Newby v. Enron Corp. (761 F. Supp. 2d 504, 2011)

OPINION AND ORDER OF DISMISSAL

MELINDA HARMON, District Judge.

The above referenced action, H-03-1276, alleges that a Defendant Deutsche Bank Securities, Inc. (“Deutsche Bank” or “the bank”) fraudulently induced Plaintiffs Westboro Properties LLC and Stonehurst Capital, Inc. in 1999 and 2000 to purchase beneficial ownership interests (“Osprey Certificates”) in the Osprey Trust, a special purpose entity (“SPE”) allegedly secured by worthless or nearly worthless assets purchased from Enron Corporation purportedly through “arms-length” transactions and dumped into Osprey, as part of a larger conspiracy with Enron to manipulate Enron’s financial statements and defraud investors. Pending before the Court in H-03-1276 is Deutsche Bank’s motion to dismiss (instrument # 39) Plaintiffs’ Second Amended Complaint (# 33), pursuant to Federal Rules of Civil Procedure 12(b)(6) and 9(b). All other Defendants have settled with Plaintiffs.

Initially Plaintiffs argue that Texas law applies here, because (1) Texas has the most significant relationship with Defendants allegedly wrongful conduct and is the reason why these cases were referred to the Southern District of Texas; (2) an out-of-state plaintiff may sue under the Texas Securities Act (“TSA”) if the complained-of conduct took place in Texas; and (3) Texas has a strong public policy interest in enforcing its securities laws. Given that Enron Corp., was based in Houston, Texas and was inextricably intertwined in each of the transactions at issue here, where many of the important documents were drafted and decisions made, the nucleus of the litigation is in this district. Plaintiffs seek equitable and/or monetary relief for violations of Sections 581-33A and 581-33F of the TSA, Tex.Rev.Civ. Stat. Ann. § 581-1 et seq.; common-law aiding and abetting, fraud, and civil conspiracy; and Sections 12(a)(2) and 15 of the Securities Act of 1933, 15 U.S.C. §§ 77l (a)(2) and 77o. Plaintiffs also request attorneys’ fees and exemplary damages. They claim they are entitled to unlimited exemplary damages under the Texas Civil Practice & Remedies Code § 41.008(c) because each Defendant violated and/or conspired with Enron to violate Texas Penal Code §§ 32.43 (commercial bribery) and/or 32.47 (fraudulent concealment of a writing).

Alternatively, Plaintiffs assert their claims under New York common law.

After careful review of the parties’ submissions and the applicable law, for the reasons stated below the Court concludes that Plaintiffs have failed to state a claim against Deutsche Bank under Federal Rules of Civil Procedure 9(b) and 12(b) and that this action should accordingly be dismissed.

Standards of Review

When a district court reviews a motion to dismiss pursuant to Fed.R.Civ.P. 12(b)(6), it must construe the complaint in favor of the plaintiff and take all well-pleaded facts as true. Kane Enterprises v. MacGregor (USA), Inc., 322 F.3d 371, 374 (5th Cir.2003), citing Campbell v. Wells Fargo Bank, 781 F.2d 440, 442 (5th Cir.1986).

‘While a complaint attacked by a Rule 12(b)(6) motion to dismiss does not need detañed factual allegations, ... a plaintiffs obligation to provide the ‘grounds’ of his ‘entitle[ment] to relief requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do.... ” Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 127 S.Ct. 1955, 1964-65, 167 L.Ed.2d 929 (2007) (citations omitted). “Factual allegations must be enough to raise a right to relief above the speculative level.” Id. at 1965, citing 5 C. Wright & A. Miller, Federal Practice and Procedure § 1216, pp. 235-236 (3d ed. 2004) (“[T]he pleading must contain something more ... than ... a statement of facts that merely creates a suspicion [of] a legally cognizable right of action”). “Twombly jettisoned the minimum notice pleading requirement of Conley v. Gibson, 355 U.S. 41, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957) [“a complaint should not be dismissed for failure to state a claim unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief’], and instead required that a complaint allege enough facts to state a claim that is plausible on its face.” St. Germain v. Howard, 556 F.3d 261, 263 n. 2 (5th Cir.2009), citing In re Katrina Canal Breaches Litig., 495 F.3d 191, 205 (5th Cir.2007) (“To survive a Rule 12(b)(6) motion to dismiss, the plaintiff must plead ‘enough facts to state a claim to relief that is plausible on its face.’ ”), citing Twombly, 127 S.Ct. at 1974. “ ‘A claim has facial plausibility when the pleaded factual content allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.’ ” Montoya v. FedEx Ground Package System, Inc., 614 F.3d 145, 148 (5th Cir.2010), quoting Ashcroft v. Iqbal, - U.S. -, 129 S.Ct. 1937, 1940, 173 L.Ed.2d 868 (2009). Dismissal is appropriate when the plaintiff fails to allege “ ‘enough facts to state a claim to relief that is plausible on its face’ ” and therefore faüs to “ ‘raise a right to relief above the speculative level.’ ” Montoya, 614 F.3d at 148, quoting Twombly, 550 U.S. at 555, 570, 127 S.Ct. 1955.

In Ashcroft v. Iqbal, 129 S.Ct. at 1940, the Supreme Court, applying the Twombly plausibility standard to a Bivens claim of unconstitutional discrimination and a defense of qualified immunity for government official, observed that two principles inform the Twombly opinion: (1) “the tenet that a court must accept as true all of the allegations contained in a complaint is inapplicable to legal conclusions.” ... Rule 8 “does not unlock the doors of discovery for a plaintiff armed with nothing more than conclusions.”; and (2) “only a complaint that states a plausible claim for relief survives a motion to dismiss,” a determination involving “a context-specific task that requires the reviewing court to draw on its judicial experience and common sense.”

Furthermore, the plaintiff must plead specific facts, not merely conelusory allegations, to avoid dismissal. Collins v. Morgan Stanley Dean Witter, 224 F.3d 496, 498 (5th Cir.2000) “Dismissal is proper if the complaint lacks an allegation regarding a required element necessary to obtain relief....” Rios v. City of Del Rio, Texas, 444 F.3d 417, 421 (5th Cir.2006), cert. denied, 549 U.S. 825, 127 S.Ct. 181, 166 L.Ed.2d 43 (2006).

In addition to the complaint, the court may review documents attached to the complaint and documents attached to the motion to dismiss to which the complaint refers and which are central to the plaintiffs claim(s). Collins, 224 F.3d at 498-99. If an exhibit attached to the complaint contradicts an allegation in the complaint the exhibit controls. United States ex rel. Riley v. St. Luke’s Episcopal Hosp., 355 F.3d 370, 377 (5th Cir.2004).

The court may also take notice of matters of public record when considering a Rule 12(b)(6) motion. Davis v. Bayless, 70 F.3d 367, 372 n. 3 (5th Cir.1995); Cinel v. Connick, 15 F.3d 1338, 1343 n. 6 (5th Cir.1994).

