DECISION AND JUDGMENT ENTRY
McFARLAND, P.J.:
{¶ 1} Appellants, Anthony Spears and Sarah Jeric, mother and father of A.S., and George and Nancy Spears, grandfather and step-grandmother of A.S., appeal the decision of the Athens County Court of Common Pleas, Juvenile Division. The trial court terminated Anthony Spears and Sarah Jeric's parental rights, denied the custody request of George and Nancy Spears, and awarded permanent custody of A.S. to Athens County Children Services. Because there was clear and convincing evidence that A.S's best interests required a legally secure placement with Children Services, we affirm the trial court's decision and overrule the appellants assignments of error.
I. Facts
{¶ 2} A.S., born in March 2008, is the biological child of appellants Anthony Spears and Sarah Jeric. Both Anthony Spears and Sarah Jeric have a substantial and continuing history of drug abuse. In 2005, Spears was convicted of felony possession of cocaine. And due to Jeric's substance abuse during her pregnancy, A.S. was born addicted to opiates. After birth, A.S. remained in the hospital for several weeks for treatment before being placed in foster care. He has had continuing related health issues. At the time of the permanent custody hearing at issue in this case, both Anthony Spears and Sarah Jeric were incarcerated due to drug offenses and other offenses.
{¶ 3} In April 2008, shortly after A.S.'s birth, Athens County Children Services obtained an ex parte emergency custody order for A.S. and another child of Anthony Spears, J.S. Children Services also filed a complaint seeking to have A.S. and J.S. adjudicated dependant children. After holding a hearing on temporary custody, the Athens County Juvenile Court continued the emergency custody order and scheduled an adjudication hearing. On the same day of the custody hearing, Anthony Spears and Sarah Jeric were stopped by police while returning from a methadone clinic in West Virginia. Police found 43 bindles of heroin in the car and $1200 in cash. Subsequent to the emergency custody hearing, George and Nancy Spears, as grandfather and step-grandmother, filed a motion to intervene and a motion for custody of both A.S. and J.S.
{¶ 4} The trial court subsequently found A.S. to be an abused, neglected, and dependent child. The court awarded temporary custody of A.S. to Children Services in September 2008 and Children Services has retained custody since that decision. The trial court also found J.S. to be a dependent child. Anthony Spears and George and Nancy Spears appealed the decision as to J.S., but not as to A.S. We reversed the trial court's decision and remanded the case in In re J.S., 4th Dist. No. 08CA26, 2009-Ohio-1621 and In re J.S., 4th Dist. No. No. 08CA27, 2009-Ohio-1622. On remand, the trial court found J.S. was not dependent and dismissed the case.
{¶ 5} The trial court subsequently held multiple review hearings on the matter. After each hearing, the court continued temporary custody and determined that Children Services had made reasonable efforts by providing case management, foster care, visitation and referrals. In September 2009, Children Services moved to modify disposition to permanent custody of A.S. Anthony Spears and Sarah Jeric both contested the motion.
{¶ 6} After a full hearing on the motion for permanent custody, in which all parties were represented by counsel, the trial court terminated the parental rights of Anthony Spears and Sarah Jeric and awarded permanent custody of A.S. to Children Services. Further, George and Nancy Spears' motion for custody was denied. Following that decision, Anthony Spears, Sarah Jeric, and George and Nancy Spears, each filed an appeal. We sua sponte consolidated their appeals and consider them together below.
II. Assignments of Error
Anthony Spears' Assignment of Error
THE TRIAL COURT'S DETERMINATION THAT GRANTING PERMANENT CUSTODY OF A.S. TO ATHENS COUNTY CHILDREN SERVICES IS IN HIS BEST INTEREST WAS NOT SUPPORTED BY CLEAR AND CONVINCING EVIDENCE.
George and Nancy Spears' Assignment of Error
THE TRIAL COURT ERRED BY NOT PLACING AS [sic] WITH HIS PATERNAL GRANDPARENTS, VIOLATING APPELLANTS [sic] RIGHTS PURSUANT TO THE OHIO AND UNITED STATES CONSTITUTIONS.
Sarah Jeric's Assignment of Error
THE TRIAL COURT ERRED BY NOT PLACING A.S. WITH HIS PATERNAL GRANDPARENTS, GEORGE AND NANCY SPEARS, THEREBY VIOLATING APPELLANT'S RIGHTS PURSUANT TO THE OHIO AND UNITED STATES CONSTITUTIONS AND THE OHIO REVISED CODE.
III. Anthony Spears' Assignment of Error
{¶ 7} An appellate court will not overrule a trial court's decision regarding permanent custody if there is competent and credible evidence to support the judgment. In re McCain, 4th Dist. No. 06CA654, 2007-Ohio-1429, at ¶ 8. "If the trial court's judgment is supported by some competent, credible evidence going to all the essential elements of the case, an appellate court must affirm the judgment and not substitute its judgment for that of the trial court." In re Buck, 4th Dist. No. 06CA3123, 2007-Ohio-1491, at ¶ 7. Therefore, an appellate court's review of a decision to award permanent custody is deferential. McCain at ¶ 8.
{¶ 8} "An agency seeking permanent custody bears the burden of proving its case by clear and convincing evidence." In re Perry, 4th Dist. Nos. 06CA648, 06CA649, 2006-Ohio-6128, at ¶ 13. Clear and convincing evidence has been defined as "[t]he measure or degree of proof that will produce in the mind of the trier of fact a firm belief or conviction as to the allegations sought to be established. It is intermediate, being more than a mere preponderance, but not to the extent of such certainty as required beyond a reasonable doubt as in criminal cases. It does not mean clear and unequivocal." McCain at ¶ 9, citing In re Estate of Haynes (1986), 25 Ohio St.3d 101, 103-04, 495 N.E.2d 23. {¶ 9} In his sole assignment of error, Anthony Spears argues that the trial court's decision to award permanent custody of A.S. to Children Services was not supported by clear and convincing evidence. Accordingly, we first state the appropriate test a trial court must apply in ruling on a motion for permanent custody.
{¶ 10} Under R.C. 2151.414(B)(1), an agency seeking permanent custody must meet a two-part test before parental rights may be terminated and permanent custody awarded. In re Schaefer, 111 Ohio St.3d 498, 2006-Ohio-5513, 857 N.E.2d 532, at ¶ 31. First, one or more of conditions listed in R.C. 2151.414(B)(1)(a) through (d) must apply:
{¶ 11} "(a) The child is not abandoned or orphaned, has not been in the temporary custody of one or more public children services agencies or private child placing agencies for twelve or more months of a consecutive twenty-two-month period, * * * and the child cannot be placed with either of the child's parents within a reasonable time or should not be placed with the child's parents.
