Case 1:13-cv-06882-RJS Document 34 Filed 05/13/14 Page 1 of 18 UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK ) JOHN ORTUZAR, Individually and On Behalf ) of All Others Similarly Situated, ) ) Plaintiff, ) v. ) ) FRANCESCA S HOLDINGS ) CORPORATION, et al., ) ) Defendants. ) ) Case No. 13-cv-6882 (RJS) Case No. 13-cv-7804 (RJS) ECF CASE MEMORANDUM OF LAW IN SUPPORT OF THE UNDERWRITER DEFENDANTS MOTION TO DISMISS THE CONSOLIDATED CLASS ACTION COMPLAINT WILLKIE FARR & GALLAGHER LLP Richard D. Bernstein Frank M. Scaduto 1875 K Street, N.W. Washington, D.C. 20006 Telephone: (202) 303-1000 Todd G. Cosenza Zheyao Li Jennifer J. Greene 787 Seventh Avenue New York, New York 10019 Telephone: (212) 728-8000 Attorneys for the Underwriter Defendants
Case 1:13-cv-06882-RJS Document 34 Filed 05/13/14 Page 2 of 18 TABLE OF CONTENTS Page PRELIMINARY STATEMENT...1 FACTS...2 ARGUMENT...5 I. PLAINTIFFS CANNOT BRING A 1933 ACT CLAIM FOR THE MARCH 2013 OFFERING....6 A. Plaintiffs Lack Standing To Bring A Section 11 Claim For The March 2013 Offering....6 B. Plaintiffs Similarly Lack Standing To Pursue Any Section 12 Claim For The March 2013 Offering....8 C. Alternatively, At A Minimum, Plaintiffs Cannot State A 1933 Act Claim With Respect To The March 2013 Offering Against The Five Underwriter Defendants Who Did Not Participate In That Offering....9 II. PLAINTIFFS LACK STANDING TO BRING MANY OF THE 1933 ACT CLAIMS ASSERTED AGAINST THE UNDERWRITER DEFENDANTS FOR THE JANUARY AND APRIL 2012 OFFERINGS....9 A. Plaintiffs Cannot Sue RBC And Jefferies For The January 2012 Offering In Which They Were Not Underwriters....10 B. Plaintiffs Lack Standing To Bring A Section 12 Claim Against Any Underwriter Except KeyBanc For The January 2012 Offering....10 C. Plaintiffs Lack Standing To Bring A Section 12 Claim Against Any Underwriter Except Goldman Sachs For The April 2012 Offering....13 CONCLUSION...14 - i -
Case 1:13-cv-06882-RJS Document 34 Filed 05/13/14 Page 3 of 18 TABLE OF AUTHORITIES Cases Page(s) Akerman v. Oryx Commc ns, Inc., 609 F. Supp. 363 (S.D.N.Y. 1984)...11 ATSI Commc ns, Inc. v. Shaar Fund, Ltd., 493 F.3d 87 (2d Cir. 2007)...3 In re Century Aluminum Co. Sec. Litig., 729 F.3d 1104 (9th Cir. 2013)...7 In re Citigroup Inc. Bond Litig., 723 F. Supp. 2d 568 (S.D.N.Y. 2010)...11, 12 City of Westland Police & Fire Ret. Sys. v. MetLife, Inc., 928 F. Supp. 2d 705 (S.D.N.Y. 2013)...9 DeMaria v. Andersen, 153 F. Supp. 2d 300 (S.D.N.Y. 2001)...11 DeMaria v. Andersen, 318 F.3d 170 (2d Cir. 2003)...6 In re Deutsche Telekom AG Sec. Litig., No. 00 Civ. 9475 SHS, 2002 WL 244597 (S.D.N.Y. Feb. 20, 2002)...11 Fed. Hous. Fin. Agency v. Stanley, No. 11 Civ. 6739 (DLC), 2012 WL 5868300 (S.D.N.Y. Nov. 19, 2012)...12 In re FirstEnergy Corp. Sec. Litig., 316 F. Supp. 2d 581 (N.D. Ohio 2004)...8 In re Gentiva Sec. Litig., 932 F. Supp. 2d 352 (E.D.N.Y. 2013)...8 In re Global Crossing, Ltd. Sec. Litig., 313 F. Supp. 2d 189 (S.D.N.Y. 2003)...6, 7 Griffin v. PaineWebber, Inc., No. 99 Civ. 2292 (VM), 2001 WL 740764 (S.D.N.Y. June 29, 2001)...11, 12 Gustafson v. Alloyd Co., 513 U.S. 561 (1995)...8 In re Initial Pub. Offering Sec. Litig., 227 F.R.D. 65 (S.D.N.Y. 2004)...6 In re Initial Pub. Offering Sec. Litig., 471 F.3d 24 (2d Cir. 2006)...6 Local 295/Local 851 IBT Employer Grp. Pension Trust & Welfare Fund v. Fifth Third Bancorp., 731 F. Supp. 2d 689 (S.D. Ohio 2010)...12 - ii -
Case 1:13-cv-06882-RJS Document 34 Filed 05/13/14 Page 4 of 18 Krim v. pcorder.com, Inc., 402 F.3d 489 (5th Cir. 2005)...7 Maldonado v. Dominguez, 137 F.3d 1 (1st Cir. 1998)...8 Pinter v. Dahl, 486 U.S. 622 (1988)...10 Sheldon Co. Profit Sharing Plan & Trust v. Smith, 828 F. Supp. 1262 (W.D. Mich. 1993)...11 Tellabs, Inc. v. Makor Issues & Rights Ltd., 551 U.S. 308 (2007)...3 Yates v. Mun. Mortgage & Equity, LLC, 744 F.3d 874 (4th Cir. 2014)...8, 9 Yung v. Lee, 432 F.3d 142 (2d. Cir. 2005)...8 Statutes 15 U.S.C. 77k...9 15 U.S.C. 771...9, 10 - iii -