Fraud claims must also satisfy the heightened pleading standard set out in Federal Rule of Civil Procedure 9(b): “In allegations alleging fraud ..., a party must state with particularity the circumstances constituting fraud or mistake. Malice, intent, knowledge, and other conditions of a person’s mind may be alleged generally.” A dismissal for failure to plead with particularity as required by this rule is treated the same as a Rule 12(b)(6) dismissal for failure to state a claim. Lovelace v. Software Spectrum, Inc., 78 F.3d 1015, 1017 (5th Cir.1996). The Fifth Circuit interprets Rule 9(b) to require “specificity as to the statements (or omissions) considered to be fraudulent, the speaker, when and why the statements were made, and an explanation of why they were fraudulent.” Plotkin v. IP Axess, Inc., 407 F.3d 690, 696 (5th Cir.2005). In accord Lerner v. Fleet Bank, N.A., 459 F.3d 273, 290 (2d Cir.2006).

The pleading standards of Twombly and Rule 9(b) apply to pleading a state law claim of conspiracy to commit fraud. U.S. ex rel. Grubbs v. Kanneganti, 565 F.3d 180, 193 (5th Cir.2009) (“a plaintiff alleging a conspiracy to commit fraud must ‘plead with particularity the conspiracy as well as the overt acts ... taken in furtherance of the conspiracy’ ”), quoting FC Inv. Group LC v. IFX Markets, Ltd., 529 F.3d 1087, 1097 (D.C.Cir.2008). In accord Lerner v. Fleet Bank, N.A., 459 F.3d at 290-92.

If Plaintiffs fail to state a claim for fraud underlying their civil conspiracy claim, the civil conspiracy claim must be dismissed, too. Allstate Ins. Co. v. Receivable Finance, Co., 501 F.3d 398, 414 (5th Cir.2007); American Tobacco Co., Inc. v. Grinnell, 951 S.W.2d 420, 438 (Tex.1997) (“Allegations of conspiracy are not actionable absent an underlying [tort]”); Frames v. Bohannon Holman LLC, No. 3:06-CV-2370-0, 2009 WL 762205, *10 (N.D.Tex. Mar. 24, 2009). In accord Kott ler v. Deutsche Bank AG, 607 F.Supp.2d 447, 461 (S.D.N.Y.2009)

Dismissal under Federal Rule of Civil Procedure 12(b)(6) is “appropriate when a defendant attacks the complaint because it fails to state a legally cognizable claim.” Ramming v. United States, 281 F.3d 158, 161 (5th Cir.2001), cert. denied sub nom. Cloud v. United States, 536 U.S. 960, 122 S.Ct. 2665, 153 L.Ed.2d 839 (2002), cited for that proposition in Baisden v. I’m Ready Productions, No. Civ. A. H-08-0451, 2008 WL 2118170, *2 (S.D.Tex. Tex. May 16, 2008). See also ASARCO LLC v. Americas Min. Corp., 382 B.R. 49, 57 (S.D.Tex.2007) (“Dismissal ‘can be based either on a lack of a cognizable legal theory or the absence of sufficient facts alleged under a cognizable legal theory.’ ” [citation omitted]), reconsidered in other part, 396 B.R. 278 (S.D.Tex.2008); Esposito v. New York, 355 Fed.Appx. 511, 512-13 (2d Cir.2009).

Relevant Law

A court decides a conflicts-of-law question only when a case is connected with more than one state and the laws of these states differ on one or more points in issue. Greenberg Traurig of New York, PC v. Moody, 161 S.W.3d 56, 69-70 (Tex.App.-Houston [14th Dist.] 2004, no pet.). Federal courts apply the forum state’s conflict-of-laws rules to determine what law governs state-law claims. Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941); Bailey v. Shell Western E & P, Inc., 609 F.3d 710, 722 (5th Cir.2010). Determining which state’s law governs is a question of law for the court to decide. Torrington Co. v. Stutzman, 46 S.W.3d 829, 848 (Tex.2000).

Where the parties have not agreed by contract which law should apply, Texas courts apply the law of the state with the most significant relationship to the particular substantive issue. Duncan v. Cessna Aircraft Co., 665 S.W.2d 414, 421 (Tex.1984) (the court considers “the qualitative nature of the particular contacts with a state” and the “state policies underlying the particular substantive issues”). Texas has adopted the Restatement (Second) of Conflict of Laws § 6 (1971)’s “most significant relationship test to decide choice of law issues.” Hughes Wood Prods., Inc. v. Wagner, 18 S.W.3d 202, 205 (Tex.2000). Section 6(2) sets out general factors for consideration in determining the applicable law:

(a) the needs of the interstate and international systems,

(b) the relevant policies of the forum,

(c) the relevant policies of other interested states and the relative interests of those states in the determination of the particular issue,

(d) the protection of justified expectations,

(e) the basic policies underlying the particular field of law,

(f) certainty, predictability and uniformity of the result, and

(g) ease in the determination and application of the law to be applied.

The courts consider “the qualitative nature of the particular contacts” with a state and the “state policies underlying the particular substantive issues.” Duncan v. Cessna Aircraft Co., 665 S.W.2d 414, 421 (Tex.1984).

For claims based on fraud and misrepresentation, to determine which state’s law applies, in Texas the court considers the specific factors in the Restatement (Second) of Conflict of Laws § 148. Highland Crusader Offshore Partners, LP v. Motient Corp., 281 S.W.3d 237, 249-50 (Tex.App.-Dallas 2009). Section 148 provides,

(1) When the plaintiff has suffered pecuniary harm on account of his reliance on the defendant’s false representations and when the plaintiffs action in reliance took place in the state where the false representations were made and received, the local law of this state determines the rights and liabilities of the parties unless, with respect to the particular issue, some other state has a more significant relationship under the principles stated in § 6 to the occurrence and the parties, in which event the local law of the other state will be applied.

(2) When the plaintiffs action in reliance took place in whole or in part in a state other than that where the false representations were made, the forum will consider such of the following contacts, among others, as may be present in the particular case in determining the state which, with respect to the particular issue, has the most significant relationship to the occurrence and the parties:

(a) the place, or places, where the plaintiff acted in reliance upon the defendant’s representations,

(b) the place where the plaintiff received the representations,

(c) the place where the defendant made the representations,

(d) the domicil, residence, nationality, place of incorporation and place of business of the parties,

(e) the place where a tangible thing which is the subject of the transaction between the parties was situated at the time, and

(f) the place where the plaintiff is to render performance under a contract which he has been induced to enter by the false representations of the defendant.

If any two of the contacts apart from the defendant’s domicil, state of incorporation, or place of business, are located wholly in a single state, that state will usually be the state of applicable law with respect to most issues. Grant Thornton LLP v. Suntrust Bank, 133 S.W.3d 342, 358 (Tex.App.-Dallas 2004, pet. denied), citing Restatement (Second) of Conflict of Laws § 148, cmt. j. In a conflict-of-laws analysis for a fraud-based claim, the principal focus is on where the conduct occurred. Greenberg Traurig, 161 S.W.3d at 72.