{¶ 12} (b) The child is abandoned.
{¶ 13} (c) The child is orphaned, and there are no relatives of the child who are able to take permanent custody. {¶ 14} (d) The child has been in the temporary custody of one or more public children services agencies or private child placing agencies for twelve or more months of a consecutive twenty-two-month period * * * ."
{¶ 15} An agency seeking permanent custody must also demonstrate by clear and convincing evidence that such action is in the best interest of the child. R.C. 2151.414(D) sets forth the factors a court must consider in the best interest analysis:
{¶ 16} "(a) The interaction and interrelationship of the child with the child's parents, siblings, relatives, foster caregivers and out-of-home providers, and any other person who may significantly affect the child;
{¶ 17} (b) The wishes of the child, as expressed directly by the child or through the child's guardian ad litem, with due regard for the maturity of the child;
{¶ 18} (c) The custodial history of the child, including whether the child has been in the temporary custody of one or more public children services agencies or private child placing agencies for twelve or more months of a consecutive twenty-two-month period, or the child has been in the temporary custody of one or more public children services agencies or private child placing agencies for twelve or more months of a consecutive twenty-two-month period and, as described in division (D)(1) of section 2151.413 of the Revised Code, the child was previously in the temporary custody of an equivalent agency in another state;
{¶ 19} (d) The child's need for a legally secure permanent placement and whether that type of placement can be achieved without a grant of permanent custody to the agency;
{¶ 20} (e) Whether any of the factors in divisions (E)(7) to (11) of this section apply in relation to the parents and child."
{¶ 21} Divisions (E)(7) to (11) include: (7) whether the parent has been convicted of a number of listed offenses; (8) whether the parent has repeatedly withheld medical treatment or food; (9) whether the parent has placed the child at substantial risk of harm two or more times due to substance abuse and has rejected treatment two or more times or refused to participate in treatment; (10) whether the parent has abandoned the child; (11) whether the parent has had parental rights previously terminated.
{¶ 22} Thus, to terminate parental rights and award permanent custody, a trial court must find that both parts of the two-part test under R.C. 2151.414 have been established. In the case sub judice, it is undisputed that the first part of the test was met. When the motion for permanent custody was filed, A.S. had been in the temporary custody of Children Services for more than twelve months of a consecutive twenty two month period. As such, R.C. 2151.414(B)(1)(d) applies. Accordingly, our analysis shifts to the other prong of the permanent custody test, whether or not permanent custody is in the best interest of the child.
{¶ 23} In his brief, Anthony Spears alleges that the court gave "scant attention" to section R.C. 2151.414(D)(1)(a), regarding the child's interactions with relatives and caregivers, and section R.C. 2151.414(D)(1)(d), regarding the need for a legally secure placement. We strongly disagree with this assertion. The trial court's decision clearly shows that it fully engaged in the required best interest analysis. The court first cited the relevant Revised Code sections, R.C. 2151.414(D)(1)(a) through (e), and then analyzed each section as it pertains to the current matter. As to R.C. 2151.414(D)(1)(a), the court stated the following:
{¶ 24} "A.S. has seen little of his parents due primarily to their incarcerations, sporadic visitations; and unfitness to care for him. He has half siblings on his biological father's side, but only sees a half-brother named [J.S.] under supervised or monitored situations. An attempt was made to allow A.S. and [J.S.] to live together in foster care at a time when [J.S.] was also in the temporary custody of [Children Services]. [J.S.] was, however, removed from that home due to rage-like behaviors and threatening actions toward A.S. The paternal grandparents now have custody of [J.S.] and visit regularly with A.S., often bringing [J.S.] to said visits. Those visits are reported to be pleasant. A.S. enjoys a well-bonded relationship with the foster family where he has lived since his eventual release from the hospital after his birth."
{¶ 25} The court stated the following regarding 2151.414(D)(1)(d):
{¶ 26} "A.S. needs and deserves a legally secure placement which can only be achieved by a termination of parental rights and an award of permanent custody to [Children Services]. The paternal grandparents request that they be awarded custody of A.S. They have, over the years, had custody of their own children and children of various relatives. They clearly love A.S. and would spend as much time with him as they were allowed. They are currently capable of meeting his basic physical needs and reasonable expenses. However, numerous factors convince the Court that A.S.'s best interests would be served by placing for adoption elsewhere. [Emphasis added.]
{¶ 27} George and Nancy Spears have been criticized at various times in this case by different sources. It is clear that [Children Services] does not think it appropriate to place A.S. with them and opposed this Court's earlier decision to allow then [sic] custody of [J.S.]. Melanie Dawn Spears (mother of [J.S.]) also speaks negatively of the [sic] George and Nancy Spears but acknowledges that she has a criminal past and is trying to gain custody of [J.S.] from them. A.S.'s mother has taken polar opposite positions in this case, once willing to expose all the damning information on the family and then reversing field to support their effort for custody. As in any case, the trier of fact weights the credibility.
{¶ 28} It is undisputed that George Spears has a relatively recent felony conviction in this county for obstructing official business, a bargained result of an indictment for drug trafficking. It is also undisputed that Anthony Spears, the father in this proceeding, has regularly returned to the home of George and Nancy Spears to live at various times in his adult life. Half-sibling [J.S.] has spent much of his life in the home of George and Nancy Spears, sometimes with his father also there and sometimes without. The length and extent of the bonding between [J.S.] and George and Nancy Spears was a major factor in this Court's ultimate decision to allow [J.S.] to return to George and Nancy Spears' custody. However, A.S. has never lived with mother, father, or parental grandparents. He has always been in the custody of [Children Services] and the safety of a foster family since his release from the hospital. In light of his biological parents' serious shortcomings, the opportunity for him to be spared from the dysfunction, now and possibly in the future, is an opportunity that we must provide this child. Both parents will be released from prison within a few years, and one or both may well return to the home of the parental grandparents. While there are good things to be said for family loyalty, this should not be the life that lies ahead for A.S. The grandparents' motion for custody is denied."
{¶ 29} In our view, the trial court's findings quoted above clearly refute Anthony Spears' allegation that the trial court preformed a "scant analysis" of the relevant Revised Code sections. Further, our review of the transcript of the permanent custody hearing shows that the trial court's findings were fully supported by witness testimony and the other evidence presented. Because A.S. had been in the temporary custody of Children Services for more than twelve months of a consecutive twenty two month period at the time of the permanent custody hearing, and because the trial court had clear and convincing evidence that awarding permanent custody to Children Services was in A.S.'s best interest, we overrule Anthony Spears' sole assignment of error.
