Kirschner v. J.P. Morgan Chase Bank

Full title: MARC S. KIRSCHNER, as TRUSTEE of THE MILLENNIUM LENDER CLAIM TRUST…

Court: United States District Court, S.D. New York

Date published: Dec 1, 2020

Civil Action 17 Civ. 6334 (PGG) (SLC) (S.D.N.Y. Dec. 1, 2020)

Opinion

Civil Action 17 Civ. 6334 (PGG) (SLC)

12-01-2020

MARC S. KIRSCHNER, as TRUSTEE of THE MILLENNIUM LENDER CLAIM TRUST, Plaintiff, v. J.P. MORGAN CHASE BANK, N.A., J.P. MORGAN SECURITIES LLC, CITIGROUP GLOBAL MARKETS INC., CITIBANK, N.A., BMO CAPITAL MARKETS CORP., BANK OF MONTREAL, SUNTRUST ROBINSON HUMPHREY, INC., and SUNTRUST BANK, Defendants.

Sarah L. Cave United States Magistrate Judge

THE HONORABLE PAUL G. GARDEPHE, UNITED STATES DISTRICT JUDGE:

REPORT AND RECOMMENDATION

Sarah L. Cave United States Magistrate Judge

I. INTRODUCTION

Plaintiff Marc S. Kirschner (“Plaintiff”), in his capacity as trustee of the Millennium Lender Claim Trust (the “Trust”), brings this action against J.P. Morgan Chase Bank, N.A. (“Chase”), J.P. Morgan Securities LLC (“JPM Securities, ” with Chase, “JP Morgan”), Citibank, N.A. (“Citibank”), Citigroup Global Markets, Inc. (“CitiGlobal, ” together with Citibank, “Citi”), Bank of Montreal and BMO Capital Markets Corp. (together, “BMO”), SunTrust Bank, and SunTrust Robinson Humphrey, Inc. (together, “SunTrust”), (collectively, “Defendants”).

Plaintiff's claims arise out of a syndicated loan transaction that closed on April 16, 2014 (the “Syndicated Loan Transaction”), in which Defendants sold the Trust's beneficiaries debt obligations of Millennium Laboratories LLC (“Millennium”), a California-based company that provided diagnostic drug testing of urine samples for physicians. The Trust's beneficiaries included approximately 400 mutual funds, hedge funds and other institutional investors (the “Investors”).

In November 2015, 19 months after the Syndicated Loan Transaction Closed, Millennium filed for bankruptcy. The bankruptcy plan approved by the United States Bankruptcy Court for the District of Delaware created the Trust and vested it with the Investors' claims against Defendants.

Before the Court is Plaintiff's second motion for leave to file an amended complaint (the “Motion”). (ECF No. 132). Following Judge Gardephe's Order granting Defendants' motion to dismiss and granting Plaintiff permission to file a motion to amend (the “MTD Order”), (ECF No. 119 at 36), Kirschner v. JP Morgan Chase Bank, N.A., No. 17 Civ. 6334 (PGG), 2020 WL 2614765 (S.D.N.Y. May 22, 2020), Plaintiff now seeks to file the proposed amended complaint (the “PAC”), which asserts common law fraud claims against JP Morgan and Citi, and aiding and abetting fraud, conspiracy to commit fraud, and negligent misrepresentation against all Defendants. (See ECF No. 134-1).

For the reasons set forth below, the Court respectfully recommends that Plaintiff's Motion be denied on grounds of futility.

II. BACKGROUND

A. Factual Background

Judge Gardephe recounted in detail in the MTD Order the rise and fall of Millennium, the Syndicated Loan Transaction, and Plaintiff's original eleven non-fraud causes of action, ¹ a summary this Court incorporates by reference. Kirschner, 2020 WL 2614765, at *2-5. Plaintiff's original claims were based on the theory that the Defendants “abandoned their obligations” to perform adequate due diligence that would have discovered and disclosed to investors “(1) Millennium's exposure to liability, damages and penalties in connection with the DOJ investigation; and (2) the artificial inflation of Millennium's financial results stemming from the company's unlawful sales and marketing practices.” Id. at *5.

1 Causes of Action One through Six arose under the securities laws of California, Massachusetts, Colorado, and Illinois, and alleged that Defendants made actionable misstatements and omissions to the Investors. (See ECF No. 1-1 ¶¶ 125-72). The Seventh Cause of Action alleged negligent misrepresentation as to all Defendants. (Id. ¶¶ 173-81). Causes of Action Eight through Eleven against Chase asserted claims for breach of fiduciary duty, breach of contract, breach of post-closing contractual duties, and breach of the implied covenant of good faith and fair dealing. (Id. ¶¶ 182-207).

In the PAC, Plaintiff now asserts that there were “‘two frauds' - a multi-year health care fraud by Millennium insiders (“Insiders”) that in 2014 culminated in investment fraud when Millennium and Defendants falsely touted to” the Investors in Millennium's term loan notes (the “Notes”) Millennium's “compliance with health care laws so that Investors would fund a $1.775 billion dividend recapitalization that extinguished [Millennium's] prior debts to Defendants and put all the remaining proceeds into the Insiders' pockets, ” known as the Syndicated Loan Transaction. (ECF No. 133 at 8-9).

Plaintiff alleges that Defendants “stood in a special relationship with [I]nvestors by virtue of their superior knowledge of Millennium's legal-regulatory risks and exposure and thus owed the [I]nvestors a non-disclaimable duty of care not to make negligent misrepresentations to induce [I]nvestors' purchases.” (ECF No. 134-1 ¶ 9). Plaintiff claims that due to their role as senior lenders, financial advisors, and underwriters to Millennium, Defendants had “unique access” to Millennium's counsel involved in pending litigation, access that was not granted to any prospective Investors, who could “reasonably be expected” to “rely on Defendants for legal due diligence of Millennium.” (Id. ¶¶ 10-11).

As examples of Defendants' acts of fraud, aiding and abetting fraud, conspiracy, and negligent misrepresentation, Plaintiff alleges that:

• Defendants prohibited Millennium from disclosing material litigation and the DOJ Investigation, required Millennium instead to make the false representation that it was “not subject to any material litigation at all, ” and gave scripted answers for Millennium to provide to Investors that concealed the extent of its litigation exposure. (Id. ¶ 12).

• Defendants conspired with the Insiders to “obtain artificially-inflated ratings” for the Syndicated Loan Transaction, on which they knew Investors would rely. (Id. ¶ 13).

• Defendants “falsely represented to the Investors by words and conduct that Millennium was in compliance with the representations and warranties” in the 2014 Credit Agreement.² (Id. ¶ 15).

2 The 2014 Credit Agreement, the penultimate step in the Syndicated Loan Transaction that governed the term loan financing, was between the Investors, Millennium, an intermediate holding company formed to hold Millennium's stock, and Chase as Administrative Agent. See Kirschner, 2020 WL 2614765, at *3-4.

Plaintiff alleges that Defendants had a “strong motive to deceive potential investors” in their desire to “extinguish their own pre-existing loan exposure to Millennium and [receive] the huge fees associated with the new loan.” (Id. ¶ 7; see id. ¶¶ 181, 189). The same motives drove the JP Morgan and Citi Defendants “to exercise control over” Millennium's fraudulent disclosures to Investors. (Id. ¶ 165).

Plaintiff alleges that the Investors did not discover Defendants' misconduct until May 2015, when a $256 million settlement of Millennium's federal and state regulatory investigations and civil litigation was announced. (Id. ¶ 19). On hearing of this news, one Investor informed JP Morgan that the DOJ Investigation was “material” information that should have been described to Investors during the underwriting process, and that the Investor would not have participated had it known about the DOJ Investigation. (Id.)

B. Procedural Background

On August 1, 2017, Plaintiff filed the original complaint (the “2017 Complaint”) in the Supreme Court of the State of New York, New York County. (ECF No. 1-1). The 2017 Complaint relied on documents Millennium and third parties had produced, as well as tens of thousands of pages of documents Defendants produced pursuant to Bankruptcy Rule 2004 in proceedings pending in the United States Bankruptcy Court for the District of Delaware (the “Delaware Action”). (ECF No. 136 at 12). On August 21, 2017, Defendants removed the case to this Court, asserting federal jurisdiction under the Edge Act, 12 U.S.C. § 632. (ECF No. 1). On September 24, 2018, Judge Gardephe denied Plaintiff's motion to remand. (ECF No. 38).

1. The MTD Order

On April 12, 2019, Defendants moved to dismiss the 2017 Complaint. (ECF No. 77). In his opposition to that motion, Plaintiff requested permission, if his negligent misrepresentation claim was found to be defective, to “restyle” the claim as one for fraudulent misrepresentation. (ECF No. 81 at 40 n.25). On April 8, 2020, after Defendants' motion to dismiss was fully briefed, Plaintiff moved to amend the 2017 Complaint to add two claims for common law fraud, without adding any new factual allegations but asserting his concern that those claims might become time-barred. (ECF No. 115 at 3-4).

The MTD Order granted Defendants' motion to dismiss the complaint under Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim (ECF No. 76). Kirschner, 2020 WL 2614765, at *1, *17. The MTD Order also denied Plaintiff's motion to file an amended complaint “because the PAC include[d] claims that th[e] Court ha[d] dismissed.” Id. at *17. Judge Gardephe permitted Plaintiff to file the present Motion to cure the deficiencies noted in the MTD Order. Id. ³

3 On August 12, 2020, Judge Gardephe referred the Motion to the undersigned for a Report and Recommendation. (ECF No. 148).

