The opinion of the court was delivered by: Lewis A. Kaplan, District Judge.
This document relates to: 04 MD 1653 (LAK)
This is a purported class action on behalf of purchasers of securities of the Italian company Parmalat Finanziaria, S.p.A. ("Parmalat") for damages allegedly sustained when Parmalat collapsed following discovery of a massive fraud. The Court assumes familiarity with its prior opinions*fn1 and sets forth only those aspects of the Third Amended Complaint (the "TAC") relevant to the instant motion.
The named plaintiffs are several entities and individuals, foreign and domestic, who purchased Parmalat securities during the course of the alleged fraud.*fn2 Plaintiffs seek to sue on behalf of all purchasers of Parmalat securities between January 5, 1999 and December 18, 2003.*fn3 Plaintiffs sue Parmalat's officers, directors, accountants, lawyers, and banks under Sections 10(b)*fn4 and 20(a)*fn5 of the Securities Exchange Act of 1934 (the "Exchange Act") and Rule 10b-5*fn6 thereunder.
The matter is before the Court on motions of Grant Thornton International ("GTI") and Grant Thornton LLP ("GT-US") (collectively, the "Grant Thornton Movants"); Deloitte Touche Tohmatsu ("DTT"), Deloitte & Touche LLP ("Deloitte-US") and James E. Copeland ("Copeland") (collectively, the "Deloitte Movants")(the Grant Thornton Movants and the Deloitte Movants collectively will be referred to as the "Auditor Movants"); Bank of America Corp., Bank of America N.A. and Banc of America Securities Ltd. (collectively, the "BoA Movants"); and Citigroup Inc., Citibank, N.A., Vialattea LLC, Buconero LLC and Eureka Securitisation plc (collectively, the "Citigroup Movants") to dismiss the claims of foreign purchasers pursuant to Federal Rule of Civil Procedure 12(c) on the ground that the Court lacks subject matter jurisdiction over such claims, that foreign purchasers fail to state a claim for relief, or both.
In this circuit, as in many others, the extraterritorial application of the Exchange Act long has been characterized as implicating a court's subject matter jurisdiction.*fn7 A recent Supreme Court decision, however, raises the question whether it properly is characterized instead as going to the existence of a claim under the federal securities laws. In Arbaugh v. T & H Corp.,*fn8 the Supreme Court concluded that Title VII's definition of "employer" as having fifteen or more employees was an element of the Title VII claim rather than a limitation on subject matter jurisdiction. The Court, observing that "[o]n the subject-matter-jurisdiction/ingredient-of-claim-for-relief dichotomy, this Court and others have been less than meticulous,"*fn9 enunciated a "readily administrable bright line" rule: "[W]hen Congress does not rank a statutory limitation on coverage as jurisdictional, courts should treat the restriction as nonjurisdictional in character."*fn10
The limits on the extraterritorial application of the Securities Exchange Act are not set forth in the text of the Act itself, but instead reflect a recognition by the courts that Congress would not have wished "the precious resources of United States courts and law enforcement agencies" to be spent on predominantly foreign transactions.*fn11 Arbaugh's "bright line" rule thus suggests that this limit is an element of a securities fraud claim rather than a restriction on a court's subject matter jurisdiction.*fn12 The Court need not decide the issue, however. While the appropriate characterization may affect the outcome in other cases, movants here prevail in either event.
On a motion to dismiss, a court accepts as true all well-pleaded factual allegations and draws all reasonable inferences in the alleging party's favor.*fn13 "To survive dismissal, the plaintiff must provide the grounds upon which his claim rests through factual allegations sufficient 'to raise a right to relief above the speculative level.'"*fn14
Upon submission by the parties of materials external to the complaint, a court may convert a motion to dismiss or for judgment on the pleadings for failure to state a claim into one for summary judgment.*fn15 Summary judgment is appropriate if there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law.*fn16 Where, as here, the burden of proof at trial would fall on the nonmoving party, it ordinarily is sufficient for the movant to point to a lack of evidence to go to the trier of fact on an essential element of the nonmovant's claim.*fn17 In that event, the nonmoving party must come forward with admissible evidence sufficient to raise a genuine issue of fact for trial in order to avoid summary judgment.*fn18
If, where the Court considers extrinsic materials, the motions properly are characterized as motions to dismiss for lack of subject matter jurisdiction instead of summary judgment motions, the standard would change only in that a court may make factual findings where a material fact is disputed.*fn19 As there are no material facts in dispute here, the outcome would be the same under either standard.
