SRM Global Master Fund Ltd. P’ship v. Bear Stearns Cos. 1

14-507-cv
SRM Global Master Fund Ltd. P’ship v. Bear Stearns Cos.
1
UNITED STATES COURT OF APPEALS 1
FOR THE SECOND CIRCUIT 2
3
August Term, 2015 4
5
(Argued: August 31, 2015 Decided: July 14, 2016) 6
7
Docket No. 14‐507‐cv 8
9
_____________________________________ 10
11
SRM GLOBAL MASTER FUND LIMITED PARTNERSHIP, 12
13
Plaintiff‐Appellant, 14
15
v. 16
17
BEAR STEARNS COMPANIES L.L.C. F/K/A BEAR STEARNS 18
COMPANIES INC., ALAN D. SCHWARTZ, SAMUEL L. MOLINARO, JR., 19
JAMES CAYNE, WARREN SPECTOR, DELOITTE & TOUCHE L.L.P., 20
21
Defendants‐Appellees. 22
23
_____________________________________ 24
25
Before: 26
27
HALL, LIVINGSTON, and LOHIER , Circuit Judges. 28
29
More than five years after the collapse of Bear Stearns Companies 30
Inc. (with its successor, defendant Bear Stearns Companies L.L.C., “Bear”) 31
and the filing of a putative class action lawsuit against Bear, plaintiff SRM 32
Global Master Fund Limited Partnership (“SRM”) filed its own suit against 33
Bear, Bear’s officers, and Bear’s auditor, defendant Deloitte & Touche 34
L.L.P. SRM, a registered private investment fund, asserted that the 35
defendants had made material misrepresentations in violation of SEC Rule 36
10b‐5 and Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 37
and had engaged in common law fraud. The United States District Court 38

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14-507-cv
SRM Global Master Fund Ltd. P’ship v. Bear Stearns Cos.
2
for the Southern District of New York (Sweet, J.) dismissed SRM’s 1
complaint. Relying on our decision in Police & Fire Retirement System of 2
City of Detroit v. IndyMac MBS, Inc., 721 F.3d 95 (2d Cir. 2013), it held that 3
the class action tolling rule set forth in American Pipe & Construction Co. v. 4
Utah, 414 U.S. 538 (1974), does not apply to 28 U.S.C. § 1658(b)(2), the five‐ 5
year statute of repose that limits the time in which plaintiffs may bring 6
claims under Section 10(b) and Rule 10b‐5. It therefore dismissed SRM’s 7
Section 10(b) and Rule 10b‐5 claims as time‐barred and dismissed SRM’s 8
Section 20(a) claims for failure to state a primary violation of Section 10(b). 9
The District Court also dismissed SRM’s common law fraud claims, 10
holding that New York law does not recognize holder fraud claims and 11
that SRM failed adequately to plead reliance. We AFFIRM. 12
13
PHILIP C. K OROLOGOS , Boies, Schiller & Flexner 14
LLP, New York, NY (Richard B. Drubel, Matthew 15
J. Henken, Boies, Schiller & Flexner LLP, 16
Hanover, NH, on the brief), for Plaintiff‐Appellant. 17
18
E LIZABETH M. S ACKSTEDER (Brad S. Karp, Jessica 19
S. Carey, Jonathan Hurwitz, on the brief), Paul, 20
Weiss, Rifkind, Wharton & Garrison LLP, New 21
York, NY, for Defendant‐Appellee Bear Stearns 22
Companies L.L.C. 23
24
Susan Saltzstein, Skadden, Arps, Slate, Meagher 25
& Flom LLP, New York, NY, for Defendant‐ 26
Appellee Alan D. Schwartz. 27
28
Pamela Rogers Chepiga, Allen & Overy LLP, 29
New York, NY, for Defendant‐Appellee Samuel L. 30
Molinaro, Jr. 31
32
David S. Frankel, Kramer, Levin, Naftalis & 33
Frankel LLP, New York, NY, for Defendant‐ 34
Appellee James Cayne. 35
36
David B. Anders, Wachtell, Lipton, Rosen & Katz, 37
New York, NY, for Defendant‐Appellee Warren 38
Spector. 39
40
A NTONY L. R YAN (Thomas G. Rafferty, Rachel G. 41
Skaistis, on the brief), Cravath, Swaine & Moore 42