With respect to Plaintiff's six causes of action under various states' “blue sky” laws, Judge Gardephe concluded that, under the “family resemblance” test set forth in Reves v. Ernst & Young, 494 U.S. 56 (1990), the Millennium notes issued in the Syndicated Loan Transactions were not “securities, ” but rather loans that were not subject to the protections of state securities laws. Kirschner, 2020 WL 2614765, at *10.

Judge Gardephe found two defects in Plaintiff's negligent misrepresentation claim. First, Plaintiff failed to allege “‘either actual privity of contract between the parties or a relationship so close as to approach that of privity.'” Kirschner, 2020 WL 2614765, at *12 (quoting Prudential Ins. Co. of Am. V. Dewey Ballantine, Bushby, Palmer & Wood, 80 N.Y.2d 377, 382 (1992)). In particular, Judge Gardephe found that Plaintiff did not allege that Defendants used their “unique” access to induce the Investors to purchase the Millennium notes, but instead that Defendants directed their activities to third parties, not to Investors. Id. Second, the disclaimers in the Assignment and Assumption Agreements, on which Plaintiff based the assertion that the Investors were in privity with Defendants, contained disclaimers that were “fatal” to a negligent misrepresentation claim. Id. at *13. As Judge Gardephe explained:

Section 9.6 of the Credit Agreement states that Chase, the “Administrative Agent[, ] shall not have any duty or responsibility to provide any Lender with any credit or other information . . . .” (Credit Agreement ([ECF] No. 79-1) § 9.6). And Section 9.6 further provides that “[e]ach Lender also represents that it will, independently and without reliance upon any Agent or any other Lender, and based on such documents and

information as it shall deem appropriate at the time, continue to make its own credit analysis . . . .” (Id.) Accordingly, the agreements on which Plaintiff relies to claim privity contain a clear disclaimer of the “special relationship” and “duty of care” alleged by Plaintiff.

Id. Judge Gardephe concluded that, because “the contractual disclaimers at issue address the evaluation of credit risk, which is exactly what the alleged misrepresentations relate to . . . the agreements on which Plaintiff relies provide no basis for a negligent misrepresentation claim.” Id. at *14; see id. at *13 (citing UniCredito Italiano SPA v. JP Morgan Chase Bank, 288 F.Supp.2d 485 (S.D.N.Y. 2003)).

Judge Gardephe reached a similar conclusion as to Plaintiff's breach of fiduciary duty claim, holding that the provision of the 2014 Credit Agreement that disavowed any fiduciary duty on the part of Chase toward the Investors precluded a breach of fiduciary duty claim. Kirschner, 2020 WL 2614765, at *14 (quoting Credit Agreement § 9.1)). Dismissing the breach of contract claim, Judge Gardephe held that Chase had no duty to “observ[e] and enforce[]” any conditions precedent before the Syndicated Loan Transaction closed, and did not have notice of any default by Millennium that would have triggered any duty of disclosure. Id. at *15-16. Finally, Judge Gardephe dismissed Plaintiff's breach of the duty of good faith and fair dealing claim because it was “unmoored” from any provision of the 2014 Credit Agreement and was duplicative of the deficient breach of contract claim. Id. at *17.

At the conclusion of the MTD Order, Judge Gardephe granted Plaintiff leave to amend to cure the defects he had found. Kirschner, 2020 WL 2614765, at *17-18.

2. The PAC

On July 31, 2020, Plaintiff filed the PAC along with the Motion. (ECF No. 134-1). In contrast to the 2017 Complaint, which theorized that Defendants failed to discover and disclose various material facts to the Investors, Plaintiff takes a different approach in the PAC. Plaintiff now alleges that Defendants not only knew about Millennium's illegal business practices and inflated revenues, but prevented Millennium from making “truthful disclosure” and “dictated to Millennium as a condition of underwriting [the Syndicated Loan Transaction] that [Millennium] falsely state to Investors that there was no material litigation or investigation and eliminate any disclosure of risk factors.” (ECF No. 133 at 9; see ECF No. 134-1 ¶¶ 75-104, 110-34). In other words, this time around, instead of performing sloppy due diligence as underwriters of the Syndicated Loan Transaction, Plaintiff accuses Defendants of knowing about Millennium's risks and fraudulently scheming to force Millennium to conceal those risks from Investors. The PAC alleges:

(i) primary fraud by lead arrangers JP Morgan and Citi in secretly controlling, authorizing or causing Millennium's statements and omissions to Investors, including prohibiting Millennium's disclosure of material litigation, [ECF No. 134-1] ¶¶ 161-69;

(ii) primary fraud by JP Morgan and Citi through their own direct representations, omissions, half-truths, and other conduct directed to Investors in the misleading Confidential Information Memorandum and subsequent solicitations, and by misrepresenting the satisfaction of conditions to the Investors' commitment to purchase the Notes, id. ¶¶ 170- 77;

(iii) aiding and abetting fraud by all Defendants, through knowing and substantial assistance of the Insiders' investment fraud, id. ¶¶ 178-85;

(iv) conspiracy to defraud by all Defendants, by acting in concert with the Insiders to defraud Investors through the 2014 Transaction, id. ¶¶ 186-93; and

(v) negligent misrepresentation by all Defendants, based on duties imposed by their “special relationship” with Investors. Id. ¶¶ 194-209.

(See ECF No. 133 at 10).

a. Primary liability for fraud

The PAC alleges two theories of primary fraud liability against JP Morgan and Citi. First, Plaintiff alleges that JP Morgan “not only knew of but also directed, controlled, caused and/or authorized” Millennium's misstatements and omissions to investors concerning, inter alia, “known, specific and quantifiable risks of then ‘ongoing-litigation' and reimbursement related matters, ” regulatory investigations, and ratings. (ECF No. 134-1 ¶¶ 161-64). Plaintiff alleges that “JP Morgan and Citi exercised such a degree of control over these misstatements and omissions by Millennium that they are legally responsible as if they were their makers, ” or, in the alternative, “JP Morgan and Citi are primarily liable for fraud because they authorized or caused Millennium to make the misstatements and omissions to Investors.” (Id. ¶ 164). JP Morgan's and Citi's motive for having Millennium make the false statements and omissions was their “unwanted credit exposure to Millennium.” (Id. ¶ 165).

Plaintiff's second theory of primary fraud liability rests on JP Morgan's and Citi's “own statements to Investors about the 2014 Transaction, ” including in the Confidential Information Memorandum (“CIM”), on which appeared the logos for JP Morgan and Citi. (Id. ¶¶ 170-77). Plaintiff alleges that JP Morgan's and Citi's communications to Investors contained misrepresentations and omissions about Millennium's “(i) systemic non-compliance with health care and whistleblower non-retaliation[] laws, (ii) [] solvency and fraudulently-inflated financial results and projections, (iii) [] fair presentation of its financial condition in its audited financial statements . . ., and (iv) [] fraudulently-induced credit ratings, and (v) [] material litigations and the DOJ Investigation.” (Id. ¶ 173).

b. Secondary liability

For the aiding and abetting claim against all of the Defendants, Plaintiff alleges they knew about Millennium's misstatements and omissions, were motivated to join the scheme to defraud Millennium's Investors in order to minimize their credit exposure, and substantially assisted Millennium's Insiders in the fraud by: (i) committing to act as Initial Lenders for the Syndicated Loan Transaction; (ii) underwriting and syndicating the Syndicated Loan Transaction; (iii) counseling the Insiders' misstatements and omissions to the ratings agencies and the Investors; (iv) making direct misrepresentations with the ratings agencies and the Investors. (ECF No. 134-1 ¶ 182). Plaintiff claims that the Investors did not disclaim reliance on statements by Millennium, and therefore justifiably relied on its misstatements and omissions about the Syndicated Loan Transaction. (Id. ¶ 183).

For the conspiracy claim against all Defendants, Plaintiff alleges that they conspired to act with the Insiders and each other to advance the fraudulent scheme by: (i) “consciously avoiding or concealing information” that Millennium should have disclosed; (ii) “directing the false and misleading content of the Insiders' presentations to rating agencies and in the Offering Materials to the Investors themselves;” (iii) “acting as Initial Lenders to Millennium;” (iv) “arranging for the distribution of Millennium's Notes to the Investors;” and (v) “engaging in a post-closing cover-up of the fraud” in the Syndicated Loan Transaction. (ECF No. 134-1 ¶ 190).

c. Negligent misrepresentation

For the negligent misrepresentation claim against all Defendants, Plaintiff alleges that JP Morgan and Citi supplied information included in the Offering Materials⁴ and caused Millennium to make misrepresentations and omissions to the Investors. (ECF No. 134-1 ¶ 196). Plaintiff also alleges that JP Morgan controlled Millennium's presentation to the rating agencies intending that the resulting ratings would influence the Investors' decisions to purchase the Notes. (Id.) Plaintiff alleges that the Defendants had a “special relationship” to the Investors, and that the Investors were in contractual privity with the Defendants who acted as “arrangers” in the Syndicated Loan Transaction. (Id. ¶¶ 199-200).⁵ Plaintiff contends that the Investors' disclaimers of reliance on Defendants “are not enforceable as to statements by Millennium that the Investors had no reason to know were caused or authorized by a Defendant.” (Id. ¶ 205). Although Plaintiff appears to assert this claim against all Defendants, there are no individualized allegations as to BMO or SunTrust.

4 Plaintiff defines the Offering Materials to include: the CIM, “the historical financial statements of Millennium and Millennium financial projections, the written and oral responses to Investors' questions and the various other materials made available to Investors, as well as other written and oral communications with Investors by Millennium, Defendants, and defendants' counsel during the offering period.” (ECF No. 134-1 ¶ 127).

