The graveyard of auction-rate securities claims against Merrill Lynch & Co. got a bit more crowded this week, with two decisions in the space of two days dismissing suits by ARS investors. A ruling by the U.S. Court of Appeals for the Second Circuit in one of the cases indicates that most Merrill ARS claims are going to stay buried.
The Second Circuit’s 23-page decision on Aug. 14 marks the court’s second foray into the Merrill Lynch auction-rate securities litigation, which is consolidated before Southern District Judge Loretta Preska (See Profile). Investors filed about a dozen individual and class suits against Merrill after the $330 billion ARS market froze in 2008, alleging that the bank had deceptively propped up the market by placing “support bids” to grease demand. Last November the circuit upheld Preska’s dismissal of the lead case in the multidistrict litigation, a proposed class action, citing the bank’s 2006 disclosure that it “may routinely place one or more bids in an auction…to prevent an auction failure.”
A July 2006 statement issued by Merrill, which was posted on the bank’s website two months after it signed a Securities and Exchange Commission consent decree, has stymied nearly every attempt by disgruntled investors to hold the bank liable for its conduct in the ARS market. The latest case to reach the Second Circuit was no different.
In the Aug. 14 ruling in The Anschutz Corp. v. Merrill Lynch, Pierce, Fenner & Smith, Moody’s Investors Service and Standard & Poor’s Ratings Services, 11-1305-cv, Circuit Judge Jose Cabranes (See Profile) wrote for a three-judge panel that Preska had properly dismissed claims by Anschutz against Merrill and the ratings agencies.
As in its previous ARS ruling, the circuit concluded that Merrill’s 2006 disclosure was fatal to the plaintiff’s market manipulation claims. By the time Anschutz purchased $19 million in Merrill auction-rate securities in 2006 and 2007, Cabranes wrote, “Anschutz was fully informed of Merrill Lynch’s ARS practices, and still decided to hold.”
In its ruling last November, the circuit had described a “hypothetical complaint” that could potentially survive dismissal if it alleged that Merrill “intended to place bids in every single auction, knew that each auction would fail if it did not place these bids, and signaled to its ARS investors that these securities were genuinely liquid.”
Anschutz’s lawyers at Kellogg, Huber, Hansen, Todd, Evans & Figel tried to follow that roadmap, but the appellate court still found that Merrill’s disclosures were sufficient to put investors on notice.
Barry Mandel of Foley & Lardner, represented Merrill at oral arguments in April. Merrill was also represented by Jay Kasner of Skadden, Arps, Slate, Meagher & Flom in the MDL and in the prior Second Circuit appeal.
Kevin Miller of Kellogg, Huber argued for Anschutz.
The circuit also upheld Preska’s dismissal of negligent misrepresentation claims against Moody’s and S&P on Aug. 14, agreeing that their ARS ratings amounted to opinions and weren’t actionable under New York law.
Floyd Abrams of Cahill Gordon & Reindel, who represents S&P parent The McGraw-Hill Companies Inc., argued for the rating agencies.
James Coster of Satterlee Stephens Burke & Burke represents Moody’s.
On Monday, meanwhile, another Merrill ARS case bit the dust before Judge Preska. In Cellular South, Inc. v. Merrill Lynch Pierce Fenner & Smith Incorporated, 09 MD 2030, she dismissed claims by Cellular South Inc. over its purchase of $26 million in ARS in 2007 and 2008, finding that the purchases “occurred well after Merrill produced its Website Disclosure and even further after the May 2006 SEC Order.”
Maynard, Cooper & Gale represents Merrill in that case; Cellular South has Brunini, Granthan, Grower & Hewes.
@| David Bario, a reporter at Litigation Daily, an affiliate of the New York Law Journal, can be reached at firstname.lastname@example.org.