The opinion of the court was delivered by: Hon. Harold Baer, Jr., District Judge*fn1
These cases both arise from alleged misrepresentations and omissions in the offering documents for certain mortgage-backed securities the plaintiffs purchased. In brief, the plaintiffs contend that they were misled as to whether proper guidelines and procedures were observed in the origination of the loans and their subsequent securitization. Plaintiffs bring claims under sections 11, 12(a)(2) and 15 of the Securities Act of 1933, 15 U.S.C. §§ 77k(a), 77l(a)(2), 77o (2010).*fn2
The background facts and allegations are detailed in two Opinions devoted to the parties' previous motions to dismiss, New Jersey Carpenters Vacation Fund v. Royal Bank of Scotland Group, PLC, No. 08 Civ. 5093 (HB), 2010 WL 1172694 (S.D.N.Y. Mar. 26, 2010) and New Jersey Carpenters Health Fund v. Residential Capital, LLC, No. 08 Civ. 8781 (HB), 2010 WL 1257528 (S.D.N.Y. Mar. 31, 2010). Now before the Court are motions to dismiss a number of parties who were given leave to intervene in an Opinion and Order dated December 22, 2010.
Defendants in Civil Case No. 08-8781 (the "RALI" case)*fn3
seek dismissal of the entire Consolidated Second Amended
Securities Class Action Complaint ("RALI SAC") pursuant to Federal
Rules of Civil Procedure 8(a), 12(b)(1) and 12(b)(6). Defendants in
Civil Case No. 08-5093 (the "Harborview" case)*fn4
move to dismiss claims brought by the Intervenors in the Consolidated
Second Amended Securities Class Action Complaint ("Harborview SAC")
pursuant to Federal Rule of Civil Procedure 12(b)(6).*fn5
For the reasons that follow, the motions are granted in part
and denied in part.
To survive a motion to dismiss, a plaintiff must plead "enough facts to state a claim to relief that is plausible on its face." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). A facially plausible claim is one where "the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Ashcroft v. Iqbal, 129 S.Ct. 1937, 1949 (2009). Where the court finds well-pleaded factual allegations, it should assume their veracity and determine whether they "plausibly give rise to an entitlement to relief." Id. at 1950. "Rule 8(a)(2) of the Federal Rules of Civil Procedure requires only 'a short and plain statement of the claim showing that the pleader is entitled to relief,' in order to give the defendant fair notice of what the ... claim is and the grounds upon which it rests." Arista Records, LLC v. Doe 3, 604 F.3d 110, 119 -120 (2d Cir. 2010) (quoting Twombly, 550 U.S. at 555). "[A] complaint attacked by a Rule 12(b)(6) motion to dismiss does not need detailed factual allegations," but its "[f]actual allegations must be enough to raise a right to relief above the speculative level." Twombly, 550 U.S. at 555.*fn6
B.Claims under section 12(a)(2) are dismissed
The scope of entities that can be liable under section 12 is limited to those who "(1) passed title, or other interest in the security, to the buyer for value, or (2) successfully solicited the purchase of a security, motivated at least in part by a desire to serve his own financial interests or those of the securities' owner." In re Morgan Stanley Info. Fund Sec. Litig., 592 F.3d 347, 359 (2d Cir. 2010) (internal quotations marks and brackets omitted). An additional limitation on section 12 relief requires that to recover, plaintiffs must have purchased their securities from a proper defendant in a public offering. See Caiafa v. Sea Containers Ltd., 525 F. Supp. 2d 398, 407-08 (S.D.N.Y. 2007), aff'd, 331 F. App'x 12 (2d Cir. 2009); In re Cosi, Inc. Sec. Litig., 379 F. Supp. 2d 580, 589 (S.D.N.Y. 2005) (citing Gustafson v. Alloyd Co., 513 U.S. 561, 578 (1995).