5 Defendant J.P. Morgan Securities LLC, a registered broker-dealer, was an initial lender to Millennium and “one of two ‘Joint Lead Arrangers' and ‘Joint Bookrunners'” in the 2014 Transaction. (ECF No. 134-1 ¶ 25).

Defendants point out that most of the factual allegations in the PAC are not “new, ” and that of the documents quoted in the PAC, only five are documents that Defendants produced in the Delaware Action. (ECF No. 136 at 14-15). As to Plaintiff's allegations based on those documents, Defendants ask the Court to review the documents, which reveal that “the allegations are mischaracterizations or are demonstrably false.” (Id. at 15).

III. DISCUSSION

A. Legal Standards

1. Leave to amend

Under Federal Rule of Civil Procedure 15, the Court may permit a party to amend its pleading when justice so requires. Fed.R.Civ.P. 15(a)(2). “‘Where the possibility exists that [a] defect can be cured,' leave to amend ‘should normally be granted' at least once.” (ECF No. 119 at 36 (quoting Wright v. Ernst & Young LLP, No. 97 Civ. 2189 (SAS), 1997 WL 563782, at *3 (S.D.N.Y. Sept. 10, 1997), aff'd, 152 F.3d 169 (2d Cir. 1998)). A court that has dismissed a claim for having been “‘inadequate[ly] pled'” typically has a “‘strong preference for allowing the plaintiff[] to amend.'” (ECF No. 119 at 36 (quoting In re Bear Stearns Cos., Inc. Secs., Deriv. & ERISA Litig., No. 07 Civ. 10453, 2011 WL 4072027, at *2 (S.D.N.Y. Sept. 13, 2011)). Leave may be denied as futile if the proposed amended pleading could not withstand a motion to dismiss. See Oneida Indian Nation of N.Y. v. City of Sherrill, 337 F.3d 139, 168 (2d Cir. 2003) (internal citation omitted); Griffith-Fenton v. Coldwell Banker Mortg., No. 13 Civ. 7449 (VB), 2014 WL 6642715, at *1 (S.D.N.Y. Oct. 17, 2014). The party opposing the proposed amendment bears the burden of establishing that the amendment would be futile. See Ballard v. Parkstone Energy, LLC, No. 06 Civ. 13099 (RWS), 2008 WL 4298572, at *3 (S.D.N.Y. Sept. 19, 2008).

The Second Circuit has explained that “district courts should not deny leave [to amend] unless there is a substantial reason to do so, such as excessive delay, prejudice to the opposing party, or futility.” Friedl v. City of New York, 210 F.3d 79, 87 (2d Cir. 2000); see Procter & Gamble Co. v. Hello Prods., LLC, No. 14 Civ. 649 (VM) (RLE), 2015 WL 2408523, at *1 (S.D.N.Y. May 20, 2015) (citing State Teachers Ret. Bd. v. Fluor Corp., 654 F.2d 843, 856 (2d Cir. 1981)); see also Williams v. Citigroup Inc., 659 F.3d 208, 213-14 (2d Cir. 2011) (per curiam) (describing proper grounds for denying a motion to amend to include “undue delay, bad faith or dilatory motive on the part of the movant, . . . undue prejudice to the opposing party by virtue of allowance of the amendment, [or] futility of amendment”)) (citing Foman v. Davis, 371 U.S. 178, 182 (1962)).

2. Federal Rule of Civil Procedure 9(b)

A plaintiff asserting claims that sound in fraud must satisfy Federal Rule of Civil Procedure 9(b), which requires that, “[i]n alleging fraud or mistake, a party must state with particularity the circumstances constituting fraud or mistake.” Fed.R.Civ.P. 9(b); see Kalnit v. Eichler, 264 F.3d 131, 138 (2d Cir. 2001). To satisfy Rule 9(b), a plaintiff must “‘(1) specify the statements that the plaintiff contends were fraudulent, (2) identify the speaker, (3) state where and when the statements were made, and (4) explain why the statements were fraudulent.'” Kirschner, 2020 WL 2614765, at *6 (quoting Kottler v. Deutsche Bank AG, 607 F.Supp.2d 447, 462 (S.D.N.Y. 2009) (internal citations omitted)).

3. Choice of law

Federal jurisdiction in this case is premised on the Edge Act, 12 U.S.C. § 611 et seq. (see ECF No. 38), which directs federal courts to refer to “state law principles, ” including the forum state's choice of law rules. See Lloyds Bank PLC v. Rep. of Ecuador, No. 96 Civ. 1789 (DC), et al., 1998 WL 118170, at *6 (S.D.N.Y. Mar. 16, 1998). New York law “requires a court to apply the laws of ‘the [single] jurisdiction with the greatest interest' and ‘the most significant contacts.” Kirschner, 2020 WL 2614765, at *11 (quoting Roselink Inv'rs, L.L.C. v. Shenkman, 386 F.Supp.2d 209, 225 (S.D.N.Y. 2004)); Kashef v. BNP Paribas SA, No. 16 Civ. 3228 (AJN), 442 F.Supp.3d 809, 817 (S.D.N.Y. 2020).

In the MTD Order, Judge Gardephe found that Plaintiff “ha[d] not demonstrated that any particular state has a greater interest in or more significant contacts with this litigation than New York, ” and evaluated Plaintiff's common law claims under New York Law. Kirschner, 2020 WL 2614765, at *12. For purposes of the Motion, Plaintiff does not dispute the applicability of New York law, (ECF No. 133 at 14), ⁶ nor do Defendants argue that any other state's law should apply. Accordingly, the Court will analyze Plaintiff's proposed claims under New York law.

6 The Court acknowledges Plaintiff's reservation of rights “as to applicable substantive law in this and related cases in other jurisdictions, ” and “with respect to any choice of law argument Defendants raise at any time.” (ECF No. 133 at 14 & n. 9).

B. Application

Because Judge Gardephe granted Plaintiff leave to amend to remedy the pleading defects identified in the MTD Order, the principal question for this Court is whether Plaintiff's amendments are futile, i.e., whether the claims in the PAC can “withstand a motion to dismiss pursuant to Fed.R.Civ.P. 12(b)(6).” Lucente v. IBM Corp., 310 F.3d 243, 258 (2d Cir. 2002). Defendants bear the burden of showing futility. See Ballard, 2008 WL 4298572, at *3.

1. Primary fraud claims

To prevail on a fraud claim under New York law, a plaintiff must establish, by clear and convincing evidence: (1) a material misrepresentation or omission of fact; (2) made by defendant with knowledge of its falsity; (3) intent to defraud; (4) reasonable reliance on the part of the plaintiff; and (5) resulting injury. See De Sole v. Knoedler Gallery, LLC, 139 F.Supp.3d 618, 640 (S.D.N.Y. 2015) (citing Crigger v. Fahnestock & Co., 443 F.3d 230, 234 (2d Cir. 2006)). A claim for fraudulent concealment has “the additional element that the defendant had a duty to disclose the material information.” UniCredito, 288 F.Supp.2d at 497. “A duty to disclose arises where 1) one party has superior knowledge of certain information; 2) that information is not readily available to the other party; and 3) the first party knows that the second party is acting on the basis of mistaken knowledge.” Id.

“In assessing whether reliance on allegedly fraudulent misrepresentations is reasonable or justifiable, New York takes a contextual view, focusing on the level of sophistication of the parties, the relationship between them, and the information available at the time of the operative decision.” JP Morgan Chase Bank v. Winnick, 350 F.Supp.2d 393, 406 (S.D.N.Y. 2004). “‘Where a party has the means to discover the true nature of the transaction by the exercise of ordinary intelligence, and fails to make use of those means, he cannot claim justifiable reliance on defendant's misrepresentations.'” De Sole, 139 F.Supp.3d at 642 (quoting Brunner v. Estate of Lax, 47 Misc.3d 1206(A), 2015 WL 1509815, at *10 (N.Y. Sup. Ct. 2015) (internal citations omitted)).

Defendants argue that Plaintiff's primary fraud claims are futile because the disclaimers preclude any finding of reliance. (ECF No. 136 at 18). Even if the disclaimers do not bar the primary fraud claims, Defendants argue that “Plaintiff has not adequately alleged that JP Morgan and Citi were in a position to control Millennium's statements, ” that the PAC does not show that JP Morgan and Citi made any false or misleading statements themselves, and does not sufficiently plead reasonable reliance or intent to defraud. (Id. at 22, 25, 29).

Plaintiff responds that the disclaimers are inapplicable to statements by Millennium that JP Morgan and Citi controlled or caused, and are unenforceable as to statements by JP Morgan and Citi that were false on their face, concerned not “credit risk” but rather “the business, operations, property, financial and other condition and creditworthiness” of Millennium, and included facts that were particularly in Defendants' knowledge. (ECF No. 133 at 27-30). In addition, Plaintiff argues that any evaluation of reasonableness of the Investors' reliance in the face of the disclaimers is not properly resolved at the pleading stage and precludes a finding of futility. (Id. at 31).

a. Whether Defendants controlled Millennium's statements

Plaintiff's first cause of action alleges fraud against the JP Morgan and Citi Defendants for “[c]ontrolling . . . [m]aking, [a]uthoring and [c]ausing [Millennium's] false statements and omissions to investors. (ECF No. 134-1 at 61). Plaintiff alleges that Millennium made actionable misstatements and omissions in the offering materials associated with the 2014 Credit Agreement and in the Offering Documents. (Id. ¶ 162). These alleged misrepresentations include communications concerning: Millennium's non-compliance with health care and whistleblower laws; its solvency and fraudulently inflated financial results and projections; the fair representation of its financial condition in its audited financial statements; fraudulently inflated credit ratings; and probable and quantifiable exposure to legal and regulatory risks. (Id. ¶ 163). Plaintiff contends that by possessing and exercising control over Millennium's fraudulent statements and omissions, Defendants made or caused such misrepresentations and omissions and are legally responsible for inducing the Investors' reliance. (Id. ¶ 165).

