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Nature of Suit Code: 160
Nature of Suit: Stockholder's Suits
Cause of Action: 

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United States Court of Appeals 

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued February 19, 2014 Decided May 20, 2014 

No. 12-7088 

D.J. WU, ET AL., 

APPELLANTS

v. 

JOHN CRUMPTON STOMBER, ET AL., 

APPELLEES

Consolidated with 12-7097 

Appeals from the United States District Court 

for the District of Columbia 

(No. 1:11-cv-02287) 

(No. 1:11-cv-01142) 

Matthew E. Miller argued the cause for appellants. With 

him on the briefs were Jonathan W. Cuneo and Joel Davidow. 

Robert A. Van Kirk argued the cause for appellees. With 

him on the brief were Sarah F. Teich, Brian C. Rabbitt, and 

Gary A. Orseck. 

Before: HENDERSON and KAVANAUGH, Circuit Judges, 

and RANDOLPH, Senior Circuit Judge. 

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Opinion for the Court filed by Circuit Judge 

KAVANAUGH. 

KAVANAUGH, Circuit Judge: Carlyle Capital 

Corporation invested in residential mortgage-backed 

securities. In June 2007, in order to raise capital, Carlyle 

Capital sold shares in the company to private investors. 

During the real estate and financial crisis of 2008, Carlyle 

Capital’s investments lost their value, and the company went 

out of business. In this suit, former Carlyle Capital investors 

alleged that Carlyle Capital made material misstatements and 

omissions in its June 2007 sale of securities and thereby 

violated the federal securities laws. Plaintiffs also alleged 

violations of Dutch law. In thorough opinions, the District 

Court dismissed the claims. We affirm. 

I 

Carlyle Capital was an investment fund. Between 2006 

and 2008, it invested the majority of its capital in AAA-rated, 

Fannie Mae-guaranteed and Freddie Mac-guaranteed 

residential mortgage-backed securities. In June 2007, Carlyle 

Capital conducted a private offering of its shares to accredited 

investors. Such accredited investors must meet certain high 

personal wealth requirements at the time they purchase 

securities. See 17 C.F.R. § 230.501(a). The basic idea of 

Carlyle Capital’s offering was to raise more capital so that it 

could purchase even more residential mortgage-backed 

securities.

In the spring of 2008, amidst the ongoing real estate 

meltdown, Carlyle Capital collapsed. Three years later, two 

sets of investors brought class action suits in federal district 

court in Washington, D.C. The two cases were later 

consolidated. Plaintiffs alleged, as relevant here, that Carlyle 

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Capital made certain misstatements and omissions during the 

June 2007 Offering, in violation of Section 10(b) of the 

Securities Exchange Act of 1934 and Securities and Exchange 

Commission Rule 10b-5. See 15 U.S.C. § 78j(b); 17 C.F.R. 

§ 240.10b-5. They also eventually alleged common-law fraud 

and misrepresentation claims. In the midst of the D.C. 

litigation, these same plaintiffs, joined later by some other 

new plaintiffs, brought a separate suit in New York state court 

based on the same nucleus of facts and raising the same basic 

claims. The New York action was removed to New York 

federal district court and then transferred to the D.C. federal 

district court to be considered along with the consolidated 

D.C. suit.

Carlyle Capital moved to dismiss the consolidated D.C. 

case for, among other things, failure to state a claim under 

Rule 12(b)(6). The District Court granted Carlyle Capital’s 

motion to dismiss the consolidated D.C. suit. See Wu v. 

Stomber, 883 F. Supp. 2d 233 (D.D.C. 2012). Carlyle Capital 

also moved to dismiss the New York action, and the District 

Court then dismissed the New York suit as duplicative. Id. 

Plaintiffs now appeal the dismissal of their consolidated 

D.C. suit and the transferred New York case. Our review is 

de novo. 

II 

Plaintiffs’ complaints in both the D.C. and New York 

cases primarily allege that Carlyle Capital’s June 19, 2007, 

Offering Memorandum contained material misstatements and 

omissions and thereby violated federal securities laws. 

Under Section 10 of the Securities Exchange Act and 

SEC Rule 10b-5, a company issuing securities may not make 

“any untrue statement of a material fact” or omit a “material 

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fact necessary in order to make the statements made, in the 

light of the circumstances under which they were made, not 

misleading.” 17 C.F.R. § 240.10b-5; see 15 U.S.C. § 78j(b). 

In its June 19 Offering Memorandum, Carlyle Capital 

disclosed a first-quarter gain of $11.6 million in the value of 

its portfolio, which was primarily residential mortgagebacked securities. In the Offering Memorandum, Carlyle 

Capital also disclosed an updated figure as of June 13 to 

reflect changes since the end of the first quarter. Between the 

end of the first quarter and June 13, the value of the portfolio 

fell by $28.9 million. As a result, as of June 13, Carlyle 

Capital’s portfolio had a year-to-date loss of $17.3 million. 

