McBrearty v. The Vanguard Group, Inc. , 353 F. App'x 640 ( 2009 )

09-1445-cv
McBrearty v. The Vanguard Group, Inc.
1 UNITED STATES COURT OF APPEALS
2 FOR THE SECOND CIRCUIT
3
4 SUMMARY ORDER
5
6 RULINGS BY SUMMARY ORDER DO NOT HAVE PRECEDENTIAL EFFECT.
7 CITATION TO SUMMARY ORDERS FILED AFTER JANUARY 1, 2007, IS PERMITTED
8 AND IS GOVERNED BY THIS COURT’S LOCAL RULE 32.1 AND FEDERAL RULE OF
9 APPELLATE PROCEDURE 32.1. IN A BRIEF OR OTHER PAPER IN WHICH A
10 LITIGANT CITES A SUMMARY ORDER, IN EACH PARAGRAPH IN WHICH A
11 CITATION APPEARS, AT LEAST ONE CITATION MUST EITHER BE TO THE
12 FEDERAL APPENDIX OR BE ACCOMPANIED BY THE NOTATION: “(SUMMARY
13 ORDER).” A PARTY CITING A SUMMARY ORDER MUST SERVE A COPY OF THAT
14 SUMMARY ORDER TOGETHER WITH THE PAPER IN WHICH THE SUMMARY
15 ORDER IS CITED ON ANY PARTY NOT REPRESENTED BY COUNSEL UNLESS THE
16 SUMMARY ORDER IS AVAILABLE IN AN ELECTRONIC DATABASE WHICH IS
17 PUBLICLY ACCESSIBLE WITHOUT PAYMENT OF FEE (SUCH AS THE DATABASE
18 AVAILABLE AT HTTP://WWW.CA2.USCOURTS.GOV/). IF NO COPY IS SERVED BY
19 REASON OF THE AVAILABILITY OF THE ORDER ON SUCH A DATABASE, THE
20 CITATION MUST INCLUDE REFERENCE TO THAT DATABASE AND THE DOCKET
21 NUMBER OF THE CASE IN WHICH THE ORDER WAS ENTERED.
22
23 At a stated term of the United States Court of Appeals for the Second Circuit, held at the
24 United States Courthouse, 500 Pearl Street, in the City of New York, on the 23rd day of
25 November, two thousand nine.
26
27 PRESENT:
28 HON. RALPH K. WINTER,
29 HON. ROSEMARY S. POOLER,
30 Circuit Judges,
31 HON. JED S. RAKOFF,
32 District Judge.*
33
34 -------------------------------------------x
35 DEANNA MCBREARTY, MARYLYNN HARTSEL,
36 individually, derivatively, and on behalf of all others
37 similarly situated,
38
39 Plaintiffs-Appellants,
40
41 -v.- No. 09-1445-cv
*
The Honorable Jed S. Rakoff, United States District Judge for the Southern District of
New York, sitting by designation.
1 THE VANGUARD GROUP, INC., GEORGE U. SAUTER,
2 DUANE F. KELLY, JOHN J. BRENNAN, CHARLES D.
3 ELLIS, RAJIV L. GUPTA, AMY GUTMANN, JOANN
4 HEFFERNAN HEISEN, ANDRE F. PEROLD, ALFRED M.
5 RANKIN JR., J. LAWRENCE WILSON, ACADIAN ASSET
6 MANAGEMENT, LLC, RONALD D. FRASHURE, JOHN R.
7 CHISHOLM, BRIAN K. WOLAHAN, MARATHON ASSET
8 MANAGEMENT, LLP and NEIL M. OSTRER,
9
10 Defendants-Appellees,
11
12 VANGUARD INTERNATIONAL EQUITY INDEX FUNDS,
13 D/B/A VANGUARD EUROPEAN STOCK INDEX FUND,
14 VANGUARD HORIZON FUNDS, D/B/A VANGUARD
15 GLOBAL EQUITY FUND,
16
17 Nominal Defendants-Appellees,
18
19 ALLIANCE BERNSTEIN LP, HENRY S. D’AURIA,
20 SHARON E. FAY, KEVIN F. SIMMS, WILLIAM J. ARAH
21 and JEREMY H. HOSKING,
22
23 Defendants.
24
25 -------------------------------------------x
26
27 Appearing for Appellants: THOMAS I. SHERIDAN, III (Andrea Bierstein, on the
28 brief), Hanly Conroy Bierstein Sheridan Fisher & Hayes
29 LLP, New York, New York.
30
31 Appearing for Appellees: HARRY A. OLIVAR, JR. (A. William Urquhart and
32 Jasmine M. Starr, Quinn Emanuel Urquhart Oliver &
33 Hedges, LLP, Los Angeles, California; David Braff, Penny
34 Shane, and Amanda F. Davidoff, Sullivan & Cromwell
35 LLP, New York, New York; Kenneth S. Leonetti, Brandon
36 F. White, and Kirk G. Hanson, Foley Hoag LLP, Boston,
37 Massachusetts; Robert M. Dato, Michael Cereseto, and L.
38 Richard Walton, Buchalter Nemer, PC, Los Angeles,
39 California, on the brief), Quinn Emanuel Urquhart Oliver &
40 Hedges, LLP, Los Angeles, California.
41
42 Appeal from the United States District Court for the Southern District of New York
43 (Denise L. Cote, Judge).
