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Richardson v. Oppenheimer & Co. Inc.

United States District Court, D. Nevada

March 31, 2014



GLORIA M. NAVARRO, Chief District Judge.

Before the Court are several related motions. First, Defendants Oppenheimer & Co. Inc., Oppenheimer Holdings Inc., Oppenheimer Asset Management, Inc., and Mark Weinberg (collectively "Defendants") move to dismiss Plaintiff's First Amended Complaint (the "Motion to Dismiss") (ECF No. 54). Second, as part of the Motion to Dismiss, Defendants request the Court take judicial notice of two exhibits attached to the Motion (the "Motion for Judicial Notice") (ECF No. 70). Third, Plaintiff William A. Richardson ("Plaintiff") moves to strike those exhibits (ECF No. 58) as improperly submitted on a motion to dismiss (the "Motion to Strike"). Finally, Plaintiff seeks the Court's permission to exceed the page limit in filing a response to Defendants' Motion to Dismiss (the "Motion to Exceed Page Limit") (ECF No. 55). For the reasons stated below, the Motion to Dismiss is granted in part and denied in part, the Motion for Judicial Notice is granted, the Motion to Strike is denied, and the Motion to Exceed Page Limit is denied as moot.


This is a securities fraud case arising out of the systematic failure of the Auction Rate Securities ("ARS") market in February 2008. ARS are long-term bonds and preferred stock with interest rates or dividend yields that are reset through periodic auctions. (ECF No. 43, ¶ 2.) These periodic auctions provide high liquidity for the securities by enabling investors to easily sell their ARS holdings at regular intervals. ( Id. ) During an auction, potential purchasers bid by stating the minimum interest rate at which they are willing to purchase a quantity of ARS. ( Id. at ¶ 33.) The bids are then sorted, high to low, and the lowest interest rate required to sell all available ARS-the "clearing rate"-becomes the rate that applies until the next auction. ( Id. ) Alternatively, if there are an insufficient number of bids to cover all the ARS offered for sale, the auction fails and the investors must retain their ARS until the next auction. ( Id. )

Because of these periodic auctions, ARS were generally regarded as having the same liquidity as a money market fund but offering higher returns. ( Id. at ¶ 2.) However, for many years, the success of the auctions was allegedly dependent on ARS underwriters purchasing large quantities of ARS at each auction to ensure that the auction did not fail (support bids), thus preserving the perceived liquidity of the security. ( Id. at ¶ 17.) Beginning in 2007, the ARS underwriters allegedly began to withdraw their support bids and a few auctions-roughly 2-6%-began to fail. ( Id. at ¶ 47.) This modest withdrawal of support, eventually culminated in a market-wide failure on February 13, 2008, when 87% of auctions failed. ( Id. at ¶ 48.)

As early as 2002, Plaintiff William A. Richardson ("Plaintiff") began to invest in ARS on the advice of his financial advisor, Defendant Mark W. Weinberg ("Weinberg"), an employee of Defendant Oppenheimer & Co. Inc. ("Oppenheimer"). ( Id. at ¶ 4.) Plaintiff informed Weinberg that he needed to have immediate access to his funds at all times and was consequently looking for a very liquid investment. ( Id. at ¶ 5.) Presumably at this time, Weinberg informed Plaintiff about ARS and allegedly represented to Plaintiff that ARS were as liquid and secure as cash, were better than a certificate of deposit or money market account, and that Plaintiff would be able to access his funds when needed. ( Id. ) Plaintiff alleges that Weinberg continued to make similar representations on telephone calls with Plaintiff from January 29, 2007 through January 31. ( Id. at ¶ 41a-yy.) Additionally, during this time-span, Oppenheimer sent monthly account statements to Plaintiff that listed his ARS holdings under the category "Cash Equivalents" ( Id. at ¶ 41a-m.) Relying on these statements, Plaintiff authorized Weinberg to purchase $6, 900, 000.00 worth of ARS in the early part of February 2008.

At the time these statements were made, Plaintiff alleges Oppenheimer knew of, or acted with deliberate indifference toward, the market's impending demise. ( Id. at ¶ 186.) Plaintiff alleges that Oppenheimer executives sent internal emails recognizing the market's reliance on underwriters' support bids and discussing what would happen in the event of a market failure. ( Id. at ¶ 50.) Plaintiff also alleges that Oppenheimer executives tracked the inventory capacity and current holdings of underwriters using a computerized spreadsheet ( id. at ¶ 107, 109) and monitored the auction failures happening across the market ( id. at ¶ 116). Oppenheimer executives allegedly made an affirmative decision to not inform Oppenheimer's financial advisors of the concerning trends developing in the ARS market. ( Id. at ¶ 62.) At the same time, Oppenheimer executives sold personal holdings of ARS in the days immediately preceding the market collapse. ( Id. at ¶¶ 51-57.)

On February 14, 2008, after the market-wide failure, Weinberg allegedly called Plaintiff and informed him his ARS holdings were frozen. ( Id. at ¶ 41zz.) Additionally, Plaintiff's March 2008 account statement listed his ARS holdings under the category "Other Securities." ( Id. at ¶ 41n.) Plaintiff alleges that his ARS holdings lost significant value because of the illiquidity resulting from the market collapse. ( Id. at ¶ 159.)