That volatility, and the latest figures, were all disclosed in 

the June 19 Offering Memorandum. And plaintiffs do not 

dispute the accuracy of those figures. Instead, plaintiffs 

allege that an internal email from one Carlyle Capital director 

indicated that as of June 11 the year-to-date decline in value 

of Carlyle Capital’s portfolio was $76.2 million. According 

to plaintiffs, Carlyle Capital’s omission of that June 11 figure 

constituted fraud. 

One difficulty with plaintiffs’ theory is that Carlyle 

Capital did in fact disclose the latest, updated figure, the June 

13 figure and did not suggest that the snapshot of June 13 was 

anything other than just that – a snapshot of June 13. 

Moreover, the Offering Memorandum warned against relying 

on the stability of its residential mortgage-backed securities. 

It informed potential investors that the market value of 

Carlyle Capital’s securities was “highly volatile” and 

“difficult to predict.” Offering Memorandum at 13. And as 

plaintiffs’ complaint itself acknowledges, it was widely 

known that the value of residential mortgage-backed 

securities nationwide was in extreme flux at the time. See 

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Consolidated Complaint at ¶ 125, Wu v. Stomber, No. 11-cv01142 (D.D.C. Dec. 5, 2011) (the price volatility of 

residential mortgage-backed securities rose 140% between 

November 2006 and September 2007). 

Plaintiffs’ theory has another major flaw as well. On 

June 28, which was during the offering period and just nine 

days after issuance of the Offering Memorandum, Carlyle 

Capital announced that it was changing the terms of the 

Offering. Carlyle Capital notified potential investors that it 

was postponing the pricing of the shares and issuing a 

Supplemental Memorandum. That Supplemental 

Memorandum, issued June 29, contained updated financial 

information for the period between June 13 and June 26, 

2007. That updated data informed investors that the loss in 

value of Carlyle Capital’s portfolio had continued. In 

particular, the Supplemental Memorandum disclosed that as 

of June 26, the year-to-date loss in its portfolio was 

approximately $72.6 million. 

Plaintiffs seem to acknowledge that the June 29 

Supplemental Memorandum would have rectified the 

omission that they say existed in the June 19 Offering 

Memorandum. Plaintiffs contend, however, that the 

Supplemental Memorandum was not distributed to them and 

that there is no evidence that anyone read it. But the investors 

here were very wealthy and sophisticated. And a reasonable 

investor – not to mention a wealthy and sophisticated investor 

– surely would have paid close attention to the Supplemental 

Memorandum. After all, the cover of the June 19 Offering 

Memorandum and two later press releases had expressly 

informed investors that additional information would be 

available from the New York broker-dealer who received 

their subscription agreements or from Carlyle Capital’s office 

in the Netherlands. And the cover of the June 29 

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Supplemental Memorandum informed investors that it formed 

“part of,” “must be read in conjunction with,” and 

“supercede[d]” the Offering Memorandum. Supplemental 

Memorandum at 1. 

Put simply, given the accurate disclosure in the initial 

June 19 Offering Memorandum and the additional accurate 

disclosure in the June 29 Supplemental Memorandum, 

plaintiffs have not sufficiently alleged any material 

misstatement or omission. 

Plaintiffs’ remaining argument proceeds from the 

assumption that Carlyle Capital, as of June 2007, was already 

aware of problems in the larger market that made the collapse 

of the company certain, but did not disclose those problems. 

But the Offering Memorandum contained extensive 

cautionary language about what had already occurred in the 

market and what might follow. Carlyle Capital informed 

potential investors that rising interest rates had caused 

defaults on mortgages, resulting in a decline in the value of its 

residential mortgage-backed securities. The Offering 

Memorandum also cautioned investors that Carlyle Capital’s 

investment strategy might lead to a further fall in the value of 

its securities and result in margin calls on the mortgagebacked securities that it could meet only up to a point.

In sum, Carlyle Capital had no duty under federal 

securities laws to make further disclosures in the Offering 

Memorandum or, as plaintiffs suggested at oral argument, to 

put “a skull and crossbones” on the press releases 

accompanying the Supplemental Memorandum. Oral Arg. at 

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11:56. The District Court properly dismissed plaintiffs’ 

federal claims.1

III 

We next consider plaintiffs’ common-law fraud and 

misrepresentation claims. 

A 

Plaintiffs in the consolidated D.C. suit assert commonlaw fraud and misrepresentation claims and label those claims 

as Dutch-law claims. But applying D.C. choice-of-law rules, 

it is D.C. tort law not Dutch law that applies. And plaintiffs 

have not sufficiently alleged a fraud or misrepresentation 

claim under D.C. law. 