Case 1:13-cv-06882-RJS Document 34 Filed 05/13/14 Page 5 of 18 The Underwriter Defendants 1 respectfully submit this memorandum of law in support of their motion to dismiss the Consolidated Class Action Complaint (the Complaint or Compl. ) for failure to state a cause of action and failure to establish standing under the Securities Act of 1933 (the 1933 Act ). PRELIMINARY STATEMENT Plaintiffs seek to pursue claims under Sections 11 and 12 of the 1933 Act (the 1933 Act claims ) but not their 1934 Act Claims against six different Underwriter Defendants for three separate secondary public offerings of Francesca s Holdings Corporation ( Francesca s ) common stock. These offerings occurred on January 26, 2012, April 17, 2012, and March 26, 2013 (collectively, the Offerings ). Plaintiffs abjure any allegations of fraud, intent, motive, or reckless conduct against the Underwriter Defendants. Compl. 318, 320, 328. 2 For the reasons set forth in the Francesca s Defendants brief, Plaintiffs 1933 Act claims should be dismissed as they have not adequately pled any actionable material misstatement or omission in any of the three Offerings involving the Underwriter Defendants, and loss causation is lacking. In addition, and independently, this brief demonstrates that Plaintiffs have not alleged facts showing that they have standing to maintain most of their Section 11 and 12 claims against the Underwriter Defendants. To start, Plaintiffs lack standing to bring a Section 11 claim based on the March 2013 Offering against any of the Underwriter Defendants because they 1 The Underwriter Defendants are Goldman, Sachs & Co. ( Goldman Sachs ), J.P. Morgan Securities LLC ( J.P. Morgan ), Stifel, Nicolaus & Company, Incorporated ( Stifel ), KeyBanc Capital Markets Inc. ( KeyBanc ), RBC Capital Markets, LLC ( RBC ), and Jefferies & Company, Inc. ( Jefferies ). 2 A copy of the Complaint is included as Exhibit 1 to the accompanying Declaration of Todd G. Cosenza, dated May 13, 2014 (the Cosenza Decl. ). 1
Case 1:13-cv-06882-RJS Document 34 Filed 05/13/14 Page 6 of 18 cannot trace their shares to the allegedly misleading registration statement. The one Plaintiff who purports to allege such a purchase actually certifies that he purchased at a different price than the offering price. Moreover, because such a purchase at a different price had to be made in the aftermarket, Plaintiffs Section 12 claim for the March 2013 Offering also fails for lack of standing. At a minimum, Plaintiffs Section 11 and 12 claims based on the March 2013 Offering cannot conceivably be pled as to any Underwriter Defendant other than Jefferies because Jefferies acted as the sole underwriter for the March 2013 Offering. Compl. 311. Plaintiffs 1933 Act claims against the Underwriter Defendants for the two 2012 Offerings also suffer from standing flaws. All 1933 Act claims against RBC and Jefferies for the January 2012 Offering should be dismissed as they were not underwriters in that Offering. As to the other Underwriter Defendants, the Complaint (and the certifications attached thereto) allege only a purchase from KeyBanc in the January 2012 Offering and a purchase from Goldman Sachs in the April 2012 Offering. Plaintiffs thus lack standing to pursue Section 12 claims against any other Underwriter Defendant for any other Offering. FACTS Francesca s has been a publicly traded company since its initial public offering in July 22, 2011, which offered 11.5 million shares at $17 per share. 3 Compl. 1; Cosenza Decl. Ex. 2 (IPO Prospectus excerpts). The 1933 Act claims against the Underwriter Defendants challenge three subsequent and separate Offerings conducted by Francesca s on January 26, 2012, April 17, 2012, and March 26, 2013. See Compl. 253 ( Securities Act claims... concern three separate offerings ). The Court-appointed Lead Plaintiff Arkansas Teacher Retirement System ( Arkansas Teachers ) did not purchase any shares in any of the three 3 For purposes of this motion to dismiss only, the Underwriter Defendants assume the factual allegations contained in the Complaint, to the extent they are well pled, to be true. 2
