The opinion of the court was delivered by: Shirley Wohl Kram, U.S.D.J.
MDL Docket No. 1500 (SWK)
This Document Relates To: THE CONSOLIDATED OPT-OUT ACTION
On September 30, 2005, the Court certified a class for the settlement of securities fraud claims arising out of the merger of America Online, Inc. ("AOL") and Time Warner, Inc. ("Time Warner") into AOL Time Warner, Inc. ("AOLTW").*fn1 Following certification, a number of parties opted out of the class and filed individual actions throughout the country. Those actions were transferred to this Court by the Judicial Panel on Multidistrict Litigation (the "JPML"). The Court then consolidated for all pretrial purposes the actions of approximately 200 opt-out plaintiffs that had retained common counsel. On May 9, 2007, pursuant to a settlement agreement, these plaintiffs voluntarily dismissed their claims as to all defendants except Ernst & Young LLP ("E & Y"). Now before the Court is E & Y's motion under Federal Rule of Civil Procedure 12(b)(6) to partially dismiss the consolidated opt-out action. For the following reasons, the action is dismissed in part.
In April 2006, the Court approved the settlement of securities class action litigation arising out of AOL and Time Warner's January 2001 merger. The above-captioned litigation consolidates nearly three-dozen actions filed by approximately 200 parties opting out of that litigation. Familiarity with the general context of the securities class action litigation, and the allegations of misconduct underlying that litigation, is presumed. See, e.g., In re AOL Time Warner, Inc. Sec. & "ERISA" Litig. ("In re AOL Time Warner I"), 381 F. Supp. 2d 192 (S.D.N.Y. 2004) (partially granting motion to dismiss in the securities class action litigation); In re AOL Time Warner, Inc. Sec. & "ERISA" Litig. ("In re AOL Time Warner II"), No. MDL 1500, 02 Civ. 5575 (SWK), 2006 WL 903236 (S.D.N.Y. Apr. 6, 2006) (approving settlement of that litigation). As E & Y is the sole remaining defendant in the consolidated opt-out action, the Court will limit its discussion to those allegations specific to E & Y or pertinent to its alleged misconduct. The Court takes the allegations of the Complaint as true for the purpose of this motion.*fn2
E & Y served as AOL's independent auditor for the fiscal years ended June 30, 1998, 1999, and 2000. The accounting firm then served in that same role for AOLTW following the merger, auditing AOLTW's 2001 financial statement. The plaintiffs contend that E & Y falsely certified that AOL and AOLTW's financial statements during this period fairly presented their "financial condition and results of operation" in conformity with Generally Accepted Accounting Procedures ("GAAP"), and that those financial statements were audited in accordance with Generally Accepted Auditing Standards ("GAAS"). (Compl. ¶ 292.) The plaintiffs allege that E & Y's conduct violated Sections 11 and 15 of the Securities Act of 1933 (the "1933 Act"), Sections 10(b), 20(a), and 14(a) of the Securities Exchange Act of 1934 (the "1934 Act"), various rules promulgated thereunder, and assorted state laws in the jurisdictions in which each of the individual actions was filed. E & Y now moves under Federal Rule of Civil Procedure 12(b)(6) to partially dismiss these claims.
The Supreme Court recently clarified that the touchstone for a well-pleaded complaint under Federal Rules of Civil Procedure 8(a) and 12(b)(6) is plausibility. Bell Atlantic Corp. v. Twombly, 127 S.Ct. 1955, 1968, 1974 (2007).*fn3 "While a complaint attacked by a Rule 12(b)(6) motion to dismiss does not need detailed factual allegations, a plaintiff's obligation to provide the grounds of his entitlement to relief requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do." Id. at 1964-65 (citations, quotation marks, and alterations omitted). The factual allegations of a complaint "must be enough to raise a right to relief above the speculative level, on the assumption that all the allegations in the complaint are true (even if doubtful in fact)." Id. at 1965 (citations omitted). However, "[a]sking for plausible grounds to infer [a violation of the securities laws] does not impose a probability requirement at the pleading stage; it simply calls for enough fact to raise a reasonable expectation that discovery will reveal evidence of [the violation]." Id. at 1969.
