Justia U.S. 2nd Circuit Court of Appeals Opinion Summaries

Plaintiffs appealed from judgments dismissing their class-action complaints seeking to hold defendants (collectively, "Rating Agencies") liable as underwriters or control persons for misstatements or omissions in securities offering documents in violation of sections 11 and 15 of the Securities Act of 1933 ("1933 Act"), 15 U.S.C. 77k(a)(5), 77o(a). At issue was whether the Rating Agencies were "underwriters" as defined by 15 U.S.C. 77b(a)(11) because they helped structure securities transactions to achieve desired ratings. Also at issue was whether the Rating Agencies were "control persons" because of their alleged provision of advice and direction to primary violators regarding transaction structures under section 77o(a) of the 1933 Act. The court held that plaintiffs' section 11 claims that the Rating Agencies were "underwriters" was properly dismissed because the Rating Agencies' alleged structuring or creation of securities was insufficient to demonstrate their involvement in the requisite distributional activities. The court also held that plaintiffs' "control person" claims under section 77o(a) were properly dismissed because the Rating Agencies' provision of advice and guidance regarding transaction structures was insufficient to permit an inference that they had the power to direct the management or policies of alleged primary violators of section 11. The court further held that the district court did not abuse its discretion in denying implicitly plaintiffs' cursory requests for leave to amend.

Purchasers of Parmalat Capital Finance Limited ("Parmalat") debt and equity securities filed class action lawsuits against Parmalat and others for securities fraud ("Appellants"). At issue was whether the district court erred in exercising jurisdiction over plaintiffs' claims pursuant 28 U.S.C. 1334(b) and whether the district court properly declined to abstain from exercising that jurisdiction pursuant to 28 U.S.C. 1334(c)(2). The court held that the district court properly exercised removal jurisdiction where the estate at issue in a 11 U.S.C. 304 proceeding, wherever located, could conceivably be affected by the state law actions. The court also held that the district court erred in determining that appellants failed to file motions for abstention where the district court should have focused on the timely administration of the estate, not the section 304 proceeding.