In support of his theory that JP Morgan and Citi controlled Millennium's statements, Plaintiff asserts that JP Morgan made it a condition of its firm commitment to act as underwriters that Millennium not disclose any “material litigation” and instead required Millennium to state falsely that it was “not subject to any material litigation at all.” (ECF No. 134-1 ¶¶ 12, 87, 102- 04). Plaintiff also alleges that JP Morgan and Citi played a role in drafting statements Millennium made to rating agencies and Investors leading up to the Syndicated Loan Transaction. (Id. ¶¶ 105-09, 119-24.) Plaintiff argues that the disclaimers that Judge Gardephe found dispositive in the MTD Order do not bar this fraud claim because no Investor disclaimed reliance on statements and representations by Millennium. (Id. ¶ 166).

Defendants argue that Plaintiff fails to allege that JP Morgan and Citi are primarily liable Millennium's statements to Investors because the PAC does not adequately allege that JP Morgan or Citi, which were unaffiliated parties that engaged with Millennium for specific financial services in an arms-length business relationship, controlled Millennium's statements. (ECF No. 136 at 22-23).

Under New York law, “[a] party may be liable for fraud if it ‘made' a misrepresentation or ‘authorized' or ‘caused' a misrepresentation to be made.'” Woori Bank v. RBS Secs., Inc., 910 F.Supp.2d 697, 702 (S.D.N.Y. 2012) (quoting 60A N.Y. Jur. 2d Fraud and Deceit § 124 (2011)); see Allstate Ins. Co. v. Countrywide Fin. Corp., 824 F.Supp.2d 1164, 1186 (C.D. Cal. 2011) (same). Applying this standard, the Court finds that Plaintiff has not adequately alleged that JP Morgan and Citi were in a position to control, and did control, Millennium's false statements.

Plaintiff alleges in paragraphs 12 and 164 of the PAC that:

12. a. . . . Defendants imposed on the Company as a condition of their firm commitment underwriting a prohibition of “any possibility of disclosure [to investors] of material litigation against Millennium” and Defendants “require[d] instead” that Millennium falsely make “a clean representation that [it is] not subject to any material litigation at all.”

164. . . . They also required as a condition of their willingness to underwrite on a firm commitment basis that Millennium represent and warrant falsely to Investors in the 2014 Credit Agreement that there was no material investigation of or litigation against Millennium as of April 16, 2014.

(ECF No. 134-1 ¶¶ 12, 164). The document on which these allegations rely, however, does not support Plaintiff's allegation. As Defendants correctly point out, the email Plaintiff on which Plaintiff relies in these paragraphs concerns Millennium's representations and warranties in the Fee Letter and Commitment letter to Defendants-not to Investors-and Plaintiff's alteration of the document is materially misleading. (ECF No. 136 at 24; 136-4 at 6). The otherwise conclusory language in these paragraphs does not support Plaintiff's theory that JP Morgan and Citi controlled Millennium's statements.

In addition, the presence of JP Morgan and Citi's corporate logos on the CIM does not render them “joint makers” of the statements therein. (ECF No. 134-1 ¶ 172). The allegations here are distinguishable from those in In re Virtus Investment Partners Securities Litigation, in which the court held that Virtus Partners' drafting, execution, and approval of its corporate affiliate Virtus Trust's offering materials, when combined with the presence of Virtus Partners' logo on the cover of the prospectuses, was “sufficient to allege that Virtus Partners had authority over the information in the [offering materials] to make the statements attributable to Virtus Partners.” 195 F.Supp.3d 528, 541 (S.D.N.Y. 2016). In contrast, there are no allegations that JP Morgan and Citi, two outside financial services providers that were not part of the same corporate family as Millennium, had “direct involvement in the everyday business” of Millennium that would render them the maker of Millennium's statements. King Cty., Wash. v. IKB Deutsche Industriebank AG, 751 F.Supp.2d 652, 658 (S.D.N.Y. 2010).

The cases on which Plaintiff relies do not support his control theory of primary fraud liability. First, in Allstate (ECF No. 133 at 16 n.10), the court concluded that control had been adequately pled based on allegations that the special purpose vehicles that made the misstatements “were entirely controlled by” the defendants, each of which was an entity within the same corporate family as the special purpose vehicles. 824 F.Supp.2d at 1186. There is no allegation in the PAC, nor would one be plausible, that JP Morgan and Citi “entirely controlled” Millennium, a separate, unaffiliated bio-tech company that engaged them to provide financial services.

Second, the court in Orchard Hotel LLC v. D.A.B. Group LLC, (ECF No. 133 at 9), held that the bank defendant, even though it did not sign a certificate representing that funds were available to pay a contractor for a construction project, “solely” prepared the certificate and insisted that the contractor sign it, such that the bank defendant “effectively made the statements” in the certificate. 172 A.D.3d 530, 531 (1st Dep't 2019). In other words, the absence of a signature on the contract did not defeat the bank's obligations under that contract. In contrast, Plaintiff alleges that JP Morgan and Citi “helped Millennium” draft statements to investors, such as PowerPoint slides or Q&A responses, and shared information about how to dial into the presentation. (ECF No. 134-1 ¶ 110). The PAC makes clear that the underlying fraudulent statements were made by Millennium and the Insiders, not JP Morgan and Citi. (Id. ¶¶ 12-15, 65, 98-123, 125-27, 129, 136).

Finally, Plaintiff alleges in paragraph 121 that, during a presentation to Investors, a Millennium speaker said that “no causality will be found” in the Ameritox litigation (ECF No. 134-1 ¶ 121). The document on which the PAC relies, however, shows that the speaker actually stated that Millennium would know more about that litigation “when we either go to trial or we settle out.” (ECF No. 137-5 at 2). Because the document on which Plaintiff relies contradicts his allegation, the Court does not credit his assertion that this constituted a misstatement.

Accordingly, because the PAC fails to allege plausibly that JP Morgan and Citi controlled or made Millennium's statements, the Court finds that this theory of primary fraud liability fails to state a claim that would survive a motion to dismiss.

b. Statements by JP Morgan and Citi

As an alternative theory of primary liability for fraud, Plaintiff contends that JP Morgan and Citi made their own misstatements to Investors as follows:

(1) Their repetition of a statement by Millennium's outside counsel, Michael Loucks of Skadden, Arps, Slate, Meagher & Flom LLP referencing the fact that other laboratory companies had settled government investigations “in the $20 million range, ” while omitting that Loucks added that “the Government determines monetary payments through a financial analysis of damages” rather than by comparison to other cases. (ECF No. 134-1 ¶¶ 96-97).

(2) “[J]oint” statements with Millennium in the CIM. (Id. ¶ 172).

(3) “[W]ords and conduct [that] misrepresented to Investors that conditions precedent for funding in the 2014 Credit Agreement had been satisfied.” (Id. ¶ 132).

(4) JP Morgan's response to an Investor's question whether Millennium had “ever been accused or found guilty of violating the Anti-Kickback Statutes/the Stark Law” by stating that “[t]his is a very litigious space and while Millennium has had litigation brought against them[, ] they have never paid a single dime, lost a case or had to change a business [sic] practices.” (Id. ¶ 123).

The first allegation invokes two common law rules: first, that “[a] representation stating the truth so far as it goes but which the maker knows or believes to be materially misleading because of his failure to state additional or qualifying matter” is actionable. Universal Health Servs., Inc. v. U.S., 136 S.Ct. 1989, 1999 (2016) (quoting Rest. (Second) of Torts § 529 at 62 (1976)); and second, that “nondisclosure of legal violations is not actionable absent a special ‘duty . . . to exercise reasonable care to disclose the matter in question.'” Id. at 2000 (quoting Rest. (Second) of Torts § 551(1) at 119 (1976)). Together, these rules indicate that “[n]ondisclosure is not actionable under the common law of fraud and deceit unless there is a duty to speak. That duty may arise when plaintiff and defendant are in a confidential, fiduciary relationship, when defendant has notice that plaintiff is acting upon a mistaken belief as to a material fact, or when defendant resorts to misrepresentation or some other artifice aimed at preventing disclosure of the facts.” Frigitemp Corp. v. Fin. Dynamics Fund, Inc., No. 74 Civ. 1335, 1974 WL 466, at *5 (S.D.N.Y. Dec. 6, 1974).

Examining Plaintiff's allegation that JP Morgan and Citi should have but did not disclose the methodology by which damages might be assessed in the DOJ Investigation, the Court finds that Plaintiff has failed to allege that they omitted any material qualifying information that would render this statement a “half-truth.” Universal Health Servs., 136 S.Ct. at 2000. Plaintiff would have the Court impose primary fraud liability on JP Morgan and Citi for failing to anticipate the future outcome of a government investigation, which the Second Circuit has made clear is not the applicable standard for a fraud claim. See Novak v. Kasaks, 216 F.3d 300, 309 (2d Cir. 2000) (explaining that “allegations that defendants should have anticipated future events and made certain disclosures earlier than they actual did do not suffice to make out a claim of securities fraud”).

The plaintiffs in In re UBS AG Securities Litigation similarly claimed that once the defendants disclosed information about pending government investigations, they had a duty to “make a complete disclosure . . . including [that the company] itself faced substantial criminal fines and penalties[.]” No. 07 Civ. 11225 (RJS), 2012 WL 4471265, at *31 (S.D.N.Y. Sept. 28, 2012). When it was later revealed that the company would have to pay as much as $780 million, the plaintiffs claimed fraudulent misrepresentations. Id. Judge Sullivan rejected the plaintiffs' assertion that defendants had any duty to disclose, noting that “‘a corporation is not required to disclose a fact merely because a reasonable investor would very much like to know that fact.'” Id. (quoting In re Time Warner Inc. Secs. Litig., 9 F.3d 259, 267 (2d Cir. 1993)). There, as here, because the defendants “did not make positive assurances or guarantees that would necessitate additional disclosures, ” Judge Sullivan held that there was “no further duty to disclose.” Id.

