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In re Moody's Corp. Securities Litigation

April 29, 2009


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


Moody's Corporation ("Moody's" or "the Company"), Raymond W. McDaniel, Jr., Brian M. Clarkson, and Michael Kanef (collectively, "Defendants") bring two motions before the Court. The first is a motion for reconsideration of the Court's February 23, 2009 Opinion and Order, In re Moody's Corp. Sec. Litig., 599 F. Supp. 2d 493 (S.D.N.Y. 2009) (the "Opinion"), granting in part, and denying in part, Defendants' motion to dismiss the Consolidated Amended Complaint ("AC") submitted by Teamsters Local 282 Pension Trust Fund, Charles W. McCurley, Jr., and Lewis Wetstein (collectively, "Plaintiffs"). Defendants also move to correct a misstatement of fact in the Opinion. For the following reasons, the Court grants the motion to correct the record and denies the motion for reconsideration.


The Court assumes the parties' familiarity with the facts and issues of the case as detailed in the Opinion. In the instant motion, Defendants contend that the Court's misconstruction of relevant factual information resulted in "erroneous conclusions of law" with respect to its loss- causation analysis. (Defs.' Mot. 1.) First, Defendants argue that the Court misconstrued stock price data submitted in support of their motion to dismiss. (Defs.' Mot. 2.) Next, Defendants state the Court used an improper time frame when conducting its loss-causation analysis. (See Defs.' Mot. 3-4.) Defendants contend that the corrected facts require the Court to conclude that Plaintiffs' loss causation pleadings are insufficient. (Defs.' Mot. 1.) Alternatively, Defendants claim that the Court overlooked relevant precedent rendering Plaintiffs' loss-causation pleadings inadequate. (See Defs.' Mot. 5-7.) Finally, Defendants ask the Court to correct a misattribution contained in the Opinion.


A. Legal Standard

A motion for reconsideration under Local Civil Rule 6.3 "will generally be denied unless the moving party can point to controlling decisions or data that the court overlooked--matters, in other words, that might reasonably be expected to alter the conclusion reached by the court." Shrader v. CSX Transp., Inc., 70 F.3d 255, 257 (2d Cir. 1995). The standard for granting a motion for reconsideration is "strict" and the decision resides "within the sound discretion of the district court." McNeil-PPC v. Perrigo Co., 05 Cv. 1321 (WHP), 2007 WL 104513, at *1 (S.D.N.Y. Jan. 17, 2007) (internal quotation marks and citation omitted).

As the Court stated in its Opinion, loss causation is the causal link between a defendant's misconduct and economic harm ultimately suffered by the plaintiffs. . . . A showing of loss causation requires a plaintiff to demonstrate that (1) a misstatement or omission concealed something from the market that, when disclosed, negatively affected the value of the security, and (2) that the loss was a foreseeable consequence of the misrepresentation or omission.

In re Moody's Corp. Sec. Litig., 599 F. Supp. 2d at 511-12 (internal citations omitted). Plaintiffs must adequately allege, under the pleading standards of Federal Rule of Civil Procedure 8, that the company's misrepresentation was the cause of the economic loss. In re Tower Automotive Sec. Litig., 483 F. Supp. 2d 327, 348-49 (S.D.N.Y. 2007) ("The [Supreme Court in Dura Pharmaceuticals, Inc. v. Broudo, 544 U.S. 336 (2005)] assumed arguendo that the notice pleading standards of Rule 8 govern the pleading of loss causation, and nearly all courts addressing the issue since have also applied Rule 8, rather than the heightened pleading standard of Rule 9.") (citation omitted). A plaintiff, however, must make a more detailed showing of loss causation when there is evidence of an industry-wide downturn, Lentell v. Merrill Lynch & Co., 396 F.3d 161, 174 (2d Cir. 2005), or when the record indicates that the company's stock lost almost all its value before the first alleged corrective disclosure. 60223 Trust v. Goldman, Sachs & Co., 540 F. Supp. 2d 449, 461 (S.D.N.Y. 2007). Defendants argue that both situations arise in this case. The Court disagrees.

B. Defendants Do Not Provide Evidence Indicating a Downturn in the Ratings Industry

As the Court stated in its Opinion, In cases of an intervening event, the question of causation is reserved for trial and is not subject to analysis in a Rule 12(b)(6) motion to dismiss. Where there is a market-wide downturn in a particular industry, however, Plaintiffs must show that their loss was caused by the Defendants' fraud, rather than the intervening events, in order to survive a motion to dismiss.

In re Moody's Sec. Litig., 599 F. Supp. 2d at 513 (internal citations omitted). The Court explained that in an industry-wide downturn, "one would expect the stock prices for Moody's competitors to fall along with that of Moody's." Id. Using stock prices for the entire class period, the Court concluded that there was no market-wide downturn in the ratings industry because the stock prices for Moody's competitors did not drop commensurate to that of Moody's. Id. at 513-14.

Defendants' instant motion alleges several errors in the Court's analysis. First, Defendants claim that the Court conflated the stock price of one of Moody's competitors with that of another entity. (See Defs.' Mot. 3.) Defendants contend that the data, when viewed in its proper light, requires the Court to conclude that a market-wide downturn, rather than corrective disclosures, caused the drop in Moody's stock price. Defendants also claim that the proper comparison for the stock prices begins "at the time the corrective disclosures" occurred, rather than over the entire class period." (See Defs.' Mot. 3.)

Examining stock prices from the date of the first corrective disclosure reveals that the stock price for Moody's dropped by 38%, while the stock price for McGraw-Hill dropped by 28%. (Defs Mot. 4.) According to Defendants, this figure constitutes evidence of a ...

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