MMC's scienter, and seek leave to file a motion to dismiss on that discrete issue.

MMC's arguments must be considered in the context of this litigation's procedural posture. In the July 19 Order, the Court sustained several claims against Defendants after considering their motions to dismiss. As observed in that Order, when ruling on a motion to dismiss, "[t]he role of the court is 'merely to assess the legal feasibility of the complaint, not to assay the weight of the evidence which might be offered in support thereof.'" July 19 Order at 18 (quoting Levitt v. Bear Stearns & Co., 340 F.3d 94, 101 (2d Cir. 2003)). Courts must keep in mind that, at the pleading stage, plaintiffs do not have the benefit of discovery, hence the court's duty is to "accept[] all the allegations in the Complaint as true and draw[] all reasonable inferences in [the plaintiffs'] favor." Caiola v. Citibank N.A., 295 F.3d 312, 321 (2d Cir. 2002).

Without the benefit of discovery, and relying primarily on public documents and confidential witnesses, the plaintiffs successfully stated several claims against both MMC and Marsh. The Court foresaw that the plaintiffs might seek to amend their complaint, and asked that they more clearly distinguish between the two entities if they did choose to amend. As the plaintiffs partially relied on summary documents bearing on MMC and Marsh's alleged misconduct, the Court was fully aware that the plaintiffs might not be able to distinguish between the ...


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