United States District Court, S.D. New York
[Copyrighted Material Omitted]
Seth Rich Gassman, Michael D. Hausfeld, Nathaniel C. Giddings, Swathi Bojedla, Timothy S. Kearns, William P. Butterfield, Hausfeld LLP, Washington, DC, Christopher L. Lebsock, Michael P. Lehmann, Hausfeld LLP, San Francisco, CA, Hojin Seo, Deryook USA, New York, NY, for Plaintiff.
Jay B. Kasner, Susan Leslie Saltzstein, Skadden, Arps, Slate, Meagher & Flom LLP, New York, NY, William John O'Brien, III, Skadden, Arps, Slate, Meagher & Flom LLP, Washington, DC, for Defendants.
OPINION & ORDER
HAROLD BAER, JR., District Judge.
Plaintiff Woori Bank (" Woori" ) alleges that the defendants fraudulently and negligently misrepresented the value of and risks associated with collateralized debt obligations (" CDO" ) that were in part comprised of residential mortgage backed securities (" RMBS" ). The defendants are three financial institutions, RBS Securities, Inc., RBS Holdings USA Inc., and RBS Financial Products, Inc., as well as five CDO entities, ACA ABS 2007-1, Cairn Mezz ABS CDO II, Novastar ABS CDO I, TABS 2006-6, and Webster CDO I (collectively, " Defendants" ). Before the Court are two motions by Defendants to dismiss the complaint. These motions and the accompanying briefs cover significant territory, including venue and the sufficiency of the allegations as to each individual defendant. Because I conclude that Woori fails to state a claim for fraud, negligent misrepresentation, or unjust enrichment as to any and all Defendants, I need not reach the bulk of Defendants' arguments, and the Defendants' motion to dismiss is granted.
The claims in this case follow what has now unfortunately become a common story. The Royal Bank of Scotland (" RBS" ), Woori alleges, faced significant exposure from its investments in securities caused by the subprime housing debacle. Faced with the decision of whether to cut its losses or attempt to carve out the toxic assets and hope for the best, RBS allegedly took the latter approach. See, e.g., Amended Complaint (" Complaint" or " AC" ) ¶ 55. To accomplish this, Woori alleges that RBS packaged the lower-rated tranches of its RMBSs and CDOs into new CDOs that Woori was duped into purchasing. Id. ¶ 2. Woori ultimately invested $80 million in CDOs arranged, marketed, and sold by Defendants. Id. ¶¶ 2-4. Following the purchase, credit rating agencies engaged in " wide-spread write-downs of CDOs" and other asset-backed securities, including the CDOs here. AC ¶¶ 82-83. Woori alleges Defendants knew, based on
superior information about loan performance and underwriting standards, that the CDOs carried greater risk than the CDOs' ratings suggested. Id. ¶¶ 62-70, 84, 104, 110. Finally, Woori alleges Defendants concealed or failed to properly disclose their illegal participation in multi-bank efforts to manipulate and artificially suppress the London Interbank Offering Rate (" LIBOR" ), the rate upon which the CDO investment returns were pegged. Id. ¶¶ 5, 88-103. The alleged factual bases that underlie Woori's claims are primarily third-party reports about RBS's and other financial institutions' involvement in the RMBS market, including reports from the U.K. Financial Services Authority, Clayton Holdings, the Financial Crisis Inquiry Commission, and the Senate Permanent Subcommittee on Investigations of the Senate Committee on Homeland Security and Governmental Affairs. Id. ¶¶ 54-55, 62-66, 69, 86.
While the underlying structure of the deals may be complex, the issues now before the Court are not. By virtue of coinciding with the turning tide in the housing market and RBS's role in structuring related securities, the deals in this case are, like most deals of that time, somewhat suspect. But not all such deals are inherently fraudulent or misleading simply because they involved subprime mortgages and the sale of what are now worthless investments that were once pitched as safe. This case is one example of a seemingly legitimate deal between financial institutions and their effort to hedge their risks. Here Woori has failed to meet its pleading burden with respect to the CDOs it purchased.
Defendants move to dismiss for improper venue and for failure to state a claim. " To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to ‘ state a claim to relief that is plausible on its face.’ " Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007)). " A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Iqbal, 556 U.S. at 678, 129 S.Ct. 1937. " Asking for plausible grounds does not impose a probability requirement at the pleading stage; it simply calls for enough fact[s] to raise a reasonable expectation that discovery will reveal evidence of illegal" conduct. Twombly, 550 U.S. at 556, 127 S.Ct. 1955. When resolving a Rule 12(b)(6) motion analyzing the sufficiency of a pleading, courts assume that all well-pleaded facts alleged in the complaint are true and draw all reasonable inferences in favor of the plaintiff. Kassner v. 2nd Ave. Delicatessen, 496 F.3d 229, 237 (2d Cir.2007).
Here I depart from the general rule, which would address venue first. I do so in order to expedite a disposition, save expense for the parties, and save time for the judiciary. See Feinstein v. Resolution Trust Corp., 942 F.2d 34, 40 (1st Cir.1991) (" Having willingly chosen the forum, and not having asked the court below to pass first on the issues of jurisdiction and venue, the plaintiffs cannot now be allowed to escape an adverse judgment by asserting rights belonging not to them but to their litigation adversaries." ). Should Woori experience an epiphanic change ...