Case 1:13-cv-06882-RJS Document 34 Filed 05/13/14 Page 7 of 18 challenged Offerings. See Compl. Ex. A. 4 As described below, each of the three separate offerings underlying the 1933 Act claims involves different registration statements, different underwriters, different purchasing plaintiffs, and different alleged misrepresentations and omissions. The January 2012 Offering was made pursuant to a Form S-1 registration statement filed on January 18, 2012. Compl. 296. Francesca s conducted an Offering of 10.4 million shares at a price of $23.00 per share, with the underwriters having the option to purchase up to an additional 1.56 million shares. Compl. 255; Cosenza Decl. Ex. 3 (Jan. 2012 Prospectus excerpts) at 7. Goldman Sachs, J.P. Morgan, Stifel, and KeyBanc acted as underwriters in [the] January 2012 Offering. Compl. 296. RBC and Jefferies are not alleged to have been involved in the January 2012 Offering. Cf. id. 281-282. The only named plaintiff who bought in the January 2012 Offering was Greater Pennsylvania Carpenters Pension Fund ( Greater Penn ). Compl. 263. According to the Complaint, Greater Penn purchased or otherwise acquired common stock on January 27, 2012 directly from seller Keybanc [sic] Capital Markets Inc., pursuant to the secondary offering materials, at the January 26, 2012 offering price. Id. Greater Penn s PSLRA certification states that it purchased 179 shares of Francesca s on January 27, 2012 at the Offering price of $23.00. Compl. Ex. C. The April 2012 Offering was made pursuant to a separate and independent Form S-1 filed on April 4, 2012. Compl. 303. Francesca s conducted an Offering of nine million shares at a price of $27.60 per share, with the underwriters having the option to purchase up to an 4 On a motion to dismiss, courts must consider... documents incorporated into the complaint by reference, and matters of which a court may take judicial notice. Tellabs, Inc. v. Makor Issues & Rights Ltd., 551 U.S. 308, 322 (2007); see also ATSI Commc ns, Inc. v. Shaar Fund, Ltd., 493 F.3d 87, 98 (2d Cir. 2007) (court may consider legally required public disclosure documents filed with the SEC, and documents possessed by or known to the plaintiff and upon which it relied in bringing the suit ). 3
Case 1:13-cv-06882-RJS Document 34 Filed 05/13/14 Page 8 of 18 additional 1.35 million shares. Compl. 256; Cosenza Decl. Ex. 4 (Apr. 2012 Prospectus excerpts) at 6. Goldman Sachs, J.P. Morgan, Stifel, KeyBanc, RBC, and Jefferies i.e., all six named Underwriter Defendants acted as underwriters in [the] April 2012 Offering. Compl. 303; see also id. 277-282. Of the named plaintiffs in the Complaint, only Greater Penn is alleged to have bought stock in the April 2012 Offering. Specifically, the Complaint alleges that Greater Penn purchased or otherwise acquired common stock on April 18, 2012 directly from seller Goldman, Sachs & Co., pursuant to the secondary offering materials, at the April 17, 2012 offering price. Compl. 263. Greater Penn s certification states that it purchased 3,715 Francesca s shares on April 18, 2012 at $27.60. Compl. Ex. C. The March 2013 Offering was made pursuant to a Form S-3 ASR, or shelf registration, filed on March 26, 2013. Compl. 311. Francesca s conducted an Offering of approximately 7.4 million shares at a price of $28.36 per share. Compl. 257; Cosenza Decl. Ex. 5 (Mar. 2013 Prospectus Supp. excerpts) at S-2. As the Complaint admits, Jefferies acted as the sole underwriter for the March 2013 Offering. Compl. 