{¶ 30} As to Anthony Spears' argument regarding the proper standard of review to be applied in permanent custody cases, we see no inconsistency in our current standard of review and no reason to modify it. We reiterate that a trial court's decision must find that the movant met or did not meet its burden by clear and convincing evidence. We then review the record to determine whether there was competent and credible evidence to support the trial court's decision.
IV. Sarah Jeric's and George and Nancy Spears' Assignment of Error
{¶ 31} Whereas Anthony Spears' assignment of error directly challenges the trial court's best interest analysis, both Sarah Jeric's and George and Nancy Spears' assignment of error is limited to whether the trial court should have placed A.S. in the custody of George and Nancy Spears. We review a trial court's decision to award or not award custody to an extended family member under an abuse of discretion standard. In re Perry, 4th Dist. Nos. 06CA648, 06CA649, 2006-Ohio-6128, at ¶ 63; In re A.C., 12th Dist. No. CA2006-12-105, 2007-Ohio-3350, at ¶ 17. "Moreover, relatives seeking the placement of the child do not have the benefit of the presumptive rights afforded to a child's natural parents as a matter of law, and the relative's willingness to care for the child does not alter the statutory factors to be considered in granting permanent custody." Perry at ¶ 64.
{¶ 32} At the permanent custody hearing, the trial court heard an abundance of evidence indicating that placing A.S. with George and Nancy Spears would not constitute a legally secure placement. As the trial court noted in its decision, George Spears was indicted for trafficking and felony possession of cocaine and marijuana in 2007. As a result of a plea agreement, George Spears pleaded guilty to obstructing justice, a felony. He is currently on probation for that offense. The court also heard the testimony of Melanie Spears, J.S.'s biological mother, stating that she had witnessed George Spears exchange pills for cash in his home.
{¶ 33} Further, the court heard testimony that J.S., who is in the custody of George and Nancy Spears and who resides at their home, exhibits aggressive and hyperactive behavior. In the past, when he resided in foster care, J.S.'s behavior worsened when A.S. was brought into the foster home. The foster mother testified that on numerous occasions she was concerned that J.S. would harm A.S. In one instance, she found J.S. standing over A.S's crib telling him to shut up or that he was going to kill him. If George and Nancy Spears were granted custody of A. S., he would once again be living with J.S.
{¶ 34} Additionally, Anthony Spears testified that at some point in the future he planned to put his family back together again and have A.S. and J.S. live with him. Testimony indicated that if Children Services was not awarded permanent custody, A.S. may be, upon Anthony Spears' release from incarceration, once again exposed to his father's continuing criminal drug activity. As a trial court stated, "[i]n light of his biological parents' serious shortcomings, the opportunity for [A.S.] to be spared from the dysfunction, now and possibly in the future, is an opportunity that we must provide this child. Both parents will be released from prison within a few years, and one or both may well return to the home of the paternal grandparents. While there are good things to be said for family loyalty, this should not be the life that lies ahead for A.S."
{¶ 35} As Sarah Jeric notes in her brief, granting legal custody to a member of the child's extended family is preferred over granting custody to a children services agency. But as Jeric also acknowledged, a trial court is not required to favor relatives if, after considering all the relevant factors, the court determines that a grant of permanent custody to the agency is in the child's best interest. Perry at ¶ 64. As shown above, and as we concluded in our analysis of Anthony Spears' assignment of error, there was clear and convincing evidence for the trial court in this matter to so determine. Accordingly, we find the trial court did not abuse its discretion in deciding not to award custody of A.S. to George and Nancy Spears. As such, Sarah Jeric's and George and Nancy Spears' assignments of error are also overruled.
JUDGMENT AFFIRMED.
JUDGMENT ENTRY
It is ordered that the JUDGMENT BE AFFIRMED and that the Appellee recover of Appellants costs herein taxed.
The Court finds there were reasonable grounds for this appeal.
It is ordered that a special mandate issue out of this Court directing the Athens County Court of Common Pleas, Juvenile Division, to carry this judgment into execution.
Any stay previously granted by this Court is hereby terminated as of the date of this entry.
A certified copy of this entry shall constitute the mandate pursuant to Rule 27 of the Rules of Appellate Procedure. Exceptions.
Abele, J.: Concurs in Judgment and Opinion.
Kline, J.: Concurs in Judgment and Opinion with Concurring Opinion.
Kline, J., concurring.
{¶ 36} I concur in judgment and opinion with the following observation. In my view, the opinion should note that we assume without deciding that Sarah Jeric has standing to assert her sole assignment of error in Case Number 10CA18. See In re Hilyard, Vinton App. Nos. 05CA600, 05CA601, 05CA602, 05CA603, 05CA604, 05CA606, 05CA607, 05CA608, 05CA609, at ¶ 40.
es are paid first. Thus, if borrowers default on the assets backing the securities, those who have invested in the lowest tranches bear any losses first.
Consulting Servs. Group, LLC v. Morgan Keegan Co., Nos. 10-02045, MDL 2009, 2010 U.S. Dist. LEXIS 66917, at *4 n. 2 (W.D. Tenn. July 2, 2010).
When the market began to question the underlying value of mortgage-backed CDOs in 2007, the Funds found themselves holding assets quickly declining in value that they could not readily sell because of the limited market for such investments. (Id. ¶ 5.) From December 31, 2006, to December 31, 2007, the per-share value of the assets held by the High Income Fund, Intermediate Fund, and Short Term Fund dropped respectively by 72%, 70%, and 23%. (Id.) The collective value of the assets held by all three Funds fell from $2.2 billion to $372.5 million. (Id.)
Plaintiffs filed suit on December 6, 2007. (See Compl., ECF No. 1.) This Court consolidated five then-separately pending suits and appointed Lead Plaintiffs and Lead Counsel by Order dated September 23, 2008. (Atkinson v. Morgan Asset Mgmt., No. 07-2784, ECF No. 154, Order Granting in Part and Denying in Part Motions for Partial Consolidation, Appointment of Lead Plaintiff, and Approval of Counsel, at 38-40 (W.D. Tenn.)). The Lead Plaintiffs filed the CAC on November 30, 2009. The CAC alleges seven causes of action, all based on federal law. Plaintiffs allege Defendants violated § 11, § 12(a)(2), and § 15 of the Securities Act of 1933; §§ 11, 22, 30, 34(b), and 47(b) of the Investment Company Act of 1940; and § 10(b), § 20, and Rule 10b-5 of the Securities Exchange Act of 1934. (CAC ¶¶ 684-766.) Plaintiffs seek compensatory or rescissory damages for their losses, prejudgment interest, costs, and reasonable attorneys' fees. (Id. at 366.) Defendants filed the present Motions to test the adequacy of Plaintiffs' Complaint.
