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Keywords

plaintiffdefendantjurisdictionpleamotionregulationclass actioncivil proceduremotion to dismiss

plaintiffdefendantpleamotionregulationclass actionmotion to dismiss

Related Cases

In re Wells Fargo Securities Litigation, Not Reported in F.Supp., 1991 WL 353393, Fed. Sec. L. Rep. P 96,830

Facts

The plaintiffs filed an amended class action complaint alleging federal claims under the Securities Exchange Act of 1934 and state law claims for fraud and negligent misrepresentation. They contended that Wells Fargo Bank defrauded investors by misstating the amount of loan loss reserves necessary to protect against defaults on high-risk loans. The alleged fraudulent activity began with the Bank's annual report on March 5, 1991, and continued until a significant increase in loan loss reserves was announced on June 25, 1991.

Plaintiffs' amended class action complaint purports to state federal claims under §§ 10(b) and 20 of the Securities Exchange Act of 1934, and Rule 10b–5 promulgated thereunder.

Issue

Did the plaintiffs adequately plead a claim for securities fraud against Wells Fargo Bank under federal law?

Rule

To survive a motion to dismiss for failure to state a claim, a complaint must contain sufficient factual allegations to support a claim of fraud, particularly in the context of securities transactions, as required by Federal Rules of Civil Procedure 9(b) and 12(b)(6).

In order to survive a motion to dismiss, plaintiffs who allege securities fraud must plead facts which, if true, constitute fraud.

Analysis

The court analyzed the plaintiffs' complaint and found that it did not provide a coherent theory of securities fraud. Despite the lengthy complaint, the court noted that the allegations did not sufficiently link the Bank's actions to securities transactions. The court emphasized that mere mismanagement or violations of banking regulations do not equate to securities fraud, and the plaintiffs failed to establish that the alleged misconduct 'touched' upon securities transactions.

Indeed, the facts in the complaint, which may suggest mismanagement on the part of the Bank, and might even suggest a violation of banking regulations, cannot be fairly read to raise an inference that the alleged misconduct by the defendants touched upon a securities transaction.

Conclusion

The court granted the defendants' motion to dismiss the federal causes of action with prejudice, concluding that the complaint failed to state a claim under federal securities laws. The court also dismissed the state law claims with prejudice due to the lack of original jurisdiction.

Accordingly, defendants' motion to dismiss the federal causes of action in the complaint is GRANTED WITH PREJUDICE.

Who won?

Defendants (Wells Fargo Bank) prevailed in the case because the court found that the plaintiffs did not adequately plead a claim for securities fraud.

Defendants' motion to dismiss the state law claims is GRANTED WITH PREJUDICE.

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