Ponsa-Rabell v. Santander Securities, LLC ( 2022 )

United States Court of Appeals
For the First Circuit
No. 20-1857
JORGE PONSA-RABELL; CARINA PEREZ-CISNEROS ARMENTEROS; MARILU
CADILLA-REBOLLEDO, by herself and on behalf of her children's
accounts,
Plaintiffs, Appellants,
YGRC MINOR CHILD; CIRC MINOR CHILD
Plaintiffs,
v.
SANTANDER SECURITIES LLC; SANTANDER BANCORP; SANTANDER HOLDINGS
USA, INC.; BANCO SANTANDER PUERTO RICO; BANCO SANTANDER, S.A.,
Defendants, Appellees.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF PUERTO RICO
[Hon. Gustavo A. Gelpí, Chief U.S. District Judge]
Before
Thompson and Howard, Circuit Judges,
and Woodcock,* District Judge.
Eric M. Quetglas-Jordan, with whom José F. Quetglas-Jordán,
Quetglas Law Offices, and Quetglas Law Firm, P.S.C. were on brief,
for appellants.
Francesca Eva Brody, with whom Andrew W. Stern, Nicholas P.
Crowell, James O. Heyworth, Sidley Austin LLP, Néstor M. Méndez,
Jason R. Aguiló Suro, and Pietrantoni Méndez & Alvarez LLC were on
* Of the District of Maine, sitting by designation.
brief, for appellees.
May 20, 2022
- 2 -
THOMPSON, Circuit Judge. Before us is a dispute between
brokerage customers of Santander1, who, lacking a crystal ball,
purchased special Puerto Rico securities during a recession in
Puerto Rico, but before the crash of the bond market. These
purchasers (we'll refer to them as the "Ponsa-Rabell plaintiffs"
or "plaintiffs" hereafter) brought a securities class action
against Santander asserting claims under federal securities laws
and Puerto Rico law. The district court adopted the Report and
Recommendation of the magistrate judge, dismissing all claims. On
appeal, the Ponsa-Rabell plaintiffs dispute only the federal
securities claims (more on that later). Our take, reviewing with
fresh eyes, is that the district court got it right, so we affirm.
BACKGROUND2
The Ponsa-Rabell plaintiffs purchased Puerto Rico
Municipal Bonds (PRMBs) and other securities heavily concentrated
1In an effort to declutter the opinion of hard-to-remember
abbreviations, the defendants-appellees here will be collectively
referred to as "Santander." The parties named in the complaint
are Santander Securities, LLC (SSLLC), Santander Holdings USA,
Inc. (SHUSA), Banco Santander, S.A. (BSSA), Santander Bancorp
(Bancorp), and Banco Santander Puerto Rico (BSPR). Bancorp and
BSPR were substituted for FirstBank Puerto Rico by order of this
court on March 30, 2021, pursuant to Fed. R. App. P. 43(b). The
Ponsa-Rabell plaintiffs have informed this court that the claims
subject to this appeal are solely against SSLLC.
2All facts are taken from the complaint and accepted as true
on a motion to dismiss, and we disregard any conclusory
allegations. O'Brien v. Deutsche Bank Nat'l Tr. Co., 948 F.3d 31,
35 (1st Cir. 2020). We may also consider documents attached to
the complaint and incorporated by reference therein. Id.- 3 -
in PRMBs, including Puerto Rico Closed End Funds (PRCEFs) and
Puerto Rico Open End Funds (PROEFs) (to avoid overcomplicating
things, we'll refer to them collectively as "PRMB securities")
from December 1, 2012, to October 31, 2013 (the "Class Period").
PRMBs are bonds used by the Puerto Rican government to finance
their "commercial operations." Buyers of the PRMBs loan the issuer
money in exchange for a set number of interest payments. Issuers
guarantee payment of the monthly yield and principal by a certain
maturity date.
The PRMB securities were marketed to the public through
prospectuses that were specific to each fund. The prospectuses
(also called offering statements or official statements) disclosed
the fund's investment objectives, risk factors, and tax
consequences, among other useful information. Relevant to this
dispute, these prospectuses included specific sections that
clearly described the investment risks attendant to investment in
each particular fund. Despite the potential risks, the PRMB
securities were attractive investments for Puerto Rico residents
for some years, as they generally offered higher interest than
comparable investments and were exempt from Puerto Rico and U.S.
income and estate taxes.