For tort claims in general, Section 145 applies:

(1) The rights and liabilities of the parties with respect to an issue in tort are determined by the local law of the state which, with respect to that issue, has the most significant relationship to the occurrence and the parties under the principles stated in § 6.

(2) Contacts to be taken into account in applying the principles of § 6 to determine the law applicable to an issue include:

(a) the place where the injury occurred,

(b) the place where the conduct causing the injury occurred,

(c) the domicil, residence, nationality, place of incorporation and place of business of the parties, and

(d) the place where the relationship, if any, between the parties is centered.

These contacts are to be evaluated according to their relative importance with respect to the particular issue.

Because there is no difference in the substantive law relating to fraud and civil conspiracy to defraud under New York and Texas law, this Court does not need to conduct a conflict-of-law analysis as to those causes of action. Greenberg Traurig, 161 S.W.3d at 70.

New York’s Blue Sky Laws, commonly known as the Martin Act, prohibit numerous fraudulent practices in the distribution, exchange, sale and purchase of securities. Greenberg Traurig, 161 S.W.3d at 76. Unlike the TSA, the Texas Blue Sky Law, however, investors have neither an express nor an implied private right for securities fraud under the Martin Act. Id., citing Pahmer v. Greenberg, 926 F.Supp. 287, 302 (E.D.N.Y.1996), aff'd sub nom. Shapiro v. Cantor, 123 F.3d 717 (2d Cir.1997); CPC Int'l, Inc. v. McKesson Corp., 70 N.Y.2d 268, 519 N.Y.S.2d 804, 806-07, 514 N.E.2d 116, 118 (1987). Thus there is a conflict between the Blue Sky laws of New York and of Texas.

Complaint’s Factual Allegations About Deutsche Bank

Deutsche Bank provided substantial commercial and investment banking services, commercial loans, and advisory services to Enron. The Second Amended Complaint (# 33) focuses on Deutsche Bank’s material involvement in two different matters constituting part of Enron’s alleged scheme to manipulate its balance sheet, falsify financial reports filed with the Securities and Exchange Commission (“SEC”), and defraud investors: (1) promoting to Plaintiffs and other investors the sale of beneficial ownership interests, i.e., Osprey Certificates, in a SPE known as the Osprey Trust, which purportedly allowed Enron to rid itself of unwanted assets, hide debt, and inflate its reported income and (2) a series of tax transactions, used to “cook” Enron’s books.

Osprey Certificates

There were three sales of equity and debt participation in the Osprey Trust, which was comprised of Whitewing Associates LP, established in December 1997 as a limited liability entity owned by Enron, and Whitewing Management LLC. “Osprey I” occurred in September 1999 and included the sale of $1.4 billion in 8.31% “Senior Secured Notes” due on January 15, 2003 and $100,000,000 in certificates of beneficial ownership (“Osprey Trust Certificates” or “Osprey Certificates”) to institutional investors. A second equity sale (“Osprey II”) closed in June 2000 and was composed of $70,000,000 of Osprey Trust Certificates. The last offering, “Osprey III,” took place in September 2000 and consisted of $750,000,000 in 7.797% “Senior Secured Notes,” also due on January 15, 2003, and $50,000,000 of Osprey Trust Certificates. Plaintiffs purchased $9,000,000 of Certificates in Osprey I and $5,000,000 in Osprey II. # 33 at ¶¶ 40-44.

The proceeds from the sale of Osprey securities were to be used to purchase an ownership interest in a limited partnership known as Whitewing. Enron held a major ownership interest in Whitewing through two Enron affiliates, Egret I LLC and Peregrine I LLC, and in effect controlled the whole structure. Defendant financial institutions collectively promoted the sales of the Osprey Notes and Certificates through “presentation-to-investors” pamphlets, formal Offering Memoranda (“OMs”) for the Osprey I and III Notes, and face-to-face meetings. With regard to their purchase of the Certificates, Plaintiffs received and reviewed the August 1999 and June 2000 pamphlets that allegedly contained materially misleading statements or omitted material information known to Defendants. For example, these materials misrepresented that Whitewing was to acquire assets at fair market value through arm’s length transactions between Whitewing and Enron. Those who prepared the materials also knowingly made material omissions about transfer restrictions on particular assets that Defendants and Enron were planning to sell to the Osprey structure and the actual value of the collateral in the form of the assets that backed the investment. The assets in Whitewing, acquired by wrongful transfers from Enron on terms materially unfair to Whitewing, constituted the security for the Osprey Trust investors. The OMs for Osprey I and III Notes incorporated Enron’s purportedly false and misleading SEC filings for those year s, on which Plaintiffs claim they relied. Plaintiffs also met with representatives of the underwriting syndicate Defendant financial institutions acting jointly and severally, including Seth Rubin of Deutsche Bank, and relied upon the institutions’ duty as underwriters in a private offering to conduct a thorough due diligence investigation and upon their statements regarding the sale and purchase of the Osprey offerings.

The complaint asserts that, motivated by large fees and commissions, Deutsche Bank acted as a joint bookrunning manager, i.e., as one of the underwriters controlling the offering, and Deutsche Bank “actively sold” Osprey Certificates. # 33 at ¶ 97. It also alleges that Plaintiffs’ representative, Doug Stark, recalls the involvement of Deutsche Bank’s Seth Rubin in the presentation of material for Osprey I, and that Rubin failed to tell Stark the truth about the assets to be purchased by Osprey and that Citigroup was using Osprey to offload $40 million of its own risks to Enron. Deutsche Bank allegedly also concealed the opinion of another Deutsche Bank employee, Paul Cambridge, stated in an email of November 2000: “The Osprey transaction was a highly tailored structured finance designed to meet certain balance sheet and income statement goals of Enron.” # 33, ¶ 97. Mike Jakubik had worked as part of Enron’s Osprey team before joining Deutsche Bank’s Houston office as its Enron-relationship person and was one of those responsible for conceiving and marketing Osprey I to potential investors. Id. at ¶¶ 101, 103. Jakubik knew that the Osprey offerings were intended to “create a vehicle for dumping [Enron’s] problem assets to avoid dramatic write-downs and receivfe] cash well in excess of the fair market value of these assets,” while the Osprey Trust was “a mechanism for funding these overpriced acquisitions with Plaintiffs’ funds.” Id. at ¶ 102. He knew there were no arm’s length negotiations between Enron and Whitewing because the executives representing each side were Enron employees with incentive to promote Enron’s interests and that Whitewing would pay inflated prices for the assets. Id. at ¶ 103. Nor did Deutsche Bank reveal that the entire Osprey/Whitewing structure was controlled by Enron. Id. at ¶ 141. Id. # 33 at ¶ 141. The complaint without any specific facts charges that Jakubik also helped Deutsche Bank structure and promote the Osprey III offering of Notes and Certificates. Id. at ¶ 104. Plaintiffs argue that these allegations support their claim that Deutsche Bank was a primary violator of the TSA.

