Filed: Mar. 29, 2007
Latest Update: Mar. 02, 2020
Summary: Opinions of the United 2007 Decisions States Court of Appeals for the Third Circuit 3-29-2007 Galati v. Commerce Bancorp Inc Precedential or Non-Precedential: Non-Precedential Docket No. 05-5157 Follow this and additional works at: http://digitalcommons.law.villanova.edu/thirdcircuit_2007 Recommended Citation "Galati v. Commerce Bancorp Inc" (2007). 2007 Decisions. Paper 1408. http://digitalcommons.law.villanova.edu/thirdcircuit_2007/1408 This decision is brought to you for free and open access
Summary: Opinions of the United 2007 Decisions States Court of Appeals for the Third Circuit 3-29-2007 Galati v. Commerce Bancorp Inc Precedential or Non-Precedential: Non-Precedential Docket No. 05-5157 Follow this and additional works at: http://digitalcommons.law.villanova.edu/thirdcircuit_2007 Recommended Citation "Galati v. Commerce Bancorp Inc" (2007). 2007 Decisions. Paper 1408. http://digitalcommons.law.villanova.edu/thirdcircuit_2007/1408 This decision is brought to you for free and open access b..
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Opinions of the United
2007 Decisions States Court of Appeals
for the Third Circuit
3-29-2007
Galati v. Commerce Bancorp Inc
Precedential or Non-Precedential: Non-Precedential
Docket No. 05-5157
Follow this and additional works at: http://digitalcommons.law.villanova.edu/thirdcircuit_2007
Recommended Citation
"Galati v. Commerce Bancorp Inc" (2007). 2007 Decisions. Paper 1408.
http://digitalcommons.law.villanova.edu/thirdcircuit_2007/1408
This decision is brought to you for free and open access by the Opinions of the United States Court of Appeals for the Third Circuit at Villanova
University School of Law Digital Repository. It has been accepted for inclusion in 2007 Decisions by an authorized administrator of Villanova
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NOT PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
No. 05-5157
MARY ANN GALATI, Individually and on behalf of all other similarly situated;
E. MILES SENN; ROSTISLAV SEMERAN; SHELBY GOLDGRAB; ROBERT
MORRISON; and JIMMY GROSSMAN
v.
COMMERCE BANCORP, INC.; VERNON W. HILL, II; RONALD A. WHITE;
DOUGLAS J. PAULS; GLEN K. HOLCK; STEPHEN M. UMBRELL; GEORGE E.
NORCROSS, III
(D.C. No. 04-cv-03252)
ROSTISLAV SEMERAN, Individually and on behalf of all others similarly situated
v.
COMMERCE BANCORP, INC.; VERNON W. HILL, II; RONALD A. WHITE;
DOUGLAS J. PAULS; GLENN K. HOLCK; STEPHEN M. UNBRELL
(D.C. No. 04-cv-03465)
SHELBY GOLDGRAB, Individually and on behalf of all others similarly situated
v.
COMMERCE BANCORP, INC.; VERNON W. HILL, II; RONALD A. WHITE;
DOUGLAS J. PAULS; GLENN K. HOLCK; STEPHEN M. UNBRELL
(D.C. No. 04-cv-03576)
ROBERT MORRISON, Individually and on behalf of all others similarly situated
v.
COMMERCE BANCORP, INC.; VERNON W. HILL, II
(D.C. No. 04-cv-03631)
JIMMY GROSSMAN, Individually and on behalf of all others similarly situated
v.
COMMERCE BANCORP, INC.; VERNON W. HILL, II
(D.C. No. 04-cv-05191)
E. MILES SENN, Individually and on behalf of all others similarly situated
v.
COMMERCE BANCORP, INC.; VERNON W. HILL, II; RONALD A. WHITE;
DOUGLAS J. PAULS; GLEN K. HOLCK; STEPHEN M. UNBRELL
(D.C. No. 04-cv-04113)
Mary Ann Galati; E. Miles Senn;
Rostislav Semeran; Shelby Goldgrab;
Robert Morrison; Jimmy Grossman,
Appellants
On Appeal from the United States District Court
for the District of New Jersey
(D.C. Nos. 04-3252, 04-3465, 04-3576, 04-3631, 04-4113, 04-5191)
District Judge: Honorable Robert B. Kugler
Submitted Under Third Circuit LAR 34.1(a),
December 12, 2006
Before: FUENTES and VAN ANTWERPEN, Circuit Judges, and PADOVA,* District
Judge
(Filed: March 29, 2007)
*
The Honorable John R. Padova, United States District Judge, Eastern District of
Pennsylvania, sitting by designation.