II. JURISDICTION AND STANDARD OF REVIEW
Plaintiffs bring all their claims under the federal securities laws. This Court thus has federal question jurisdiction over Plaintiffs' suit. 28 U.S.C. § 1331.
In addressing a motion to dismiss for failure to state a claim under Federal Rule of Civil Procedure 12(b)(6), the Court must construe the complaint in the light most favorable to the plaintiff and accept all well-pled factual allegations as true.League of United Latin Am. Citizens v. Bredesen, 500 F.3d 523, 527 (6th Cir. 2007). A plaintiff can support a claim "by showing any set of facts consistent with the allegations in the complaint." Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 563 (2007). This standard requires more than bare assertions of legal conclusions. Bovee v. Coopers Lybrand C.P.A., 272 F.3d 356, 361 (6th Cir. 2001). "[A] formulaic recitation of the elements of a cause of action will not do." Twombly, 550 U.S. at 555. Any claim for relief must contain "a short and plain statement of the claim showing that the pleader is entitled to relief." Erickson v. Pardus, 551 U.S. 89, 93 (2007) (per curiam). "Specific facts are not necessary; the statement need only `give the defendant fair notice of what the . . . claim is and the grounds upon which it rests.'" Id. (citing Twombly, 550 U.S. at 555.)
Nonetheless, a complaint must contain sufficient facts "to `state a claim to relief that is plausible on its face'" to survive a motion to dismiss. Ashcroft v. Iqbal, 129 S.ct. 1937, 1949 (2009) (quotingTwombly, 550 U.S. at 570). "This plausibility standard is not akin to a `probability requirement,' but it asks for more than a sheer possibility that a defendant has acted unlawfully." Id. (citingTwombly, 550 U.S. at 556). "Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice." Id. at 1949 (citation omitted). A plaintiff with no facts and "armed with nothing more than conclusions" cannot "unlock the doors of discovery." Id. at 1950.
Plaintiffs' CAC accuses "[e]ach of the RMK Defendants" of being "a participant in a fraudulent scheme and course of conduct." (CAC ¶ 103.) Where a plaintiff makes allegations of fraud, including securities fraud, he or she must meet the heightened pleading requirements of Federal Rule of Civil Procedure 9(b).Frank v. Dana Corp., 547 F.3d 564, 569-70 (6th Cir. 2008). Rule 9(b) requires that a party "alleging fraud or mistake . . . state with particularity the circumstances constituting fraud or mistake." Fed.R.Civ.P. 9(b). This heightened pleading standard mandates that plaintiffs alleging fraud 1) specify which statements were fraudulent, 2) indentify the defendant(s) who spoke the fraudulent statements, 3) describe "when and where the statements were made" and 4) "explain why the statements were fraudulent." Frank, 547 F.3d at 570 (citation and internal quotation marks omitted). "At a minimum, [p]laintiffs must allege the time, place and contents of the misrepresentations upon which they relied" to satisfy Rule 9. Id. (citing Bender v. Southland Corp, 749 F.2d 1205, 1216 (6th Cir. 1984)).
III. ANALYSIS
A. `34 Act Claims
Plaintiffs' CAC alleges three claims under the Securities and Exchange Act of 1934 (the "`34 Act"). Count V alleges that the Funds, MAM, Morgan Keegan, Regions Bank, and PwC violated § 10 of the `34 Act and Rule 10b-5 promulgated thereunder. (CAC ¶ 742, 750); see also 15 U.S.C. § 78j(b); 17 C.F.R. § 240.10b-5. Count VI of the CAC alleges violations of the same provisions against Regions Bank, Morgan Keegan, and MAM on behalf of the Fiduciary Subclass. (Id. ¶ 752.) Count VII alleges that the officer and director Defendants, Regions, and MK Holding were "control persons" under § 20 of the `34 Act. See § 15 U.S.C. § 78t(a). Plaintiffs' control person claim may only stand if Plaintiffs successfully plead a primary violation of § 10(b). See 15 U.S.C. § 78t(a); PR Diamonds, Inc. v. Chandler, 364 F.3d 671, 696 (6th Cir. 2004). Section 10(b) prohibits, "in connection with the purchase or sale of any security," the use of "any manipulative device or contrivance." 15 U.S.C. § 78j(b). Rule 10b-5, promulgated by the Securities and Exchange Commission, implements that prohibition. See 17 C.F.R. § 240.10b-5; Tellabs, Inc. v. Makor Issues Rights, Ltd., 551 U.S. 308, 318 (2007).
1. The PSLRA's heightened pleading standard
When a plaintiff alleges a violation of § 10(b) and Rule 10b-5, the Private Securities Litigation Reform Act ("PSLRA") mandates a heightened pleading standard greater than that required by Rule 9(b). Compare 15 U.S.C. § 78u-4(b)(2), with Fed.R.Civ.P. 9(b);Konkol v. Diebold, Inc., 590 F.3d 390, 396 (6th Cir. 2009) (noting "the more exacting pleading requirements" of the PSLRA (citation and internal quotation marks omitted)). The PSLRA requires a plaintiff 1) "to state with particularity" the facts constituting the alleged violation, including "specifying each statement alleged to have been misleading," 15 U.S.C. § 78u-4(b)(1), and 2) "state with particularity the facts giving rise to a strong inference that the defendant acted with the particular state of mind." Id. § 78 u-4(b)(2). That "particular state of mind" is known as scienter and requires a plaintiff to show that a defendant's intention was "to deceive, manipulate or defraud." Tellabs, 551 U.S. at 313 (quoting Ernst Ernst v. Hochfelder, 425 U.S. 185, 194 (1976)). An inference of scienter is "strong" within the meaning of the PSLRA if it is "more than merely plausible or reasonable — it must be cogent and at least as compelling as any opposing inference of nonfraudulent intent."Id. at 314. Allegations of negligence do not support a finding of scienter. Konkol, 590 F.3d at 396. In the Sixth Circuit, a plaintiff at least must state allegations sufficient to find that a defendant acted with recklessness. Mansbach v. Prescott, Ball, Turben, 598 F.2d 1017, 1023 (6th Cir. 1979); see also Konkol, 590 F.3d at 396. The Sixth Circuit defines recklessness as "highly unreasonable conduct which is an extreme departure from the standards of ordinary care."Mansbach, 598 F.2d at 1025. The danger "must be so obvious that any reasonable man would have known of it." Id.