Defendants also falsely assured the prospective investors that upon the occurrence of a “trigger event,” including any downgrade in Enron’s credit rating or a significant drop in Enron’s stock price, the investors would supposedly be protected by the Osprey Indenture Trustee’s power to sell and liquidate the assets. Furthermore the Osprey structure was ultimately backed through the Condor Share Trust only by Enron stock and an Enron guaranty, so an understanding of Enron’s actual financial condition was critical to the Osprey Trust investors.

Plaintiffs purchased their Osprey Certificates believing that the WhitewingUsprey assets fully supported the structure’s value and unaware that transfer restrictions and liquidity restraints made most of the assets in Whitewing unmarketable. The complaint summarizes, “In reality, Defendants formed Osprey to fund Whitewing’s acquisitions of exorbitantly priced Enron assets so Enron could continue to report falsely inflated financial results and conceal from disclosure the asset impairment, excessive liabilities, and increasing losses that Enron was incurring from its unsuccessful businesses.” # 33, ¶ 75.

The complaint charges that Defendants caused the Osprey I OM to be false and materially misleading by describing the investments as a blind pool even though the Sarlux and Trakya transactions had already been identified for the purchase and by failing to disclose the purchases in reasonable detail, including the financial terms of the sale and the severe transfer restrictions. The Osprey III offering largely copied Osprey I in expanding the fraud already perpetrated on purchasers of Osprey I securities, and again characterized by material transfer restrictions with great impact on the value of the interest purchased and by the grossly inflated overpayment for the Sarlux and Trakya assets, which were not disclosed in the Osprey III OM.

Tax Transactions

Tax opinions from independent tax ad-visors and Enron Bankruptcy Examiner Neal Batson identify the “business purpose” of the tax transactions as the generation of “accounting income” and “balance sheet management” for Enron, especially at the end of accounting periods and particularly the year-end financial reports. # 33 at ¶¶ 436-39.

In addition to two major structured finance transactions named Osprey and Marlin (discussed infra), which raised billions of dollars for Enron and enabled it to remove non-performing or poorly performing assets from its consolidated balance sheet, the complaint identifies and discusses six tax transactions developed and promoted by Deutsche Bank: four, known as the “BT/Deutsche Tax Transactions,” for Enron to hide its financial condition, were dubbed Teresa, Steele, Cochise, and Tomas; and two “tax accommodation” transactions, to provide tax benefits to Deutsche Bank, were called Renegade and Valhalla. All of these purportedly gave Deutsche Bank knowledge of Enron’s financial condition and accounting fraud.

The complaint reports that according to Enron Bankruptcy Examiner Neal Batson, the BT/Deutsche Tax Transactions enabled Enron wrongfully to record approximately $158 million of income from two REMIC Carryover Basis Transactions, $143.7 million of which Enron improperly recorded as pre-tax income, as well as erroneously to record a $229 million increase in after-tax net income by reporting Teresa in a manner out of compliance with generally accepted accounting principles (“GAAP”). # 33, ¶ 467. After the first BT/Deutsehe Tax Transaction, Teresa, was presented to Enron by Deutsche Bank in 1996 and closed the next year, the design and implementation of tax transactions became Deutsche’s most significant area of involvement with Enron and ultimately became a conspiracy. # 33, ¶¶ 468, 472. Deutsche Bank received over $40 million in fees for its work on the four BT/Deutsche Tax Transactions. # 33, ¶470. These transactions, as noted by Neal Batson, had nothing to do with tax savings and failed to comply with GAAP; they were designed to enable Enron to manipulate and falsify its SEC-filed financial statements by generating current accounting income through creation of speculative future tax credits, but no reserves were set aside in the event that the promised benefits were never realized. #33, ¶¶ 473-77; see also ¶¶ 487-91. With the help of Enron’s R. Davis Maxey, head of the Corporate Tax Planning Group, which dealt with transactions designed to aid in the manipulation of Enron’s financial reports, Deutsche Bank was able to turn Enron’s tax department into a “profit center,” as described in a February 14, 2003 USA Today story, “Enron Unit Turned Tax Shelters into Profit.” # 33, ¶¶ 478-81. Moreover, Enron and Deutsche Bank disregarded critical third-party opinions regarding the tax transactions, including advice from Arthur Andersen, various law firms hired by Enron and Deutsche Bank, and tax attorney Bill McKee. # 33, ¶¶ 483-85.

In Teresa, for example, a “tax basis step-up” transaction described by Batson as among the “most egregious” of the structures for manipulating financial accounting rules, Enron quantified an increase in the value of Enron’s Houston corporate headquarters building as a future tax benefit, recorded that quantified benefit as current accounting income over an artificially short period of time, and passed Enron’s interest in the building to a partnership, with later distribution of the property to an Enron affiliate that had achieved an increased basis in its partnership interest. Enron expected the increased tax basis in the partnership eventually to be reflected as an increase in the basis of the corporate headquarters building and expected depreciation deductions over 39.5 years, as summarized in a March 14, 1997 memorandum by Deutsche Bank’s Thomas Finley, Christine Levinson and John Tsai and as described in Batson’s Second Interim Report, Appendix J, Annex 4. # 33, ¶¶ 492-95. The tax benefit would not be available until some undetermined time in the future, when the headquarters was distributed to Enron and Enron would take advantage of the increased depreciation deductions. Thus the point of Teresa was to generate financial accounting income by improperly recording deferred tax assets in advance of future tax deductions, even before the resulting increased basis could attach to a depreciable asset. # 33, ¶ 496. The complaint asserts that, based on Teresa, Enron improperly created $229 million of after-tax “income” in its SEC-filed financial statements. # 33, ¶ 497. Although originally Deutsche Bank was to receive a fee of approximately $8 million for Teresa, that amount was later reduced to $6,625 million after Enron agreed to participate in Project Renegade, which functioned to benefit the Deutsche Bank. # 33, ¶ 499.

Earning a fee of $10 million in the next tax transaction, Deutsche Bank designed Steele, the first of two REMIC Carryover Basis Transactions (“the REMIC Transactions”), to appear to be a legitimate tax avoidance structure that acquired and managed a portfolio real estate and other financial assets with an enhanced earning profile, but which actually was intended to generate false “accounting income” to doctor Enron’s financial reports rather than tax savings. # 33, ¶¶ 522, 513-14, 505, 507-08. The REMIC transactions’ purpose was inappropriate inflation of reported financial accounting, pre-tax income of expenses by associating those expenses with investments in some “Facilitating Assets,” which were low-yielding and included substantial transaction costs. # 33, ¶ 505. Steele generated this false income by amortizing a large portion of the deferred tax credits associated with the acquisition of the REMIC Residual Interests into pretax accounting income over the life of the Facilitating Assets, which in Steele were five-year corporate bonds. # 33, ¶ 515. From 1997-2001, Enron’s consolidated statements improperly reported $144 million of pre-tax income involving the Facilitating Assets. Id. Arthur Andersen prepared for Deutsche Bank a report on Steele, dated August 6, 1998, that warned of potential problems with the structure and that it might not survive scrutiny by the IRS. # 33, ¶ 509. Some employees at Deutsche Bank were uncomfortable with the transaction. For example, Peggy Capomaggie in a September 10, 1997 internal email to Thomas Finley and other Deutsche Bank bankers, questioned whether Enron’s acquisition of assets from the bank was a properly constituted “business combination,” a requirement to comply with the IRS Code, and whether other accounting alternatives should be discussed, but she was overruled. # 33, ¶¶ 517-18.

