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Class Action Defense Cases–In re Parmalat Securities: New York Federal Court Grants Summary Judgment On Class Action Claims Holding Plaintiffs Failed To Establish Reliance To Support Class Action’s Securities Fraud Claims

Defense (Bank of America, Citigroup and Pavia e Ansaldo) Entitled to Summary Judgment on Securities Fraud Claims because Plaintiffs Failed to Establish Reliance on any Deceptive Acts by Moving Defendants New York Federal Court Holds

Plaintiffs filed a class action complaint against various defendants, including various Bank of America entities, various Citigroup entities, and Pavia e Ansaldo, alleging violations of federal securities laws; specifically, the Third Amended Consolidated Class Action Complaint alleged violations of Rule 10b-5 and Section 10(b) “on behalf of purchasers or securities of the international dairy conglomerate Paramalat Finanziaria S.p.A. and its subsidiaries and affiliates.” In re Parmalat Securities Litig., 570 F.Supp.2d 521 (S.D.N.Y. 2008) [Slip Opn., at 1-2]. Some of the defense attorneys moved to dismiss the class action but the district court denied the motion on the ground that “plaintiffs could have prevailed against those defendants under Rule 10b-5(a) and 10b-5(c) with respect to some (but not all) of the challenged transactions, assuming that they proved their allegations notwithstanding their lack of any actionable misrepresentations or omissions by them.” Id., at 1-2 (citing In re Parmalat Sec. Litig., 376 F.Supp.2d 472 (S.D.N.Y. 2005). Subsequently, the United States Supreme Court issued its opinion in Stoneridge Investment Partners, LLC v. Scientific-Atlanta, Inc., 128 S.Ct. 761 (2008), our summary of which may be found here. Defense attorneys for Bank of America, Citigroup and Pavia moved for summary judgment on the ground that Stoneridge Investment precludes liability in the absence of any actionable misrepresentations or omissions by the named defendants. Id., at 2. The district court agreed and granted judgment in favor of defendants against the class action claims.

Stoneridge Investment held that “‘[r]eliance by the plaintiff upon the defendant’s deceptive acts is an essential element of the § 10(b) private cause of action.’” In re Parmalat, at 2 (quoting Stoneridge Investment, at 769). In opposition to the summary judgment motion, class action plaintiffs argued that they can establish such reliance as to all three defendants. The district court disagreed. We discuss here only one of the arguments – plaintiffs’ claim that “BofA, as a placement agent, breached a duty to disclose” certain facts “to investors who purchased securities from BofA in private placements.” Id., at 2-3. The federal court explained that a “fundamental problem” existed in plaintiffs’ argument against BofA in that “the duty of disclosure that BofA allegedly breached was a duty owed only to purchasers from BofA in private placements” and that, while “some members of the alleged class bought from BofA in private placements,” it was undisputed that “none of the named plaintiffs” had done so. Id., at 3. The district court held, “This is fatal to plaintiffs’ argument.” Id. The court explained at page 3, “Although reliance is presumed where a defendant seller breaches a duty of disclosure, only investors to whom the duty was owed may avail themselves of that presumption.” Put simply, “reliance is not presumed merely because named plaintiffs in a purported class action allege that a duty was owed to other members of the proposed class.” Id. Based on Stoneridge Investment, the district court granted the defense motion for summary judgment, id., at 6.

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