10-4712 (L)
Terra Securities, et al v. Citigroup, et al.

                                   UNITED STATES COURT OF APPEALS
                                       FOR THE SECOND CIRCUIT

                                               SUMMARY ORDER

RULINGS BY SUMMARY ORDER DO NOT HAVE PRECEDENTIAL EFFECT. CITATION TO A
SUMMARY ORDER FILED ON OR AFTER JANUARY 1, 2007, IS PERMITTED AND IS GOVERNED BY
THIS COURT’S LOCAL RULE 32.1.1 AND FEDERAL RULE OF APPELLATE PROCEDURE 32.1. WHEN
CITING A SUMMARY ORDER IN A DOCUMENT FILED WITH THIS COURT, A PARTY MUST CITE
EITHER THE FEDERAL APPENDIX OR AN ELECTRONIC DATABASE (WITH THE NOTATION
“SUMMARY ORDER”). A PARTY CITING A SUMMARY ORDER MUST SERVE A COPY OF IT ON ANY
PARTY NOT REPRESENTED BY COUNSEL.

        At a stated Term of the United States Court of Appeals for the Second Circuit, held at the
Daniel Patrick Moynihan United States Courthouse, 500 Pearl Street, in the City of New York,
on the 7th day of December, two thousand eleven.

Present:    ROSEMARY S. POOLER,
            BARRINGTON D. PARKER,
            SUSAN L. CARNEY,
                        Circuit Judges.
________________________________________________________________

TERRA SECURITIES ASA KONKURSBO, AS THE SUCCESSOR IN
INTEREST TO TERRA SECURITIES ASA, BANCA CARIGE S.P.A. –
CASSI DI RISPARMIO DI GENOCA E IMPERIA, CARIGE
ASSICURAZIONI S.P.A., CARIGE VITA NUOVA S.P.A.,

                                       Plaintiffs-Appellants,

THE MUNICIPAL CORPORATION OF BREMANGER, THE MUNICIPAL
CORPORATION OF HATTFJELLDAL, THE MUNICIPAL
CORPORATION OF KVINESDAL, THE MUNICIPAL CORPORATION OF
NARVIK, THE MUNICIPAL CORPORATION OF RANA, THE
MUNICIPAL CORPORATION OF VIK, THE MUNICIPALITY OF
HEMNES,

                                       Plaintiffs,
                   v.                                                      10-4712-cv (Lead)
                                                                           10-4714-cv (Con)

CITIGROUP, INC., CITIGROUP GLOBAL MARKETS, INC., CITIGROUP
ALTERNATIVE INVESTMENTS LLC,

                                       Defendants-Appellees,

CITIGROUP FINANCIAL PRODUCTS INC.,

                        Consolidated-Defendant-Appellee.
________________________________________________________________
For Plaintiffs-Appellants:           Michael M. Fay & Marc E. Kasowitz, Kasowitz, Benson,
                                     Torres & Friedman LLP, New York, N.Y.

For Defendants-Appellees:            John F. Baughman, Brad S. Karp & Daniel H. Levi, Paul,
                                     Weiss, Rifkind, Wharton & Garrison LLP, New York, N.Y.

       Appeal from the United States District Court for the Southern District of New York
(Marrero, J.).

     ON CONSIDERATION WHEREOF, IT IS HEREBY ORDERED, ADJUDGED, AND
DECREED that the judgments of said District Court be and hereby are AFFIRMED.

         Plaintiffs in this case filed complaints claiming that Citigroup, Inc., and several of its
affiliates perpetrated a fraud by selling plaintiffs investments that resulted in more than $247
million in damages. The district court granted defendants’ motion, under Federal Rule of Civil
Procedure 12(b)(6), to dismiss plaintiffs’ claims for fraud and negligent misrepresentation under
New York law. The court also denied plaintiffs’ request to amend their complaints. We assume
the parties’ familiarity with the underlying facts alleged in the complaints and the issues raised
on appeal.