Cochise, a variation on Steele, was similarly reported in a manner not in compliance with GAAP or relevant IRS regulations. It, too, was based on speculative tax deductions, intended to generate accelerated , pre-tax accounting income without appearing to do so, and was set up to allow the sale or monetization of REMIC Residual Interests. Deutsche Bank sold Cochise to Enron on a representation that it could generate $75 million in pre-tax accounting income and $79 million in accounting earnings from the future benefit of future tax deductions. # 33, ¶ 524-25, 527-28, 531. Batson’s Second Interim Report, Appendix J, Annex 2, describes the true purpose of Cochise and the numerous SPEs and intra-SPE transactions used to conceal it. # 33, ¶ 526. Instead of corporate bonds, Cochise’s Facilitating Assets were interests in two airplanes purchased from a Deutsche affiliate, treated as a “business combination.” # 33, ¶ 530. The financial accounting basis of the interests could then be reduced to zero, and the basis reduction used to offset the deferred tax asset that the acquisition of the REM-IC Residual Interests generated. # 33, ¶ 530. Deutsche Bank knew Enron planned to recognize the gain on the sale as the full fair value of the airplanes and to amortize the deferred credit over five years even though the deferred tax assets were attributable solely to REMIC Residual Interests with a much longer life. # 33, ¶ 531. Deutsche Bank was paid about $15 million for its work on Cochise. # 33, ¶ 533.

Deutsche Bank designed and closed the Tomas Transaction in 1998 to avoid Enron’s having to report its acquisition of Portland General Holdings, Inc. and unwound the structure as planned in 2000. # 33, ¶¶ 535-36. The bank’s PowerPoint presentation described Tomas’ benefits as “generat[ing] tax basis in a portfolio of ‘burnt out’ leveraged lease assets, which Portland General originally acquired, and provid[ing] a mechanism for liquidating the portfolio at a substantial gain,” once again making the sale of the low-tax-basis assets appear to be an accounting income gain. # 33, ¶¶ 536, 538. Ultimately Tomas enabled Enron to record permanent tax benefits as pre-tax gains on Enron’s financial statements. Enron gave assets to the Tomas structure that Enron wanted to sell and which had a low basis for both accounting and tax purposes. # 33, ¶ 539. The Tomas structure enabled Enron to swap low-tax-basis stock of an affiliate that held cash equal to the sales value of the low-basis assets, which then could be liquidated without Enron having to recognize tax gain. # 33, ¶ 539.

To satisfy certain IRS regulations, documentation of part of the Tomas transaction indicated that Oneida, an Enron controlled SPE, would engage in a leasing business, but it had failed to do any leasing by June 2000. To make it appear that Oneida was operating a business concern, Deutsche Bank and Enron transferred the Cochise Facilitating Asset airplanes to Oneida in the summer of 2000. # 33, ¶ 540. To ensure that Enron could recognize accounting gains quickly, Enron and Deutsche Bank had an unwritten agreement that the structure would be unwound in two years and a day. Under relevant tax rules, certain favorable presumptions arise when a contributing partner received a liquidating distribution more than two years after its contribution, but they do not apply where there is an understanding that liquidation has been planned at the commencement of the transaction. # 33, ¶ 541. Nevertheless, although Deutsche Bank and Enron intended Tomas to be unwound in two years and one day, Enron gave it a tax treatment that was risky and uncertain and improperly recorded the full tax benefit from the avoidance of the built-in gain at the end of the two years. # 33, ¶ 542. It booked the entire proceeds of $36.5 million from the sale of the airplanes as net income, which was made possible only by the wrongful purchase accounting adjustments that reduced Enron’s book value in the aircraft to zero, in turn contrary to GAAP because the purchase of the airplanes was not related to the acquisition of the REM-IC Residual Interests in Cochise. # 33, ¶¶ 544, 548. Moreover, Deutsche Bank knew that Oneida paid an excessive price for the airplanes, as evidenced by a third-party appraisal that Deutsche Bank commissioned and received from BK Associates, Inc. on June 12, 2000. # 33, ¶ 543. In total, the accounting for Tomas, which did not comply with GAAP, allowed Enron to recognize gains of $25.6 million in 1998 and $18 million in 2000. # 33, ¶¶ 545-56. Enron’s R. Davis Maxey told Neal Batson that Enron held the Cochise airplanes for a time simply to create the impression that they had not been purchased for resale, even though the opposite was true. #33, ¶ 547. Deutsche Bank knew the truth because it had devised the structure to permit such. Plaintiffs claim they did not know about Deutsche Bank’s aiding Enron by artificially creating accounting income and that the result affected Enron’s financial statements. Plaintiffs maintain such information would have been an important consideration in their decision whether to purchase the Osprey Certificates. #33, ¶ 549.

The complex tax accommodation transactions, Renegade and Valhalla, which employed various Enron — and Deutsche-controlled affiliates to conceal the real aims of Enron and Deutsche Bank, were designed to provide tax benefits to Deutsche Bank, and they demonstrate the conspiracy between the two. # 33, ¶ 550, 556. For Renegade, in December 1998 Enron borrowed $18 million from BT/Deutsche Bank at a discounted rate, compensated by Deutsche Bank in the reduction of its fee for Teresa from $8 million to approximately $6,625 million. In Valhalla, a May 2000 transaction, with Enron’s help Deutsche Bank created deductible interest and nontaxable income by exploiting differences between United States and German tax law. # 33, ¶ 553. Enron shared a portion of Deutsche Bank’s windfall through an interest rate differential between the interest rate on a Deutsche/Enron Note and the interest rate on the “Participation Rights” under an Enron-Deutsche agreement. # 33, ¶ 554. With Valhalla Enron gained a five-year net borrowing while generating approximately $17-20 million of annual pre-tax earnings and cash flow, while Deutsche Bank gained approximately $40 million of annual tax benefits. # 33, ¶ 555. The Valhalla Transaction is described in Batson’s Second Interim Report, Appendix J, and in his Third Interim Report, Appendix G. The complaint asserts that Deutsche Bank’s home office in Germany questioned as contrary to a German statute and against money laundering law the propriety of a part of Valhalla in which Deutsche Bank’s Frankfurt office lent $2 billion to an indirect German subsidiary of Enron called Rheingold. # 33, ¶¶ 558-60.