Furthermore, “[t]he law in this Circuit is clear that a party ‘can be relieved of a duty to disclose when certain developments affecting a corporation become matters of general public knowledge.'” In re UBS AG Secs. Litig., 2012 WL 4471265, at *32 (quoting In re Fuwei Films Secs. Litig., 634 F.Supp.2d 419, 437 (S.D.N.Y. 2009) (internal citations omitted)). Here, Defendants point to prominent news reports that, well before the Syndicated Loan Transaction, Millennium faced significant exposure in the DOJ Investigation as well as in civil litigation, such that those proceedings were on “matters of general public knowledge.” Id. For example, a November 16, 2012 Reuters article described a federal grand jury investigation of Millennium for “health care fraud” and “intimidating former employees, ” as well as other “heated” litigations in which Millennium was involved. (ECF No. 137-6 at 2-8). The article included a comment that “grand juries generally only consider matters in which prosecutors have a strong suspicion of criminal behavior, ” and that the United States Attorney's office leading the investigation had “recovered more than $8.5 billion in settlements, fines and judgments since 2009.” (Id. at 5). An August 5, 2012 article discussed a court's decision to allow claims to proceed in the Ameritox litigation that Millennium “fraudulently charged Medicare and Medicaid for unnecessary tests” and engaged in false advertising. (ECF No. 137-7 at 2-3).⁷ These articles revealed the existence and risks of the DOJ Investigation and the Ameritox litigation to Millennium, such that “there was not ‘a substantial likelihood that the disclosure of the omitted fact[s] would have been viewed by the reasonable investor as having significantly altered the total mix of information made available.'” In re UBS, 2012 WL 4471265, at *33 (quoting Basic Inc. v. Levinson, 485 U.S. 224, 231-32 (1988)). Thus, Defendants have demonstrated that “‘information already in the public domain' obviated any duty to otherwise disclose” further information about potential adverse outcome of the DOJ Investigation. Id. at 32 (quoting Garber v. Legg Mason, Inc., 347 Fed.Appx. 665, 668 (2d Cir. 2009)); see In re Bank of Amer. Corp. Secs., Deriv., & ERISA Litig., No. 09 Md. 2058 (PKC) et al., 2012 WL 1353523, at *7 (S.D.N.Y. Apr. 12, 2012) (holding that plaintiffs failed to allege actionable omissions where press reports demonstrated that “there was significant public information about investigations and litigation” involving the company's business practices).

7 The Court may take judicial notice of the publication of these articles without crossing into the realm of the standard for motions for summary judgment. See In re UBS, 2012 WL 4471265, at *32 n.28 (collecting cases in which courts took judicial notice of news articles at the pleading stage).

The second allegation concerns statements by Millennium, not JP Morgan or Citi, and does not give rise to primary fraud liability. (See supra Section III.B.1.a).

The third allegation's reference to generalized “words or conduct” fails to satisfy the particularity requirements of Rule 9(b). See Cortes v. 21st Century Fox Am., Inc., 751 Fed.Appx. 69, 72-73 (2d Cir. 2018) (holding that allegations of misrepresentation by “trick, device, or scheme” failed to satisfy Rule 9(b)). To the extent that Plaintiff is attempting to allege that Defendants committed fraud by accepting commitments from the Investors despite Defendants' knowledge that Millennium had not complied with the representations and warranties in the 2014 Credit Agreement, Judge Gardephe's holding that “Section 9.3 of the Credit Agreement absolves [JP Morgan] from liability for ‘any recitals, statements, representations or warranties made by [Millennium]” precludes that theory of liability. Kirschner, 2020 WL 2614765, at *15. As explained in the MTD Order, there is no “contractual provision in which [JP Morgan] takes on an obligation to do anything with respect to Millennium's representations and warranties.” (Id.)

Like the first allegation, the fourth allegation involves JP Morgan's response to an Investor's question concerning Millennium's litigation exposure. As with the first allegation, the Court finds that Plaintiff has failed to allege that JP Morgan omitted any material qualifying information that would render this statement a “half-truth.” Universal Health Servs., 136 S.Ct. at 2000. Plaintiff's own allegations are that, when asked about Millennium's involvement in anti-kickback litigation, the JP Morgan representative stated that Millennium had been sued, but noted that such litigation had not caused Millennium to “change [its] practices” or pay any settlement-all of which were undisputedly true at the time. (ECF No. 134-1 ¶ 123). That months later Millennium would agree to pay $256 million to settle the federal, state, and civil litigation does not render the JP Morgan representative's statements false at the time he made them. See Novak, 216 F.3d at 309.

Accordingly, the Court finds that Plaintiff has failed to allege that JP Morgan and Citi themselves made a material misrepresentation or omission to Investors.

c. Scienter

In order to plead the scienter element of his fraud claims, Plaintiff must “‘allege facts that give rise to a strong inference of fraudulent intent, '” by either “alleging facts that show that defendants had both motive and opportunity to commit fraud, ” or “that constitute strong circumstantial evidence of conscious misbehavior or recklessness.'” Pilkington N. Am., Inc. v. Mitsui Sumitomo Ins. Co. of Am., No. 18 Civ. 8152 (JFK), 2020 WL 2521562, at *7 (S.D.N.Y. May 18, 2020) (quoting In re Carter-Wallace, Inc. Secs. Litig., 220 F.3d 36, 39 (2d Cir. 2000) (internal citations omitted)). To be sufficient to allege a fraudulent motive, the allegations must “entail concrete benefits that could be realized by one or more of the false statements and wrongful nondisclosures alleged.” Shields v. CityTrust Bancorp., Inc., 25 F.3d 1124, 1130 (2d Cir. 1994).

Plaintiff relies in large part on the motive-and-opportunity theory of scienter, alleging that JP Morgan, as the “lead senior bank lender to Millennium in a $300 million credit facility, ” and Citi, as Millennium's financial advisor, had a “strong motive to mislead Investors” (ECF No. 133 at 20-21) in order to orchestrate a “clean exit” from their existing term loan exposure to Millennium” by way of the 2014 Transaction. (ECF No. 134-1 ¶¶ 2, 83). The PAC also alleges that JP Morgan and Citi were paid the “lion's share” of the $35 million in fees paid to the Defendants. (Id. ¶¶ 16, 89). Motivated to extract themselves from Millennium's debt and to receive their fees, Plaintiff alleges, JP Morgan and Citi sought to avoid “disclosure of ‘ongoing dialogue' with the DOJ that would create an ‘overhang' that could jeopardize” the 2014 Transaction. (Id. ¶ 12(d)).

Defendants correctly point out, however, that the “clean exit” strategy to which the PAC refers was one the Insiders, not the Defendants, sought by way of a sale to a third party. (ECF No. 133 ¶ 2 (alleging that “the Insiders” “told Defendant Bank of Montreal that they wanted a ‘simple, clean exit'”); 7 (alleging that the Insiders sought “[t]o ensure their ‘exit'” by “insist[ing] that the Defendants underwrite the $1.775 billion term loan on a ‘firm-commitment' basis”); 83 (quoting one of the Insiders discussing a “simple, clean exit”)). Defendants note that it is undisputed that such a third-party sale never occurred. (ECF Nos. 136 at 30; 134-1 ¶ 84). Defendants also persuasively argue that, notwithstanding the tens of thousands of pages of discovery Plaintiff has received, the PAC contains no factual support for the conclusory assertion that “some Defendants were so concerned about limiting their exposure on a two-year old credit-facility less than one-sixth the size of the Term Loan that they committed a multi-billion dollar fraud.” (ECF No. 136 at 31). See Am. High-Income Trust v. Alliedsignal, 329 F.Supp.2d 534, 545 (S.D.N.Y. 2004) (rejecting allegations that underwriters had motive in proceeds of transaction being used to pay off debt owed to affiliate). Accordingly, Plaintiff's “exit” theory of Defendants' motive to commit fraud is insufficient.

Plaintiff's assertion that Defendants were motivated to earn fees in connection with the Syndicated Loan Transaction is likewise legally insufficient to establish scienter. New York law is well-settled that the “desire for higher compensation . . . is found in virtually all commercial transactions, making it an ill-suited motive from which to draw an inference of intent to defraud.” Zutty v. Rye Select Broad Market Prime Fund, L.P., 33 Misc.3d 1226(A), at *12 (N.Y. Sup. Ct. 2011) (quoting Tech. Support Servs., Inc. v. IBM, 18 Misc.3d 1106[A], at *30 (N.Y. Sup. Ct. 2007)). Plaintiff does not “allege any facts suggesting that the [] fees paid were ‘extraordinary'” at the level of fees in other cases in which courts have held that “out-of-the-ordinary fees” were sufficient to plead motive. In re Adelphia Comms. Corp. Secs & Deriv. Litig., No. 03 Md. 1529 (LMM), 2007 WL 2615928, at *3 (S.D.N.Y. Sept. 10, 2007) (quoting In re WorldCom, Inc. Secs. Litig., 294 F.Supp.2d 392, 425 (S.D.N.Y. 2003)); see In re JP Morgan Auction Rate Secs. (ARS) Marketing Litig., No. 10 Md. 2157 (PGG) et al., 2014 WL 4953554, at *12 (S.D.N.Y. Sept. 30, 2014) (holding that “the fact that JP Morgan earned fees in connection with the sale [of securities] is not sufficient to establish its motive to commit fraud” and collecting cases); Am. High-Income Trust, 329 F.Supp.2d at 545 (allegations that underwriter “desired to earn professional fees or to maintain its relationship to [its client] do not support a strong inference of scienter”).

