Opinion ID: 2820087
Heading Depth: 3
Heading Rank: 1

Heading: Identification of the Speaker

Text: Under Rule 9(b), Plaintiffs must “identify the speaker” of the allegedly fraudulent statements. Eternity Global, 375 F.3d at 187. According to Defendants, the complaint fails because it attributes these statements to a cluster of subsidiaries collectively referred to as “Wachovia” rather than to any specific Wachovia entity. In response, Plaintiffs argue that their pleadings satisfy Rule 9(b) on this score because the 18 13‐1476‐cv Loreley Financing (Jersey) No. 3 v. Wells Fargo Securities, LLC speaker is a group of affiliates, and an appropriate factual basis for such grouping exists. In rejecting Plaintiffs’ argument, the district court concluded that the allegations of interrelatedness were insufficient to treat the Wachovia entities as a group for purposes of the identification requirement. See Wells Fargo, 2013 WL 1294668, at , . We disagree. The complaint identifies three Wachovia entities who acted together to structure and offer the securities in question: (1) Wachovia Capital Markets, LLC, as the initial purchaser of the notes issued by all three CDOs; (2) Wachovia Securities International Limited, as this initial purchaser’s agent for the sale of the Sagittarius and Longshore notes; and (3) Wachovia Bank, N.A. as the initial CDS counterparty for the three CDOs, their warehouse financing provider, and the liquidity provider for Octans and Sagittarius. See J.A. at 104.6 When read together with the complaint as a whole, these allegations suffice, in our view, to “inform each defendant of the nature of [its] alleged participation in the fraud.” DiVittorio v. Equidyne Extractive Indus., Inc., 822 F.2d 1242, 1247 (2d Cir. 1987). The complaint states at the outset that it will refer to these entities collectively as “Wachovia,” J.A. at 99, and we are hard-pressed to see how Plaintiffs could have done otherwise in the context of the present litigation, or why they ought to have done otherwise based on our cases. As noted in the Procedural History, supra, the corresponding defendants in this case are three Wells 6 Fargo subsidiaries, one of whom—Wells Fargo Securities International Limited, the successor in interest of Wachovia Securities International Limited—was dismissed for lack of personal jurisdiction. See Wells Fargo, 2013 WL 1294668, at ‐6. 19 13‐1476‐cv Loreley Financing (Jersey) No. 3 v. Wells Fargo Securities, LLC Our Circuit first addressed the issue of group-produced misrepresentations in Luce v. Edelstein, 802 F.2d 49 (2d Cir. 1986). There, disgruntled investors in an “ill-fated real estate partnership” alleged securities fraud, suing the partnership, its general partners (themselves partnerships), affiliated entities, and the individuals who tightly controlled all of them. Id. at 51. The complaint attributed to “defendants” as an undifferentiated group several statements about the securities in question—in particular, (1) statements made in an offering document and (2) other oral and written statements made outside the offering documents themselves. The treatment in Luce of the two types of statements is instructive. We held that while, as to the second category, the complaint lacked the specificity required by Rule 9(b), such group pleading was sufficient as to the first category, i.e., the statements made in the offering document. Id. at 55 (“[N]o specific connection between fraudulent representations in the Offering Memorandum and particular defendants is necessary where . . . defendants are insiders or affiliates participating in the offer of the securities in question.”); see Ouaknine v. MacFarlane, 897 F.2d 75, 80 (2d Cir. 1990) (“[R]eference to an offering memorandum satisfies 9(b)’s requirement of identifying time, place, speaker, and content of representation where . . . defendants are insiders or affiliates participating in the offer of securities.”); DiVittorio, 822 F.2d at 1247.7 7 Defendants suggest in their brief that group pleading may no longer be viable in the wake of the PSLRA. While other circuits have held that the PSLRA eliminated group pleading for private actions under the federal securities laws, see, e.g., Winer Family Trust v. Queen, 503 F.3d 319, 336 (3d Cir. 2007), we note that numerous district courts in our Circuit have reached the opposite conclusion. See City of Pontiac Gen. Employees’ Ret. Sys. v. Lockheed Martin Corp., 875 F. Supp. 2d 359, 373 (S.D.N.Y. 2012) (collecting cases). The vitality of the group pleading doctrine as to federal securities fraud is an open question in our Circuit, and one that is not before us in this case. Plaintiffs’ fraud claim here is governed by state common 20 13‐1476‐cv Loreley Financing (Jersey) No. 3 v. Wells Fargo Securities, LLC The statements here belong to the first category treated in Luce: official materials produced in connection with the sale of securities. Plaintiffs allege that Wachovia itself—acting through three different affiliates—structured the CDOs, was the initial purchaser of the notes, provided financing, and acted as the initial CDS counterparty. The entities named in the complaint and treated collectively were thus “insiders or affiliates participating in the offer of securities,” Ouaknine v. MacFarlane, 897 F.2d 75, 80 (2d Cir. 1990), and they were allegedly “link[ed] . . . in . . . specific way[s] to . . . fraudulent representation[s] or omission[s]” made in those offering documents. DiVittorio, 822 F.2d at 1249. Even under the heightened pleading standard of Rule 9(b), Plaintiffs are not obliged to disaggregate these affiliates to pursue their fraud claim. Where a plural author is implied by the nature of the representations—for instance, where, as here, (1) the alleged fraud is based on statements made in the offering materials and (2) the complaint gives grounds for attributing the statements to the group—group pleading may satisfy the source identification required by Rule 9(b). Following Luce, we hold that there is no fixed requirement in such circumstances to identify a single entity within the group on pain of dismissal. Moreover, in the instant case, each Wachovia entity was a member of a corporate subgroup that operated together and communicated with Plaintiffs under a shared law rather than the PSLRA, and at least in the present context it seems clear to us that Luce and its progeny remain precedential. 21 13‐1476‐cv Loreley Financing (Jersey) No. 3 v. Wells Fargo Securities, LLC trade name: “Wachovia Securities.” J.A. at 263, 309, 466.8 Each employee involved in the CDO transactions was listed on a Wachovia Securities phone list without reference to a specific entity in the subgroup. And the logo emblazoned on the marketing materials was that of Wachovia Securities. As a result, Plaintiffs’ designation in the complaint of these three defendants by a group shorthand rather than their individual entity names amounts, at most, to excusable mislabeling. Cf. Datskow v. Teledyne, Inc., Cont’l Prods. Div., 899 F.2d 1298, 1300-01 (2d Cir. 1990). And the costs of such mislabeling are better borne in this situation by those who authored the offering documents, which were characterized by that same slippage between the collective trade name and the entities acting under it. It would be strange indeed to demand greater precision of Plaintiffs in pleading the author’s identity than they received as readers of these documents. In sum, given that the alleged fraud focuses (1) on specific misrepresentations in the CDO offering documents and (2) on the coordinated activity by specific Wachovia affiliates in constructing and offering these CDOs, Plaintiffs’ identification of the group suffices to meet the particularity of attribution required by Rule 9(b). Wachovia’s own lack of transparency in identifying which entity was communicating to prospective investors only bolsters our conclusion in this regard.