2
1
2 UPON DUE CONSIDERATION, IT IS HEREBY ORDERED, ADJUDGED, AND
3 DECREED that the judgment of the district court is AFFIRMED.
4
5 Plaintiffs-appellants appeal a judgment entered on April 6, 2009 in the United States
6 District Court for the Southern District of New York (Cote, J.) dismissing with prejudice
7 plaintiffs’ claims under the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. §
8 1961 et seq. (“RICO”). Plaintiffs were shareholders in certain of defendants’ mutual funds that
9 had invested in online gambling companies. They brought this civil RICO action after the shares
10 of these online gambling companies declined in value following a government crackdown on
11 illegal offshore gambling. We assume general familiarity with the underlying facts, procedural
12 history, and issues on appeal.
13 We review de novo the district court’s grant of a motion to dismiss, taking all reasonable
14 inferences in plaintiffs’ favor. City of N.Y. v. Smokes-Spirits.com, Inc., 541 F.3d 425, 439 (2d
15 Cir. 2008).
16 To state a civil RICO claim, plaintiffs must show that they were injured “by reason of”
17 the alleged racketeering activity, 18 U.S.C. § 1964(c), that is, that the defendant’s RICO violation
18 proximately caused plaintiffs’ injuries. See Anza v. Ideal Steel Supply Corp., 547 U.S. 451, 457
19 (2006); Holmes v. Sec. Investor Prot. Corp., 503 U.S. 258, 267-68 (1992); see also Smokes-
20 Spirits, 541 F.3d at 440-41; Lerner v. Fleet Bank, N.A., 318 F.3d 113, 121-22 (2d Cir. 2003). In
21 the RICO context, proximate causation means, in turn, that “the alleged violation led directly to
22 the plaintiff’s injuries.” Anza, 547 U.S. at 461. Here, however, the complaint alleges that the
23 decline in the funds’ online gambling holdings was not the direct result of the RICO violation --
24 the owning and/or financing of illegal gambling -- but rather was the result of the subsequent
3
1 “government crackdown” on the illegal gambling. Although plaintiffs contend that the law
2 enforcement crackdown was a foreseeable risk of defendants’ activities (rather than a
3 supervening cause),1 we have already held that proximate causation is lacking under RICO when
4 the harm results from the exposure or disclosure of the RICO predicate activity. In re Am.
5 Express Co. S’holder Litig., 39 F.3d 395, 400 (2d Cir. 1994).2
6 Plaintiffs also argue that the “underlying premises” of the proximate cause requirement
7 set forth by the Supreme Court in Holmes v. Securities Investor Protection Corp., 503 U.S. at8 269-70, support a finding of proximate cause here.3 It is hardly clear that this is so; but even
9 assuming arguendo that these policy considerations cut in plaintiffs’ favor, they cannot remedy
1
Although foreseeability is often the test of proximate causation at common law, see
Palsgraf v. Long Island R.R. Co., 162 N.E. 99, 100 (N.Y. 1928), RICO causation is a concept
distinct from “proximate causation as that term is used at common law.” Abrahams v. Young &
Rubicam Inc., 79 F.3d 234, 237 (2d Cir. 1996).
2
Although plaintiffs argue that American Express is undercut by the Supreme Court’s
recent decision in Bridge v. Phoenix Bond & Indemnity Co., 128 S. Ct. 2131 (2008), we do not
agree. The civil RICO action in Bridge was brought by regular bidders at a county’s auctions of
tax liens, who alleged that the defendants, also regular bidders, were able to obtain a
disproportionate share of valuable liens by lying to the county about their status as “related
entities” in order to circumvent a rule that would otherwise result in a more equitable distribution
of liens. Id. at 2135-36. Thus, the injury alleged in Bridge -- the plaintiffs’ inability to obtain
valuable liens to which they would otherwise have been entitled -- resulted directly from the
fraudulent representations that constituted the racketeering activity.
3
These considerations are: “(1) the factual difficulty of measuring indirect damages and
distinguishing among distinct independent causal factors; (2) the complexity of apportioning
damages among plaintiffs ‘to obviate the risk of multiple recoveries’; and (3) the fact that ‘the
need to grapple with these problems is simply unjustified by the general interest in deterring
injurious conduct, since directly injured victims can generally be counted on to vindicate the
law.’” Smokes-Spirits, 541 F.3d at 440 (quoting Holmes, 503 U.S. at 269).
4
1 the basic defects in causation discussed above, nor provide a basis for overruling our clear prior
2 precedents.
3 For the foregoing reasons, the judgment of the district court is hereby AFFIRMED.
4
5 FOR THE COURT:
6 Catherine O’Hagan Wolfe, Clerk
7
8
9 BY:
5