As an initial matter, plaintiffs argue that the motions should be denied as improper successive motions under Rule 12(g) or as determined by the law of the case because all movants filed previously motions to dismiss for failure to state a claim. Plaintiffs' arguments are without merit. Indeed, they are further reflections of the scorched earth, take no prisoners style of litigation that both sides have pursued here to the detriment of the prompt, speedy and efficient resolution that should be the goal of all litigation.*fn20
Federal Rule of Civil Procedure 12(g) states, in relevant part, that "[i]f a party makes a motion under this rule but omits therefrom any defense or objection then available to the party which this rule permits to be raised by motion, the party shall not thereafter make a motion based on the defense or objection so omitted, except a motion as provided in subdivision (h)(2) hereof on any of the grounds there stated." Subdivision (h)(2), in turn, states that "[a] defense of failure to state a claim upon which relief can be granted . . . may be made . . . by a motion for judgment on the pleadings." The plain language of the rule thus contemplates that successive motions to dismiss for failure to state a claim may be filed. Other courts in this district have reached the same conclusion.*fn21
Plaintiffs' argument that the law of the case doctrine bars consideration of the current motions also is unpersuasive. Under the law of the case, "when a court has ruled on an issue, that decision should generally be adhered to by that court in subsequent stages in the same case."*fn22 But as the Court has not yet ruled on whether foreign purchasers state claims against movants, the law of the case doctrine does not apply. Moreover, the doctrine is discretionary, "and the decision whether or not to apply law-of-the-case is, in turn, informed principally by the concern that disregard of an earlier ruling not be allowed to prejudice the party seeking the benefit of the doctrine," where the term prejudice "refers to a lack of sufficiency of notice."*fn23 Plaintiffs have had ample notice that the Court is considering the issue. Hence, even if the doctrine applied, it would not bar the Court's consideration of the motions.*fn24
A. The Extraterritorial Application of the Securities Laws
As noted above, the federal securities laws are silent with respect to their extraterritorial application. In Bersch v. Drexel Firestone, Inc.,*fn25 however, Judge Friendly noted that "[w]hen . . . a court is confronted with transactions that on any view are predominantly foreign, it must seek to determine whether Congress would have wished the precious resources of United States courts and law enforcement agencies to be devoted to them rather than leave the problem to foreign countries."*fn26 The test in this Circuit for whether Congress would so wish is "(1) whether the wrongful conduct occurred in the United States, and (2) whether the wrongful conduct had a substantial effect in the United States or upon United States citizens."*fn27
Conduct in the United States will support application of the securities laws only when "substantial acts in furtherance of the fraud were committed within the United States."*fn28 U.S. acts or culpable failures to act must have been "more than 'merely preparatory'" and must have "'directly caused' the claimed losses."*fn29 In contrast, "where the United States activities are merely preparatory or take the form of culpable nonfeasance and are relatively small in comparison to those abroad," the securities laws do not apply.*fn30 "Inherent in the conduct test is the principle that Congress does not want 'the United States to be used as a base for manufacturing fraudulent security devices for export, even when these are peddled only to foreigners.'"*fn31 All parties here agree that the conduct of each defendant is analyzed separately.*fn32
Initially, plaintiffs did not contend that the second test -- the effects test -- applies to the claims of foreign purchasers. At oral argument, however, lead plaintiffs' counsel urged the Court to apply a "blended" test weighing both conduct and overall effects, citing Itoba Ltd. v. Lep Group PLC.*fn33 Plaintiffs argue, in essence, that since the fraud harmed U.S. purchasers,*fn34 this effect should factor into the Court's consideration of whether the U.S. conduct of the moving defendants is sufficient to support application of the securities laws.
Plaintiffs' argument is unpersuasive. The plaintiff in Itoba was a foreign entity, but the alleged injury flowed to its parent company and its shareholders, half of whom resided in the United States.*fn35 Thus, if neither the effects test nor the conduct test alone had been satisfied, the injury suffered in the U.S. would not have been redressed. This case is very different. Plaintiffs here seek to certify a class of purchasers of Parmalat securities. Some purchasers were domestic; others foreign. Movants seek to dismiss only the claims of the latter. The claimed injuries to American purchasers will be litigated, and the question of whether the securities laws reach the claims of foreign purchasers need not consider the U.S. effect.*fn36 Thus, the effects test has no bearing on the present motions.
It is unnecessary to convert the motions of the Auditor Movants to ones for summary judgment, as plaintiffs have not stated a legally sufficient claim. The Court begins by setting forth the allegations of the complaint, drawing every reasonable inference favorable to plaintiffs.
The TAC alleges that Parmalat's auditors during the relevant period, Grant Thornton S.p.A. ("GT-Italy") and Deloitte & Touche, S.p.A. ("Deloitte-Italy"), participated in and are liable for Parmalat's fraud. GT-Italy and Deloitte-Italy allegedly, for example, certified Parmalat's financial statements despite knowing that such statements contained material misrepresentations.*fn37
The TAC does not allege, however, that any fraudulent acts or omissions by GT-Italy or Deloitte-Italy took ...