2
_____
OPINION OF THE COURT
FUENTES, Circuit Judge.
Plaintiffs in this securities class action purchased stock in Commerce Bancorp, Inc.
(“Commerce Bank” or the “Company”) during the period from June 1, 2002 through June
28, 2004. They assert claims against Commerce Bank, three of Commerce Bank’s
current and/or former officers, and three former officers of Commerce Bank’s subsidiary,
Commerce Bank/Philadelphia, for violation of § 10(b) of the Securities and Exchange Act
of 1934 (the “1934 Act”), 15 U.S.C. § 78j(b), and Rule 10b-5, 17 C.F.R. § 240.10b-5, for
failure to disclose bid-rigging and other unlawful practices allegedly committed on behalf
of the Company between April 2002 and November 2003.1 This is an appeal from the
District Court’s Rule 12(b)(6) dismissal of plaintiffs’ consolidated amended complaint.
We agree with the District Court that plaintiffs fail to state a claim upon which relief can
be granted.2 Therefore, we will affirm.
1
In the proceedings below, plaintiffs also asserted, and the District Court rejected,
a claim pursuant to § 20(a) of the 1934 Act, 15 U.S.C. § 78t, for control person liability.
Since plaintiffs do not discuss their § 20(a) claim in their briefs on appeal, we assume
they are not challenging the District Court’s ruling on this issue.
2
We exercise plenary review over a district court’s dismissal of a complaint
pursuant to Rule 12(b)(6). Oran v. Stafford, 226 F.3d 275, 281 n.2 (3d Cir. 2000). We
must accept as true the factual allegations contained in the complaint, and may affirm the
3
I. Background
On June 29, 2004, federal authorities announced the criminal indictment of three
officers of Commerce Bank/Philadelphia—Ronald A. White, Glenn K. Holck, and
Stephen M. Umbrell—for their participation in a “pay-to-play scheme” involving then
Philadelphia Treasurer, Corey Kemp.3 White, Holck, and Umbrell allegedly assisted
Kemp in obtaining a number of personal loans for which he was not financially qualified
and, in exchange, Kemp channeled municipal business to Commerce Bank/Philadelphia,
including a $1.5 million municipal account, $50 million in municipal deposits, and
priority in several municipal bond deals.4
In the wake of the public announcement of the criminal indictment, the value of
Commerce Bank’s stock declined, including a sixteen percent drop, from $64.98 to
$54.44, in the two days immediately following the announcement. Subsequently, six
separate class action lawsuits were filed by Commerce Bank shareholders against White,
Holck, and Umbrell, alleging violations of the federal securities laws. Although neither
Commerce Bank, the parent corporation, nor any of Commerce Bank’s officers, were
charged with criminal conduct at the time the initial complaints were filed, the Company,
dismissal only if it appears certain that plaintiffs can prove no set of facts that would
entitle them to relief. Shapiro v. UJB Fin. Corp., 964 F.2d 272, 279-280 (3d Cir. 1992).
3
During the relevant time period, White, Holck, and Umbrell respectively served
as Director, President, and Regional Vice-President of Commerce Bank/Philadelphia.
4
According to plaintiffs, since the commencement of this lawsuit, Holck and
Umbrell have been convicted on fraud and corruption charges.
4
along with its Chief Executive Officer and Chairman, Vernon W. Hill, II; its Director,
George E. Norcross, III;5 and its Chief Financial Officer, Douglas J. Pauls, were also
named as defendants, based on allegations that they had actual knowledge of the bid-
rigging scheme.
The District Court subsequently consolidated the six class actions and, on January
24, 2005, plaintiffs filed a consolidated amended complaint. Defendants thereafter
moved for dismissal pursuant to Rule 12(b)(6), and the District Court granted the motion.
This appeal followed.