311; cf. id. 277-281 (five other Underwriter Defendants are not alleged to be involved in the March 2013 Offering). The sole named plaintiff alleged to have purchased in the March 2013 Offering was Plymouth County Retirement System ( Plymouth ). Plymouth alleged that it purchased or otherwise acquired common stock on March 27, 2013 directly from seller Jefferies & Company, Inc., pursuant to the secondary offering materials at the March 26, 2013 offering price. Compl. 261. However, the PSLRA certification submitted by Plymouth shows that it purchased 460 shares of Francesca s on March 27, 2013 at $28.65 $0.29 above the Offering price of $28.36 for the March 26, 2013 Offering. Compl. Ex. B. 4
Case 1:13-cv-06882-RJS Document 34 Filed 05/13/14 Page 9 of 18 The allegations relating to the March 2013 Offering differ from those relating to the January 2012 and April 2012 Offerings. The March 2013 Offering materials were signed by a new CEO and CFO, neither of whom signed the offering materials for the 2012 Offerings. Compl. 265-268. The March 2013 Offering materials contain alleged misstatements incorporated by reference from Francesca s March 22, 2013 Form 10-K, which was filed after and thus not part of the 2012 Offerings. Compl. 205, 312. The Complaint focuses on disclosures from the March 22, 2013 Form 10-K relating to an executive s retirement on July 10, 2012, an event that occurred after the prior two Offerings. Compl. 314-15; see also Cosenza Decl. Ex. 6 (Mar. 22, 2013 Form 10-K excerpts) & Ex. 7 (July 2, 2012 Form 8-K excerpts). The 1933 Act claims based on the March 2013 Offering also allege misstatements and omissions based on an allegedly fundamental change in Francesca s relationships with its vendors that did not occur until Spring of 2013 after the two 2012 Offerings. Compl. 294, 316-17. The allegations about the March 2013 Offering also are purportedly based on a confidential witness whose personal knowledge extends only from July 2012 through August 2013 (CW 3), after the two 2012 Offerings. Compl. 293. Finally, the March 2013 Offering allegations assert theories of liability under Item 303(a) of SEC Regulation S-K and Rule 408 of SEC Regulation C that are not contained in the allegations about the January 2012 and April 2012 Offerings. Compl. 293-94, 317. ARGUMENT Plaintiffs appear to allege 1933 Act claims against all six Underwriter Defendants for all three challenged Offerings. See Compl. 319, 327, 329, 334-35. As demonstrated below, Plaintiffs lack standing to assert many of the 1933 Act claims. 5
Case 1:13-cv-06882-RJS Document 34 Filed 05/13/14 Page 10 of 18 I. PLAINTIFFS CANNOT BRING A 1933 ACT CLAIM FOR THE MARCH 2013 OFFERING. A. Plaintiffs Lack Standing To Bring A Section 11 Claim For The March 2013 Offering. Plaintiffs Section 11 claims arising out of the March 2013 Offering should be dismissed against all Defendants for lack of standing because Plaintiffs have not traced any share purchases to the March 26, 2013 registration statement. To have standing to assert a section 11 claim, plaintiffs must be able to trace their shares to an allegedly misleading registration statement. In re Global Crossing, Ltd. Sec. Litig., 313 F. Supp. 2d 189, 206 (S.D.N.Y. 2003) (Lynch, J.) (citing DeMaria v. Andersen, 318 F.3d 170, 176 (2d Cir. 2003)). A plaintiff successfully traces her shares if she demonstrates that [her] stock was actually issued pursuant to a defective [registration] statement; it is insufficient that her stock might have been issued pursuant to a defective [registration] statement. In re Initial Pub. Offering Sec. Litig., 227 F.R.D. 65, 117 (S.D.N.Y. 2004) (emphases added; internal quotation marks omitted), vacated on other grounds, 471 F.3d 24 (2d Cir. 2006). The Plaintiffs have the burden to plead tracing adequately. See Global Crossing, 313 F. Supp. 2d at 207-08 (dismissing Section 11 claim for lack of standing). Here, Francesca s had conducted three Offerings of more than 30 million of its