        “We review de novo a district court’s dismissal of a complaint pursuant to Rule
12(b)(6), construing the complaint liberally, accepting all factual allegations in the complaint as
true, and drawing all reasonable inferences in the plaintiff’s favor.” Chambers v. Time Warner,
Inc., 282 F.3d 147, 152 (2d Cir. 2002). Furthermore, while “[w]e [generally] review denial of
leave to amend under an abuse of discretion standard[,] . . . denial[s] of leave to amend . . .
based on a legal interpretation, such as a determination that amendment would be futile,” are
subject to “de novo review.” Hutchison v. Deutsche Bank Sec. Inc., 647 F.3d 479, 490 (2d Cir.
2011) (internal quotation marks omitted).

        Fraud and negligent misrepresentation require more than a mere misstatement or
omission. “Under New York law, for a plaintiff to prevail on a claim of fraud, he must prove,”
among other things, “a material misrepresentation or omission of fact,” as well as “reasonable
reliance on the part of the plaintiff” on that misrepresentation. Schlaifer Nance & Co. v. Estate
of Warhol, 119 F.3d 91, 98 (2d Cir. 1997). Similarly, a claim of negligent misrepresentation
requires at a minimum that “the defendant made a false representation . . . [on which] the
plaintiff reasonably relied.” Hydro Investors, Inc. v. Trafalgar Power Inc., 227 F.3d 8, 20 (2d
Cir. 2000).

        In determining whether a plaintiff’s reliance on an alleged misrepresentation was
reasonable, no single factor is determinative. This Court must “consider the entire context of
the transaction, including factors such as its complexity and magnitude, the sophistication of the
parties, and the content of any agreements between them.” Emergent Capital Inv. Mgmt., LLC
v. Stonepath Grp., Inc., 343 F.3d 189, 195 (2d Cir. 2003) (emphasis added).


                                                2
        “It is well established that ‘[w]here sophisticated businessmen engaged in major
transactions enjoy access to critical information but fail to take advantage of that access, New
York courts are particularly disinclined to entertain claims of justifiable reliance.’” Lazard
Freres & Co. v. Protective Life Ins. Co., 108 F.3d 1531, 1541 (2d Cir. 1997) (alteration in
original) (quoting Grumman Allied Indus., Inc. v. Rohr Indus., Inc., 748 F.2d 729, 737 (2d Cir.
1984)). In addition, this Court has made clear that “the sophistication of the parties” factors
into the determination of whether research, and how much, is reasonably required in any given
case. Emergent Capital, 343 F.3d at 195.

        Plaintiffs – a bank, two insurance subsidiaries, and a successor to a brokerage firm – are
clearly sophisticated investors. Yet they have not alleged that they conducted any independent
investigation prior to making their investments. Indeed, no effort seems to have been made to
verify any of defendants’ alleged misrepresentations. Moreover, the “critical information”
necessary to evaluate the allegedly concealed risks inherent in plaintiffs’ investments, Lazard
Freres, 108 F.3d at 1541 – namely, historical municipal bond yields and interest rate data – was
“not peculiarly within [defendants’] knowledge,” Royal Am. Managers, Inc. v. IRC Holding
Corp., 885 F.2d 1011, 1016 (2d Cir. 1989) (“Where the representation relates to matters that are
not peculiarly within the [defendant’s] knowledge and both parties have available the means of
ascertaining the truth, New York courts have held that the complaining party should have
discovered the facts and that any reliance under such circumstances therefore would be
unjustifiable.”). Thus, the district court correctly concluded that any reliance on defendants’
alleged misrepresentations was unreasonable under the circumstances.

        Furthermore, the district court did not err in denying plaintiffs’ request to amend their
complaints on the ground of futility. In their proposed amended complaints, plaintiffs made
additional claims regarding their alleged efforts – after having incurred heavy financial losses –
to investigate the various sources of the alleged flaws in the failed investments.

       While the proposed additions are not insubstantial, they do not “nudge[] [plaintiffs’]
claims across the line from conceivable to plausible.” Bell Atl. Corp. v. Twombly, 550 U.S.
544, 570 (2007). These particular plaintiffs still had at least some duty to investigate
defendants’ representations before relying on them in making such significant investments.
Moreover, plaintiffs’ new allegations only support the district court’s conclusion that the
information necessary to evaluate those representations was publicly available.

       For the foregoing reasons, the orders of the district court granting defendants’ motion to
dismiss the case and denying plaintiffs’ request to amend their complaints are AFFIRMED.

                                                     FOR THE COURT:
                                                     Catherine O’Hagan Wolfe, Clerk




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