To the extent Plaintiff invokes the conscious misbehavior or recklessness theory of scienter by pointing to allegations that Defendants knew about the false misrepresentations in the Offering Materials and the 2014 Credit Agreement because of their role as Millennium's lenders, involvement in the unsuccessful sale to a third party, and “unique access” to Insiders and Millennium's outside counsel (ECF No. 143 at 14), he might fare better. The PAC contains allegations that a Citi employee referred to having “another glass of [K]ool-aid” to believe Millennium's rise over the last five years, and a JP Morgan employee describing a presentation to rating agencies as “Pulp fiction, ” (ECF No. 134-1 ¶¶ 92, 109), which are sufficient to “go beyond generalized accusations of negligence” to satisfy Rule 9(b). In re Adelphia Comms., 2007 WL 2615928, at *4 (noting that allegations of records contradicting company's public statements could potentially show underwriters “knew facts or had access to information suggesting” that the company's public statements were false, but dismissing fraud claims on reliance grounds) (quoting Novak, 216 F.3d at 311). Because the primary fraud claim is otherwise deficient for the reasons set forth above and below, however, that Plaintiff may be able to satisfy the scienter element does not preclude a finding of futility.

d. Disclaimers

As set forth above, to survive dismissal, Plaintiff's primary fraud claims must adequately allege reasonable reliance and, to the extent they are based on omissions, a duty to disclose. (See supra Section III.B). The primary fraud claim against JP Morgan and Citi must also be dismissed based on the disclaimers in the relevant agreements, which preclude both of those essential elements of a fraud claim: (i) that JP Morgan and Citi “had a duty to disclose information regarding their business dealings with” Millennium, and (ii) that any reliance by the Investors on misrepresentations by JP Morgan and Citi “was reasonable.” UniCredito, 288 F.Supp.2d at 498.

As Judge Gardephe previously concluded, the disclaimers “are fatal to” Plaintiff's claim that the Investors reasonably relied on any alleged misstatements or omissions by the Defendants because the Investors “specifically agreed that they had, and would continue to, make their own credit decisions and would not rely on the Defendant banks.” Kirschner, 2020 WL 2614765, at *13 (quoting UniCredito, 288 F.Supp.2d at 499). Both the 2014 Credit Agreement⁸ and the CIM⁹ contained express non-reliance provisions. Therefore, having “failed to bargain for the right to rely on the banks as monitors of [Millennium's] compliance with its disclosure, financial condition and other covenants, or for the right to benefit from any knowledge gained by the Defendant banks or their affiliates in connection with their own business dealings with [Millennium], [the Investors] cannot, as a matter of law, be held reasonably to have relied on any misrepresentations or omissions by the Defendants concerning those matters.” UniCredito, 288 F.Supp.2d at 499.

8 See Kirschner, 2020 WL 2614765, at *13 (quoting Credit Agreement § 9.6 (ECF No. 79-1)).

9 ECF No. 79-2 at 7 (“Recipient acknowledges and agrees that (i) Arranger received the Evaluation Material from third party sources (including Borrower) and it is provided to Recipient for informational purposes, (ii) Arranger and its affiliates have no responsibility, and shall not be held liable, for the accuracy or completeness or lack thereof of the Evaluation Material or any information contained therein, (iii) no representation regarding the Evaluation Material is made by Arranger or its affiliates, (iv) neither Arranger nor its affiliates has made any independent verification as to the accuracy or completeness of the Evaluation Material and (v) Arranger and its affiliates shall have no obligation to update or supplement any Evaluation Material or otherwise provide additional information. . . . Each Recipient of the information contained herein should take such steps as it deems necessary to assure that it has the information it considers material or desirable in making its decision to become a lender and should perform its own independent investigation and analysis of the Facilities or the transactions contemplated thereby and the creditworthiness of Borrower. Recipient represents that it is sophisticated and experienced in extending credit to entities similar to Borrower. The information contained herein are not a substitute for Recipient's independent evaluation and analysis and should not be considered as a recommendation by Arranger or any of its affiliates that any Recipient enter into the Facilities.”).

In an attempt to circumvent Judge Gardephe's holding in the MTD Order and the preclusive effect of UniCredito, Plaintiff argues that the disclaimers do not apply to statements or omissions by Millennium that JP Morgan and Citi orchestrated. (ECF Nos. 133 at 11; 143 at 5). As explained above, however, Plaintiff has failed to allege that JP Morgan and Citi controlled or effectively “made” Millennium's statements. (See supra Section III.B.1.a). Defendants are correct that “Plaintiff cannot have it both ways. If the alleged misstatements are Millennium's, then JP Morgan and Citi cannot be liable for fraud. If the alleged misstatements are JP Morgan's and Citi's, they are barred by the contractual disclaimers.” (ECF No. 136 at 19).

Plaintiff's attempt to recharacterize the disclaimers as relating only to “general risks or conditions, including ‘credit risk,' which are present in every transaction, ” (ECF No. 133 at 28), also runs head-on into Judge Gardephe's holding that “the contractual disclaimers at issue address the evaluation of credit risk, which is exactly what the alleged misrepresentations relate to.” Kirschner, 2020 WL 2614765, at *14. Despite Plaintiff's attempts, the language of the disclaimers remains the same as the language Judge Gardephe reviewed and determined was sufficiently specific to be effective here, such that Plaintiff's cases describing general risks are inapposite. (ECF No. 133 at 28-29). See DynCorp. v. GTE Corp., 215 F.Supp.2d 308, 321 (S.D.N.Y. 2002) (dismissing fraud claim for failure to allege reliance where plaintiff's disclaimers “match[ed] the representations on which it bases its claim of pre-contractual fraud”).

Plaintiff's attempt to recycle the “peculiar knowledge” exception that Judge Gardephe has already rejected similarly fails to preclude the application of the disclaimers. (ECF No. 133 at 30). See Kirschner, 2020 WL 2614765, at *12-13; UniCredito, 288 F.Supp.2d at 499 (“even if the bank Defendants had the knowledge the Complaint attributes to them, the banks had no duty to disclose it to Plaintiffs”). And, even assuming that JP Morgan and Citi had greater access to Millennium's outside counsel - an allegation that appears in both the 2017 Complaint and the PAC (compare ECF No. 1-1 ¶¶ 56-63, 84-85, 87 with ECF No. 134-1 ¶¶ 94-97, 100-03, 125-26) - that allegation does not lead to an inference that the Investors could not themselves access information from Millennium or its counsel. See UniCredito, 288 F.Supp.2d at 500 (“Information as to the true nature of Enron's financial condition plainly was not the exclusive province of [the defendants]. Enron . . . certainly possessed such information.”) As in UniCredito, Plaintiff has “proffered neither authority nor legal justification for the extension of the peculiar knowledge exception to third parties such as the banks or their affiliates.” 288 F.Supp.2d at 501.

Finally, Plaintiff's reliance on Financial Guaranty Insurance Co. v. Putnam Advisory Co., LLC, 783 F.3d 395, 406 (2d Cir. 2015) to re-argue that “disclaimers of duty ‘do not preclude the finding of a special relationship'” (ECF No. 133 at 31-32), is misguided given Judge Gardephe's rejection of the same argument in the MTD Order. Kirschner, 2020 WL 2614765, at *14. Having rejected Plaintiff's theory that JP Morgan and Citi controlled Millennium's statements, the Court finds that this argument gives Plaintiff no traction in evading the preclusive effect of the disclaimers, which “track the misrepresentations” that Plaintiff attempts to allege here. Id.

Accordingly, the disclaimers provide a separate and independent basis on which to conclude that Plaintiff's primary fraud claims in the PAC are futile.

2. Negligent misrepresentation

As explained in the MTD Order:

Under New York law . . . a party bringing a negligent misrepresentation claim must plead facts demonstrating that “(1) the parties stood in some special relationship imposing a duty of care on the defendant to render accurate information; (2) the defendant negligently provided incorrect information; and (3) the plaintiff reasonably relied upon the information given.” LBBW Luxemburg S.A. v. Wells Fargo Sec. LLC, 10 F.Supp.3d 504, 525 (S.D.N.Y. 2014) (citation omitted). Accordingly, in order for “a party [to] recover in tort for pecuniary loss sustained as a result of another's negligent misrepresentations there must be a showing that there was either actual privity of contract between the parties or a relationship so close as to approach that of privity.” Prudential Ins. Co. of Am. v. Dewey, Ballantine, Bushby, Palmer & Wood, 80 N.Y.2d 377, 382 (1992) (citations omitted).

Kirschner, 2020 WL 2614765, at *12.

Plaintiff alleges that the relationship between Defendants and the Investors constitutes a “special relationship” because the Investors were “a limited group of persons for whose benefit and guidance the Defendants supplied” the Offering Materials “with the intent to influence the decision-making of the Investors.” (ECF No. 134-1 ¶ 195). Plaintiff again relies on the assertion that the JP Morgan Defendants and the Citi Defendants “caused and authorized” Millennium's misstatements in the offering materials and in the representations and warranties with the intent to influence the Investors, and the allegation that JP Morgan presented misleading information for purposes of receiving a higher rating for the 2014 Credit Agreement. (Id. ¶ 196). Finally, Plaintiff alleges that this special relationship exists based on Defendants' positions as senior lenders, advisors, and arrangers for Millennium that thus had superior knowledge regarding Millennium's illegal business practices. (Id. ¶ 197).