Prior to and throughout the Class Period, Puerto Rico
was experiencing an economic recession. Given the nature of the
PRMB securities (as we just discussed), investing in them during
- 4 -
a recession was risky. As of December 2012, the PRMB securities'
funds were highly concentrated in PRMBs and highly leveraged. This
is because during the recession, Puerto Rico issued billions of
dollars in PRMB securities, which it used to pay off existing
debts, or as the complaint complains, used "debt to pay debt."
The sales of PRMB securities were not used to help stimulate (or
in this case, revive) the Puerto Rican economy "or alleviate its
social needs." During the Class Period, Puerto Rico's deficit
increased to approximately $2.2 billion, and eventually, those
debts became unpayable.
In 2012, various public sources began issuing warnings
about the increasing risks attendant to holding PRMB securities.
The complaint helpfully provides some examples of information that
was in the public sphere regarding Puerto Rico's economic
shakiness. This includes: a March 2012 Breckinridge Capital
Advisors report that warned Puerto Rico was "flirting with
insolvency" and that someday the Commonwealth may be unable to
repay its debts; the fact that on August 8, 2012, Moody's Investor
Service ("Moody's") lowered Puerto Rico's general obligation
("GO") bond credit rating to Baa1, raised concerns about
outstanding government debt, and advised that "[c]onservative
investors with concentrated exposure to any single borrower in the
municipal market should pursue portfolio diversification"; and, on
December 13, 2012 (just days after the Class Period begins),
- 5 -
Moody's downgraded Puerto Rico's credit rating again to Baa3, just
above junk bond status (i.e., not "investment grade").
As previewed by these public statements on the overall
infirmity of the Puerto Rico economy in 2012 and 2013, so too was
the municipal bond market suffering, exemplified by a period of
heightened volatility, rising yields, and downward pressure on the
price of PRMBs. The bond market eventually crashed in the fall of
2013, resulting in financial losses for all those who invested in
PRMB securities.
Because Santander knew that the PRMB securities were
risky, it actively tried to rid itself of its inventory. When
Moody's downgraded Puerto Rico's GO rating to Baa3 (i.e., basically
junk bond status), Santander began reducing its PRMB securities
inventory at a more rapid clip because of its concern of risk
exposure given the direction of the market. While Santander was
ridding itself of PRMB securities, it was also selling them to the
Ponsa-Rabell plaintiffs. By October of 2013, the market for PRMB
securities had crashed. In the meantime, Santander managed to
reduce its PRMB inventory from $35 million to $105,000, and its
PRCEF inventory from $9.2 million to $6.8 million. The Ponsa-
Rabell plaintiffs weren't as lucky, and suffered severe economic
losses following the crash. Their complaint alleges that had the
risks of investing in the PRMB securities been disclosed by
Santander, they would have never purchased PRMB securities.
- 6 -
Santander replies that all risks were adequately disclosed to the
Ponsa-Rabell plaintiffs by Santander, and that the investment
risks they complain of were generally known to the public.
HOW WE GOT HERE
Four years after the bond market crashed, the Ponsa-
Rabell plaintiffs filed their initial complaint against Santander.
They have amended their complaint a few times, leaving us with
what they style the Third Amended Complaint (for our purposes,
just the "complaint"). In broad strokes, the complaint alleges
that Santander devised a "scheme to defraud" investors into
purchasing the PRMB securities by omitting information about the
state of the market (and thus the riskiness of the investment),
and about its own program to rid itself of PRMB securities, in
violation of Section 10(b) and Rule 10b-5 of the Exchange Act of
1934 (the "securities claims"). In addition to the securities
claims, the Ponsa-Rabell plaintiffs also brought claims under
Section 17(a) of the 1933 Securities Act and Puerto Rico law.3
In addition to the securities claims, the district court's
3
Opinion and Order Adopting Report and Recommendation notes that
the Ponsa-Rabell plaintiffs concede that there is no private right
of action under Section 17(a). The district court declined to
exercise supplemental jurisdiction over the claims under Puerto
Rico law. In their appeal, the Ponsa-Rabell plaintiffs briefly
state that the district court should exercise supplemental
jurisdiction over their state law claims because their federal law
claims should not be dismissed. We decline to address this
contention not only because it is waived for lack of development
(see United States v. Zannino, 895 F.2d 1, 17 (1st Cir. 1990)),
but also because our decision today is that the federal law claims
- 7 -
Santander moved to dismiss the complaint, and the magistrate judge
recommended dismissal. The Ponsa-Rabell plaintiffs filed
objections to the magistrate judge's Report and Recommendation,
Santander responded in turn, and the district court adopted the
Report and Recommendation in its entirety, dismissing the federal
law claims with prejudice and the state law claims without
prejudice, entering judgment. A notice of appeal timely followed.
ANALYSIS
At issue here are the Ponsa-Rabell plaintiffs' federal
securities claims under Section 10(b) and Rule 10b-5 of the
Exchange Act of 1934, which we will explain in more detail (along
with each party's position) in just a moment. "We review de novo
the district court's dismissal of a securities fraud complaint for
failure to state a claim under Rule 12(b)(6)." Mehta v. Ocular
Therapeutix, Inc., 955 F.3d 194, 205 (1st Cir. 2020). "To survive
a motion to dismiss, a complaint must contain sufficient factual
matter, accepted as true, to 'state a claim to relief that is
plausible on its face.'" Ashcroft v. Iqbal, 556 U.S. 662, 678
(2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570
(2007)). "[W]e may affirm the dismissal 'on any basis available
fail, and therefore, the supplemental jurisdiction claim must
fail, too. See Borrás-Borrero v. Corporación del Fondo del Seguro
del Estado, 958 F.3d 26, 36-37 (1st Cir. 2020). Further, Santander
moved to dismiss for lack of personal jurisdiction against BSSA.
The district court granted the motion to dismiss as to this claim,
and the Ponsa-Rabell plaintiffs do not raise this issue on appeal.
- 8 -
in the record.'" Yan v. ReWalk Robotics Ltd., 973 F.3d 22, 30
(1st Cir. 2020) (quoting Lemelson v. U.S. Bank Nat'l Ass'n, 721
F.3d 18, 21 (1st Cir. 2013)).
LEGAL FRAMEWORK
Bear with us as we outline a few legal frameworks that
will guide this analysis. We'll start by previewing the relevant
provision of the Securities Exchange Act of 1934. Section 10(b)
of the Securities Exchange Act makes it unlawful for any person to
"use or employ, in connection with the purchase or sale of any
security . . . any manipulative or deceptive device or contrivance
in contravention of such rules and regulations as the Commission
may prescribe as necessary or appropriate in the public interest
or for the protection of investors." 15 U.S.C. § 78j(b). The
accompanying regulation, Rule 10b–5, makes it unlawful to "make
any untrue statement of a material fact or to omit to state a
material fact necessary in order to make the statements made, in
the light of the circumstances under which they were made, not
misleading." 17 C.F.R. § 240.10b–5(b). Rule 10b-5 "is coextensive
with the coverage of [Section] 10(b)." S.E.C. v. Zandford, 535
U.S. 813, 816 n.1 (2002).
To successfully make out a Section 10(b) claim, a
plaintiff is required to plead six elements: "(1) a material
misrepresentation or omission; (2) scienter [legal speak for
knowledge]; (3) a connection with the purchase or sale of a
- 9 -
security; (4) reliance; (5) economic loss; and (6) loss causation."
In re Biogen Inc. Sec. Litig., 857 F.3d 34, 41 (1st Cir. 2017)
(citing Fire & Police Pension Ass'n of Colo. v. Abiomed, Inc., 778
F.3d 228, 240 (1st Cir. 2015)). Only the first two elements of
the Ponsa-Rabell plaintiffs' Section 10(b) claim -- material
misrepresentation or omission and scienter -- are at issue in this
appeal. To preview what's to come, because we do not find that
the Ponsa-Rabell plaintiffs have pled an actionable omission, we
can avoid a lengthy analysis on whether they pled scienter.
"To establish a material misrepresentation or omission,
[the Ponsa-Rabell plaintiffs] must show that [the] defendants made
a materially false or misleading statement or omitted to state a
material fact necessary to make a statement not misleading." Ganem
v. InVivo Therapeutics Holdings Corp., 845 F.3d 447, 454 (1st Cir.
2017) (citation omitted). "[W]hether a statement is 'misleading'
depends on the perspective of a reasonable investor." Omnicare,
Inc. v. Laborers Dist. Council Constr. Indus. Pension Fund, 575
U.S. 175, 186 (2015). "Information is material if a reasonable
investor would have viewed it as 'having significantly altered the
total mix of information made available.'" Miss. Pub. Emps.' Ret.
Sys. v. Bos. Sci. Corp., 523 F.3d 75, 85 (1st Cir. 2008) (quoting
Gross v. Summa Four, Inc., 93 F.3d 987, 992 (1st Cir. 1996)). We
consider the entirety of the relevant facts available at the time
of the allegedly misleading statement, not simply the words of the
- 10 -
statement itself. See In re Smith & Wesson Holding Corp. Sec.
Litig., 669 F.3d 68, 75-77 (1st Cir. 2012). "[I]f an alleged
omission involves speculative judgments about future events,
materiality will depend at any given time upon a balancing of both
the indicated probability that the event will occur and the
anticipated magnitude of the event in light of the totality of
[Santander's] activity." Hill v. Gozani, 638 F.3d 40, 57 (1st
Cir. 2011) (cleaned up). We review that "totality" from the
perspective of what Santander knew at the time, meaning "[the
Ponsa-Rabell plaintiffs] may not plead 'fraud by hindsight.'" ACA
Fin. Guar. Corp. v. Advest, Inc., 512 F.3d 46, 62 (1st Cir. 2008)
(quoting Shaw v. Dig. Equip. Corp., 82 F.3d 1194, 1223 (1st Cir.
1996)).
The second legal framework in play comes from the Private
Securities Litigation Reform Act (PSLRA), which governs complaints
alleging securities fraud (like the one before us).4 The PSLRA
imposes a heightened pleading standard on complaints alleging
securities fraud in order "to curb frivolous, lawyer-driven
4 The Ponsa-Rabell plaintiffs briefly argue that the
magistrate judge imposed a higher pleading standard when reviewing
their claims than what is required under the federal securities
laws without supporting that contention with law or explaining
what they believe to be the appropriate standard of review. We do
not agree with the Ponsa-Rabell plaintiffs, most notably because
the argument is underdeveloped and lacks supporting detail.
Zannino, 895 F.2d at 17. We therefore decline to address that
argument at length.
- 11 -
litigation, while preserving investors' ability to recover on
meritorious claims." In re Bos. Sci. Corp. Sec. Litig., 686 F.3d
21, 29–30 (1st Cir. 2012) (quoting Tellabs, Inc. v. Makor Issues
& Rights, Ltd., 551 U.S. 308, 322 (2007)). "A plaintiff's
complaint must 'specify each statement alleged to have been
misleading, [and] the reason or reasons why the statement is
misleading' . . . [and] 'state with particularity facts giving
rise to a strong inference that the defendant acted with the
required state of mind.'" Id. at 30 (quoting 15 U.S.C. § 78u–
4(b)(1), (2)). "Taken together, the [PSLRA] requirements make it
easier to identify the issues and to dismiss flawed complaints at
the complaint stage." Id. "[A]lthough 'the PSLRA does not require
plaintiffs to plead evidence . . . a significant amount of "meat"
is needed on the "bones" of the complaint.'" Ganem, 845 F.3d at
455 (quoting Hill, 638 F.3d at 56). And finally, plaintiffs "must
also meet the Rule 9(b) standard for pleading fraud with
particularity." ACA Fin. Guar. Corp., 512 F.3d at 58. "[T]he
plaintiff must not only allege the time, place, and content of the
alleged misrepresentations [or omissions] with specificity, but
also the 'factual allegations that would support a reasonable
inference that adverse circumstances existed at the time of the
offering, and were known and deliberately or recklessly
disregarded by defendants.'" Greebel v. FTP Software, Inc., 194
- 12 -
F.3d 185, 193-94 (1st Cir. 1999) (quoting Romani v. Shearson Lehman
Hutton, 929 F.2d 875, 878 (1st Cir. 1991)).