2. Plaintiffs have failed to plead scienter
Plaintiffs argue that they have adequately pled scienter as to the named Defendants in Counts V-VI of the CAC. (Plaintiffs' Consolidated Opposition to Defendants' Motions to Dismiss, ECF No. 238, at 93-99.) ("Pls' Resp.") An examination of the CAC and the relevant case law, however, demonstrates that they have not met the PSLRA's enhanced burden.
a. It is unclear who is a Defendant
Plaintiffs' CAC names as Defendants in their § 10(b) claims the Funds, MAM, Morgan Keegan, Regions Bank, and PwC. (CAC ¶¶ 74, 750, 752.) Paragraph 88 of the CAC advises that the terms MAM and Morgan Keegan "shall each be deemed to include, as relevant, their respective officers and employees as named Defendants, including John Doe One through Twenty." Thus, at first glance, one would conclude that Plaintiffs are stating claims against the officers and directors of Morgan Keegan and MAM by the use of those terms in Counts V and VI. However, examining the other counts of the CAC, one finds that Plaintiffs appear to state explicitly when they are suing, or not suing, "Defendant Officers and Directors" in the relevant count. (Cf. CAC ¶ 684 (explicitly excluding the directors and officers for claims under the `33 Act); ¶ 758 (suing the officers and directors for control person liability under § 20 of the `34 Act).) The Motion to Dismiss of the Individual Defendants points to this ambiguity and states that the Individual Defendants are unsure whether Plaintiffs have sued them under § 10(b). (Memorandum of Law in Support of the Individual Defendants' Motion to Dismiss, ECF No. 226-1, at 1 n. 1.) Plaintiffs' own Response fails to answer the Individual Defendants' query. Plaintiffs state instead that they have "allege[d] the role of each Defendant that was instrumental to the Funds' mismanagement" without clarifying whether that includes officers and directors such as the Individual Defendants. (Pls' Resp. at 93.)
Allen B. Morgan, Jr.; J. Kenneth Alderman; Carter E Anthony; Brian B. Sullivan; Joseph C. Weller; John T. Weller; G. Douglas Edwards; Charles D. Maxwell; David M. George; Michelle F. Wood; James C. Kelsoe, Jr.; David H. Tannehill; and Thomas R. Gamble.
When it is possible to ask legitimately, after reading a four-hundred-page Complaint, who is being sued for what on a particular count, Plaintiffs have not met the PSLRA's pleading standards. See 15 U.S.C. § 78u-4(b)(1)-(2) (requiring that a plaintiff "state with particularity" all facts surrounding the alleged misrepresentations or omissions and why a finding of scienter is appropriate). It is not for the Court or for Defendants to ask who is "relevant" (CAC ¶ 88) to a particular count. It is Plaintiffs' duty to state clearly against whom they seek damages. See Frank, 547 F.3d at 570. Counts V and VI arguably do not meet even Rule 8's more forgiving standard requiring plausibility. See Fed.R.Civ.P. 8(a)(2) (requiring a "short and plain statement of the claim showing that the pleader is entitled to relief" (emphasis added)). Therefore, they cannot meet the "more exacting" standards of Rule 9(b) and the PSLRA.Konkol, 590 F.3d at 396 (internal quotation marks and citation omitted). On this basis alone, DISMISSAL of the `34 Act counts is appropriate.
b. Plaintiffs fail under group pleading
Alternatively, assuming that Plaintiffs have pled with the requisite particularity against whom they bring their claims, Plaintiffs have failed to demonstrate that "an inference of scienter . . . [is] at least as compelling as any opposing inference of nonfraudulent intent." Tellabs, 551 U.S. at 314. Plaintiffs invoke the "group pleading" doctrine, also called the "group published doctrine," which provides that, "[i]n cases of corporate fraud where the false or misleading information is conveyed in prospectuses, registration statements, annual reports, press releases, or other `group published information,' it is reasonable to presume that these are the collective actions of the officers." City of Monroe Emps. Ret. Sys. v. Bridgestone Corp., 399 F.3d 651, 689 (6th Cir. 2005). Following the passage of the PSLRA, the Fifth Circuit and many district courts have found that the group pleading doctrine no longer applies. See Southland Sec. Corp. v. INSpire Solutions, Inc., 365 F.3d 353, 364 (5th Cir. 2004) (collecting cases). Those circuits that have continued to apply the doctrine have generally done so without analysis of the potential effects of the PSLRA's passage. See Bridgestone, 399 F.3d at 690 n. 33 (collecting cases). The Sixth Circuit has not taken a position on the continuing viability of the group pleading doctrine. See id. at 690 (noting that the court "need not decide here the current viability of the group published doctrine"). For the purposes of this analysis, the Court will assume the doctrine applies.
Here, Plaintiffs arguably seek to expand the group pleading doctrine to include not only the officers but also the directors, related corporate entities, and the Funds' auditor. (Pls' Resp. at 95-96.) Cf. Bridgestone, 399 F.3d at 689.
The Sixth Circuit has identified nine factors that are "usually relevant to scienter." Helwig v. Vencor, Inc., 251 F.3d 540, 552 (6th Cir. 2001) (en banc), abrogated in part by Tellabs, 551 U.S. at 324 (expressly abrogating the Sixth Circuit's prior, higher standard requiring that the inference that a defendant acted with scienter be the "most plausible of competing inferences"); see also PR Diamonds, 364 F.3d at 682-83 (noting that the Helwig factors remain "probative of scienter"). Those nine factors are:
(1) insider trading at a suspicious time or in an unusual amount; (2) divergence between internal reports and external statements on the same subject; (3) closeness in time of an allegedly fraudulent statement or omission and the later disclosure of inconsistent information; (4) evidence of bribery by a top company official; (5) existence of an ancillary lawsuit charging fraud by a company and the company's quick settlement of that suit; (6) disregard of the most current factual information before making statements; (7) disclosure of accounting information in such a way that its negative implications could only be understood by someone with a high degree of sophistication; (8) the personal interest of certain directors in not informing disinterested directors of an impending sale of stock; and (9) the self-interested motivation
of defendants in the form of saving their salaries or jobs.
Helwig,
251 F.3d at 552 (citation omitted). The
Helwig factors are not an exhaustive list.