“In addition and/or in the alternative, ” Plaintiff alleges that the Investors were in contractual privity with the Defendants who acted as arrangers of the Investors' commitments to purchase and who assigned to Investors their interests as Initial Lenders to Millennium in the 2014 Credit Agreement. (ECF No. 134-1 ¶ 200).

Defendants argue that the disclaimers again preclude all of the claims in the PAC, and in the alternative, the PAC fails to plead remedy the defects that Judge Gardephe pointed out in the MTD Order. (ECF No. 136 at 33 (citing discussion of Kimmell v. Schaefer, 89 N.Y.2d 257 (1996) (“[t]he facts here are clearly much different than in Kimmell.”))).¹⁰ Judge Gardephe found unavailing Plaintiff's allegations that Defendants used their insider status to induce the Investors, Kirschner, 2020 WL 2614765, at *12, and specifically held that even assuming arguendo that the agreements demonstrated privity, the disclaimers were still fatal to any negligent misrepresentation claim. (Id.)

10 The MTD Order distinguished Kimmell, stating, “[i]n Kimmel, the defendant was the issuer's “chief financial officer . . . [and] the contact person . . . for the [investment] project”; it was his responsibility to seek investors for the limited partnership. Kimmell, 89 N.Y.2d at 260-61. Defendant “met with each plaintiff, and personally represented that the [investment] project would generate some income”; he “urged plaintiffs to review and rely on the projections [he had overseen]; he “informed [plaintiff] that he could provide ‘hot comfort' should plaintiff entertain any reservations about investing”; he “personally requested ‘updated' projections, which he represented were reasonable and generated after a ‘thorough discussion . . .'”; and he “personally received a $20,000 commission for his efforts on behalf of the [investment] project.” Id. at 265.” (ECF No. 119 at 26-27).

As set forth above (see supra Section III.B.1.a), the Court has concluded that Plaintiff has failed to allege that JP Morgan and Citi controlled Millennium's statements, and therefore, this theory does not open the door to a negligent misrepresentation claim. In addition, it is well-settled that “[g]enerally, banking relationships are not viewed as special relationships giving rise to a heightened duty of care.” Banque Arabe et Intn'l D'Investissement v. Maryland Nat'l Bank, 57 F.3d 146, 158 (2d Cir. 1995). As the Second Circuit explained in Banque Arabe, this “principle applies to loan participation agreements” like the Syndicated Loan Transaction here, “in which there is deemed to be no fiduciary relationship unless expressly and unequivocally created by contract.” Id. at 158. The Investors did not bargain for that relationship here. Further, the PAC does not otherwise contain any new allegations showing “actual privity of contract or a relationship so close as to approach that of privity.” Kirschner, 2020 WL 2614765, at *12 (internal citations omitted). Finally, Plaintiff's allegations about Defendants' “unique access” and “control[]” of the rating process are the same allegations that Judge Gardephe rejected in the MTD Order in distinguishing Kimmel. Kirschner, 2020 WL 2614765, at *12. Accordingly, the Court finds that Plaintiff has failed to remedy the defects in his negligent misrepresentation claim, such that amending his pleading to add this claim would be futile.

3. Secondary liability claims

a. Aiding and abetting

In Count III, Plaintiff alleges that all Defendants aided and abetted the Millennium Insiders' fraud against Investors. (ECF No. 134-1 ¶¶178-85). Plaintiff alleges that the Defendants substantially assisted the Insiders' scheme to defraud Investors by: (a) committing to act as Initial Lenders in the Syndicated Loan Transaction; (b) underwriting and syndicating the Notes; (c) counseling the Insiders to make false statements to rating agencies and Investors; (d) themselves falsely communicating with Investors and rating agencies. (Id. ¶ 182).

Aiding and abetting fraud has three elements: “‘(1) that an independent wrong exist[s]; (2) that the aider and abettor know[s] of that wrong's existence; and (3) that substantial assistance be given in effecting that wrong.'” Adelphia Recovery Trust v. Bank of Am., N.A., 624 F.Supp.2d 292, 312 (S.D.N.Y. 2009). To meet Rule 9(b)'s pleading requirements, “‘a claim for aiding and abetting fraud requires plaintiff to plead facts showing[] the existence of a fraud, defendant's knowledge of the fraud, and that the defendant provided substantial assistance to advance the fraud's commission.' ” Id. (quoting Wight v. BankAmerica Corp., 219 F.3d 79, 91 (2d Cir. 2000)); see EIG Energy Fund XIV, L.P. v. Keppel Offshore & Marine Ltd., No. 18 Civ. 1047 (PGG), 2020 WL 2319127, at *9 (S.D.N.Y. May 11, 2020). To survive a motion to dismiss, a complaint alleging aiding and abetting fraud must allege “actual knowledge of fraud with the particularity necessary to survive the heightened pleading requirements of Federal Rule of Civil Procedure 9(b).” Lerner v. Fleet Bank, N.A., 459 F.3d 273, 292-93 (2d Cir. 2006); see also Krys v. Pigott, 749 F.3d 117, 127 (2d Cir. 2014) (“[U]nder New York law, a complaint adequately alleges the knowledge element of an aiding and abetting claim when it pleads ‘not . . . constructive knowledge, but actual knowledge of the fraud as discerned from the surrounding circumstances.'”) (quoting Oster v. Kirschner, 77 A.D.3d 51, 56 (1st Dep't 2010)).

Considering first the impact of the disclaimers, Plaintiff is correct that the court in UniCredito allowed an aiding and abetting claim notwithstanding its earlier conclusion that the disclaimers precluded the fraud and negligent misrepresentation claims. (ECF No. 133 at 27). See UniCredito, 288 F.Supp.2d at 502. While the court in UniCredito did not specifically address the preclusive effect of reliance disclaimers on an aiding and abetting claim, other courts that have done so have held that disclaimers similar to those in this case also barred aiding and abetting claims. Thus, in Stanfield Offshore Leveraged Assets, Ltd. v. Metropolitan Life Insurance Co., the court held that a substantially similar disclaimer providing that the defendant “did not have a duty to disclose any information relating to the [company] and could not be held liable for failure to disclose any information” precluded a claim for aiding and abetting fraud “based on allegations of silence or inaction.” 64 A.D.3d 472, 476 (1st Dep't 2009). In Stanfield, as here, while the plaintiffs alleged that the defendants “assisted in the fraud by contacting prospective investors and distributing information about the [company], ” the “crux” of the claim was a failure to disclose adverse information about the company, which was “insufficient to support a claim of aiding or abetting fraud absent a fiduciary or some other independent duty owed by [the defendant] to the plaintiffs.” Id. Similarly, in Jebran v. LaSalle Business Credit, LLC, the court held that allegations that the defendant “remained silent regarding a purported misrepresentation in a loan agreement between plaintiffs and defendant's borrower” was “insufficient to sustain a claim for aiding and abetting” in the absence of an “independent duty to the plaintiff.” 33 A.D.3d 424, 424 (1st Dep't 2006). Because the plaintiffs in Jebran acknowledged in the loan agreement that they “had all of the information they needed to make an informed transaction, ” they too could not demonstrate reasonable reliance. Id. at 425. In the absence of a duty to disclose, Plaintiff's aiding and abetting claim is unsustainable. See Eurycleia Partners, LP v. Seward & Kissel, LLP, 12 N.Y.3d 553, 562 (2009) (dismissing aiding and abetting claim against law firm that assisted in preparing offering memoranda where investors failed to allege any “legal duty obligating [the law firm] to make affirmative disclosures to plaintiffs under the circumstances of this case”); King v. Schonberg & Co., 233 A.D.2d 242, 243 (1st Dep't 1996) (“in the absence of a confidential or fiduciary relationship between plaintiff and her brother's attorneys giving rise to a duty of disclosure, the silence of the attorneys did not amount to the substantial assistance that is a required element of aider or abettor liability”). Accordingly, given the preclusive effect of the disclaimers, any alleged failure to disclose adverse information about Millennium does not constitute substantial assistance for purposes of an aiding and abetting claim.

Therefore, the Court recommends that Plaintiff's aiding and abetting claim be dismissed as futile.

b. Civil conspiracy

In Count IV, Plaintiff asserts that all Defendants participated in a conspiracy to defraud Investors. (ECF No. 134-1 ¶¶ 186-93). In addition to demonstrating the existence of the underlying fraud, a claim for civil conspiracy to defraud requires a showing of: (1) an agreement between two or more parties; (2) an overt act in furtherance of the agreement; (3) the parties' intentional participation in the furtherance of a common purpose or plan; and (4) resulting damage or injury. See UniCredito, 288 F.Supp.2d at 504; Meisel v. Grunberg, 651 F.Supp.2d 98, 119 (S.D.N.Y. 2009). “Conspiracy allegations ‘are permitted only to connect the actions of separate defendants with an otherwise actionable tort.'” Id. (quoting Alexander & Alexander of N.Y. v. Fritzen, 68 N.Y.2d 968, 969 (1986)); IMG Fragrance Brands, LLC v. Houbigant, Inc., 759 F.Supp.2d at 363, 386 (S.D.N.Y. 2010) (“All that an allegation of conspiracy can accomplish is to connect non-actors, who otherwise might escape liability, with the acts of their coconspirators”).

In support of his civil conspiracy claim, Plaintiff alleges that all Defendants knew of the Insiders' scheme to defraud the Investors and that they substantially assisted the Insiders by: (1) acting as Initial Lenders to Millennium for the 2014 Syndicated Loan; (2) underwriting and Syndicating the Notes to Investors for the 2014 Syndicated Loan; (3) counseling the Insiders on false written and oral communications with rating agencies and with Investors concerning Millennium's business practices; and (4) themselves falsely communicated directly or through counsel with rating agencies and investors on same subjects throughout the 2014 Syndicated Loan negotiations. (ECF No. 134-1 ¶ 182).

