Int'l Fund Mgmt. S.A. v. Citigroup Inc.

822 F.Supp.2d 368

INTERNATIONAL FUND MANAGEMENT S.A., et al., Plaintiffs,

v.CITIGROUP INC., et al., Defendants.Norges Bank, Plaintiff,

v.Citigroup Inc., et al., Defendants.Swiss & Global Asset Management AG, et al., Plaintiffs,

v.Citigroup Inc., et al., Defendants.Universal–Investment–Gesellschaft MBH, et al., Plaintiffs,

v.Citigroup Inc., et al., Defendants.

Nos. 09 Civ. 8755 (SHS)

10 Civ. 7202 (SHS)

10 Civ. 9325 (SHS)

11 Civ. 314.

United States District Court, S.D. New York.

Sept. 30, 2011.

Megan D. McIntyre, Stuart M. Grant, Grant & Eisenhofer, PA, Wilmington, DE, Natalia Dora Williams, Shelly L. Friedland, Grand & Eisenhofer P.A., New York, NY, for Plaintiffs.

Brad Scott Karp, Richard A. Rosen, Susanna Michele Buergel, Jane Baek O'Brien, Paul, Weiss, Rifkind, Wharton & Garrison LLP, New York, NY, for Defendants.

OPINION & ORDER

SIDNEY H. STEIN, District Judge.

Plaintiffs in these four actions are members of the putative classes in In re Citigroup, Inc. Bond Litigation and In re Citigroup, Inc. Securities Litigation that have opted to bring suit in their own name. They are investors in the securities of defendant Citigroup, Inc., and they allege that the company, and certain of its affiliates, officers, and directors violated federal securities laws and other statutory and common law duties. The substance of plaintiffs' complaints mirrors the complaints in the Bond and Securities actions. Defendants have moved to dismiss the complaints pursuant to Federal Rule of Civil Procedure 12(b)(6). For the reasons set forth below, that motion is granted in part and denied in part.

I. BACKGROUNDA. The Parties

Purchasers of Citigroup securities in both domestic and European offerings bring these four actions. The first of the four, International Fund Management et al. v. Citigroup et al., was initiated in October 14, 2009. Plaintiffs in this action are twelve European investment firms—International Fund Management S.A., Deka International S.A. Luxemburg, Deka Investment GmbH, BayernInvest Kapitalanlagegesellschaft mbH, HansaInvest Hanseatische InvestmentGmbH, Metzler Investment GmbH, Nord/LB Kapitalanlagegesellschaft AG, INKA Internationale Kapitalanlagegesellschaft, Swiss Life Investment Management Holding AG, LGT Funds AGmvK, Kepler–Fonds Kapitalanlagegesellschaft mbH, ETFlab Investment GmbH—and the City of Richmond, Virginia. (Second Am. Compl. at ¶¶ 30–43, International Fund Management et al. v. Citigroup et al., No. 09 Civ. 8755 (S.D.N.Y. Nov. 17, 2010) (hereinafter IFM Compl.).)

Norges Bank, Norway's central bank, filed the second action on September 17, 2010. (First Am. Compl. at ¶ 30, Norges Bank v. Citigroup et al., No. 10 Civ. 7202 (S.D.N.Y. Dec. 15, 2010) (hereinafter Norges Compl.).) A pair of affiliated investment fund management companies, Swiss & Global Asset Management AG and Swiss & Global Asset Management (Luxembourg) SA, brought the third three months later. (Compl. at ¶¶ 30–32, Swiss & Global Asset Management AG et al. v. Citigroup et al., No. 10 Civ. 9325 (S.D.N.Y. Dec. 13, 2010).) And the plaintiffs in the final action, initiated on January 14, 2011, are a trio of German corporations—Universal-Investment-Gesellschaft mbH, an investment fund management company; Münchener Rüchversicherungs–Gesellschaft Aktiengesellschaft in München, a reinsurance company; and MEAG MUNICH ERGO Kapitalanlagegesellschaft mbH, an investment company. (Compl. at ¶¶ 30–32, Universal–Investment–Gesellschaft mbH et al. v. Citigroup et al., No. 11 Civ. 314 (S.D.N.Y. Jan. 14, 2011).)

These nineteen plaintiffs (collectively, “plaintiffs”) have sued Citigroup, Inc., a global financial services holding company, and its subsidiary, Citigroup Global Markets, Inc., which underwrote many of the debt offerings at issue in these actions. ( IFM Compl. ¶¶ 44–45.) They have sued the following directors and officers of Citigroup: Charles Prince, Vikram Pandit, Gary Crittenden, John C. Gerspach, Robert Druskin, Thomas Maheras, Michael Stuart Klein, Steven Freiberg, C. Michael Armstrong, Alain J.P. Belda, George David, Kenneth T. Derr, John M. Deutch, Roberto Hernandez Ramirez, Andrew N. Livers, Anne M. Mulcahy, Richard D. Parsons, Judith Rodin, Robert L. Ryan, and Franklin A. Thomas. ( IFM Compl. ¶¶ 47–66.) With the exception of Norges Bank, all plaintiffs sue Arthur H. Tildesley, Jr., as well. ( IFM Compl. ¶ 67.) Norges Bank alone sues Citigroup Capital XXI, a Delaware statutory trust. ( Norges Compl. ¶ 32.)