Plaintiff filed this lawsuit against Defendants alleging violations of §10(b) of the Securities Exchange Act of 1934 (the "Exchange Act"), 15 U.S.C. § 78j(b), ("Section 10(b)") and Rule 10b-5 promulgated thereunder, 17 C.F.R. § 240.10b-5, ("Rule 10b-5"). Plaintiff also alleges that Defendants Oppenheimer Holdings Inc. and Oppenheimer Asset Management, Inc. are liable for Oppenheimer's Actions as control persons under § 20(a) of the Exchange Act, 15 U.S.C. § 78t(a) ("Section 20(a)"). The Court granted Defendants' first Motion to Dismiss because Plaintiff had not pled false statements with sufficient particularity to meet the heightened pleadings standards of the Private Securities Litigation Reform Act ("PSLRA") and Fed.R.Civ.P. 9(b). (ECF No. 40.) Plaintiff filed his First Amended Complaint (the "FAC") on June 20, 2013, and Defendants again collectively moved to dismiss, arguing that the FAC also fails to plead facts with sufficient particularity to satisfy the heightened pleading standard under the PSLRA.


A. Motion for Leave to File Excess Pages

Initially, the Court must address the docketing issue of Plaintiff's Motion for Leave to File Excess Pages. Plaintiff filed the Motion to Exceed Page Limit along with an eighty-one page document, which impermissibly combined Plaintiff's Response to the Motion to Dismiss with his Motion to Strike. (ECF Nos. 56, 57.) When required by the clerk's office to file the two documents separately, Plaintiff filed a second motion to exceed page limit (ECF No. 60) with the now-separated Response (ECF No. 59) and Motion to Strike (ECF No. 58). The Court granted the second motion to exceed page limit, permitting up to forty-five pages (ECF No. 64), and Plaintiff filed a Corrected Response (ECF No. 67) in compliance with that Order. However, the original Motion to Exceed Page Limit remained unresolved in the docket, as only the second motion was marked as addressed. Thus, to clear the duplicative motion still pending, the Court denies Plaintiff's Motion for Leave to File Excess Pages as moot.

B. Motion to Strike and Motion for Judicial Notice

Preliminary to analyzing the merits of the Motion to Dismiss, the Court must also address Plaintiff's Motion to Strike and Defendants' Motion for Judicial Notice. Defendants attached the prospectuses of the ARS Plaintiff purchased, which were filed with the SEC, as exhibits to the Motion to Dismiss. Defendants refer to these exhibits to support their argument that many of the omissions Plaintiff complains of were contained in publicly available information. Plaintiff seeks to strike the exhibits, arguing extrinsic evidence cannot be considered on a motion to dismiss. Defendants oppose Plaintiff's motion and request the Court take judicial notice of the documents so that they may be considered as part of the Motion to Dismiss.

As to Plaintiff's Motion to Strike, the Court notes that Fed.R.Civ.P. 12(f) provides authority for the Court to strike matters from pleadings. Fed.R.Civ.P. 7(a) identifies pleadings as the complaint, answer, and reply, but not motions and other papers. See Fed.R.Civ.P. 7(a). There is no provision in the Federal Rules of Civil Procedure for motions to strike another motion or memoranda. Pimentel & Sons Guitar Makers, Inc. v. Pimentel, 229 F.R.D. 201, 203 (D. N.M. 2005) (internal citation omitted). Nonetheless, a motion to strike matters that are not part of the pleadings may be regarded as an invitation by the movant to consider whether proffered material may properly be relied upon. United States v. Crisp, 190 F.R.D. 546, 550-51 (E.D. Cal. 1999) (internal citations omitted). Consequently, the Court denies Plaintiff's Motion as procedurally improper, but will consider Plaintiff's arguments in opposition to Defendants' Motion.

As to Defendants' Motion for Judicial Notice, SEC filings are judicially noticeable documents which may be considered on a motion to dismiss. See, e.g., Dreiling v. Am. Express Co., 458 F.3d 942, 946 n.2 (9th Cir. 2006). Plaintiff's main objections to the Court taking judicial notice are first that Defendants did not include an official request for judicial notice when moving to dismiss the FAC, and second that the prospectuses are not from the 2007-2008 "relevant time frame." However, Plaintiff provides no authority in support of his timeliness argument and a court "must take judicial notice if a party requests it and the court is supplied with the necessary information." Fed.R.Evid. 201(c)(2). Moreover, although the documents attached are from 2001 and 2002, these are dates the securities in question were issued and consequently, the dates that the prospectuses were filed.[1]

As Defendants have provided links to the SEC's website and a declaration as to the exhibits' authenticity, the Court has the necessary information for judicial notice. Additionally, Plaintiff does not challenge the authenticity of the exhibits or their contents. Accordingly, Defendants' Motion is granted; the Court takes judicial notice of the August 20, 2001 PIMCO Municipal Income Fund Prospectus (ECF No. 54-1) and the August 16, 2002 PIMCO Municipal Income Fund II Prospectus (ECF No. 54-2) (collectively, the "Prospectuses").

C. Motion to Dismiss

Moving, then, to the Motion to Dismiss, Defendants argue that the FAC fails to allege facts sufficient to meet the heightened pleading standard under the PSLRA. Specifically, Defendants argue the FAC fails to set forth actionable false statements, fails to allege scienter with particularity, fails to plead reliance or loss ...

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