13-1980-cv In re: Merrill Lynch & Co., Inc.



### UNITED STATES COURT OF APPEALS **FOR THE SECOND CIRCUIT**



## SUMMARY ORDER

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**ON OR AFTER J** **ANUARY 1,**  **2007, IS PERMITTED AND IS GOVERNED BY**  **F EDERAL**  **R ULE OF**  **A PPELLATE**  **P ROCEDURE**  **32.1 AND THIS COURT**  **’ S**  **L OCAL**  **R ULE**  **32.1.1. W**  **HEN CITING A SUMMARY ORDER IN A**
**DOCUMENT FILED WITH THIS COURT ,**  **A PARTY MUST CITE EITHER THE F**  **EDERAL A** **PPENDIX OR AN**
**ELECTRONIC DATABASE (**  **WITH THE NOTATION “**  **SUMMARY ORDER ”).**  **A PARTY CITING A SUMMARY ORDER MUST** 
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**At a stated term of the United States Court of Appeals** 1 **for the Second Circuit, held at the Thurgood Marshall United** 2 **States Courthouse, 40 Foley Square, in the City of New York,** 3 **on the 25 th** **day of June, two thousand fourteen.** 4 5 **PRESENT: DENNIS JACOBS,** 6 **PIERRE N. LEVAL,** 7 **ROSEMARY S. POOLER,** 8 **Circuit Judges**

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- - - - - - - - - - - - - - - - - - - -X 11 **LOUISIANA PACIFIC CORPORATION,** 12 **Plaintiff-Appellant ,**  13 14 **-v.- 13-1980-cv** 15 16 **MERRILL LYNCH & CO., INC., and MERRILL** 17 **LYNCH, PIERCE, FENNER & SMITH,** 18 **INCORPORATED,** 19 **Defendants-Appellees**

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1 The Clerk of Court is directed to amend the case caption as above.

1**FOR APPELLANT:** SHAWN RAITER (withPaul A. Sand 1 on the brief ), Larson King, LLP, 2 St. Paul, Minnesota. 3 4 Mark A. Fuchs, Vice President, 5 General Counsel and Corporate 6 Secretary, Louisiana Pacific 7 Corporation, Nashville, 8 Tennessee, on the brief

. 9 10 **FOR APPELLEES:** ANDREW STERN (withAlex J. 11 Kaplan andTom A. Paskowitz on 12 the brief ), Sidley Austin LLP, 13 New York, New York. 14 15 Appeal from a judgment of the United States District 16 Court for the Southern District of New York (Preska, C.J. ). 17 18 **UPON DUE CONSIDERATION, IT IS HEREBY ORDERED, ADJUDGED** 19 **AND DECREED**that the judgment of the district court be 20
**AFFIRMED**

. 21 22 Plaintiff-appellant Louisiana Pacific Corporation 23 (“Louisiana Pacific”) appeals from a final judgment, entered 24 on April 17, 2013, dismissing with prejudice all of 25 Louisiana Pacific’s claims against Merrill Lynch & Co., Inc. 26 (“Merrill”), and Merrill Lynch, Pierce, Fenner & Smith 27 Incorporated (“MLPFS”) (collectively, “Defendants”). See 28 La. Pac. Corp. v. Money Mkt. 1 Institutional Inv. Dealer
, 29 851 F. Supp. 2d 512 (S.D.N.Y. 2012). 2We assume the 30 parties’ familiarity with the underlying facts, the 31 procedural history of the case, and the issues on appeal. 32 33 Between February 2007 and July 2007, Louisiana Pacific 34 purchased more than $50 million in auction rate securities 35 (“ARS”) at auctions managed by Defendants. When Defendants 36

2 Louisiana Pacific also brought suit against Deutsche Bank Securities, Inc. (“Deutsche Bank”) and Money Market 1 Institutional Investment Dealer (“MM1”). These matters were transferred to the Southern District of New York for coordinated pretrial proceedings by the Judicial Panel on Multidistrict Litigation, after which Louisiana Pacific’s claims against Deutsche Bank were severed and remanded to the Northern District of California. Louisiana Pacific obtained a default judgment against MM1.

2withdrew their support from the ARS market on February 13, 1 2008, Louisiana Pacific was left holding illiquid long-term 2 financial instruments. See generallyWilson v. Merrill 3 Lynch & Co. , 671 F.3d 120, 123-28 (2d Cir. 2011). 4 5 On these basic facts, Louisiana Pacific asserts claims 6 against MLPFS for market manipulation and material 7 misstatements or omissions under section 10(b) of the 8 Exchange Act and Rule 10b-5 promulgated thereunder. See 15 9 U.S.C. § 78j(b); 17 C.F.R. § 240.10b-5. It also asserts a 10 control-person liability claim against Merrill Lynch & Co. 11 under section 20(a) of the Exchange Act. See 15 U.S.C. 12 § 78t(a). Finally, it asserts claims against Defendants 13 under California law and common law. 14 15 We review de novo the district court’s dismissal of 16 these claims, accepting all non-conclusory factual 17 allegations as true and drawing all reasonable inferences in 18 the Louisiana Pacific’s favor. Generally, a complaint must 19 plead sufficient facts to “raise a right to relief above the 20 speculative level” and to “state a claim to relief that is 21 plausible on its face.” Bell Atl. Corp. v. Twombly , 550 U.S. 22 544, 555, 570 (2007). Louisiana Pacific’s securities fraud 23 claims must be pleaded “with particularity” and, to the 24 extent an allegation is made on information and belief, “all 25 facts on which that belief is formed” must also be pleaded 26 with particularity. 15 U.S.C. § 78u-4(b)(1) (2012); see 27 also ATSI Communs., Inc. v. Shaar Fund, Ltd. , 493 F.3d 87, 28 101 (2d Cir. 2007) (“Because a claim for market manipulation 29 is a claim for fraud, it must be pled with particularity 30 under [Federal Rule of Civil Procedure] 9(b).”). 31 32 A. Federal Securities Fraud Claims 33 34 To state a misrepresentation claim under section 10(b) 35 and Rule 10b-5, the complaint must “allege that the 36 defendant[s] (1) made misstatements or omissions of material 37 fact, (2) with scienter, (3) in connection with the purchase 38 or sale of securities, (4) upon which the plaintiff relied, 39 and (5) that the plaintiff’s reliance was the proximate 40 cause of its injury.” Stoneridge Inv. Partners, LLC v. 41 Scientific-Atlanta , 552 U.S. 148, 157 (2008). To state a 42 market manipulation claim, the complaint must “allege (1) 43 manipulative acts; (2) damage (3) caused by reliance on an 44 assumption of an efficient market free of manipulation; (4) 45 scienter; (5) in connection with the purchase or sale of 46 securities; (6) furthered by the defendant’s use of the 47