PR Diamonds,
364 F.3d at 682. The Court must view the Plaintiffs' CAC as a whole, take into account documents incorporated into the CAC by reference, and engage in a comparative inquiry about how likely it is that scienter, as opposed to non-fraudulent activity, arises from the underlying facts.
Tellabs,
551 U.S. at 323.
Plaintiffs point to four factors suggesting scienter in this case. (Pls' Resp. at 98.) First, they note those portions of their CAC that allege the proximity between the allegedly fraudulent statements about the liquidity of the Funds' investments and the later disclosure of those investments' illiquidity. (CAC ¶¶ 182-83, 187, 195-98, 220(h), 220(l), 221-22, 470-72.) Temporal proximity alone, however, cannot support a finding of scienter. See Fidel v. Farley, 392 F.3d 220, 232 (6th Cir. 2004). The facts alleged in this case illustrate why. The credit crisis that caused the collapse of the market for asset backed securities, like those in which the Funds invested, occurred over a relatively short time. (Cf. CAC ¶ 154 (graph depicting the sharp and sudden drop of the share price of the Intermediate Fund in mid-to-late 2007).) It is at least equally possible that the temporal proximity occurred because of the closeness of the sudden market crash to the July 30, 2007 end date of the Funds' fiscal years. Nonetheless, proximity must weigh in the scienter analysis.
The second factor Plaintiffs cite is the disclosure of accounting information in such a way that only a person of a high degree of sophistication could understand it. (CAC ¶¶ 183, 189, 195-98, 209, 220, 220(l), 469-72.) Plaintiffs undercut their theory by admitting that they "do not allege that the dollar value for any security was incorrect at any time during the Class Period." (Pls' Resp. at 22 (emphasis added).) Thus, Plaintiffs admit that a perfect disclosure of the facts surrounding the Funds' investments would not have revealed that any dollar value assigned to a Fund security was incorrect. Although the cited paragraphs of the CAC reference specific omitted or misleading disclosures about the Funds' liquidity, when one views Plaintiffs' inability to allege that any security's dollar value was overstated in conjunction with the proximity of the Funds' revelation of illiquidity to the collapse of the credit markets, it becomes increasingly likely that market forces, rather than recklessness, caused the collapse.
Plaintiffs' third factor is that the `34 Act Defendants' disregarded the most current factual information before making the misleading statements. (Pls' Resp. at 98.) Particularly relevant here are Plaintiffs' allegations that Regions, Morgan Keegan, and PwC had actual knowledge that the Funds' liquidity disclosures were deficient because they issued, underwrote, or audited some of the same securities in which the Funds invested and had reason to know they were illiquid. (Id. ¶ 205.) Such an allegation is damaging and likely would lead to a finding of scienter, because it would mean these Defendants concluded that the investments were illiquid when they analyzed them for independent investors, but stated they were liquid when they purchased or audited them for the Funds. Once again, however, the Plaintiffs severely undermine their own allegation. The CAC states that the Funds invested in two securities that Morgan Keegan underwrote; PwC audited twenty securities the Funds purchased as investments; and the CAC is silent about how many securities Regions issued. (Id.) For Funds that held $2.2 billion in assets, two or twenty securities are likely to represent a de minimus amount. (See ¶ 5.) It is impossible to determine how large a share of the Funds' investments these securities represented because Plaintiffs fail to indentify the securities by name and do not allege how large a share of the Funds' assets they represented. Basing knowledge on two or twenty securities among differing investments made over a three-year period does not support a finding of scienter. A court cannot infer fraudulent intent from the mere fact that a
particular defendant had access to information. PR Diamonds, 364 F.3d at 688.
This barrier is especially applicable to PwC. "To allege that an independent auditor acted with scienter, the complaint must allege specific facts showing that the deficiencies in the audit were so severe that they strongly suggest that the auditor must have been aware of the corporation's fraud." Id. at 694 (citations omitted). Plaintiffs cannot allege that PwC must have been aware of the fraud when Plaintiffs admit that no security's dollar value was incorrect. (Pls' Resp. at 22.) Although Plaintiffs plead violations of several provisions of the Generally Accepted Accounting Principles ("GAAP"), (see CAC ¶¶ 531-71), failure to follow GAAP does not by itself state a securities fraud claim. Konkol, 590 F.3d at 400. The Sixth Circuit has described the type of accounting violations that lead to a finding of scienter as "obvious." PR Diamonds, 364 F.3d at 685. That a perfect audit would not have led PwC to find a misvalued security in the Funds' portfolios leads the Court to conclude that any errors were not clear violations of "simple accounting rules." See id.
The final factor Plaintiffs assert is that the Defendants had a self-interested motivation. (Pls' Resp. at 98.) Plaintiffs point to the fees received by MAM, Morgan Keegan, Regions, and Regions Bank for managing and administering the Funds and marketing the Funds' shares (CAC ¶¶ 41, 45); the substantial bonuses Kelsoe and Tannehill could earn (id. ¶¶ 83-84, 86); and Regions' and Morgan Keegan's strategy of cross-branding each other's services. (Id. ¶¶ 651, 654.) When analyzing the self-interest factor, a court must differentiate between "motives common to corporation and executives generally" and "motives to commit fraud." PR Diamonds, 364 F.3d at 690. Every corporation and business executive wants to appear successful. Id. That Morgan Keegan, MAM, and Regions stood to profit from the success of the Funds does not make a "cogent" case for fraud. See Tellabs, 551 U.S. at 314. Plaintiffs do not allege that Tannehill or Kelsoe ever received a bonus or how much they received, requiring the Court to discount these allegations, as well. (See CAC ¶¶ 83-84, 86.)
Plaintiffs have not chosen to argue one allegation. They allege that certain employees of Morgan Keegan read a "published article" revealing that the Funds had purchased many securities from a small Florida dealer who focused on illiquid securities. (CAC ¶ 352.) These unidentified employees became concerned about their investments in the Funds and sold their personal shares. (Id. ¶ 354.) Defendant Edwards, Morgan Keegan's CEO, discovered those sales and prohibited other employees from selling their personal holdings in the Funds. (Id. ¶ 354.) It is certainly possible to read this allegation to indicate that a corporate leader was concerned that news of his employees' selling their shares could alert other shareholders to potential losses. (See id.) However, the CAC notes that this revelation about one of the sources of the Funds' investments came in a published, publically available article. Any interested investor could have gained access to the same information. Edwards may have believed that the Funds were sound investments and that individual employees — the precise number of whom and the size of whose sales the CAC does not reveal — should not undermine this corporate message. (See id. ¶¶ 352-54.)