II. Discussion
“Section 10(b) prohibits the ‘use or employ, in connection with the purchase or
sale of any security, . . . [of] any manipulative or deceptive device or contrivance in
contravention of such rules and regulations as the Commission may prescribe . . . .’” In re
Ikon Office Solutions, Inc., 277 F.3d 658, 666 (3d Cir. 2002) (quoting 15 U.S.C. §
78j(b)). “Section 10(b) is enforced through Rule 10b-5, which creates a private cause of
action for investors harmed by false or misleading statements.” In re Alpharma Inc. Sec.
Litig.,
372 F.3d 137, 147 (3d Cir. 2004). Thus, Rule 10b-5 “makes it unlawful for any
person ‘[t]o make any untrue statement of a material fact or to omit to state a material fact
necessary to make the statements made in light of the circumstances under which they
were made, not misleading . . . .’” In re
Ikon, 277 F.3d at 666 (quoting 17 C.F.R. §
5
Norcross was not added as a defendant until plaintiffs filed their consolidated
amended complaint.
5
240.10b-5(b)).
To state a claim under §10(b) and Rule 10b-5, a private plaintiff must plead the
following elements: (1) that the defendant made a misrepresentation or omission of (2) a
material (3) fact; (4) that defendant acted with knowledge or recklessness; and (5) that the
plaintiff reasonably relied on the misrepresentation or omission and (6) consequently
suffered damages. In re Advanta Corp. Sec. Litig., 180 F.3d 525, 537 (3d Cir. 1999)
(quotation marks omitted). In addition, the Private Securities Litigation Reform Act of
1995 (“PSLRA”), 15 U.S.C. § 78u-4, et seq., also imposes special pleading requirements
for Rule 10b-5 claims. See In re
Alpharma, 373 F.3d at 147. For example, the complaint
must “specify each statement alleged to have been misleading [and] the reason or reasons
why the statement is misleading . . . .” 15 U.S.C. § 78u-4(b)(1)(B). Federal Rule of Civil
Procedure 9(b) sets forth additional pleading requirements, providing, in relevant part,
that “[i]n all averments of fraud or mistake, the circumstances constituting fraud or
mistake shall be stated with particularity.” Fed. R. Civ. P. 9(b).
In this case, the District Court found that even though information concerning the
conduct of White, Holck, and Umbrell would be material to investors, defendants did not
have a duty under Rule 10b-5 to disclose the information. We agree.
“Material information is information that would be important to a reasonable
investor in making his or her investment decision.” Oran, 226 F.3d at 282 (quotation
marks omitted). “[U]ndisclosed information is considered material if there is a substantial
likelihood that the disclosure would be viewed by the reasonable investor as having
6
significantly altered the total mix of information available to that investor.” Id. (quotation
marks omitted).
At the same time, non-disclosure of material information “will not give rise to
liability under Rule 10b-5 unless the defendant had an affirmative duty to disclose that
information.” Id. at 285. As the Supreme Court has stated: “Silence, absent a duty to
disclose, is not misleading under Rule 10b-5.” Basic v. Levinson,
485 U.S. 224, 239 n.17
(1988). “[A] duty to disclose may arise when there is insider trading, a statute requiring
disclosure, or an inaccurate, incomplete or misleading prior disclosure.”
Oran, 226 F.3d
at 285-86.
Here, plaintiffs allege that “[d]efendants made several statements that were
rendered false and misleading by virtue of their failure to speak fully and accurately about
the illegal bid-rigging and kick-back scheme.” (Appellant’s Br. at 13.) Specifically,
plaintiffs point to various statements made in Commerce Bank’s 2002 through 2004 SEC
filings and earnings releases, including the following:
• “dramatic deposit growth continues with total deposits at September
30, 2002 of $13.9 billion, a $4.5 billion increase or 47% over total
deposits of $9.4 billion a year ago”
• “ending government deposits grew to $1,595 million from $1,212
million the previous year”
• “The strong performance of [Commerce Capital Markets] was led by
the public finance division.”
• “the unique Commerce business model continues to produce strong
top-line revenue growth driven by strong deposit growth which
significantly increases our net interest income and net income”
7
• “dramatic deposit growth continues with total deposits at September
30, 2003 of $19.6 billion, a $5.7 billion increase or 41% over total
deposits of $13.9 billion a year ago”
(Appellant’s Br. at 7-8.) Plaintiffs contend that “[o]ther filings throughout 2002, 2003
and 2004 likewise contained statements about Commerce Bank’s ‘dramatic growth’ in its
deposit base and investment banking fees.”6 (Id. at 8.)