B. The Complaints

“[T]he allegations in the four complaints are identical in most respects.” (Pls.' Opp. to Motion to Dismiss (“Pls.' Opp.”) at 6 n. 8.) The complaints are also substantially similar to the complaints in the putative class actions In re Citigroup Inc. Securities Litigation and In re Citigroup Inc. Bond Litigation. They allege that plaintiffs suffered losses from alleged misrepresentations and omissions concerning: Citigroup's exposure to collateralized debt obligations (“CDOs”), structured investment vehicles (“SIVs”), alternative A class residential mortgage backed securities (“Alt–A RMBS”), and auction rate securities (“ARS”); the company's mortgage lending practices; and its solvency. The factual allegations underpinning these claims are set forth in this Court's opinions addressing motions to dismiss in the Securities and Bond litigation and need not be repeated here. See In re Citigroup Inc. Sec. Litig. ( “Securities” ), 753 F.Supp.2d 206, 214–31 (S.D.N.Y.2010); In re Citigroup Inc. Bond Litig. ( “Bond” ), 723 F.Supp.2d 568, 574–82 (S.D.N.Y.2010).

The complaints bring causes of action pursuant to the Securities Act of 1933 (“Securities Act”), the Securities Exchange Act of 1934 (“Exchange Act”), the common law of New York, and, for the claims arising out of purchases in European offerings, the common law and statutory law of the United Kingdom.

Defendants seek dismissal of all four complaints pursuant to Federal Rule of Civil Procedure 12(b)(6). The Court ordered consolidated briefing of the motions to dismiss. Though there are four of each, the opinion often refers to the “complaint” or “motion” for simplicity's sake. The Court adopts the parties' convention of citing to the Second Amended Complaint in International Fund Management for allegations common to all complaints. The Court cites the other complaints as necessary.

II. DISCUSSION

In evaluating a motion to dismiss pursuant to Rule 12(b)(6), a court accepts the truth of the facts alleged in the complaint and draws all reasonable inferences in the plaintiff's favor. Global Network Commc'ns, Inc. v. City of New York, 458 F.3d 150, 154 (2d Cir.2006). A complaint should be dismissed if it fails to set forth “enough facts to state a claim for relief that is plausible on its face.” Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). The basic pleading burden of “facial plausibility” is met “when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged. The plausibility standard is not akin to a ‘probability requirement,’ but it asks for more than a sheer possibility that a defendant has acted unlawfully.” Ashcroft v. Iqbal, 556 U.S. 662, 129 S.Ct. 1937, 1949, 173 L.Ed.2d 868 (2009) (quoting Twombly, 550 U.S. at 556, 127 S.Ct. 1955). Some of plaintiffs' claims are subject to a higher pleading burden, as discussed infra.

This motion to dismiss raises iterations of issues addressed in prior opinions in the Securities and Bond class actions. The discussion that follows presumes familiarity not only with the relevant factual background of those opinions, but with their legal analysis as well.

A. Securities Act Claims

Plaintiffs bring causes of action pursuant to Sections 11, 12(a)(2), and 15 of the Securities Act. Defendants seek to dismiss these claims on the grounds that 1) plaintiffs have failed to plead the existence of actionable misrepresentations or omissions and 2) claims related to certain securities are untimely.

1. Adequacy of the pleading

Securities Act claims need only meet the standards of notice pleading, unless the allegations sound in fraud, in which event the heightened Rule 9 fraud standard applies. Bond, 723 F.Supp.2d at 586. Contrary to defendants' position, a complaint does not sound in fraud simply by employing such terms as “misrepresented,” “made untrue statements,” and “failed to disclose.” See id. Because this complaint sufficiently separates nonfraud claims from fraud claims, Rule 8 applies to the Securities Act claims. See In re Suprema Specialties, Inc. Sec. Litig., 438 F.3d 256, 272–73 (3d Cir.2006); In re Refco, Inc., Sec. Litig., 503 F.Supp.2d 611, 632–33 (S.D.N.Y.2007).

Under the Rule 8 standard, defendants' motion seeks dismissal of only the preconsolidation SIV claims and the ARS claims.¹ The Court finds that those claims should be dismissed. ( See Defs.' Mem. in Supp. of Mot. to Dismiss (“Defs.' Mem.”) at 31.)

a. Pre-consolidation SIV claims

In December 2007, Citigroup consolidated its affiliated structured investment vehicles (SIVs) on its balance sheet for the first time. ( IFM Compl. ¶¶ 233–34.) According to plaintiffs, accounting rules required Citigroup to consolidate its SIVs and disclose certain aspects of its involvement with its SIVs prior to that date. ( Id. ¶¶ 212–29.) Citigroup's failure to do so allegedly rendered financial statements for 2004 through 2007 misleading. ( Id. ¶¶ 229, 232.)

The viability of these claims turns on whether plaintiffs have adequately alleged the existence of an “implicit guarantee” whereby Citigroup implicitly agreed to assume the SIVs' debts to prevent the SIVs from defaulting. Plaintiffs have failed to do so. Some of plaintiffs' allegations ( see id. ¶ 584; Pls.' Opp. at 7 & n. 10) rely on the same faulty hindsight inference the Court rejected in the prior opinions. See Bond, 723 F.Supp.2d at 591; Securities, 753 F.Supp.2d at 243. The remaining...