ABU DHABI COMMERCIAL BANK v. MORGAN STANLEY CO

SHIRA SCHEINDLIN, District Judge

On September 2, 2009, this Court granted in part and denied in part the motions to dismiss of defendants Morgan Stanley Co. Incorporated and Morgan Stanley Co. International Limited and their affiliates (collectively, "Morgan Stanley") and Moody's Investors Service, Inc. and its affiliates, including wholly-owned and controlled subsidiary Moody's Investors Service Ltd. (collectively, "Moody's"); The McGraw-Hill Companies, Inc. and its affiliates, including its wholly-owned and controlled business division Standard Poor's Rating Services (collectively, "S P," and, together with Moody's, the "Rating Agencies"). This Court also granted The Bank of New York, now known as The Bank of New York Mellon and its wholly-owned subsidiary, QSR Management Limited (together, "BoNY")'s motion to dismiss in its entirety. In addition to plaintiffs' common law fraud claim against Morgan Stanley and the Rating Agencies that remain, plaintiffs' claims for breach of contract against all defendants, tortious interference with contract against all defendants, breach of condition precedent and breaches of the covenant of good faith and fair dealing against BoNY, and aiding and abetting any of these claims and common law fraud — were dismissed without prejudice. Plaintiffs were permitted to replead, but with the direction that

Leave to replead is granted with regard to plaintiffs' [] contract claims, but only if plaintiffs can provide evidence of the contract's formation, consideration, and major terms. Plaintiffs may be able to provide additional facts indicating that the Cheyne SIV intended to enter into a contract with investors based on terms set forth in the Information Memoranda and Selling Documents, but more facts are needed. Allegations that the Information Memoranda and Selling Documents alone give rise to a contract between defendants and plaintiffs are plainly inadequate. Finally, given another opportunity, plaintiffs could more clearly allege their aiding and abetting claims as to each defendant and the remaining common law fraud and contract-based claims.

On September 22, 2009, plaintiffs filed a Second Amended Complaint that added no new facts and made no attempt to cure the deficiencies outlined by this Court. Defendants now request that this Court dismiss the claims that remain deficient with prejudice, which would leave only the common law fraud claims against Morgan Stanley and the Rating Agencies and would dismiss BoNY, with prejudice, from the entire case. Plaintiffs oppose the request on the grounds that to do so would effect an entry of a final judgment under Rule 54(b) of the Federal Rule of Civil Procedure and require plaintiffs to immediately appeal. Plaintiffs further contend that this Court should refuse to dismiss all claims against BoNY with prejudice because "it is possible that discovery in this litigation will `bring to light facts that would bear on the propriety' of the Court's motion dismissing certain claims and parties." Plaintiffs assert that to dismiss all claims against BoNY with prejudice would bar plaintiffs from renewing their claims against BoNY if such facts are found.

"A court [] has discretion to dismiss with prejudice if it believes that amendment would be futile or would unnecessarily expend judicial resources." However, a dismissal with prejudice does not automatically trigger a Rule 54(b) entry of final judgment and courts routinely dismiss claims and parties with prejudice but without entering a Rule 54(b) final judgment. Under Rule 54(b), "[w]hen an action presents more than one claim for relief . . . or when multiple parties are involved, the court may direct entry of a final judgment as to one or more, but fewer than all, claims or parties only if the court expressly determines that there is no just reason for delay." Accordingly, "[a]n order that adjudicates fewer than all of the claims remaining in the action or adjudicates the rights and liabilities of fewer than all of the parties is not a final order unless the district court directs the entry of a final judgment. . . .'" Furthermore, a dismissal with prejudice is generally appropriate where a court puts a plaintiff on notice of a complaint's deficiencies and the plaintiff fails to correct those deficiencies after amendment.

Plaintiffs' assertion that a dismissal with prejudice amounts to an entry of a final order under Rule 54(b) is plainly wrong. Rule 54(b) is clear that where less than all of the claims or all of the parties are dismissed from a case, it is within the Court's discretion to direct an entry of final judgment. The cases cited by plaintiffs in support of their position — Marvel Characters, Inc. v. Simon, Cleveland v. Higgins, and this Court's decision in LinkCo, Inc. v. Naoyuki Akikusa — are inapposite. Each case addresses the inapplicable scenario where a dismissal with prejudice operates as a final judgment for res judicata purposes — not that such a dismissal equates to an automatic entry of final judgment under Rule 54(b). In fact, none of these cases even mention Rule 54(b). Thus, an order of dismissal with prejudice does not require the entry of a final judgment under Rule 54(b). Accordingly, plaintiffs' Rule 54(b) arguments are irrelevant to the question presented here — whether a dismissal with prejudice is warranted where plaintiffs have failed to cure the deficiencies found by the Court.

Despite failing to cure the deficient pleading, plaintiffs nonetheless request that the entry of dismissal without prejudice stand so that if new facts are discovered, plaintiffs may amend again. The claims against all defendants that were previously dismissed without prejudice — other than aiding and abetting common law fraud against BoNY — necessarily require plaintiffs to identify a contract to which they were a party. Plaintiffs have not done so. Although plaintiffs were given the opportunity for limited discovery and permission to file a Second Amended Complaint, plaintiffs have failed to identify any such contracts. Thus, leaving open the possibility of future amendments to the contract claims would be futile.

However, plaintiffs' claims that BONY aided and abetted Morgan Stanley and the Rating Agencies' in their alleged commission of common law fraud does not necessarily warrant a dismissal with prejudice. It is possible that further discovery in this case could reveal new facts making the likelihood of BoNY's aiding and abetting more plausible. As a result, I conclude, in the exercise of my discretion, that dismissing plaintiffs' aiding and abetting common law fraud claims against BoNY with prejudice would be premature.

For the foregoing reasons, Counts 1B through 1D against Morgan Stanley, 2B through 2D against the Rating Agencies, and 3A through 3C against BoNY, as set forth in the Second Amended Complaint, are dismissed with prejudice. Counts 1A and 2A against Morgan Stanley and the Rating Agencies, respectively, remain in the case. Count 3D, aiding and abetting against BoNY solely to the extent that it pleads aiding and abetting common law fraud, is dismissed without prejudice. Nothing in this Memorandum Opinion and Order shall affect plaintiffs' right to file an appeal upon the final adjudication of the entire case.

SO ORDERED: