Monday, March 05, 2012

District Court Construes Janus in National Century Litigation

A federal district court (SD Ohio) construed the Supreme Court’s Janus holding in a case arising out of the fraud by National Century, a securitizer of health care receivables, and allowed most claims to proceed against Credit Suisse. The court rejected arguments by the firm that in light of Janus, it did not "control" the content of the private placement memorandums (PPMs) at issue, and that ultimately the PPMs belonged to the issuers.

As described by the court, Credit Suisse attempted to cast the issue of attribution as an either-or situation, where “the PPMs either belonged to the issuers or Credit Suisse, but not to both.” However, concluded the court, a factfinder could reasonably find from the available evidence that the PPMs should be attributed to both the issuers and to Credit Suisse. The plaintiffs produced testimony and evidence that the PPMs were a shared product. Credit Suisse's own witnesses testified of playing a role in drafting and preparing the PPMs and of exercising control over their content. The PPMs displayed the Credit Suisse name prominently on the front pages and told potential investors that Credit Suisse was "specifically designated" to make representations about the notes. This was, concluded the court, sufficient to create a triable issue as to whether Credit Suisse could be held liable for the misrepresentations in the PPMs.

In addition, the court stated that Credit Suisse's focus on the claim that the PPMs "belonged" to the issuers ignored the fact that it was Credit Suisse who took the statements and put them into investors' hands. Even if Credit Suisse did not author every word in the PPMs, stated the court, it did communicate them to investors. The district court concluded that even in light of Janus, “[i]t is fraud to knowingly provide false information to another person, regardless of who originally drafted the words.” Given that Credit Suisse played a role in preparing the PPMs and provided them to the noteholders, the court concluded that “the real issue is less one of attribution and more one of knowledge” that the information it supplied to the noteholders was false. Finally, the court rejected Credit Suisse's contention that it did not owe a duty to disclose, “for one who chooses to speak, as Credit Suisse did, in a securities transaction undertakes a duty to speak truthfully and completely about the matters on which he speaks.”

In re National Century Financial Enterprises, Inc., Investment Litigation (SD Ohio, Case No. 2:03-md-1565)

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