shares prior to its March 2013 Offering. See supra, at 2-4. Courts are especially cognizant of the tracing requirement when, as here, shares of the issuer are already in the marketplace. See, e.g., DeMaria, 318 F.3d at 176 ( [A] cause of action exists for any person who purchased a security that was originally registered under the allegedly defective registration statement so long as the security was indeed issued under that registration statement and not another. ). Thus, when a company has issued shares under more than one registration statement as Francesca s had here the plaintiff must allege facts sufficient to support the inference that her shares were 6
Case 1:13-cv-06882-RJS Document 34 Filed 05/13/14 Page 11 of 18 issued under the allegedly false or misleading registration statement, rather than some other registration statement. In re Century Aluminum Co. Sec. Litig., 729 F.3d 1104, 1106 (9th Cir. 2013) (affirming dismissal of Section 11 claims); accord Krim v. pcorder.com, Inc., 402 F.3d 489, 501 (5th Cir. 2005) (affirming dismissal of Section 11 claims where plaintiffs failed to demonstrate that their shares [were] traceable to the challenged registration statement as opposed to shares issued in prior offerings). The Complaint alleges that only one named plaintiff, Plymouth, purchased or otherwise acquired common stock... pursuant to the secondary offering materials at the March 26, 2013 offering price of $28.36. Compl. 261. But this conclusory allegation is contradicted by Plymouth s own stock certification, which indicates that Plymouth purchased 460 shares on March 27, 2013 at a price per share of $28.65, Compl. Ex. B, not at the Offering price of $28.36 per share. Compl. 257. Purchasing at a price different from the offering price demonstrates that Plymouth purchased in the secondary market rather than in the March 26, 2013 Offering itself. See Century Aluminum, 729 F.3d at 1106 (affirming dismissal of Section 11 claim where none of the plaintiffs bought shares at the offering price ). This case is just like Century Aluminum, where plaintiffs purchased at $4.56 and $3.56 per share, not at the offering price of $4.50 per share. Id. at 1108. The court affirmed the dismissal of the Section 11 claim because [a]ccepting the allegations as true, plaintiffs shares could have come from the secondary offering, but the obvious alternative explanation is that they could instead have come from the pool of previously issued shares. Id. See also Global Crossing, 313 F. Supp. 2d at 207 ( [T]hose who buy identical stocks already being traded[] can[not] sue under section 11. ). Plymouth thus lacks standing to sue under Section 11. 7
Case 1:13-cv-06882-RJS Document 34 Filed 05/13/14 Page 12 of 18 Plaintiffs do not allege that any other named plaintiff besides Plymouth has standing to pursue the Section 11 claim for the March 2013 Offering. The Section 11 claim with respect to that Offering should be dismissed. See In re Gentiva Sec. Litig., 932 F. Supp. 2d 352, 391 (E.D.N.Y. 2013) (dismissing Section 11 claim for offering in which no plaintiff made purchases because [s]tanding is essentially offering based ). B. Plaintiffs Similarly Lack Standing To Pursue Any Section 12 Claim For The March 2013 Offering. As discussed in Part I.A, supra, Plymouth is the only named plaintiff to allege a purchase pursuant to the March 2013 Offering. According to its own certification, however, that purchase was at a price higher than that Offering s price, indicating that Plymouth purchased in the secondary market. Thus, Plaintiffs cannot maintain a Section 12 claim against any Underwriter Defendant for that Offering. The Supreme Court has held that 12(a)(2) only applies to initial offerings and not to aftermarket trading. In re FirstEnergy Corp. Sec. Litig., 316 F. Supp. 2d 581, 602 (N.D. Ohio 2004); see Yung v. Lee, 432 F.3d 142, 149 (2d Cir. 2005) ( Section 