United States District Court, S.D. New York
STANLEY TOLIN and JEFFREY STARK, Individually and on Behalf of All Others Similarly Situated, Plaintiffs,
STANDARD & POOR'S FINANCIAL SERVICES, LLC and THE McGRAW HILL COMPANIES, INC., Defendants
For Stanley Tolin, Individually, Stanley Tolin, On Behalf of All Others Similarly Situated, Jeffrey Stark, Individually, Jeffrey Stark, On Behalf of All Others Similarly Situated, Plaintiffs: Jennifer Sarnelli, Gardy & Notis, LLP, New York, NY; Mark Casser Gardy, Gardy & Notis, LLP, Englewood Cliffs, NJ.
For Standard & Poors Financial Services, The McGraw Hill Companies, Inc., Defendants: Adam N. Zurofsky, Floyd Abrams, Peter James Linken, Cahill Gordon & Reindel LLP, New York, NY.
OPINION & ORDER
Paul A. Engelmayer, United States District Judge.
In this putative class action, lead plaintiffs Stanley Tolin and Jeffrey Stark (" Plaintiffs" ) allege violations of New York law by defendants The McGraw Hill Companies, Inc. (" McGraw Hill" ) and its wholly-owned subsidiary Standard & Poor's Financial Services, LLC (" Standard and Poor's", and, collectively with McGraw Hill, " S& P" ). Plaintiffs allege that S& P intentionally, recklessly, and/or negligently issued false and misleading ratings of Fannie Mae Non-Cumulative Preferred Stock Series T (" Rated Stock" ) that induced Plaintiffs and similarly situated investors to purchase the Rated Stock. Plaintiffs allege that, without this high rating, investors either would not have invested in the Rated Stock or would have demanded a higher dividend, increasing Fannie Mae's cost of issuing the securities. Plaintiffs bring claims of negligent misrepresentation and common law fraud under New York law.
Presently pending is S& P's motion to dismiss the Complaint for failure to state a claim, pursuant to Federal Rules of Civil Procedure 9(b) and 12(b)(6) and the Securities and Litigation Uniform Standards Act of 1998 (" SLUSA" ), 15 U.S.C. § 78bb(f)(1). For the reasons that follow, the Court grants S& P's motion to dismiss.
Standard & Poor's is a wholly-owned subsidiary of McGraw Hill. Both companies have their principal place of business in New York, New York. Compl. ¶ ¶ 18-19. S& P is a " nationally recognized statistical rating organization" (NRSRO) that " purports to provide impartial, independent and objective ratings to public and private securities." Compl. ¶ ¶ 19, 25-28; Pl. Br. 1. As an NRSRO, S& P is recognized by investors as providing " credible and reliable ratings." Compl. ¶ 28.
Plaintiffs are both investors in the Rated Stock. On May 13, 2008, Plaintiff Stark purchased 1,000 shares of the Rated Stock for $25.00 per share. Compl. ¶ 16. On July 10, 2008, Plaintiff Tobin purchased 1,000 shares of the Rated Stock for $20.47 per share. Id. ¶ 17.
2. Class Period Events
On May 13, 2008, Fannie Mae issued an offering circular for the Rated Stock. Id. ¶ 3. The issue price was $25 per share; the dividend rate was 8.25%. Id. ¶ ¶ 2-3. The offering circular represented that the Rated Stock had received a " AA-" rating from S& P, indicating that Fannie Mae had a " very strong capacity to meet its financial commitments." Id. ¶ 3.
On September 6, 2008, the United States Government placed Fannie Mae in conservatorship and halted all dividend payments on the Rated Stock. Id. ¶ 11. Between May 13, 2008 and September 8, 2008 (the " Class Period" ), the stock price fell from $25 to $3. Id. ¶ 12.
B. Procedural History
1. The Class Action Complaint
On December 5, 2012, Plaintiffs filed the Complaint. It alleges that the AA- rating that S& P had given the Rated Stock induced Plaintiffs and similarly situated investors to purchase the stock. Id. ¶ ¶ 6, 10; Pl. Br. 3. The Complaint states claims for common law fraud and negligent misrepresentation under New York law. Compl. ¶ ¶ 71-85, 87-95.
As its basis for invoking federal jurisdiction, the Complaint relies on the Class Action Fairness Act of 2005 (" CAFA" ), 28 U.S.C. § 1332(d). See Compl. ¶ 14. Brought as a putative class action under Federal Rule of Civil Procedure 23(b)(3) on behalf of all persons or entities who acquired the Rated Stock during the Class Period, the Complaint alleges that the amount in controversy (when the claims of all class members are totaled) exceeds ...