Defendants again argue that the disclaimers preclude this claim, and that in any event, Plaintiff has not adequately pled the elements of the primary fraud or the secondary fraud claims of conspiracy and aiding and abetting. (ECF No. 136 at 31). Specifically, Defendants contend that Plaintiff has only made conclusory scienter allegations, and that alleged “failure to disclose” purportedly material information does not constitute an overt act required for a conspiracy claim. (Id. at 32).

Plaintiff again correctly points out that UniCredito also allowed a civil conspiracy claim notwithstanding the disclaimers. Examining the elements of such a claim on the allegations here, however, the Court finds that this claim would also be futile. Focusing on the second “overt act” element of the claim, courts have held that the “‘overt act' typically must be an affirmative act; mere inaction is insufficient.” Ritchie Cap. Mgmt. LLC v. Gen'l Elec. Cap. Corp., 121 F.Supp.3d 321, 339 (S.D.N.Y. 2015); see Stutts v. De Dietrich Grp., No. 03 Civ. 4058 (ILG), 2006 WL 1867060, at *15 (E.D.N.Y. June 30, 2006) (dismissing aiding and abetting claim based on banks' provisions of letters of credit to primary fraud defendants where plaintiffs failed to “allege facts suggesting that this act was done in furtherance of an agreement to commit unlawful acts”). The “[f]ailure to recognize or prevent fraud does not constitute an overt act.” Heinert v. Bank of Am. N.A., No. 20-0691, 2020 WL 6689287, at *4 (2d Cir. Nov. 13, 2020) (summary order) (affirming dismissal of civil conspiracy claim).

As noted above, the crux of Plaintiff's civil conspiracy claim is Defendants' failure to disclose to the Investors the risk that the DOJ Investigation and the Ameritox litigation would result in Millennium having to pay a settlement greater than $20 million, but such a failure to act or to disclose is insufficient to constitute an overt act for purposes of pleading a civil conspiracy claim. Heinert, 2020 WL 6689287, at *4; Ritchie, 121 F.Supp.3d at 339-40. Accordingly, the Court respectfully recommends that Plaintiff's civil conspiracy claim be dismissed as futile.

4. Citibank & CitiGlobal

Although Plaintiff has named Citibank and CitiGlobal as Defendants, including them in the “collectively” defined terms, “Banks” or “Defendants” or “Citi” (ECF No. 134-1 ¶¶ 3, 28), the PAC is also deficient for failure to plead fraud as to each of these defendants with particularity. It is well-settled that a plaintiff who alleges fraud against multiple defendants “must plead with particularity by setting forth separately acts complained of by each defendant.” Sofi Classic S.A. de C.V. v. Hurowitz, 444 F.Supp.2d 231, 248-49 (S.D.N.Y. 2006). Apart from identifying Citibank in the “Parties” section of the PAC as one of the lenders to Millennium and alleging that its logo appeared on the CIM (ECF No. 134-1 ¶¶ 28, 110), the PAC fails to allege a specific misrepresentation by Citibank to Investors. Similarly, as to CitiGlobal, the general allegations that “JP Morgan and Citi” “prepared, ” “scrubbed, ” or “dictated” language in the CIM fail to specify which actions were taken by CitiGlobal. (ECF No. 134-1 ¶¶ 90, 113, 114, 164). And, as set forth above, the Court has deemed insufficient Plaintiff's attempt to allege that JP Morgan and Citi controlled or dictated Millennium's statements. (See supra Section III.B.1.a). By using the varying terms of “Citi, ” the “Banks, ” and “Defendants” throughout the PAC, it is entirely unclear which entity is alleged to have done what. This sort of vague allegation that “fails to distinguish among Defendants” are deficient under Rule 9(b). Lehman v. Garfinkle, No. 08 Civ. 9385 (SHS), , 2009 WL 2973207, at *9 (S.D.N.Y. Sept. 16, 2009); see Sofi Classic, 444 F.Supp.2d at 248 (dismissing fraud claim that “fail[ed] to identify which of the two Defendants made each statement or omission”).

The PAC also fails to allege Citibank or CitiGlobal's scienter. It is undisputed that Citibank and CitiGlobal were not parties to the 2012 term loan and revolving credit facility to Millennium, so extracting themselves from the risk of that transaction could not supply the requisite motive. (ECF No. 134-1 ¶¶ 72, 90, 165, 174). For the same reasons described above, generalized allegations of motive to maintain their relationship with Millennium to minimize their exposure and receive fees (id. ¶¶ 7, 128) fail to plead the requisite scienter required under this Court's precedent and Rule 9(b).

5. BMO & SunTrust

The Court also concludes that Plaintiff's claims against BMO and SunTrust would be futile. Plaintiff's claims rest solely on the allegations that BMO and SunTrust “committed” to provide term loan financing to Millennium and “participated” in due diligence sessions. (ECF Nos. 134-1 ¶¶ 133 n.9; 133 at 15-16). As Defendants correctly point out, the PAC does not allege that BMO or SunTrust prepared any allegedly fraudulent documents or was otherwise involved in Millennium's alleged misstatements or omissions. (ECF No. 136 at 35). Further, the PAC only alleges that BMO and SunTrust agreed to provide loan financing to Millennium, but does not allege that they actually provided such financing, (ECF No. 134-1 ¶¶ 72-73, 86, 133 n.9), and in the 2017 Complaint, Plaintiff conceded that BMO and SunTrust only “listen[ed]” in the due diligence calls. (2017 Complaint (ECF No. 1-1) ¶ 61). Essentially, the PAC alleges that BMO and SunTrust, based on “[m]ere presence, ” should be secondarily liable, but that alone is not sufficient to “constitute affirmative assistance.” JP Morgan Chase Bank v. Winnick, 406 F.Supp.2d 247, 258 (S.D.N.Y. 2005).

Plaintiff relies on Loreley Financing (Jersey) No. 3 Ltd. v. Wells Fargo Securities LLC, No. 12 Civ. 3723 (RJS), 2016 WL 5719749 (S.D.N.Y. Sept. 29, 2016) in support of his argument that BMO and SunTrust's actions, even if “routine, ” nevertheless made a “substantial contribution to the perpetration of the fraud.” (ECF No. 133 at 23 (quoting Loreley, 2016 WL 5719749, at *7)). What the PAC fails to allege, in anything more than a conclusory fashion, how BMO and SunTrust listening on due diligence calls and offering to provide financing that never happened rises to the level of “substantial contribution” as that of the banks in Loreley, which acted as initial purchaser of the notes at issue, actually did provide financing for the transaction, and orchestrated the injection of toxic assets into the portfolios in which the plaintiffs had invested. Loreley, 2016 WL 5719749, at *7. Plaintiff similarly misplaces his reliance on In re First Alliance Mortgage Co., 471 F.3d 977 (9th Cir. 2006), in which the court refused to disturb a jury's finding that an investment bank that satisfied all of the company's financing needs after other banks ceased to provide financing, and basically “kept [the company] in business” therefore “knowingly provided ‘significant assistance' not just to the company's business, but to the underlying fraud itself.” Id. at 995. Here, the Court finds that Plaintiff's allegations do not create a plausible inference that BMO and SunTrust's actions, or inactions, kept Millennium in business as the bank had in First Alliance.

Accordingly, the Court recommends that Plaintiff's claims against BMO and SunTrust be dismissed as futile.

6. Prejudice

Defendants contend that Plaintiff's unexplained three-year delay in seeking to include the claims in the PAC has caused them prejudice. (ECF No. 136 at 36). Plaintiff correctly points out, however, that his Motion is timely pursuant to paragraph 8 of the applicable Case Management Order (ECF No. 98). Plaintiff is also correct that Defendants made similar arguments regarding prejudice (ECF Nos. 143 at 19; 117 at 5-7), and Judge Gardephe implicitly rejected those arguments in granting Plaintiff leave to amend in the MTD Order. Kirschner, 2020 WL 2614765, at *17.

While neither delay nor prejudice to Defendants alone would preclude the PAC, the deficiencies outlined above lead to the conclusion that Plaintiff's amendments are futile.

IV. CONCLUSION

For the reasons set forth above, the Court recommends that Plaintiff's Motion be denied on the ground that his amendments are futile insofar as the PAC fails to state any claim on which relief could be granted.

NOTICE OF PROCEDURE FOR FILING OBJECTIONS TO THIS REPORT AND RECOMMENDATION

The parties shall have fourteen (14) days (including weekends and holidays) from service of this Report and Recommendation to file written objections pursuant to 28 U.S.C. § 636(b)(1) and Rule 72(b) of the Federal Rules of Civil Procedure. See also Fed.R.Civ.P. 6(a), (d) (adding three additional days when service is made under Fed.R.Civ.P. 5(b)(2)(C), (D) or (F)). A party may respond to another party's objections within fourteen (14) days after being served with a copy. Fed.R.Civ.P. 72(b)(2). Such objections, and any response to objections, shall be filed with the Clerk of the Court. See 28 U.S.C. § 636(b)(1); Fed.R.Civ.P. 6(a), (d), 72(b). Any requests for an extension of time for filing objections must be addressed to Judge Gardephe.

FAILURE TO OBJECT WITHIN FOURTEEN (14) DAYS WILL RESULT IN A WAIVER OF OBJECTIONS AND WILL PRECLUDE APPELLATE REVIEW. See 28 U.S.C. § 636(b)(1); Fed.R.Civ.P. 6(a), (d), 72(b); Thomas v. Arn, 474 U.S. 140 (1985).