12(a)(2) action cannot be maintained by a plaintiff who acquires securities through a private transaction, whether primary or secondary. ) (citing Gustafson v. Alloyd Co., 513 U.S. 561, 582 (1995)); accord Maldonado v. Dominguez, 137 F.3d 1, 8 (1st Cir. 1998) (affirming dismissal of complaint). The Fourth Circuit recently affirmed dismissal of Section 12(a)(2) claims based on indistinguishable allegations. See Yates v. Mun. Mortgage & Equity, LLC, 744 F.3d 874, 901 (4th Cir. 2014). In Yates, plaintiffs alleged that they purchased shares at $26.32 per share. Id. at 900 n.13. But the complaint allege[d] that the SPO offered shares priced at $26.51. Id. The court dismissed the Section 12(a)(2) claim, holding that [a]t best, the allegations are merely consistent with the possibility that [Plaintiff] purchased his securities in the SPO. The pursuant and/or traceable to 8
Case 1:13-cv-06882-RJS Document 34 Filed 05/13/14 Page 13 of 18 language of the complaint is conclusory, and the confirmation slip does not provide sufficient factual enhancement to support a reasonable inference that the defendant[s are] liable for the misconduct alleged. Id. at 901. Similarly, the Section 12 claim for the March 2013 Offering should be dismissed. C. Alternatively, At A Minimum, Plaintiffs Cannot State A 1933 Act Claim With Respect To The March 2013 Offering Against The Five Underwriter Defendants Who Did Not Participate In That Offering. The Section 11 cause of action for a false or misleading registration statement extends only to every underwriter with respect to such security. 15 U.S.C. 77k (emphasis added). Section 12(a)(2) limits its cause of action to [a]ny person who... (2) offers or sells a security... by means of a prospectus.... 15 U.S.C. 77l (emphasis added). Thus, [t]o the extent that the amended complaint makes [Securities Act] claims against... underwriters for [an offering they did not underwrite], those claims should be dismissed. City of Westland Police & Fire Ret. Sys. v. MetLife, Inc., 928 F. Supp. 2d 705, 720 (S.D.N.Y. 2013) (dismissing Section 11 and 12 claims where [n]either Goldman Sachs nor Citigroup... underwrote the August 2010 offering ). Indeed, the Complaint recognizes that principle, stating that 1933 Act [l]iability... is predicated on [the Underwriter Defendants ] respective participation in each Offering. Compl. 320 (emphasis added). The Complaint admits that Jefferies acted as the sole underwriter for the March 2013 Offering. Id. 311. Accordingly, the 1933 Act claims against Goldman Sachs, J.P. Morgan, Stifel, KeyBanc, and RBC for the March 2013 Offering should be dismissed for this additional, independent reason. II. PLAINTIFFS LACK STANDING TO BRING MANY OF THE 1933 ACT CLAIMS ASSERTED AGAINST THE UNDERWRITER DEFENDANTS FOR THE JANUARY AND APRIL 2012 OFFERINGS. Plaintiffs also lack standing to bring many of the 1933 Act claims against the Underwriter Defendants for the 2012 Offerings. To start, the Court should dismiss the Section 9
Case 1:13-cv-06882-RJS Document 34 Filed 05/13/14 Page 14 of 18 11 and 12 claims against Jefferies and RBC for the January 2012 Offering because they were not underwriters in that Offering. The Court should also dismiss the Section 12 claims against J.P. Morgan, Stifel, RBC, and Jefferies for both the January 2012 and April 2012 Offerings because the Plaintiffs purchased from other Underwriter Defendants in those Offerings. Similarly, the Court should dismiss any Section 12 claim against Goldman Sachs for the January 2012 Offering, and against KeyBanc for the April 2012 Offering, because none of the Plaintiffs purchased from those respective Underwriter Defendants in those respective Offerings. A. Plaintiffs Cannot Sue RBC And Jefferies For The January 2012 Offering In Which They Were Not Underwriters. Based on the law discussed in Part I.C supra, the 1933 Act claims against RBC and Jefferies for the January 2012 Offering should be dismissed. This is because RBC and Jefferies were not underwriters in the January 2012 Offering. See Compl. 