Employing the reading of this allegation most favorable to Plaintiffs, Plaintiffs have not established scienter. Insider trading only raises suspicions "when it is dramatically out of line with prior trading practices at times calculated to maximize the personal benefit from undisclosed insider information." Konkol, 590 F.3d at 399 (citations and internal quotation marks omitted). Plaintiffs do not allege how many employees sold their shares in the Funds, when these sales took place, how many total employees held the Funds' shares, or whether the individual share sales made a marked difference in the number of shares held by Morgan Keegan employees. Without more, it is impossible to know whether this was an aberration or indicative of deep, growing concerns about the Funds' liquidity.
The information here, of course, was disclosed publically in a published article. (CAC ¶ 352.)
Assuming the group pleading doctrine has retained its viability after passage of the PSLRA and viewing the pleadings as a whole, Plaintiffs have failed to demonstrate that the inference of scienter is "at least as compelling as any opposing inference of nonfraudulent intent." Tellabs, 551 U.S. at 314. Plaintiffs' pleadings undermine their strongest assertions of scienter and some assertions, like those about violation of the GAAP or the alleged self-interested motives of the Defendants, are entitled to little or no weight. Counts V and VI of the CAC are DISMISSED. Because Plaintiffs have failed to plead a primary violation, they may not bring a claim for controlled person liability under § 20(a) of the `34 Act. See 15 U.S.C. § 78t(a); PR Diamonds, 364 F.3d at 696. The Court, therefore, DISMISSES Count VII of the CAC.
B. `33 Act Claims
Plaintiffs' CAC also allege causes of action based on the Securities Act of 1933 (the "33 Act"). (CAC ¶¶ 683-724.) Count I alleges violations of § 11 of the `33 Act, 15 U.S.C. § 77k, against the Funds, Morgan Keegan, Morgan Management, Regions Bank, and PwC. (Id. ¶ 684.) The Count's heading makes clear that the claim does not lie against the officer and director Defendants. (See id.) Count II, which is against all Defendants except Regions, PwC, and MK Holding, asserts claims under § 12(a)(2) of the `33 Act, 15 U.S.C. § 77l. Count III alleges control person liability under § 15, 15 U.S.C. § 77o, against the officers and directors of the Funds; MAM; MK Holding; Regions; Morgan Keegan; and the officers and directors of MAM, Morgan Keegan, MK Holding, Regions Bank, and Regions. (CAC ¶ 717.) As with control person liability under the `34 Act, Plaintiffs must successfully state a primary violation of the `33 Act, i.e., Counts I or II, to maintain their control person claims. See 15 U.S.C. § 77o(a); J R Mktg. v. Gen. Motors Corp., 549 F.3d 384, 398 (6th Cir. 2008).
Auditors such as PwC are only liable for those statements in the registration statement that they certified. 15 U.S.C. § 77k(a)(4).
The heightened pleading standards of the PSLRA do not apply to claims under the `33 Act; however, where the claims sound in fraud, the standards of Rule 9(b) do apply. Indiana State Dist. Council of Laborers v. Omnicare, Inc., 583 F.3d 935, 948 (6th Cir. 2009);Rubke v. Capitol Bancorp, Ltd., 551 F.3d 1156, 1161 (9th Cir. 2009). Thus, "[a]t a minimum, Plaintiffs must allege the time, place and contents of the misrepresentations upon which they relied."Frank, 547 F.3d at 570 (citation omitted).
1. Section 11 claims
Section 11 prohibits making "untrue statement[s] of material fact" or omitting statements of material fact in a security's registration statement. 15 U.S.C. § 77k(a). It protects investors who "acquired" the security in reliance on the representations contained in the registration statement. Id. The CAC identifies with particularity when the supposedly misleading statements were made. (CAC ¶ 690.) It also makes clear which statements were misleading: the Funds claimed to abide by restrictions that prohibited them from holding more than 15% of their assets in illiquid securities and more than 25% of their assets in securities related to the same industry. (See, e.g.,id. ¶¶ 162, 276.) Plaintiffs allege that these statements were misleading because the Funds did not, in fact, abide by these restrictions. (See, e.g., id. ¶¶ 171,276(a)(c).) Other courts faced with similar § 11 claims have allowed such claims to proceed. See, e.g., Rodney v. KPMG Peat Marwick, 143 F.3d 1140, 1145 (8th Cir. 1998) (allowing claims alleging that the funds violated restrictions on borrowing money, purchasing illiquid securities, and investing in derivatives to proceed); White v. Heartland High-Yield Mun. Bond Fund, 237 F. Supp. 2d 982, 984-86 (E.D. Wis. 2002) (permitting claims against PwC based on failure to follow limitations on illiquid securities). Indeed, in one of the cases Defendants cite to support their argument that Plaintiffs' claims should be dismissed, the district court reversed itself as to the § 11 claims on reconsideration. See Yu v. State St. Corp., 686 F. Supp. 2d 369, 378-81 (S.D.N.Y. 2010) (dismissing plaintiffs' claims based on funds' over-exposure to mortgage backed securities), vacated by 2010 U.S. Dist. LEXIS 70931, at *9-15 (allowing claims to proceed following the filing of amended complaint).
Defendants argue that Plaintiffs have failed to plead loss causation. (See, e.g., Memorandum in Support of Defendant Morgan Keegan's Motion to Dismiss, ECF No. 222-1, at 49-55.) ("Morgan Keegan Mem.") Loss causation is not an element of a § 11 claim; it is an affirmative defense unsuitable for adjudication in a motion to dismiss. 15 U.S.C. § 77l(b); see Indiana State Dist. Council, 583 F.3d at 947. Plaintiffs have therefore stated a claim under Section 11 of the `33 Act, and Defendants' Motions to Dismiss this claim are DENIED.
2. Sections 12(a)(2) and 15 claims
Section 12(a)(2) creates a cause of action based on "misleading statements, misstatements, or omissions in a . . . prospectus." J R Mktg., 549 F.3d at 389; see also 15 U.S.C. § 77l(a)(2). Plaintiffs base their allegations in this count on the same misstatements alleged under the § 11 count. (See, e.g., CAC ¶ 222.) For the reasons stated in the § 11 analysis, Plaintiffs have stated a claim under § 12(a)(2) of the `33 Act.