With that out of the way, here's our take, which can be
summed up by simply saying what a district court colleague said
way back when: "[r]ule 10b-5 [and Section 10(b) are] not insurance
against an investment loss." Kennedy v. Josephthal & Co., Inc.,
635 F. Supp. 399, 405 (D. Mass. 1985), aff'd, 814 F.2d 798 (1st
Cir. 1987). Accordingly, we proceed with dispatch.
OMISSIONS
In their complaint, the Ponsa-Rabell plaintiffs plead
that there were allegedly material omissions (rather than any
affirmative misrepresentations on the part of Santander).
Generally, an omission is actionable under Rule 10b-5 only where
there is an affirmative duty to disclose. Basic Inc. v. Levinson,
485 U.S. 224, 239 n.17 (1988) ("Silence, absent a duty to disclose,
is not misleading under Rule 10b-5."). Plaintiffs carry the burden
of showing "that defendants . . . omitted to state a material fact
necessary to make a statement not misleading." Ganem, 845 F.3d at
454 (quoting Geffon v. Micrion Corp., 249 F.3d 29, 34 (1st Cir.
2001)). "[T]he mere possession of material, nonpublic information
does not create a duty to disclose it." Hill, 638 F.3d at 57(quoting Cooperman v. Individual, Inc., 171 F.3d 43, 49 (1st Cir.
1999)) (cleaned up). Essentially, in order to get past "go" on a
motion to dismiss, a plaintiff must first identify a statement
- 13 -
made by defendants, show how the omission rendered that statement
misleading, and finally establish that there was a duty to disclose
the omitted information.
In their blue brief, the Ponsa-Rabell plaintiffs take up
lots of pages trying get past the go. Through the use of a nifty
chart, the Ponsa-Rabell plaintiffs identify two disclosures
contained in a fund prospectus generated when the fund was
initially offered, which they contend are fatally defective
because of information Santander omitted. The disclosures read
first: "[t]here is no Assurance that a Secondary Market for the
Offered Bonds will Develop" and second "the Underwriters are not
obligated to do so [meaning to guarantee a secondary market] and
any such market making may be discontinued at any time at the sole
discretion of the Underwriters." These two statements are
misleading, plaintiffs contend, in light of Santander's failure to
disclose a couple of material facts which plaintiffs say were
necessary in order to make what facts Santander did disclose not
misleading, to wit, the deteriorating market conditions in Puerto
Rico and Santander's economic take on those conditions, and second,
Santander's failure to disclose that they were ridding their own
inventory of PRMB securities and doing so at an accelerated pace.5
5 The Ponsa-Rabell plaintiffs seem to allege a laundry list
of omissions as the magistrate judge noted, which include: "[t]he
events and circumstances in Puerto Rico's economy that led to
increased risk in the PRMB market"; "[t]he nature of the risks
- 14 -
The two statements Santander did disclose are misleading in light
of the alleged omissions, say the Ponsa-Rabell plaintiffs,
because, in a nutshell (as we understand the argument), (1) they
were made prior to Santander reducing their PRMB inventory; (2)
they were not made at the time they purchased the securities during
Class Period; and (3) even if the information that was omitted was
public, it did not relieve Santander of its duty to disclose the
information to them at the point of purchase. In other words, we
take plaintiffs' argument to mean that Santander, by plaintiffs'
light, was under an ongoing obligation to update its prospectuses
with the information they allege was material (and omitted).
involved in purchasing PRMBs"; "[Santander's] concerns about the
risks involved in owning PRMBs"; "[t]hat [Santander] had begun
reducing its PRMB inventory because of the risks involved in owning
such inventory"; "[t]hat Moody's had downgraded Puerto Rico's GO
and related debt rating to Baa3"; "[t]hat the Moody's downgrade
had further intensified [Santander's] concerns regarding the risks
related to PRMBs"; "[t]hat [Santander] accelerated its efforts to
reduce its inventory of PRMBs as a result of the Moody's
downgrade"; "[t]hat [Santander] was liquidating its inventory of
PRMBs because it considered PRMBs too risky"; "[t]hat [Santander]
had closed its trading desk to new PRMB purchases and that
[Santander] had stopped purchasing PRMBs that its customers sought
to sell"; "[t]hat [Santander's] decision to cease purchasing PRMBs
could reduce their liquidity"; "[t]he reasons why [Santander] was
liquidating its PRMB inventory"; and "[t]hat the risks associated
with PRMBs were relevant to the purchase of PRCEFs and PROEFs
because they were heavily concentrated and leveraged in PRMBs."
