Court Opinion

ID: 2782919
Source: CourtListenerOpinion
Date Created: 2015-02-27 17:00:30.762395+00
Date Added: 2024-06-11T11:28:25.463270
License: Public Domain

14-165-cv
   Westchester Teamsters v. UBS

                                    UNITED STATES COURT OF APPEALS
                                        FOR THE SECOND CIRCUIT

                                                  SUMMARY ORDER

RULINGS BY SUMMARY ORDER DO NOT HAVE PRECEDENTIAL EFFECT. CITATION TO
A SUMMARY ORDER FILED ON OR AFTER JANUARY 1, 2007, IS PERMITTED AND IS
GOVERNED BY FEDERAL RULE OF APPELLATE PROCEDURE 32.1 AND THIS COURT=S
LOCAL RULE 32.1.1. WHEN CITING A SUMMARY ORDER IN A DOCUMENT FILED WITH
THIS COURT, A PARTY MUST CITE EITHER THE FEDERAL APPENDIX OR AN
ELECTRONIC DATABASE (WITH THE NOTATION ASUMMARY ORDER@). A PARTY CITING
TO A SUMMARY ORDER MUST SERVE A COPY OF IT ON ANY PARTY NOT REPRESENTED
BY COUNSEL.

                  At a stated term of the United States Court of Appeals for the Second
   Circuit, held at the Thurgood Marshall United States Courthouse, 40 Foley Square, in the
   City of New York, on the 27th day of February, two thousand fifteen.

   PRESENT:
               PETER W. HALL,
               GERARD E. LYNCH,
               SUSAN L. CARNEY,
                     Circuit Judges.
   _____________________________________

   Westchester Teamsters Pension Fund &
   Teamsters Local 456 Annuity Funds,

                                Plaintiffs-Appellants,

                       v.                                           14-165-cv

   UBS AG, Oswald J. Grübel, John Cryan,
   Carsten Kengeter, Philip J. Lofts,

                     Defendants-Appellees.1
   _________________________________

   FOR PLAINTIFFS-APPELLANTS:                                               STEVEN F. HUBACHEK (Eric Alan
                                                                            Isaacson, Tor Gronborg, Brian O.
                                                                            O’Mara, on the brief), Robbins Geller
   1
       The Clerk of Court is requested to amend the caption as indicated.
                                                           Rudman & Dowd LLP, San Diego,
                                                           CA.

FOR DEFENDANTS-APPELLEES:                                  MARK A. KIRSCH (Marshall R. King,
                                                           Caitlin J. Halligan, Lisa H. Rubin, Seth
                                                           M. Rokosky, on the brief) Gibson,
                                                           Dunn & Crutcher LLP, New York,
                                                           NY.

       Appeal from an order of the United States District Court for the Southern District of New

York (Forrest, J.).

       UPON DUE CONSIDERATION, IT IS HEREBY ORDERED, ADJUDGED, AND

DECREED that the judgment of the district court is AFFIRMED.

       This appeal involves claims under Section 10(b) of the Securities Exchange Act of 1934

and the Securities and Exchange Commission’s Rule 10b-5, which prohibit a person from

“making any material misstatement or omission in connection with the purchase or sale of any

security.” Halliburton Co. v. Erica P. John Fund, Inc., 134 S. Ct. 2398, 2407 (2014). Plaintiffs-

Appellants, Westchester Teamsters Pension Fund and Teamsters Local 456 Annuity Funds

(“Plaintiffs”) appeal the district court’s order granting the motion to dismiss of Defendants-

Appellees, UBS AG, Grübel, Cryan, Kengeter and Lofts (“Defendants”), on the grounds that

Plaintiffs failed adequately to plead violations of the Securities and Exchange Act of 1934

allegedly occurring during the period from November 17, 2009 through September 15, 2011. We

assume the parties’ familiarity with the underlying facts, the procedural history of the case, and

the issues on appeal.

       We review de novo the grant of a motion to dismiss pursuant to Fed. R. Civ. P. 12(b)(6),

construing the complaint liberally, accepting all factual allegations in the complaint as true, and

drawing all reasonable inferences in the plaintiff’s favor. Roth v. Jennings, 489 F.3d 499, 510 (2d
Cir. 2007). As a general matter, “[t]o 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.”