281 (RBC acted as underwriter only for April 2012 Offering); id. 282, 311 (Jefferies acted as underwriter for the April 2012 Offering and the March 2013 Offering). B. Plaintiffs Lack Standing To Bring A Section 12 Claim Against Any Underwriter Except KeyBanc For The January 2012 Offering. Section 12(a)(2) provides: Any person who... (2) offers or sells a security... by means of a prospectus... which includes an untrue statement of material fact or omits to state a material fact... shall be liable... to the person purchasing such security from him. 15 U.S.C. 77l (emphasis added). Section 12(a)(2), unlike Section 11, gives a purchaser a claim only against a particular underwriter, not every underwriter in an underwriting group. See Pinter v. Dahl, 486 U.S. 622, 647 (1988) (plaintiff has standing to assert Section 12(a)(2) claims only against a defendant who either directly sold the security to the plaintiff, or directly solicited the plaintiff s purchase of the security). A Section 12(a)(2) plaintiff must therefore allege that he purchased his shares from [that] defendant or that the defendant was directly involved in the 10
Case 1:13-cv-06882-RJS Document 34 Filed 05/13/14 Page 15 of 18 actual solicitation of his purchase. Griffin v. PaineWebber, Inc., No. 99 Civ. 2292 (VM), 2001 WL 740764, at *1-2 (S.D.N.Y. June 29, 2001) (emphases added); see also In re Citigroup Inc. Bond Litig., 723 F. Supp. 2d 568, 585 (S.D.N.Y. 2010) ( For a complaint to plausibly plead standing to raise a claim pursuant to Section 12, it must identify a particular purchase from a particular defendant pursuant to a particular prospectus that it contends contained a particular false or misleading statement. ) (emphasis added). As courts have recognized, to permit Section 12 claims against an underwriter from whom a plaintiff did not purchase shares would improperly stretch the statute s language [to] mean that [n]one of the individual underwriters would have their liability limited to the shares they actually sold. Akerman v. Oryx Commc ns, Inc., 609 F. Supp. 363, 373-74 (S.D.N.Y. 1984); see also DeMaria v. Andersen, 153 F. Supp. 2d 300, 308 (S.D.N.Y. 2001) (dismissing claims for lack of standing because the underwriter from whom the plaintiff had actually purchased shares was not named as a defendant); Sheldon Co. Profit Sharing Plan & Trust v. Smith, 828 F. Supp. 1262, 1280 (W.D. Mich. 1993) (dismissing Section 12 claim because plaintiffs failed to allege that the particular defendant solicited plaintiffs to buy stocks at issue). It is not sufficient for Plaintiffs to simply parrot the generic requirements for Section 12 liability, by stating, for example, that all Underwriter Defendants were sellers, offerors, and/or solicitors of sales of the securities issued in the Offering pursuant to the Offering Materials. Compl. 330. See In re Deutsche Telekom AG Sec. Litig., No. 00 Civ. 9475 SHS, 2002 WL 244597, at *4-5 (S.D.N.Y. Feb. 20, 2002) (holding that plaintiffs bald allegations that defendants were sellers, offerors, and/or solicitors of sales... by means of the Prospectus were insufficient to allege Section 12(a)(2) liability). 11