Our take is that all of this boils down to two overarching
omissions: the state of the economy and its effect on the
riskiness of PRMBs, and Santander hastily ridding itself of its
PRMB inventory.
- 15 -
Taking the two alleged omissions one by one, we start
with the Ponsa-Rabell plaintiffs' claim that Santander should have
disclosed to them information regarding the deteriorating market
conditions for Puerto Rico bonds. Unfortunately, the Ponsa-Rabell
plaintiffs' contention is not in line with our precedent -- and as
our colleagues have said, "[i]t is not a material omission to fail
to point out information of which the market is already aware."
Baron v. Smith, 380 F.3d 49, 57 (1st Cir. 2004) (citing In re
Donald Trump Casino Sec. Litig., 7 F.3d 357, 377 (3d Cir. 1993)).
Indeed, the Ponsa-Rabell plaintiffs' own complaint points to
public statements about the deteriorating economy in Puerto Rico,
quoted supra. Our case law is clear. Santander was simply not
under any duty to repeat information already known or readily
accessible to investors. See id.
The second alleged omission relates to Santander failing
to disclose that it was ridding itself of PRMB securities. They
argue that "[i]f the risks were material enough for Santander to
divest itself of those securities, they certainly were material
enough for it to have a duty to disclose those risks to
[plaintiffs] at the time of the purchases."6
6 The Ponsa-Rabell plaintiffs spill much ink in their
complaint arguing that a duty to disclose can "stem from: the
Account and Financial Advisor Agreement; the fiduciary and
suitability duties imposed by [the] Securities Exchange Act, FINRA
Rule 2111 and Guidelines; the applicable industry standards and
regulations; MSRB Rule G-17; the fiduciary duties imposed by PR
- 16 -
In previous cases, we've examined alleged omissions in
other securities fraud cases and bucketed them into two categories
using the oft-employed "Grand Canyon" metaphor7: those where we've
considered the "risk [of failing to disclose a material fact] so
great that it is akin to the Grand Canyon (and therefore a
disclosure is misleading if it frames the risk as merely
hypothetical)" on the one hand, and those that "make[] a situation
merely risky (i.e., simply a ditch)." Karth v. Keryx
Biopharmaceuticals, Inc., 6 F.4th 123, 137 (1st Cir. 2021). There
is one case in particular that serves as a foil for the claims
brought here, as it deals both with a sudden market downturn and
a company ridding itself of securities while selling them to a
client. In Tutor Perini Corp., we held that the defendant, Banc
of America Securities ("BAS") had a duty to disclose where the
risks to the company it was advising, Tutor, had "dramatically
Regulation 6078, Section 25.1; and, the general duties of care and
good faith in the performance of a contract established by the
Civil Code. . . ." However, the Ponsa-Rabell plaintiffs do not
sufficiently plead the existence of any of these duties as it
relates to the sale of PRMB securities, and we therefore decline
to consider their arguments further.
7 The "Grand Canyon" metaphor describes "a situation where
the broker-dealer makes risk disclosures that, given the market's
state, are akin to a hiker 'warn[ing] his . . . companion to walk
slowly because there might be a ditch ahead when he knows with
near certainty that the Grand Canyon lies one foot away.'" Tutor
Perini Corp. v. Banc of Am. Sec. LLC, 842 F.3d 71, 90 (1st Cir.
2016) (quoting In re Prudential Sec. Inc. Ltd. P'ships Litig., 930
F. Supp. 68, 72 (S.D.N.Y. 1996)).
- 17 -
changed" when the market for auction-rate securities ("ARS")
completely collapsed. 842 F.3d at 87. There, "BAS knew (but
elected not to disclose) that the ARS market teetered on the brink
of collapse when it encouraged Tutor Perini to snatch up more ARS",
all the while shedding itself of the same securities. Id. at 91.
BAS and Tutor held a special relationship, where BAS had promised
to "provide investment solutions that [met Tutor's] needs by
clearly defining the risk/reward of particular securities." Id.
at 87 (internal quotation marks omitted). "So, Tutor was more
than just a hiker near the Grand Canyon; it was a hiker that had
hired BAS as a wilderness guide with the explicit instruction to
steer clear of cliffs because of a fear of heights." Karth, 6
F.4th at 137.