With Deutsche Bank’s aid, Enron created the Marlin Transaction, structured as a “share trust,” to move Enron’s unsuccessful water business (Azurix and its subsidiaries, including its purchase of Wessex Water Pic and its associated debt), off Enron’s balance sheet. # 33, ¶¶ 561-65. Mike Jakubik of Deutsche Bank told Bat-son that treating the Marlin transaction as off-balance sheet financing would avoid the rating agencies’ categorizing the structure as debt, which would have an adverse impact on Enron’s credit rating, and preclude having to issue more Enron stock, # 33, ¶ 566; ¶ 576 (email from Deutsche Bank’s George Tyson to Paul Cambridge confirming that Deutsche Bank knew that Enron’s primary goal was keeping all of the Azurix and Marlin debt off-balance sheet and that Enron was concerned about the ratings impact of refinancing Marlin). Deutsche Bank was a joint bookrunning manager with Credit Suisse First Boston (“CSFB”) (then operating as Donaldson, Lufkin & Jenrette, “DLJ”) for both the Marlin I transaction and the Marlin II transaction, the latter being used to refinance the Marlin I. # 33, ¶ 567-68. Marlin I was comprised of approximately $1,024 billion in Marlin 7.09% Senior Secured Notes due December 2001 (the debt component) and $125 million of certificates (the equity component). # 33, ¶ 568. Based on the alleged “independence” of Marlin from Enron, the share trust, with its poorly performing assets and debt of almost $2 billion, was not reported on Enron’s consolidated financial reports. # 33, ¶ 569. In actuality, however, it was totally controlled by Enron. # 33, ¶ 570. Furthermore Enron contributed 204,800 shares of its preferred stock (convertible into 17.2 million shares of Enron common stock) to the Marlin Preferred Share Trust and undertook the Share Trust obligations, with recourse to Enron. # 33, ¶ 571. Given Enron’s control and assumption of risk through its stock contribution and assumption of share trust liabilities, the deconsolidation of Marlin in Enron’s financial statements violated GAAP. # 33, ¶ 572. Furthermore, as joint bookrunning manager for Marlin I and designer of the Marlin structure, the complaint asserts that Deutsche Bank was responsible for performing due diligence and disclosing relevant facts that investors would consider material. # 33, ¶ 573. Because Marlin was privately placed, Marlin investors and the capital markets depended on the underwriters’ disclosures. Id. Deutsche Bank decided to conceal Enron’s control of the structure and the ultimate recourse to Enron. # 33, ¶ 574. As Deutsche Bank involvement continued from Marlin I to Marlin II, in a July 8, 1998 memorandum to Mike Jakubik and other Deutsche Bank bankers, Calli Hayes listed a number of problems with the Marlin structure and commented, “My biggest problem with the transaction as proposed is the exit strategy — there isn’t one, at least not a solid one.” # 33, ¶ 578.

During the period that it was involved in the various tax transactions, with specific dates identified and examples provided, Deutsche Bank continued publicly to provide only upbeat evaluations and recommendations of Enron and Enron-related affiliates, concealing its precarious and risky financial condition. #33, ¶¶ 582-90. LJM2

Moreover the complaint generally claims that Deutsche Bank, conspiring with other Defendant financial institutions, helped fund LJM2 and knew that it, with its sham transactions and falsified independence from Enron, was used by Enron to manipulate its balance sheet. # 33, ¶¶ 675-703, 723-29. Deutsche Bank’s BT invested $10 million in LJM2. #33, ¶734. The complaint summarily describes cooperation agreements and guilty pleas of various Enron-related officials to document the deceptions employed to use LJM2 and the Raptors to avoid undesirable results from Enron’s accounting treatments. The complaint asserts generally that Deutsche Bank and Citigroup “participated and invested in a clandestine special purpose entity which was controlled by Fastow and Enron to facilitate the phony sales of overvalued Enron assets” and “conspired with Enron and Fastow to aid Enron’s fraud by means of transactions that deceptively moved worthless or underperforming assets, as well as debt, off Enron’s balance sheet.” # 33, ¶ 729. The result of the conspiracy was that the price of Enron stock was artificially inflated, Enron was able to borrow at a low interest rate that did not reveal the risk of such loans, and Plaintiffs “were unable to ascertain Enron’s true financial condition.” Id. Deutsche Bank failed to disclose what it knew about LJM2 and Enron’s financial reports. # 33, ¶¶ 735-40.

Deutsche Bank’s Motive

The complaint claims that Deutsche Bank joined in the conspiracy to defraud in order to maintain its Tier I banking status with Enron and to pocket the high fees. In short, it was motivated by greed. # 33, ¶ 730.

Knowledge of Enron’s Actual Financial Condition

Deutsche Bank purportedly knew about Enron’s deteriorating financial status because of the wide range of services it provided to Enron (lending, security offerings, structured financing, and advisory services, especially those related to tax), because of the transactions it participated in with Enron and Enron-related entities, and because the bankers met regularly and personally with top Enron officials, especially banker Paul Cambridge with Andrew Fastow and Ben Glissan, and Enron board member Herbert Winokur, as did senior Deutsche Bank manager Yves Balman with Enron’s Jeffrey Skilling.

The complaint further charges that starting in 1999, Deutsche Bank began reducing its exposure to Enron. Deutsche Bank’s William Archer, in an internal email to Hugo Banziger, described attachments to the email as a “paper trail” of its “growing discomfort” with Enron credit. # 33, ¶ 442; see also ¶¶ 448-52 (internal emails from Cambridge, Archer, and Calli Hayes reflecting concern about exposure to Enron). The attachments were a document dated April 25, 2000, two documents dated December 1, 2000, a document dated December 1, 2001, a document dated May 7, 2001, a document dated October 9, 2001, and an undated document. Deutsche Bank never revealed, indeed deliberately concealed, its knowledge of Enron’s financial condition and the risks for investing in Enron from Plaintiffs and the general investing public. Deutsche Bank’s Paul Cambridge and Calli Hayes testified before Bankruptcy Examiner Neal Batson’s team that by early 2000 Deutsche Bank was concerned about Enron’s reported financial condition in statements filed with the SEC. # 33, ¶ 444. Cambridge emailed Deutsche Banker William Archer on September 10, 2001 that there was a “general inclination” by Deutsche Bank’s Chief Credit Officer for North America to “disbelieve [Enron] no matter what the source”. # 33, ¶ 446. The same credit officer was concerned that Skilling’s resignation in August 2001 was “the tip of an iceberg of a lot of potential bad news coming up.” # 33, ¶ 447. On May 7, 2001, as shown by the Minutes of Deutsche Bank’s Underwriting Committee, Deutsche Bank purchased $25 million of credit default protection in the derivative market and wanted to buy more, but found the cost prohibitive. The October 9, 2001 Amended Minutes of the same Committee reveal that Enron had considerable off-balance sheet liability and that its transactions lacked transparency about its hedging activities.

Conspiracy Claim

The complaint asserts that from at least 1997 Deutsche Bank aided Enron in its fraudulent accounting goals by designing, financing and/or implementing the above named substantial tax-related transactions, in addition to Osprey and Marlin, and it participated in the fraud-enabling LJM2 partnership. Plaintiffs, in purchasing the Osprey Certificates, relied on Enron’s financial statements, which they insist that Deutsche Bank helped to make false and misleading.