Certain Defendants argue that they are not "statutory sellers" under § 12(a)(2). (See, e.g., Morgan Keegan Mem. at 46-47.) A seller is one who 1) passes title, or other interest in the security, to the purchaser for value or 2) successfully solicits the purchase based at least in part on a desire to further his own financial interests or those of the securities' owner. Pinter v. Dahl, 486 U.S. 622, 647 (1988); Smith v. Am. Nat'l Bank Trust Co., 982 F.2d 936, 941 (6th Cir. 1992). As the test suggests, whether someone "solicits" a purchase is a fact-bound inquiry unsuited for a Rule 12(b)(6) motion. Defendants' Motions to Dismiss Plaintiffs' claims under § 12(a)(2) of the `33 Act are DENIED.
Because Plaintiffs have stated primary claims under the `33 Act, they may also state a claim under § 15 for control person liability. 15 U.S.C. § 77o(a); J R Mktg., 549 F.3d at 398. Section 15 places liability "jointly and severally" on any person who "controls any person liable under section 11 or 12." 15 U.S.C. § 77o(a). Whether a party exercised the requisite control involves a factual analysis best saved for later determination. The Court, therefore, DENIES Defendants' Motions to Dismiss Plaintiffs' control person liability claims under the `33 Act.
Likewise, any arguments about the application of the statute of repose to any individual claims should await factual development of the claims. See 15 U.S.C. § 77m (extinguishing all claims "three years after the security was bona fide offered to the public").
3. Holder Claims
Plaintiffs seek to represent a class of individuals who "refrained from redeeming the Funds' shares during the period from March 1, 2007 through April 30, 2008." (CAC ¶ 2(a)(2).) The `33 Act limits claims to purchasers. 15 U.S.C. § 77k(a) (noting that the party must have "acquired" the security); 15 U.S.C. § 77l(a)(2) (imposing liability if a the party "offers or sells" a security to an investor based on misstatements in a prospectus or oral communication). Because the proposed class definition includes investors who did not purchase the Funds' shares during the class period of December 6, 2004 — December 6, 2007, these holder claims must be DISMISSED. See Simmons v. Wolfson, 428 F.2d 455, 456 (6th Cir. 1970) (per curiam); Miller v. Lazard, Ltd., 473 F. Supp. 2d 571, 578 (S.D.N.Y. 2007) (noting that the `33 Act allows "purchasers of registered securities" to hold parties liable for misstatements).
C. ICA Claims
Count IV of the CAC alleges that all Defendants violated §§ 13, 22, 30, 34(b), and 47(b) of the Investment Company Act of 1940 ("ICA"). (CAC ¶ 725.) As Plaintiffs admit, other than § 47(b), the cited ICA provisions do not contemplate private rights of action. (Pls' Resp. at 136-37.) Plaintiffs assert that one district court has found an implied private right of action under § 13(a). See Northstar Fin. Advisors, Inc. v. Schwab Invs., 609 F. Supp. 2d 938, 944 (N.D. Cal. 2009). The Ninth Circuit recently reversed that conclusion on interlocutory appeal. Northstar Fin. Advisors, Inc. v. Schwab Invs., No. 09-16347, ___ F.3d ___, 2010 U.S. App. LEXIS 16706, at *2 (9th Cir. Aug. 12, 2010).
The Second Circuit has persuasively explained why it is inappropriate to imply private rights of action under the ICA.See Olmsted v. Pruco Life Ins. Co., 283 F.3d 429, 432-436 (2d Cir. 2002). The ICA expressly provides that the Securities and Exchange Commission, rather than private plaintiffs, has the right to enforce all provisions of the ICA. See 15 U.S.C. § 80a-41. Congress provided an express private right of action to enforce § 36(b) of the ICA, demonstrating that Congress knew how to provide a private right of action when it wanted one. See 15 U.S.C. § 80a-35(b) ("An action may be brought under this subsection by the Commission, or by a security holder of such registered investment company." (emphasis added)). These two factors create a strong presumption that Congress did not intend to create a private right of action under any section of the ICA that does not specify one. Olmsted, 283 F.3d at 433. Plaintiffs have failed to overcome that presumption, and the Court DECLINES to imply any new private rights of action under the ICA. Plaintiffs' claims under §§ 13, 22, 30, and 34(b) of the ICA are DISMISSED.
Courts have determined that § 47(b) of the ICA contemplates a private right of action. Lessler v. Little, 857 F.2d 866, 874 (1st Cir. 1988); Mathers Fund, Inc. v. Colwell Co., 564 F.2d 780, 783 (7th Cir. 1977); Hamilton v. Allen, 396 F. Supp. 2d 545, 558-60 (E.D. Pa. 2005); In re Mut. Funds Inv. Litig., 384 F. Supp. 2d 873, 880-81 (D. Md. 2005). Section 47(b) provides that any contract whose terms or performance would involve violating any provision of the ICA is unenforceable. 15 U.S.C. § 80a-46(b)(1). It gives "any party" to the contract the right to seek rescission. Id. (b)(2). Plaintiffs argue that the underlying contract is the underwriting agreement between the Funds and Morgan Keegan. (Pls' Resp. at 139.) Plaintiffs are not parties to the underwriting agreement and, therefore, may not assert a direct remedy under § 47(b). Lessler, 857 F.2d at 874; Hamilton, 396 F. Supp. 2d at 558. A plaintiff may bring a § 47(b) claim derivatively on behalf of the Funds, but this suit is a direct suit against the defendants, not a derivative action. Lessler, 857 F.2d at 874; Hamilton, 396 F. Supp. 2d at 558. Plaintiffs' claim under § 47(b) of the ICA is prohibited and is DISMISSED.
IV. CONCLUSION
Defendants' Motions to Dismiss the `34 Act claims are GRANTED because Plaintiffs have failed to plead scienter properly, as required by the PSLRA. Defendants' Motions to Dismiss the `33 Act claims are DENIED, with the exception of any claims on behalf of those who did not purchase shares of the Funds during the class period. All such holder claims are DISMISSED for lack of standing. Plaintiffs' claims under the ICA are also DISMISSED.
In the last sentence of their response, Plaintiffs seek permission to amend the CAC "to cure any deficiencies" the Court may find. (Pls' Resp. at 140.) This request is unsupported by any argument or citation to authority. The request is DENIED. See PR Diamonds, 364 F.3d at 699 (noting that "a bare request in an opposition to a motion to dismiss" without any argument does not constitute a motion to amend (citations and internal quotation marks omitted)); cf. Mitan v. Duval (In re Mitan), 573 F.3d 237, 248 n. 5 (6th Cir. 2009) (declining to consider a "last-sentence request" because applicants provided no citation of authority or other support).
So ordered.