Defense Motions to Dismiss Class Action Granted because Allegations in Class Action Complaint Failed to Meet Rule 9(b)’s Requirements for Pleading Fraud with Specificity and because Class Action’s Allegations Failed under Rule 12(b)(6) New York Federal Court Holds
Plaintiffs filed a putative class action against Merrill Lynch entities, Morgan Stanley entities, Citigroup entities, Charles Schwab entities and Wachovia entities, alleging inter alia violations of the Investment Advisers Act (IAA), the Sherman Antitrust Act, and New York’s General Business Law § 349; the class action complaint alleged that defendants violated state and federal laws by “engaged in ‘deceptive and misleading’ practices relating to a series of ‘Cash Sweep Programs’ that were offered as part of Plaintiffs’ brokerage accounts.” DeBlasio v. Merrill Lynch & Co., Inc., ___ F.Supp.2d ___ (S.D.N.Y. July 27, 2009) [Slip Opn., at 1]. According to the allegations underlying the class action, defendants offered a “Cash Sweep Program” as a feature for brokerage accounts; the program gave customers “the option of having the balance of uninvested funds in their brokerage accounts…placed in — or, ‘swept’ into — other types of investments” so that they could “earn interest on the otherwise-uninvested funds in their brokerage accounts.” Id., at 2. While the programs initially swept balances “into money market mutual funds that provided interest rates of approximately five percent” with little profit to defendants, they “subsequently modified their respective Cash Sweep Programs in a deceptive manner in an attempt to capitalize on ‘an immense opportunity for their own profit,’” id., at 2-3. Put simply, the class action alleged that defendants “significantly increased their profits” while “dramatically reduc[ing] the yields paid to their clients on the clients’ uninvested cash,” id., at 3. Defense attorneys for moved to dismiss the class action. Id., at 1. The court granted defendants’ motions and dismissed the class action complaint.
The federal court began by analyzing the sufficiency of the class action’s fraud claims, noting that the case involves “classic fraud allegations” by focusing on defendants’ “deceptive and misleading ‘cash sweep’ programs.” DeBlasio, at 12. Accordingly, plaintiffs were required under Rule 9(b) to plead fraud with specificity, id., at 13, and this applied to each of the claims asserted in the class action save for plaintiffs’ § 349 claim, id., at 15. Plaintiffs’ complaint failed to meet this standard: “Plaintiffs make almost no effort to identify the place and time that the alleged misrepresentations were made to them, and Plaintiffs’ allegations regarding why the statements were materially misleading are deficient.” Id., at 16. Accordingly, the district court granted defendants’ motions to dismiss these claims, id., at 17, and dismissed the claims under Rule 12(b)(6) as well, see id., at 17 et seq. Put simply, the allegations in the class action failed to raise the claims against defendants from “conceivable” to “plausible.” Id., at 17-18. We do not here summarize the federal court’s detailed analysis, see id., at 17-46. Finally, the district court rejected plaintiffs’ request for leave to file an amended class action complaint because they failed to identify how any amendment would cure the deficiencies in the complaint. Id., at 46-47. Accordingly, the court granted the motion and dismissed the class action, id., at 47.
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