Delaware Business Litigation Report

District Court Grants in Part, Denies in Part Motion to Dismiss Exchange Act Claims

Baker v. MBNA Corp., 2007 WL 2009673 (D. Del. July 6, 2007)

This case is a consolidated class action against MBNA and certain officers for violations of §§ 10(b) and 20(a) of the Exchange Act, as wells as regulations promulgated thereunder. Plaintiffs alleged that the Defendants violated the Act in connection with allegedly false statements made in announcements and public filings regarding restructuring charges incurred and anticipated growth. Plaintiffs further alleged that the Defendants engaged in insider trading. Defendants moved to dismiss the complaint under F.R.C.P. Rules 9(b) and 12(b)(6). The District Court granted the motion with respect to the 10(b) claims again two of the officers, but denied it in all other respects.

The Court noted that while under Rule 12(b) it was required to accept the factual allegations of the complaint, Rule 9(b) and the Private Securities Litigation Reform Act of 1995 (“PSLRA”) required a heightened standard for pleading fraud with particularity. The Court found that the statements Defendants made regarding restructuring charges and expected earnings did not fall under PSLRA’s safe harbor protection for forward-looking statements because both were made in MBNA’s 8-K filing with the SEC. With respect to Plaintiffs’ 10(b) claims, the Court found that Plaintiffs’ allegations as to MBNA’s behavior in monitoring its financial statements sufficiently stated a 10(b) claim to survive the motion to dismiss. The Court further found that Plaintiffs’ allegations that officers A & B signed allegedly fraudulent or misleading documents, attended meetings where those documents were analyzed, and/or made misleading public statements were enough to survive a motion to dismiss. The Court also found that Plaintiffs’ allegation that officer C sold nearly 65% of his MBNA holdings during the period in question created sufficient inference of scienter under 9(b) and PSLRA to survive the motion to dismiss. However, this standard was not met with respect to officers D & E where the only allegation was that they sold less than 15% of their MBNA holdings. The Court therefore dismissed their 10(b) claims against officers D & E. Finally the Court declined to dismiss Plaintiffs’ 20(a) claims, which impose joint and several liability of those who control a party that violates 10(b). The Court concluded that the factual determination of whether MBNA violated 10(b) and whether the other Defendants controlled MBNA could not be resolved at the pleadings stage.

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