Intervenors have failed to come up with sufficient allegations that they actually purchased securities from a defendantin a public offering. See RALI SAC ¶¶ 21-24, Harborview SAC ¶¶ 21-23. When asked directly at oral argument, the best that Intervenors could do was to assert that "we just simply don't know at this point . . . We don't know that they were not bought on the offering. . . there is certainly a very distinct possibility these were part of the offering." Oral Arg. Hr'g Tr. 28-30, Apr. 1, 2011. This language just does not meet the statute's requirements, and fails to raise Intervenors' right to relief above the speculative level. Twombly, 550 U.S. at 555. See also In re Barclays Bank PLC Sec. Litig, No. 09 Civ.1989 (PAC), 2011 WL 31548, at *5 (S.D.N.Y. Jan. 5, 2011) (citing citing Plumbers' Union Local No. 12 Pension Fund v. Nomura Asset Acceptance Corp., 658 F.Supp.2d 299, 305 (D.Mass.2009) ("If plaintiffs did in fact purchase the Certificates directly from the defendants, they should have said so. An evasive circumlocution does not serve as a substitute.")).
In support of their position that their allegations are sufficient, Intervenors rely principally on two cases that appear to define the outer limit of leniency for pleading section 12 claims. In Public Employees' Retirement System of Mississippi v. Goldman Sachs Group, Inc., this Court found that specific allegations of the exact security purchased along with the date of purchase were sufficient to survive a motion to dismiss where the complaint had additionally alleged that plaintiffs "purchased their Certificates directly from" defendants who participated in the initial public offering. No. 09 Civ. 1110 (HB), 2011 WL 135821, at *8 (S.D.N.Y. Jan. 12, 2011) (emphasis added). It is true that Intervenors allege the exact security purchased and the date of the purchase. RALI SAC ¶¶ 19-24; Harborview SAC ¶¶ 19-23. However, the music stops there. Intervenors fail to adequately allege a direct purchase from a defendant -- the best RALI Intervenors can point to is a paragraph alleging that (1) the securities "were sold" to them between June 28, 2006 and May 30, 2007, and (2) certain defendants underwrote unspecified offerings. RALI SAC ¶ 2. Similarly, Harborview Intervenors allege that certain defendants "underwrote and sold to Plaintiffs . . . 17.74 billion of Mortgage Loan Pass-Through Certificates," and that those certificates "were issued in eight (8) Offerings which took place between April 26, 2006 and October 1, 2007." Harborview SAC ¶ 2. These "conclusory legal allegations unsupported by any factual allegations" are insufficient. Emps. Ret. Sys. of the Gov't of the Virgin Islands v. J.P. Morgan Chase & Co., et al., 09 Civ. 3701 (JGK), 2011 WL 1201520, at *7 (S.D.N.Y. March 30, 2011). The fact that the allegations of purchases by Intervenors, sales by Defendants and sales in offerings all co-exist in the same paragraph fails, without more, to raise an inference that the Intervenors purchased from a defendant in a public offering.
Intervenors also point to this Court's refusal to dismiss a complaint that alleged that the plaintiffs had "purchased the Certificates 'pursuant to' the relevant Offering Documents, that is, in the relevant offerings. . . . that defendants 'solicited, sold and distributed' the Certificates, that they purchased a specified number of Certificates on specified dates (some of which corresponded to the initial offering dates) at specified prices, [and] that specific Underwriter Defendants were associated with each individual offering . . . ." IndyMac Mortg.-Backed Sec. Litig., 718 F. Supp. 2d 495, 502 (S.D.N.Y. 2010). Here, purchases were made months or even years after the public offerings. See RALI SAC ¶¶ 19-24, 32; Harborview SAC ¶¶ 21-23, 38. Unlike in IndyMac, the purchase dates here do not correspond to the offering dates and thus cannot be read to provide the necessary inference that the purchases were made in the public offerings. Because Intervenors have failed to allege any facts to show that they purchased directly from Defendants in a public offering, their section 12 claims are dismissed.*fn7
C.Failure to state a claim under section 15
The allegations of control in the RALI SAC are insufficient to sustain RALI Intervenors' section 15 claims. Section 15 requires allegations of (1) a primary violation of the Securities Act and (2) "control" by the defendant. Rombach v. Chang, 355 F.3d 164, 178 (2d Cir. 2004); 15 U.S.C. § 77o. "Control in this context is not the mere ability to persuade, but almost always means the practical ability to direct the actions of people who issue or sell securities." ...