Upon a diligent search of plaintiffs' complaint, we've
found no allegations of a special relationship, or any
particularized investment instructions plaintiffs may have given
Santander, that would support a duty to disclose the allegedly
omitted information pled by the Ponsa-Rabell plaintiffs, facts
that were crucial to our holding in Tutor Perini Corp. The best
factual support the Ponsa-Rabell plaintiffs drum up in support of
their claims that Santander had a duty to disclose the two
allegedly omitted facts are that (1) their purchases were
"solicited" (meaning Santander recommended the purchases) and (2)
their investment objectives were to "preserve capital" and
- 18 -
"current fixed income." We take their argument to be that because
Santander recommended the purchases, knowing at the time of sale
that their investment objectives were conservative, Santander was
somehow recommending to them an unsuitable investment.8 Whether
or not this assertion is true we cannot determine because the
Ponsa-Rabell plaintiffs simply do not plead sufficient allegations
allowing us to do so. In Tutor Perini Corp. (in contrast to the
Ponsa-Rabell plaintiffs' complaint here), the plaintiffs pled that
BAS made a special promise to outline the risks of their
investment, and that BAS did in fact know the ARS market meltdown
was occurring (i.e., the risks were materializing), and failed to
inform Tutor. No such allegations about Santander's actions or
inactions are present here.9 As we earlier explained when
describing the legal principles that guide our analysis, a
"plaintiff's complaint must 'specify each statement alleged to
have been misleading [and] the reason or reasons why the statement
8The Ponsa-Rabell plaintiffs are also wrong in arguing that
the magistrate judge erred in noting that the plaintiffs failed to
state what kind of investors they were and that the complaint did
not specify why the Ponsa-Rabell plaintiffs may have been attracted
to the PRMB securities. Neither of these facts have bearing on
the outcome, as they are mentioned by the magistrate judge only to
illustrate how bare the complaint is of facts.
9To be clear, we are not indicating that proof of a special
relationship between a securities purchaser and seller is always
necessary to establish a Section 10(b) securities violation.
Rather, what we are addressing in our analysis here is the Ponsa-
Rabell plaintiffs' specific claims as they have chosen to frame
them in their complaint.
- 19 -
is misleading' . . . [and] 'state with particularity facts giving
rise to a strong inference that the defendant acted with the
required state of mind.'" In re Bos. Sci. Corp. Sec. Litig., 686
F.3d at 30 (quoting 15 U.S.C. § 78u–4(b)(1), (2)). However, as
the magistrate judge so eloquently observed in his Report and
Recommendation,
[h]ere, plaintiffs have not described specific
statements by defendants that they wish to challenge.
The complaint alleges that [Santander] affirmatively
contacted plaintiffs and recommended that they purchase
PRMB securities. Presumably, [Santander's]
representatives must have made some statement in order
to solicit plaintiffs' purchases, for instance, by
saying, "I recommend that you purchase these
securities." But the complaint provides no details
whatsoever regarding the contents of those
communications other than to allege that the statements,
whatever they were, failed to include certain details.
Bottom line here, while finding oneself in a ditch is no
picnic in a meadow, it is also not dining at the edge of the Grand
Canyon.
Because we conclude there is no actionable omission, we
have no need to address the remaining scienter dispute.10
10Even if the Ponsa-Rabell plaintiffs had managed to identify
an omission that rendered a statement made by Santander misleading,
nowhere in the complaint do they set forth facts that Santander
had knowledge, or scienter, which is "a mental state embracing
intent to deceive, manipulate, or defraud." Tellabs, Inc., 551
U.S. at 319 (quoting Ernst & Ernst v. Hochfelder et al., 425 U.S.
185, 193-94 & n.12 (1976)). As the Supreme Court has reminded,
evidence of fraudulent intent, as required to state a plausible
claim under Section 10(b), must be "at least as compelling as any
opposing inference of nonfraudulent intent." Id. at 314.
- 20 -
CONCLUSION
Spying no error with the district court's conclusion,
and reviewing for ourselves with fresh eyes, we affirm. Each party
shall bear its own costs.
- 21 -