As plaintiffs state in their consolidated amended complaint, “[w]hen the
defendants chose to make positive statements about growth in Commerce Bank’s
government and public deposits, they had a duty to tell the whole truth about the
unsustainable and illegal manner in which many, if not most, of those deposits were
procured.” (App. at 320.) Like the District Court, we do not agree.
“Factual recitations of past earnings, so long as they are accurate, do not create
liability under Section 10(b).” In re Advanta, 180 F.3d at 538. Moreover, statements
concerning the Company’s “dramatic deposit growth,” “strong performance,” and
“unique business model,” constitute nothing more than mere “puffery,” insufficient to
6
The SEC filings were signed by defendants Hill and Pauls. In its opinion, the
District Court noted that plaintiffs’ failure to attribute any allegedly misleading
statements to the other defendants was likely fatal to their claim against those defendants.
The District Court went on to conclude, however, that “because this Court finds that none
of the alleged statements were in fact materially misleading, the Court will dismiss the
consolidated complaint in its entirety without addressing Plaintiffs’ failure to plead
violations by particular Defendants.” In addition, the District Court strongly suggested
that plaintiffs’ failure to explain in their complaint why the statements were misleading
was likely insufficient to satisfy the heightened pleading standards of the PSLRA and
Rule 9(b). (App. at 9-11.)
8
sustain a Rule 10b-5 claim. See id. at 538-39. Indeed, none of the statements recited by
plaintiffs “put into play” the integrity of Commerce Bank’s practices with respect to
government deposits. Compare
Shapiro, 964 F.2d at 282 (“where a defendant
affirmatively characterizes management practices as ‘adequate,’ ‘conservative,’
‘cautious,’ and the like, the subject is ‘in play’” for purposes of Rule 10b-5). Rather, as
the District Court concluded, the statements were routine recitations of past financial
performance, and general optimistic statements about the Company’s future growth that,
in and of themselves, did not give rise to a duty to disclose the malfeasance of three
senior officers employed by the Company’s subsidiary. Therefore, while we recognize
that investors may very well have an interest in knowing about such misconduct, we
agree with the District Court that plaintiffs’ failure to identify a single statement that was
rendered misleading by defendants’ non-disclosure is fatal to their Rule 10b-5 claim.7
Finally, with respect to plaintiffs’ claim that the District Court abused its discretion
in dismissing the consolidated amended complaint without granting plaintiffs leave to
amend the complaint, defendants point out that plaintiffs never moved before the District
Court for leave to file an amended complaint, nor did they ever submit to the District
Court a proposed amended complaint. Rather, according to defendants, “all that Plaintiffs
7
We are also unpersuaded by plaintiffs’ argument that the District Court engaged
in improper factfinding when it concluded that the “attendant risks” of the bid-rigging
scheme were too speculative to be material for purposes of Rule 10b-5. See In re
Craftmatic Sec. Litig., 890 F.2d 628, 641, 644 (3d Cir. 1990) (finding that the risks
associated with deceptive and illegal advertising and marketing program were sufficiently
speculative and unreliable to be immaterial as a matter of law).
9
did to request leave to amend was to insert a footnote at the end of the last sentence of
their Brief in Opposition to Commerce Defendants’ Motion to Dismiss.” (Commerce
Bancorp Br. at 34.)
In their briefs on appeal, plaintiffs assert that they did in fact move for leave to
amend, but fail to point to anything in the record to support their contention. Therefore,
we conclude that the District Court’s dismissal of the complaint with prejudice was not an
abuse of discretion. See Ramsgate Court Townhome Ass’n v. West Chester Borough,
313 F.3d 157, 161 (3d Cir. 2002) (“Because a motion for leave to amend was never
properly before it, the district court did not abuse its discretion in failing to address
[plaintiff’s] request for leave to cure deficiencies in her pleadings.”)
III. Conclusion
For the foregoing reasons, we will affirm the District Court’s dismissal of
plaintiffs’ consolidated amended complaint.
10