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14-507-cv
SRM Global Master Fund Ltd. P’ship v. Bear Stearns Cos.
3
LLP, New York, NY, for Defendant‐Appellee 1
Deloitte & Touche L.L.P. 2
3
LOHIER, Circuit Judge: 4
This appeal arises from the collapse of Bear Stearns Companies Inc. 5
(with its successor, defendant Bear Stearns Companies L.L.C., “Bear”) and 6
the lawsuit filed by SRM Global Master Fund Limited Partnership 7
(“SRM”), a registered private investment fund, against Bear, Bear’s 8
officers, and Bear’s auditor, defendant Deloitte & Touche L.L.P. 9
(“Deloitte”). The principal question presented is whether the class action 10
tolling rule set forth in American Pipe & Construction Co. v. Utah, 414 U.S. 11
538 (1974), applies to 28 U.S.C. § 1658(b)(2), the five‐year statute of repose 12
that limits the time in which plaintiffs may bring claims under Section 13
10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b), and SEC 14
Rule 10b‐5, 17 C.F.R. § 240.10b‐5, see Merck & Co. v. Reynolds, 559 U.S. 15
633, 650 (2010). We hold that American Pipe tolling does not apply to 16
§ 1658(b)(2). As we explain below, we also conclude that SRM failed 17
adequately to allege that it relied on any misrepresentations in making 18
investment decisions, an element of its common law fraud claims. 19

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14-507-cv
SRM Global Master Fund Ltd. P’ship v. Bear Stearns Cos.
4
BACKGROUND 1
SRM’s complaint alleges the following facts, which we assume to be 2
true and construe in the light most favorable to the plaintiff. See Cruz v. 3
FXDirectDealer, LLC, 720 F.3d 115, 118 (2d Cir. 2013). 4
In the years prior to Bear’s collapse in 2008, Bear and its officers 5
made material misstatements and omissions that overstated the value of 6
Bear’s assets, the adequacy of Bear’s capital reserves and liquidity, and the 7
quality of Bear’s risk management and valuation procedures. Deloitte 8
falsely certified that the Form 10‐Ks that Bear filed for fiscal years 2006 and 9
2007 presented fairly, in all material respects, the information set forth 10
therein. 11
In 2007 and 2008 SRM purchased Bear common stock and entered 12
into swap agreements based on the value of Bear common stock. Two 13
specific allegations in the complaint relate to SRM’s decision to purchase 14
or sell stock, or enter into or unwind the swap agreements, in reliance on 15
the defendants’ misrepresentations. First, SRM alleges that it read and 16
relied on the misrepresentations in Bear’s 2006 Form 10‐K “in its analysis 17
of Bear and in deciding whether it should purchase Bear securities.” Joint 18

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14-507-cv
SRM Global Master Fund Ltd. P’ship v. Bear Stearns Cos.
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App’x 31. Second, SRM alleges that it read and relied on Deloitte’s 1
misrepresentations in Bear’s 2006 and 2007 Form 10‐Ks “in its analysis of 2
Bear and in deciding whether it should liquidate, retain or increase its 3
investment in Bear.” Joint App’x 101. SRM also asserts “holder claims,” 4
alleging that it retained its Bear stock and decided not to unwind the swap 5
agreements in reliance on the defendants’ misrepresentations. 6
After Bear collapsed, the defendants were sued in a series of 7
putative class actions that were eventually consolidated and settled. At its 8
request, SRM was excluded from the settlement class. It instead filed this 9
complaint in April 2013, asserting that the defendants had made material 10
misrepresentations in violation of SEC Rule 10b‐5 and Sections 10(b) and 11
20(a) of the Exchange Act and had also committed common law fraud 12
under New York law. 1 13
Relying on § 1658(b)(2), the defendants moved to dismiss SRM’s 14
complaint as time‐barred. SRM responded that the statute of repose in 15
§ 1658(b)(2) was tolled by the filing of a putative class action complaint 16
1 SRM also alleged violations of Section 18 of the Exchange Act but does
not appeal the District Court’s dismissal of those claims.