Deutsche Bank’s Motion to Dismiss

Noting that the Second Amended Complaint is Plaintiffs’ third bite of the apple and was filed after discovery was completed, Deutsche Bank moves to dismiss with prejudice all causes of action against it.

Section 12(a)(2) Claims

No Prospectus

According to the complaint, Plaintiffs purchased Osprey Certificates after face-to-face sales meetings and after “receiving] and rel[ying] on the information presented in the August 1999 and June 2000 Pamphlets” that were summaries for potential investors. # 33 at ¶¶ 47-48, 50. Plaintiffs, who purchased only Osprey Certificates, did not purchase the Notes, which were sold through Rule 144A and Reg S offerings and formal offering memoranda.

Section 12(a)(2) liability expressly reaches only persons who directly sell a security “by means of a prospectus” that contains a misstatement or omission of material fact. 15 U.S.C. § 77l (a)(2). The term “prospectus” is restricted to a document that “must include the ‘information contained in a registration statement.’ ” Gustafson v. Alloyd Co., 513 U.S. 561, 569, 115 S.Ct. 1061, 131 L.Ed.2d 1 (1995). Thus only public offerings with documents including information in a registration statement are subject to Section 12(a)(2) liability. Id. ; Yung v. Lee, 432 F.3d 142, 149 (2d Cir.2005) (“Section 12(a)(2) liability cannot attach unless there is an ‘obligation to distribute a prospectus.’ ”). Plaintiffs’ § 12(a)(2) claims fail because there was no prospectus applicable to their Osprey Certificate purchases and because they purchased their Certificates pursuant to a purely private sale, insists Deutsche Bank.

Furthermore, argues Deutsche Bank, in purchasing their Osprey Certificates, Plaintiffs understood and agreed that there was no “obligation to distribute a prospectus” in connection with the Certificates because the Purchase Agreements governing these purchases expressly state, “Osprey Certificates will be offered and sold to the Osprey Certificateholders without being registered under the Securities Act of 1933 ... in reliance on exemptions therefrom and may not be offered or sold except pursuant to an exemption from the registration requirements of the Securities Act.” #41, Certificate Purchase Agreements, Harlow Decl., Exs. 1 & 2 at 1, 4. The Agreements further state that non-registration was dependent in part on representations from Plaintiffs, including that Plaintiffs were purchasing Certificates for their own investment purposes “and not with a view toward distribution of the Certificates in a way that would require registration.” Id. at 4. These Agreements additionally required each Certificate-holder to represent that it was an “accredited investor” within the meaning of Rule 501(a)(1), (2), (3) or (7) of Regulation D (id. at 2)— which provides for an exemption from registration under Section 4(2) of the Securities Act. See, e.g., Faye L. Roth Revocable Trust v. UBS Painewebber, Inc., 323 F.Supp.2d 1279, 1294-96 (S.D.Fla.2004) (holding that offerings under Regulation D to “accredited investors” are not covered by Section 12(a)(2)). See discussion below.

Moreover, even if the Osprey I OM had applied to the Certificates, it is not a “prospectus.” The OMs explicitly state there was no prospectus distribution requirement. The Osprey I OM’s cover recites that the Osprey Notes were offered pursuant to Rule 144A and Regulation S, neither of which is subject to the registration requirements of the Securities Act of 1933, and that the Notes “HAVE NOT BEEN AND WILL NOT BE REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933.” #41, Harlow Decl., Ex. 6 (Osprey I OM). Transactions under Rule 144A (“Private Resales of Securities to Institutions”) are private transactions with qualified institutional buyers that are not subject to the 1933 Act’s registration requirements. 17 C.F.R. § 230.144(a). Because no prospectus is required, such offerings cannot give rise to Section 12(a)(2) liability. See, e.g., In re WorldCom, Inc. Sec. Litig., 294 F.Supp.2d 431, 455-56 (S.D.N.Y.2003) (dismissing Section 12(a)(2) claim because “[t]he terms of the [144A] Offering Memorandum compel the conclusion that the ... Offering was a private placement ... no matter how the plaintiff might word the claim, the document involved cannot be silkenized [sic ] into a § 12(a)(2) ‘prospectus.’ ” [citations omitted]); Am. High-Income Trust v. Alliedsignal, 329 F.Supp.2d 534, 543 (S.D.N.Y.2004) (holding that “offerings under Rule 144A are by definition non-public, and offering memoranda distributed in connection with such offerings cannot give rise to Section 12(a)(2) liability”). Registration S offerings are similarly made pursuant to a safe harbor from the registration requirements of Section 5 of the 1933 Act. 17 C.F.R. §§ 230.901-230.905. Moreover such sales are not offered pursuant to a prospectus and are not subject to Section 12(a)(2) liability. Gustafson, 513 U.S. at 578, 115 S.Ct. 1061.

In sum, in the absence of a prospectus for the Osprey Certificates, there can be no Section 12(a)(2) liability.

Private Placement

Plaintiffs § 12(a)(2) claims should also be dismissed because the allegations in the complaint reveal that the Certificates were sold in purely private transactions. In the wake of Gustafson, courts have routinely held that Section 12(a)(2) does not apply to any form of private placement. See, e.g., Lewis v. Fresne, 252 F.3d 352, 357-58 (5th Cir.2001); In re Azurix Corp. Sec. Litig., 198 F.Supp.2d 862, 893 (S.D.Tex.2002); Double Alpha, Inc. v. Mako Partners, LP, No. 99 Civ. 111541, 2000 WL 1036034, *3 (S.D.N.Y. July 27, 2000). Plaintiffs have not made any factual allegations that would establish that the Certificates were offered to the public, and there were no formal offering documents for them. In addition the small size of the Certificate offerings indicates they were private sales: the September 1999 had five purchasers requesting ten Certificates, while the July 2000 offering-had four purchasers requesting eight certificates. # 41, Harlow Decl., Exs. 1 & 2 at Schedule I.

Deutsche Bank further argues that Plaintiffs are sophisticated institutional investors who, in the words of the United States Supreme Court, do not “need the protection of the [1933] Act.” SEC v. Ralston Purina Co., 346 U.S. 119, 125, 73 S.Ct. 981, 97 L.Ed. 1494 (1953). The relevant Certificate Purchase Agreements are conditioned on Plaintiffs’ warranty and representation that they were “accredited investors” within the meaning of Rule 501(a) of Regulation D. # 41, Harlow Decl. Exs. 1 & 2 at 3.

In addition Plaintiffs’ obligation to accept and pay for their Certificates was expressly conditioned upon their having received (1) “such other documentation, certificates or opinions as [they] may reasonably request in connection with the consummation of the transactions contemplated” in the Certificate Purchase Agreement; and (2) the underlying Osprey and Whitewing transaction documents were “in form and substance reasonably satisfactory to each Osprey Certificate holder.” Id. at 2. Moreover, those transaction documents reveal that a condition precedent for the entire Osprey financing was an opinion letter stating that all the transaction documents were provided to its satisfaction by the Certificate purchasers’ own attorney, Dewey Ballantine.