When considering a motion to dismiss, the "court must limit itself to facts stated in the complaint or in documents attached to the complaint as exhibits or incorporated in the complaint by reference." Kramer v. Time Warner Inc., 937 F.2d 767, 773 (2d Cir. 1991); see also San Leandro Emergency Med. Group Profit Sharing Plan v. Philip Morris Cos., 75 F.3d 801, 808-09 (2d Cir. 1996) (holding that documents "integral" to the complaint are properly considered on a motion to dismiss). In addition, "[o]n a motion to dismiss a securities action, a district court may consider documents required to be publicly filed with the S.E.C. that bear on the adequacy of disclosure." City of Sterling Heights Police & Fire Ret. Sys. v. Abbey Nat'l, PLC, 423 F. Supp. 2d 348, 354 (S.D.N.Y. 2006) (citing Kramer, 937 F.2d at 773-74). Accordingly, the Court considers the allegations of the Complaint, documents incorporated therein, and any publicly filed documents appended to E & Y's motion to dismiss.
A. The Plaintiffs' State Law Claims Are Preempted by SLUSA
E & Y argues that the plaintiffs' state law claims should be dismissed in their entirety. Because the plaintiffs' state law claims are expressly preempted by the plain language of the Securities Litigation Uniform Standards Act of 1998 ("SLUSA"), the Court grants E & Y's motion to dismiss those claims as preempted by federal law. The Court declines to consider the defendant's alternative argument that those claims must also be dismissed as time-barred.
SLUSA sets in place certain limitations on class actions and other "mass actions" that attempt to evade the Act. S. Rep. No. 105-182, at 7 (1998). Accordingly, SLUSA's preemptive scope explicitly reaches "any group of lawsuits filed in or pending in the same court and involving common questions of law or fact, in which--(I) damages are sought on behalf of more than 50 persons; and (II) the lawsuits are joined, consolidated, or otherwise proceed as a single action for any purpose." 15 U.S.C. § 78bb(f)(5)(B)(ii).*fn4 In this respect, SLUSA mandates that no such "action based upon the statutory or common law of any State or subdivision thereof may be maintained in any State or Federal court by any private party alleging . . . a misrepresentation or omission of a material fact in connection with the purchase or sale of a covered security." 15 U.S.C. § 78bb(f)(1). Applied to the facts here, SLUSA clearly preempts the plaintiffs' state law claims.
This litigation involves nearly three-dozen complaints filed throughout the country on behalf of over 200 individual plaintiffs. The actions were transferred to this Court by the JPML. By the time venue was established here, all plaintiffs were represented by the same law firm--Lerach Coughlin Stoia Geller Rudman & Robbins LLP. Shortly after the actions were transferred, the plaintiffs joined together in filing a single opposition to the AOLTW Defendants' motion to lift the discovery stay in this litigation. The Court then formally recognized the plaintiffs' joint litigating status, consolidating these actions for all pretrial purposes. The amended complaints in these actions are identical, with the exception of those paragraphs identifying the plaintiffs and asserting various state law claims specific to the state in which each action was filed. The plaintiffs have invariably filed all motion papers pertaining to this litigation as a group, including a recently filed motion for leave to amend all of the complaints. That motion was accompanied by a single proposed second amended complaint, which mirrors the amendments sought for every complaint in the group. The plaintiffs' joint prosecution of this group of lawsuits on behalf of well over fifty persons has brought them squarely within SLUSA's definition of a "covered class action." 15 U.S.C. § 78bb(f)(5)(B)(ii). Thus, to the extent that these lawsuits are "based upon the statutory or common law of any State" they are expressly preempted by federal law, and the relevant state law claims must be dismissed. 15 U.S.C. § 78bb(f)(1).
The plaintiffs attempt to avoid the plain language of SLUSA by arguing "that none of the individual actions bring state law claims from any one state for more than 50 people." (Pls.' Opp'n to AOLTW Defs. 32.) Of course, this observation ignores the fact that the "individual actions," once aggregated per SLUSA's instructions, are a "covered class action" for purpose of SLUSA and are properly subject to the Act's limitations on mass actions. Ultimately, the plaintiffs cannot reap the considerable benefits flowing from the joint prosecution of their claims, yet "through artful pleading . . . avoid the clear precepts of SLUSA and its preemption of state law securities claims for damages." In re Worldcom Sec. Litig., 308 F. Supp. 2d 236, ...