As a general matter, we must apply the choice-of-law 

rules of the jurisdiction in which we sit – namely, the District 

of Columbia. See GEICO v. Fetisoff, 958 F.2d 1137, 1141 

(D.C. Cir. 1992). D.C. choice-of-law rules require that we 

apply the tort law of the jurisdiction that has the “most 

significant relationship” to the dispute. Washkoviak v. 

Student Loan Marketing Association, 900 A.2d 168, 180 

(D.C. 2006) (internal quotation marks omitted). That inquiry 

requires that we consider “where the injury occurred,” “where 

the conduct causing the injury occurred,” “the domicile, 

residence, nationality, place of incorporation and place of 

business of the parties,” and “the place where the relationship 

is centered.” Id. (quotation omitted). 

 1

 Plaintiffs argue that the District Court should have allowed 

them to file a proposed amended complaint. But as the District 

Court concluded, plaintiffs’ proposed amended complaint likewise 

failed to allege a material misstatement or omission. See Wu v. 

Stomber, 292 F.R.D. 69 (D.D.C. 2013).

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Plaintiffs say that Dutch law applies here because the 

relevant shares of Carlyle Capital were traded on a Dutch 

exchange and the Offering Memorandum was filed with a 

Dutch regulator. But the “conduct causing the injury” was a 

series of statements made by Carlyle Capital, whose principal 

place of business was in Washington, D.C. The other 

companies named as defendants in this action also primarily 

conducted their business in Washington, D.C. And plaintiffs’ 

losses occurred at their places of domicile in D.C., Virginia, 

and Maryland. In fact, plaintiffs themselves stated that 

Carlyle Capital “has no rational connection to the Netherlands 

other than Carlyle’s decision to list [the company’s] shares 

there.” Consolidated Complaint at ¶ 109, Wu v. Stomber, No. 

11-cv-01142 (D.D.C. Dec. 5, 2011). 

Taken together, those factors point to D.C. law. Even if 

the balance of factors were uncertain, moreover, D.C. choiceof-law rules require, in a case where the factors do not point 

to a clear answer, that we apply D.C. tort law, the law of the 

forum state. See Washkoviak, 900 A.2d at 182. 

Like federal securities law, D.C. law requires a material 

misrepresentation or omission for a fraud or misrepresentation 

claim. See Sherman v. Adoption Center of Washington, Inc., 

741 A.2d 1031, 1036-37 (D.C. 1999). For the reasons we 

outlined above in connection with the federal claims, 

plaintiffs here have failed to meet that standard.2

 

 2

 On appeal, plaintiffs say that they also advanced a commonlaw claim based on Carlyle Capital’s post-Offering statements. See 

Wu Br. 41-44. But plaintiffs’ sole appellate argument on that point 

is that Dutch law should apply to that claim. As we have 

concluded, however, Dutch law does not apply. 

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B 

Plaintiffs in the New York action also argue that the 

District Court erred in dismissing their common-law fraud 

and misrepresentation claims. 

The New York action was transferred from New York to 

D.C. A diversity case transferred from one federal forum to 

another generally retains the state choice-of-law rules of the 

original forum. See Atlantic Marine Construction Co. v. U.S. 

District Court for the Western District of Texas, 134 S. Ct. 

568, 582 (2013). Under New York choice-of-law rules for 

conduct-related torts, courts look to the “locus of the tort.” In 

re Thelen LLP, 736 F.3d 213, 220 (2d Cir. 2013) (internal 

quotation mark omitted). For fraud cases, that “is generally 

deemed to be the place where the injury was inflicted, rather 

than where the fraudulent act originated.” Id. In this case, 

that points to the location where the plaintiffs sustained 

losses. See Odyssey Re (London) Ltd. v. Stirling Cooke 

Brown Holdings Ltd., 85 F. Supp. 2d 282, 292 (S.D.N.Y. 

2000). The domiciles of the plaintiffs in the New York action 

were either New York or D.C. That means that either New 

York law or D.C. law applies, but not Dutch law. As we have 

explained, plaintiffs’ claims would not suffice under D.C. 

law. Nor would they suffice under New York law. The 

elements of fraud and misrepresentation claims in both New 

York and D.C. are essentially the same. Both jurisdictions 

require a material misrepresentation or omission. See 

Premium Mortgage Corp. v. Equifax, Inc., 583 F.3d 103, 108 

(2d Cir. 2009); Hydro Investors, Inc. v. Trafalgar Power Inc., 

227 F.3d 8, 20-21 (2d Cir. 2000). As noted above, plaintiffs 

here have failed to satisfy that standard. 

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* * * 

We have considered all of plaintiffs’ arguments. We 

affirm the judgment of the District Court. 

So ordered. 

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