3mails or any facility of a national securities exchange.” 1 ATSI , 493 F.3d at 101. 2 3 Having conducted an independent and de novo review of 4 the record in light of these principles, we affirm the 5 dismissal of these claims. See La. Pac. Corp. , 851 F. Supp. 6 2d at 525-28 (S.D.N.Y. 2012). 7 8 Louisiana Pacific’s misstatement and manipulation 9 claims boil down to two basic points: (1) MLPFS’s support 10 bidding affected the clearing rate of the auctions and (2) 11 MLPFS’s ARS market activities created a false appearance of 12 liquidity and thereby artificially inflated prices paid for 13 ARS. We have thrice rejected this theory of liability on 14 the grounds that investors were sufficiently on notice of 15 the liquidity risks inherent in ARS (and the market was 16 therefore not misled) because the SEC cease-and-desist order 17 dated May 31, 2006 and Defendants’ online disclosure of its 18 ARS practices and procedures sufficiently disclosed that 19 auction managers could--and did--intervene in, and set 20 clearing rates for, their own auctions. See Cellular South 21 Inc. v. Merrill, Lynch, Pierce, Fenner & Smith, Inc. , 516 F. 22 App’x 30, 32 (2d Cir. 2013) (summary order), Anschutz Corp. 23 v. Merrill Lynch & Co. , 690 F.3d 98, 108-09 (2d Cir. 2012); 24 Wilson , 671 F.3d at 131-32. 25 26 Like the plaintiffs in Anschutz , Louisiana Pacific has 27 attempted has attempted to save its claims by leveraging a 28 passage in Wilsonleaving open the possibility that a 29 “hypothetical complaint” might state a claim by alleging 30 that, “as of the time of [plaintiff’s] purchase, Merrill 31 [and/or MPFLS] presently intended to place bids in every 32 single auction, knew that each auction would fail if it did 33 not place these bids, and signaled to its ARS investors that 34 these securities were genuinely liquid.” 3Wilson , 671 F.3d 35

3 Plaintiffs may be placing more weight on that passage than it can bear. As explained in Wilson
, “[e]ven if we were to construe the complaint as attempting to plead that Merrill, at least for a time, placed support bids in every single auction for Merrill ARS, we do not see how that allegation can be actionable given Merrill’s disclosure that it ‘may routinely’ place such bids.” 671 F.3d at 133; see alsoAnschutz , 690 F.3d at 110 (explaining that after the website disclosure, investors who had purchased “had the option to buy, sell, or hold the ARS at issue. By that time, [such investors] w[ere] fully informed of Merrill

4at 139. Louisiana Pacific’s allegations, however, are 1 materially indistinguishable from those in Anschutz and 2 Wilson . “In short, the [complaint] fails to state a claim 3 for violation of the federal securities laws, not because it 4 lacks magic words prescribed by Wilson , but because, like 5 the complaint[s] we rejected in [Wilsonand Anschutz ],” 6 Louisiana Pacific’s “generalized and conclusory allegations 7 are not ‘well-pleaded.’” Anschutz
, 690 F.3d at 110 (citing 8 Wilson , 671 F.3d at 139); see also Appellees’ Br. 30-38 9 (comparing the material allegations of Louisiana Pacific’s 10 complaint with those filed by the Wilsonand Anschutz 11 plaintiffs). 4 12 13 B. State Law & Common Law Claims 14 15 After a de novo review of the record, we conclude that 16 Louisiana Pacific’s state law and common law claims were 17 properly denied for substantially the same reasons stated by 18 the district court. See La. Pac. Corp. , 851 F. Supp. 2d at 19 530-31. 20 21 For the foregoing reasons, and finding no merit in 22 Louisiana Pacific’s other arguments, we hereby **AFFIRM** the 23 judgment of the district court. 24 25 FOR THE COURT: 26 CATHERINE O’HAGAN WOLFE, CLERK 27 28

Lynch’s ARS practices, and [those that still decided to hold [have no actionable claim for fraud].”). How Rule 10b-5 claims against these Defendants could survive such holdings is unclear. Cf. Gurary v. Winehouse , 190 F.3d 37, 45 (2d Cir. 1999) (“The gravamen of manipulation is deception of investors into believing that prices at which they purchase and sell securities are determined by the natural interplay of supply and demand, not rigged by manipulators.”).

4 Having concluded that Louisiana Pacific failed to state a claim for any primary violation of the securities laws, we affirm the district court’s dismissal of its Section 20(a) claim alleging that Merrill Lynch & Co. is liable as a controlling person. See SEC v. First Jersey Sec., Inc. , 101 F.3d 1450, 1472 (2d Cir. 1996).

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