Court Opinion

ID: 2656827
Source: CourtListenerOpinion
Date Created: 2014-03-17 14:37:05.456954+00
Date Added: 2024-06-11T09:12:35.256449
License: Public Domain

13-3951-cv
Iowa Pub. Emps.' Ret. Sys. v. Deloitte & Touche LLP

                          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 "SUMMARY
ORDER"). A PARTY CITING 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 17th day of March, two thousand fourteen.
PRESENT:       PIERRE N. LEVAL,
               DENNY CHIN,
               SUSAN L. CARNEY,
                         Circuit Judges.
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IOWA PUBLIC EMPLOYEES' RETIREMENT SYSTEM,
                    Plaintiff-Appellant,

                      -v.-                                       13-3951-cv

DELOITTE & TOUCHE LLP,
                    Defendant-Appellee.

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FOR PLAINTIFF-APPELLANT:                     THOMAS I. SHERIDAN, III, Hanly
                                             Conroy Bierstein Sheridan Fisher &
                                             Hayes LLP, New York, New York.

       
           The Clerk of the Court is directed to amend the official
caption as noted above.  
FOR DEFENDANT-APPELLEE:         FRANK B. VANKER (Kristen R. Seeger,
                                on the brief), Sidley Austin LLP,
                                Chicago, Illinois, and Kevin A.
                                Burke, Sidley Austin LLP, New York,
                                New York.

          Appeal from the United States District Court for the

Southern District of New York (Oetken, J.).
          UPON DUE CONSIDERATION, IT IS HEREBY ORDERED, ADJUDGED,

AND DECREED that the district court's judgment dismissing the

complaint and its opinion and order denying reconsideration and
leave to file an amended complaint are AFFIRMED.

          Plaintiff-appellant Iowa Public Employees' Retirement

System ("IPERS") appeals from the judgment of the district court

entered on January 24, 2013, granting the motion of defendant

Deloitte & Touche LLP ("D&T") to dismiss the complaint for

failure to state a claim.    IPERS also appeals from the opinion

and order entered on September 27, 2013, denying its motion for

reconsideration pursuant to Rule 6.3 of the Local Rules for the

Southern District ("Local Rule 6.3") and for leave to file an

amended complaint.   The complaint alleged, among other things,
that D&T, as outside auditor to WG Trading Company Limited

Partnership ("WGTC"), a registered broker-dealer involved in a

fraudulent investment scheme, violated § 10(b) of the Securities

and Exchange Act of 1934, 15 U.S.C. § 78j(b), and Rule 10b-5,

promulgated thereunder, 17 C.F.R. § 240.10b-5.1     We assume the

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           The complaint also alleges breach of fiduciary duty under a
theory of aiding and abetting. As IPERS does not address this claim,
or the district court's dismissal of it, on appeal, we do not consider
it. See In re U.S. Wireless Data, Inc., 547 F.3d 484, 491-92 (2d Cir.
2008).

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parties' familiarity with the facts, procedural history, and

issues on appeal.
1.   The Motion to Dismiss

            We review de novo a district court's dismissal for

failure to state a claim, accepting all factual allegations as

true.    See Slayton v. Am. Express Co., 604 F.3d 758, 766 (2d Cir.

2010).    "A complaint alleging securities fraud must satisfy the

heightened pleading requirements of the [Private Securities

Litigation Reform Act ("PSLRA")] and Federal Rule of Civil

Procedure 9(b) by stating with particularity the circumstances

constituting fraud."    Id.
            "Under the PSLRA, the complaint must 'specify each

statement alleged to have been misleading, [and] the reason or

reasons why the statement is misleading,' and 'state with

particularity facts giving rise to a strong inference that the

defendant acted with the required state of mind.'"    ECA & Local

134 IBEW Joint Pension Trust of Chi. v. JP Morgan Chase Co., 553
F.3d 187, 196 (2d Cir. 2009) (quoting 15 U.S.C. § 78u-4(b)(1))

(alteration in original).     The plaintiff may satisfy the latter

requirement "by alleging facts (1) showing that the defendant[ ]

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).
            IPERS alleges that D&T's auditing practices with

respect to WGTC "were so deficient that the audits amounted to no

audit at all, or an egregious refusal to see the obvious, or

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investigate the doubtful."    Compl. at ¶ 49.   IPERS argues that,

given red flags, it was reckless for D&T to give WGTC a clean

audit opinion without having also examined the books of WG

Trading Investors, L.P. ("WGTI"), another entity involved in the

fraudulent scheme.    To support its claim, IPERS contends that D&T

must have known, among other things, that (1) WGTC and WGTI

shared the same management, (2) the entities received money from

each other's investors, (3) WGTC made employee advances charged

against WGTI's capital, and (4) WGTC allocated losses to WGTI,

while allocating income to its other limited partners.    In

essence, IPERS claims that had D&T investigated these

irregularities, it would have uncovered the fraud because "[t]he

operations of WGTC and WGTI, when considered as a single entity,

had the elements of a classic Ponzi scheme."    Compl. at ¶ 50(g).

           We agree that "IPERS' allegations of red flags, though

perhaps sufficient to give rise to a negligence claim against

D&T," do not support a claim of fraud for substantially the

reasons stated by the district court.    Iowa Pub. Empl.'s Ret.

Sys. v. Deloitte & Touche LLP, 919 F. Supp. 2d 321, 336 (S.D.N.Y.

2013).   The allegations that D&T failed to investigate WGTI do

not meet the heightened pleading standard for scienter.
2.   The Motion for Reconsideration and Leave to Amend

           We review a denial of a motion for reconsideration for

abuse of discretion.    See Johnson v. Univ. of Rochester Med.

Ctr., 642 F.3d 121, 125 (2d Cir. 2011) (Rule 60(b) motion for

reconsideration).    We review the district court's denial of a

motion for leave to amend on futility grounds de novo.    See

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Hutchison v. Deutsche Bank Sec. Inc., 647 F.3d 479, 490 (2d Cir.

2011).

          On appeal, IPERS does not explicitly argue that the

district court abused its discretion in denying its motion for

reconsideration.   We have nevertheless addressed this question,

which is implicit in its appeal, and we find no abuse of

discretion.   Further, after reviewing IPERS' proposed amended

complaint, we agree with the district court that "[n]one of

IPERS' proposed amendments to the [c]omplaint support[ed] a

plausible inference that D&T ignored red flags of fraud."   Op.
and Order, Sept. 27, 2013, at 11, Doc. No. 41.   Accordingly,

leave to amend would have been futile.

          We have considered IPERS' remaining arguments and find
them to be without merit.   Accordingly, we AFFIRM.

                               FOR THE COURT:
                               Catherine O'Hagan Wolfe, Clerk

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