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14-507-cv
SRM Global Master Fund Ltd. P’ship v. Bear Stearns Cos.
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against Bear and the individual defendants in March 2008.2 The United 1
States District Court for the Southern District of New York (Sweet, J.), 2
rejected SRM’s argument based on our decision in Police & Fire Retirement 3
System of City of Detroit v. IndyMac MBS, Inc., 721 F.3d 95 (2d Cir. 2013). 4
The District Court held that American Pipe tolling does not apply to 5
§ 1658(b)(2), and that SRM’s Section 10(b) and Rule 10b‐5 claims were 6
therefore time‐barred. It dismissed SRM’s Section 20(a) claims for failure 7
to state a primary violation of Section 10(b). And it also dismissed SRM’s 8
common law fraud claims, holding that New York law does not recognize 9
holder fraud claims and that SRM failed adequately to plead reliance. 10
This appeal followed. 11
DISCUSSION 12
A. SRM’s Federal Claims 13
Under the tolling rule set forth in American Pipe, “the 14
commencement of a class action suspends the applicable statute of 15
limitations as to all asserted members of the class who would have been 16
2 That complaint was subsequently consolidated with other putative class
action complaints. Deloitte was a defendant in the consolidated class
action lawsuit.

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14-507-cv
SRM Global Master Fund Ltd. P’ship v. Bear Stearns Cos.
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parties had the suit been permitted to continue as a class action.” 414 U.S. 1
at 554. Section 1658(b)(2), however, is not a statute of limitations. It is a 2
statute of repose, which “is not a limitation of a plaintiff’s remedy, but 3
rather defines the right involved in terms of the time allowed to bring 4
suit.” P. Stolz Family P’ship L.P. v. Daum, 355 F.3d 92, 102, 104 (2d Cir. 5
2004) (identifying § 1658(b)(2) as a statute of repose); see Merck & Co., 559 6
U.S. 650 (same). 7
In IndyMac, we held that American Pipe tolling does not apply to 8
the statute of repose in Section 13 of the Securities Act of 1933, 15 U.S.C. 9
§ 77m, which limits the time in which plaintiffs may bring actions under 10
Sections 11 and 12(a) of that Act. IndyMac, 721 F.3d at 112. Noting that 11
Section 13 is a statute of repose, we explained that if viewed as a form of 12
equitable tolling American Pipe tolling does not apply to Section 13 13
because “a statute of repose is subject only to legislatively created 14
exceptions, and not to equitable tolling.” Id. at 106, 109 (quotation marks 15
omitted). Nor could it apply, we concluded, if American Pipe tolling is 16
legal in nature and based on Rule 23 of the Federal Rules of Civil 17
Procedure. “[S]tatutes of repose create a substantive right in those 18

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14-507-cv
SRM Global Master Fund Ltd. P’ship v. Bear Stearns Cos.
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protected to be free from liability after a legislatively‐determined period of 1
time.” Id. at 106 (quotation marks omitted). “Permitting a plaintiff to file a 2
complaint . . . after the repose period set forth in Section 13 of the 3
Securities Act has run would therefore necessarily enlarge or modify a 4
substantive right and violate the Rules Enabling Act [28 U.S.C. § 2072(b)],” 5
which “forbids interpreting Rule 23 to ‘abridge, enlarge or modify any 6
substantive right.’” Id. at 109 (quoting Wal‐Mart Stores, Inc. v. Dukes, 131 7
S. Ct. 2541, 2561 (2011)). 8
For the reasons we provided in IndyMac, we hold that American 9
Pipe tolling does not apply to § 1658(b)(2)’s five‐year statute of repose. 10
First, as a statute of repose, § 1658(b)(2) is not subject to equitable tolling, 11
see id. at 106, 109; and second, it creates a substantive right in defendants 12
to be free from liability after five years — a right that American Pipe 13
tolling cannot modify without running afoul of the Rules Enabling Act, see 14
id. 15
SRM argues that the textual differences between Section 13 and 16
§ 1658(b)(2) — in particular, Section 13’s “in no event” language — 17

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14-507-cv
SRM Global Master Fund Ltd. P’ship v. Bear Stearns Cos.
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distinguish IndyMac.3 But we did not base our holding in IndyMac on 1
Section 13’s “in no event” language. There is no reason to think that it is 2
that particular phrase that secures for defendants in actions under Sections 3
11 and 12(a) of the Act a substantive right to be free from liability after 4
three years. Nor do any other textual differences between Section 13 and 5
§ 1658(b)(2) dissuade us from concluding that IndyMac applies to 6
§ 1658(b)(2). 7
Because the complaint fails to allege that the defendants made any 8
misrepresentations within five years of the filing of SRM’s complaint, 9
SRM’s Section 10(b) and Rule 10b‐5 claims are time‐barred under 10
§ 1658(b)(2)’s five‐year statute of repose. And because SRM fails to state a 11
claim under Section 10(b), we agree with the District Court that its Section 12
20(a) claim “must also fail for want of a primary violation.” ECA, Local 13
3 Section 13 provides in relevant part, “In no event shall any such action be
brought to enforce a liability created under section 77k or 77l(a)(1) of this
title more than three years after the security was bona fide offered to the
public, or under section 77l(a)(2) of this title more than three years after the
sale.” 15 U.S.C. § 77m. Section 1658(b)(2) states that “a private right of
action . . . may be brought not later than . . . 5 years after such violation.”
28 U.S.C. § 1658(b)(2).

