Appeal from the United States District Court for the Southern District of New York (McMahon, J.).
Amorosa v. AOL Time Warner
Rulings by summary order do not have precedential effect. Citation to a summary order filed on or after January 1, 2007, is permitted and is governed by Federal Rule of Appellate Procedure 32.1 and this court's Local Rule 32.1.1. When citing a summary order in a document filed with this court, a party must either the Federal Appendix or an electronic database (with the notation "summary order"). A party citing a summary order must serve a copy of it on any party not represented by counsel.
At a stated Term of the United States Court of Appeals for the Second Circuit, held at the Daniel Patrick Moynihan United States Courthouse, at 500 Pearl Street, in the City of New York, on the 2nd day of February, two thousand eleven.
Present: JOHN M. WALKER, JR., CHESTER J. STRAUB, ROBERT A. KATZMANN, Circuit Judges.
ON CONSIDERATION WHEREOF, IT IS HEREBY ORDERED, ADJUDGED, AND DECREED that the judgment of the district court is AFFIRMED.
In these consolidated appeals, Plaintiff-Appellant Dominic F. Amorosa appeals from a final judgment entered on November 30, 2009 by the District Court of the Southern District of New York (McMahon, J.), granting defendant Ernst & Young's ("E&Y") motion to dismiss, and Non-Party-Appellant Christopher J. Gray appeals the district court's grant of E&Y's motion for sanctions pursuant to Rule 11 of the Federal Rules of Civil Procedure and the Private Securities Litigation Reform Act of 1995 ("PSLRA"). We assume the parties' familiarity with the facts and procedural history of the case.
Amorosa purchased common stock in America Online ("AOL") prior to its merger with Time Warner Inc. After allegedly fraudulent accounting practices at AOL and the newly merged company AOL-Time Warner ("AOLTW") came to light, he brought suit, alleging (1) violations of Section 11 of the Securities Act of 1933 ("Securities Act"); (2) violations of Sections 14(a) and 10(b) of the Securities Exchange Act of 1934 ("Exchange Act"); and (3) state law claims of aiding and abetting a breach of fiduciary duty, common law fraud, and aiding and abetting common law fraud. On appeal, Amorosa contends that the district court erred in (1) dismissing his Section 14(a) and 10(b) claims for failing to adequately plead loss causation; (2) dismissing his Section 11 claim as (a) time-barred and (b) lacking in merit because E&Y would be able to establish lack of loss causation as an affirmative defense; (3) dismissing Amorosa's federal "holder" claim, based on the theory that he retained securities based on E&Y's purported misrepresentations, as unavailable under federal law; and (4) finding that his state law claims were preempted by the Securities Litigation Uniform Standards Act of 1998 ("SLUSA"). Gray contends that the district court abused its discretion in imposing sanctions under Rule 11.
We review de novo the district court's dismissal of Amorosa's complaint. Lentell v. Merrill Lynch & Co., 396 F.3d 161, 167 (2d Cir. 2005). This Court may "affirm the district court's judgment on any ground appearing in the record, even if the ground is different from the one relied on by the district court." ACEquip Ltd. v. Am. Eng'g Corp., 315 F.3d 151, 155 (2d Cir. 2003). We review the district court's rulings on sanctions pursuant to Rule 11 and the PSLRA for abuse of discretion. Gurary v. Winehouse, 235 F.3d 792, 798 (2d Cir. 2000).
We turn first to Amorosa's Section 14(a) and 10(b) claims. Section 14(a) of the Exchange Act provides that "[i]t shall be unlawful for any person, by use of the mails . . . or otherwise, in contravention of such rules and regulations as the [Securities and Exchange] Commission may prescribe as necessary or appropriate in the public interest or for the protection of investors, to solicit or permit the use of his name to solicit any proxy or consent or authorization in respect of any security (other than an exempted security) registered pursuant to section 78l of this title." 15 U.S.C. § 78n(a). Rule 14a-9 provides that "[n]o solicitation subject to this regulation shall be made by means of any proxy statement . . . containing any statement which, at the time and in the light of the circumstances under which it is made, is false or misleading with respect to any material fact, or which omits to state any material fact necessary in order to make the statements therein not false or misleading. . . ." 17 C.F.R. § 240.14a-9(a).
Section 10(b) of the Exchange Act provides that no person or entity may, in connection with the purchase or sale of a security, "use or employ . . . any manipulative or deceptive device or contrivance in contravention of [a Securities and Exchange Commission rule]." 15 U.S.C. § 78j(b). Rule 10b-5 makes it unlawful, in connection with the purchase or sale of a security, "(a) [t]o employ any device, scheme, or artifice to defraud, (b) [t]o make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made . . . not misleading, or (c) [t]o engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person." 17 C.F.R. § 240.10b-5.
Amorosa claims that E&Y made false and misleading statements in a "clean" audit opinion of AOL's June 30, 1999 financial statement. For both his 14(a) and 10(b) claims, Amorosa has the burden of pleading and proving loss causation. Grace v. Rosenstock, 228 F.3d 40, 46-47 (2d Cir. 2000). For both claims, the district court concluded, based primarily on a previous district court's ruling on the same claims brought by other plaintiffs, see In re AOL Time Warner, Inc. Sec. Litig., 503 F. Supp. 2d 666, 678-79 (S.D.N.Y. 2007), that Amorosa failed to allege a sufficient causal nexus between the purportedly false and misleading statements by E&Y and Amorosa's losses. On appeal, Amorosa argues that the district court erred because he has pleaded loss causation by showing that his stock lost value when AOLTW's share prices fell as information concerning AOLTW's accounting practices was gradually disseminated to the public.
[A] misstatement or omission is the 'proximate cause' of an investment loss if the risk that caused the loss was within the zone of risk concealed by the misrepresentations and omissions alleged by a disappointed investor. Thus, to establish loss causation, 'a plaintiff must allege . . . that the subject of the fraudulent statement or omission was the cause of the actual loss suffered,' i.e., that the misstatement or ...