Time-Barred Claims

Deutsche Bank argues that Plaintiffs’ claims based on Plaintiffs’ September 1999 purchases under Sections 12(a)(2) and 15 are time-barred because they were not brought within one year of the date of discovery of the general facts constituting the alleged violations and within three years from the date the securities (statute of repose) were purchased, which expired nearly nine months prior to the filing of the Original Complaint on April 17, 2003.. 15 U.S.C. § 77m; Lampf, Pleva, Lipkind, Prupis & Petigrow v. Gilbertson, 501 U.S. 350, 364, 111 S.Ct. 2773, 115 L.Ed.2d 321 (1991).

Control Person Claim under Section 15 of the Securities Act of 1933

Moreover because Plaintiffs cannot assert a primary violation of Section 12(a)(2) in connection with their private purchases of the Certificates, the derivative controlling person claim asserted under Section 15, 15 U.S.C. § 77o, fails as a matter of law. Lewis, 252 F.3d at 357 n. 3.

TSA Claims

Deutsche Bank maintains that Plaintiffs’ claims for primary and secondary violations of the TSA fail because the purchase of the Certificates occurred in New York, both Plaintiffs and Deutsche Bank are based in and acted in New York, and there was no Texas entity that was a party to the purchase transaction. See In re Enron Corp. Sec., Deriv. & “ERISA” Litig., 235 F.Supp.2d 549, 691-92 (S.D.Tex.2002) (TSA can be invoked to protect investors outside Texas from securities law violations “emanating from Texas”).

To state a claim under Article 581-33A(2) or Article 581-33F(2), a plaintiff must allege facts showing a primary violation by a “seller” or “offeror” that is in privity with the plaintiff. Tex.Rev.Civ. Stat. art. 581-33A(2) (“A person who offers or sells a security ... by means of an untrue statement of a material fact or an omission ... is liable to the person buying the security from him.”). Like Section 12(a)(2) of the Securities Act of 1933, the TSA’s Article 581-33A(2) imposes liability only on persons who actually pass title or who actively engage in solicitation of the securities purchased by a plaintiff. In re Enron Corp. Sec., Deriv. & “ERISA” Litig., 258 F.Supp.2d 576, 603-04 (S.D.Tex.2003). Under the facts pleaded by Plaintiffs, the only possible primary violators of the TSA are Osprey Trust or Deutsche Bank. Enron is the only Texas-based entity named in the complaint, but it is not alleged to be either a sellor or an offeror of Osprey Certificates in privity with Plaintiffs. The documents reflect that Osprey Trust sold the Certificates to Plaintiffs. Therefore, argues Deutsche Bank, there is no alleged statutory violation “emanating from Texas.”

Plaintiffs have alternatively pleaded that New York law applies here. New York’s Blue Sky Laws, known as the Martin Act, N.Y. Gen. Bus. Law § 352 et seq., are analogous to Texas’s TSA. Deutsche Bank argues that Plaintiffs’ TSA claims would be barred by New York’s Martin Act, creating a conflict of laws, because, as noted supra, the Martin Act does not permit [a] private right of action for violations of its antifraud provisions. Silvercreek Management, Inc. v. Salomon Smith Barney, Inc. (In re Enron Corp. Sec., Deriv. & “ERISA” Litig.,), No. Civ. A. H-02-3185, 2003 WL 23305555, at *4 & n. 9 (S.D.Tex. Dec. 11, 2003), citing CPC Int’l, Inc. v. McKesson Corp., 70 N.Y.2d 268, 276, 519 N.Y.S.2d 804, 514 N.E.2d 116 (1987), and Castellano v. Young & Rubicam, Inc., 257 F.3d 171, 190 (2d Cir.2001). See also Greenberg Traurig, 161 S.W.3d at 75-76 (dismissing TSA claims where New York law applied to Plaintiffs’ allegations and holding that “unlike the Texas Securities Act, New York’s Martin Act provides for neither an express nor implied private claim,” but instead gives the state Attorney General broad regulatory and remedial powers to prevent securities fraud). The Martin Act governs fraud and deception in the purchase and sale of securities, including claims that do not require proof of intent to defraud, and thus private actions not involving proof of intent to defraud are barred by the Martin Act. CPC Int’l, 70 N.Y.2d at 276, 519 N.Y.S.2d 804, 514 N.E.2d 116; Castellano, 257 F.3d at 190. Plaintiffs’ private claims under Article 581-33A(2) of the TSA would be barred by the Martin Act, creating a conflict of laws.

Under Restatement (Second) of Conflict of Laws § 148(1) for claims of fraud and misrepresentation,

When the plaintiff has suffered pecuniary harm on account of his reliance on the defendant’s false representation and when plaintiff’s action in reliance took place in the state where the false representations were made and received, the local law of this state determines the rights and liabilities of the parties unless, with respect to the particular issue, some other state has a more significant relationship under the principles stated in § 6 to the occurrence and the parties, in which event the local law of the other state will be applied, [emphasis added by the Court]

Here, insists Deutsche Bank, the representations at issue were made and received, and Plaintiffs’ alleged reliance and harm from the purchase of Osprey Certificates occurred, in New York, so under Section 148, New York law should apply to Plaintiffs’ claims. The same result would be reached under Section 145 for tort claims if one looked to where Plaintiffs suffered the injury, where the conduct causing the injury occurred, and where the parties reside and/or are incorporated, and where the relationship between the parties was centered. At all relevant times Deutsche Bank and Plaintiffs were New York parties and their alleged relationship was centered in New York. Complaint ¶¶ 1, 2, 4-5, 61. The documents Plaintiffs claim to have relied on in deciding to purchase their Certificates were allegedly distributed by Deutsche Bank at meetings between the parties and the closing of the Osprey financing transactions occurred in New York. Complaint ¶ 61; # 41, Participation Agreement, Harlow Decl. Ex. 3 at Section 2.1. Although the other alleged primary violator under the TSA, the Osprey Trust, is a Delaware statutory business Trust, all other relevant contacts are in New York.

Common Law Claims

Fraud

Next, argues Deutsche Bank, the common law fraud claim fails because Plaintiffs have not alleged facts to support essential elements, i.e., (1) that Deutsche Bank made any misstatements to Plaintiffs, (2) that a Deutsche Bank actor had scienter in making a misstatement, or (3) that Plaintiffs reasonably relied on a misstatement by Deutsche Bank or that Deutsche Bank had any duty to disclose to Plaintiffs. Fed.R.Civ.P. 9(b) requires Plaintiffs to specify the “who, what, when, where, and how of the alleged fraud.” United States ex rel. Williams v. Bell Helicopter Textron, Inc., 417 F.3d 450, 453 (5th Cir.2005) (citation and internal quotation marks omitted).

To the extent that Plaintiffs allege that they purchased their Certificates based on material omissions by Deutsche Bank, Deutsche Bank insists the claim fails because it owed no duty to disclose to Plaintiffs.

More specifically, although Plaintiffs assert that they relied on various misstatements in the OMs and incorporated Enron financial statements, for the Osprey Notes and other misrepresentations, the claim fails because nowhere do Plaintiffs