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14-507-cv
SRM Global Master Fund Ltd. P’ship v. Bear Stearns Cos.
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134 IBEW Joint Pension Tr. of Chi. v. JP Morgan Chase Co., 553 F.3d 187, 1
207 (2d Cir. 2009). 2
B. SRM’s Common Law Fraud Claims 3
We turn next to SRM’s common law fraud claims under New York 4
law, all of which were dismissed by the District Court. 5
To plead a common law fraud claim under New York law, a 6
“plaintiff must allege facts to support the claim that it justifiably relied on 7
the alleged misrepresentations.” ACA Fin. Guar. Corp. v. Goldman, Sachs 8
& Co., 25 N.Y.3d 1043, 1044 (2015). SRM’s complaint fails to allege facts 9
sufficient to state a plausible claim that it purchased or sold stock, or 10
entered into or unwound swap agreements, in reliance on the defendants’ 11
misrepresentations. See Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 12
(2007).4 The complaint’s only relevant factual allegations assert that SRM 13
relied on the misrepresentations in Bear’s 2006 Form 10‐K “in its analysis 14
of Bear and in deciding whether it should purchase Bear securities,” Joint 15
App’x 31 (emphasis added), and that it relied on Deloitte’s 16
4 Because the complaint fails to meet the Twombly pleading standard, we
do not consider whether the stricter pleading requirements of Federal Rule
of Civil Procedure 9(b) apply to the reliance element of SRM’s common
law fraud claims.

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14-507-cv
SRM Global Master Fund Ltd. P’ship v. Bear Stearns Cos.
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misrepresentations in Bear’s 2006 and 2007 Form 10‐Ks “in its analysis of 1
Bear and in deciding whether it should liquidate, retain or increase its 2
investment in Bear,” Joint App’x 101 (emphasis added). Neither these 3
allegations nor any others specifically plead, as necessary to SRM’s 4
common law fraud claims, that SRM actually purchased or sold stock, or 5
actually entered into or unwound a swap agreement, in reliance on the 6
defendants’ misrepresentations. Without such an allegation, we conclude, 7
SRM’s common law fraud claims were properly dismissed. 8
The same is true of SRM’s holder fraud claims. As noted above, the 9
District Court held that New York courts do not recognize holder fraud 10
claims, relying principally on two recent First Department cases. Special 11
App’x 24‐25 (citing Bank Hapoalim B.M. v. WestLB AG, 995 N.Y.S.2d 7, 11 12
(1st Dep’t 2014) and Starr Found. v. Am. Int’l Grp., Inc., 901 N.Y.S.2d 246, 13
248‐50 (1st Dep’t 2010)). We need not decide whether New York law 14
permits holder fraud claims, because even assuming that it does, SRM has 15
failed to point us to any part of its complaint that adequately alleges 16
reliance on any misrepresentations in deciding to hold rather than sell its 17
stock. See Cont’l Ins. Co. v. Mercadante, 225 N.Y.S. 488, 491 (1st Dep’t 18

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SRM Global Master Fund Ltd. P’ship v. Bear Stearns Cos.
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1927); see also In re Terrorist Attacks on Sept. 11, 2001, 714 F.3d 109, 117 1
(2d Cir. 2013) (“[I]t is well established that we can affirm the dismissal of a 2
complaint on any basis supported by the record.”). Accordingly, we 3
conclude that the District Court properly dismissed SRM’s holder fraud 4
claims. 5
CONCLUSION 6
We have considered SRM’s other arguments, including those made 7
in its letter filed pursuant to Rule 28(j) of the Federal Rules of Appellate 8
Procedure, and conclude that they are without merit. For the foregoing 9
reasons, we AFFIRM the judgment of the District Court. 10

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