City of Pontiac Policemen’s & Firemen’s Ret. Sys. v. UBS AG, 752 F.3d 173, 179 (2d Cir. 2014)

(quoting Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)). To make out a claim for violation of

section 10(b) and Rule 10b-5, the facts pleaded must demonstrate “(1) a material

misrepresentation or omission by the defendant; (2) scienter; (3) a connection between the

misrepresentation or omission and the purchase or sale of a security; (4) reliance upon the

misrepresentation or omission; (5) economic loss; and (6) loss causation.” Halliburton Co., 134

S. Ct. at 2407 (internal quotation marks omitted). The complaint must also satisfy the heightened

pleading requirements of Rule 9(b) and the Private Securities Litigation Reform Act of 1995,

which require that “securities fraud complaints specify each misleading statement . . . [and] state

with particularity facts giving rise to a strong inference that the defendant acted with the required

state of mind.” City of Pontiac Policemen’s & Firemen’s Ret. Sys., 752 F.3d at 184 (internal

quotation marks omitted).

         We affirm the judgment of the district court on the basis that Plaintiffs failed adequately

to plead scienter, and thus we do not address the district court’s analysis of the remaining

elements of their securities fraud claim.2 To plead scienter so as to survive a motion to dismiss, a

2
  We disagree with the district court’s suggestion in its analysis of the first element (material misrepresentation or
omission) that Plaintiffs had to show that a Defendant “k[new] (or ha[d] reason to know) at the time that he was
making an alleged statement that the statement was in fact false.” C.D.T.S. v. UBS AG, No. 12 Civ. 4924, 2013 WL
6576031, at *4 (S.D.N.Y. Dec. 13, 2013). Plaintiffs need not demonstrate Defendants had knowledge or a belief that
they were making “a material misrepresentation or omission” in order to satisfy the element. Rather, to prove this

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plaintiff must state “with particularity facts giving rise to a strong inference that the defendant

acted with the required state of mind,” Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S.

308, 326 (2007) (internal quotation marks omitted) by either “alleging facts (1) showing that the

defendants had both motive and opportunity to commit the fraud or (2) constituting strong

circumstantial evidence of conscious misbehavior or recklessness,” ATSI Commc’ns, Inc. v.

Shaar Fund, Ltd., 493 F.3d 87, 99 (2d Cir. 2007). In analyzing whether the complaint meets this

standard, this Court considers “plausible opposing inferences.” Tellabs, Inc., 551 U.S. at 323. A

strong inference of scienter is one that “a reasonable person would deem . . . cogent and at least

as compelling as any opposing inference one could draw from the facts alleged.” Id. at 324.

         We agree with the district court that Plaintiffs failed to allege sufficient facts to establish

scienter either through a showing of “motive and opportunity” or of “conscious misbehavior or

recklessness” on the part of Defendants. ATSI Commc’ns, Inc., 493 F.3d at 99. That is, there are

no facts alleged that demonstrate Defendants had an intent to deceive, manipulate, or defraud

investors when Defendants described their ostensibly robust risk management systems and

internal controls. ECA, Local 134 IBEW Joint Pension Trust of Chicago v. JP Morgan Chase

Co., 553 F.3d 187, 198 (2d Cir. 2009). Nor are there allegations supporting a conclusion that

Defendants “benefitted in some concrete and personal way from the purported fraud.” Id.

(internal quotation marks omitted). Furthermore, none of Plaintiffs’ generalized allegations

demonstrate recklessness, i.e. “an extreme departure from the standards of ordinary care . . . to

first element Plaintiffs need show only that a false statement was made or that an omission of material fact occurred.
In re Int'l Bus. Machines Corporate Sec. Litig., 163 F.3d 102, 106 (2d Cir. 1998).

                                                          4
the extent that the danger was either known to the defendant or so obvious that the defendant

must have been aware of it.” Id. (internal quotation marks omitted). Plaintiffs have offered no

plausible explanation as to why Defendants would turn a blind eye to the possibility that

unauthorized trading was exposing UBS to billions of losses. Rather, the much stronger opposing

inference is mismanagement—Defendants simply were not monitoring the company’s risk as

effectively as they had assured investors and as they themselves believed. Absent adequate

pleading the courts cannot simply infer that Defendants knew or were reckless in not knowing

that their generalized representations regarding risk management were false simply because they

were made while a rogue trader incurred a massive loss.

       We have considered all of Plaintiffs’ remaining arguments and find them to be without

merit. Accordingly, we AFFIRM the district court’s grant of summary judgment.

                                            FOR THE COURT:
                                            Catherine O=Hagan Wolfe, Clerk

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