Case 1:13-cv-06882-RJS Document 34 Filed 05/13/14 Page 16 of 18 The only named 1933 Act plaintiff to assert that it purchased pursuant to the January 2012 Offering is Greater Penn. Greater Penn alleges that it purchased or otherwise acquired common stock on January 27, 2012 directly from seller Keybanc [sic] Capital Markets Inc. Compl. 263. According to the Complaint and their certifications, Plaintiffs did not purchase from the three other Underwriter Defendants that participated in that Offering Goldman Sachs, J.P. Morgan, and Stifel. 5 Given that Greater Penn alleges that it purchased from KeyBanc in the January 2012 Offering, Plaintiffs lack standing to pursue Section 12(a)(2) claims against the other Underwriter Defendants who participated in the January 2012 Offering Goldman Sachs, J.P. Morgan, and Stifel. See PaineWebber, 2001 WL 740764, at *2 (dismissing 12(a)(2) claims against underwriter because plaintiff specifically asserts that he purchased his shares from defendant PaineWebber and not from CIBC ); Fed. Hous. Fin. Agency v. Stanley, No. 11 Civ. 6739 (DLC), 2012 WL 5868300, at *3 (S.D.N.Y. Nov. 19, 2012) (dismissing 12(a)(2) claims against RBS with respect to all certificates that were purchased from Credit Suisse ); Local 295/Local 851 IBT Employer Grp. Pension Trust & Welfare Fund v. Fifth Third Bancorp., 731 F. Supp. 2d 689, 712-13 (S.D. Ohio 2010) ( Similarly, according to his affidavit, the Preferred C class representative, Loewenstine, purchased his shares from UBS only. Accordingly, the claims of the Preferred sub-class against all of the Underwriter Defendants except UBS must be 5 The fact that Greater Penn may have purchased from Goldman Sachs in a different Offering is irrelevant. See In re Citigroup, 723 F. Supp. 2d at 585 ( [A] plaintiff seeking redress pursuant to Section 12(a)(2) must establish that it purchased the security directly from defendants through the public offering at issue. ) (emphasis added); Fifth Third Bancorp., 731 F. Supp. 2d at 712-13 (where plaintiff purchased shares from one underwriter only, 12(a)(2) claims against all of the Underwriter Defendants except [that one underwriter] must be dismissed ). 12
Case 1:13-cv-06882-RJS Document 34 Filed 05/13/14 Page 17 of 18 dismissed. ). As a result, Plaintiffs Section 12(a)(2) claims for the January 2012 Offering against Underwriter Defendants Goldman Sachs, J.P. Morgan, and Stifel should be dismissed. C. Plaintiffs Lack Standing To Bring A Section 12 Claim Against Any Underwriter Except Goldman Sachs For The April 2012 Offering. As with the January 2012 Offering, Greater Penn is the only named 1933 Act plaintiff to assert that it purchased in the April 2012 Offering. The Complaint alleges that Greater Penn purchased or otherwise acquired common stock on April 18, 2012 directly from seller Goldman, Sachs & Co. Compl. 263. For the reasons stated above in Part II.B supra, given that Greater Penn alleges that it purchased from Goldman Sachs in the April 2012 Offering, Plaintiffs lack standing to pursue Section 12(a)(2) claims against other Underwriter Defendants who participated in that Offering KeyBanc, J.P. Morgan, Stifel, RBC, and Jefferies. As a result, Plaintiffs Section 12(a)(2) claims against KeyBanc, J.P. Morgan, Stifel, RBC, and Jefferies for the April 2012 Offering should be dismissed. 13
Case 1:13-cv-06882-RJS Document 34 Filed 05/13/14 Page 18 of 18 CONCLUSION For the foregoing reasons and those set forth in the Francesca s Defendants submission, the Underwriter Defendants respectfully request that the Court dismiss Plaintiffs claims against them with prejudice. Alternatively, at a minimum, the Court should dismiss with prejudice (1) the 1933 Act claims against all Underwriter Defendants for the March 2013 Offering; (2) the 1933 Act claims against RBC and Jefferies for the January 2012 Offering; (3) the Section 12 claims against Goldman Sachs, J.P. Morgan, and Stifel for the January 2012 Offering; and (4) the Section 12 claims against KeyBanc, J.P. Morgan, Stifel, RBC, and Jefferies for the April 2012 Offering. Dated: New York, New York May 13, 2014 Respectfully Submitted, WILLKIE FARR & GALLAGHER LLP /s/ Todd G. Cosenza Todd G. Cosenza (tcosenza@willkie.com) Zheyao Li Jennifer J. Greene 787 Seventh Avenue New York, New York 10019 Telephone: (212) 728-8000 Richard D. Bernstein Frank M. Scaduto 1875 K Street, N.W. Washington, D.C. 20006 Telephone: (202) 303-1000 Attorneys for the Underwriter Defendants 14