United States District Court, D. New Jersey
In re TORONTO-DOMINION BANK SECURITIES LITIGATION
A. LIEBERMAN MATTHEW L. TUCCILLO JENNIFER BANNER SOBERS
POMERANTZ LLP PATRICK V. DAHLSTROM POMERANTZ LLP BRUCE DANIEL
GREENBERG LITE DEPALMA GREENBERG, LLC Attorneys for
M. LEMING WILLIAM M. TAMBUSSI BROWN & CONNERY, LLP
RICHARD C. PEPPERMAN, II MATTHEW A. PELLER SULLIVAN &
CROMWELL LLP Attorneys for Defendants The Toronto-Dominion
Bank, Bharat Masrani, Colleen Johnston, Riaz Ahmed, Teri
Currie, Leo Salom, Mike Pedersen, Mark Chauvin.
L. HILLMAN, U.S.D.J.
case is a putative securities class action concerning alleged
material misrepresentations or omissions made by Defendants.
Presently before the Court are two motions. First is
Defendants' Motion to Dismiss Plaintiffs' First
Amended Complaint. Second, is Plaintiffs' Motion to File
a Sur-Reply. For the reasons expressed herein,
Defendants' motion will be granted, in part, and denied,
in part. Plaintiffs' motion will be granted.
our brief recitation of the facts from Plaintiffs' First
Amended Class Action Complaint (“FAC”). This is a
putative securities class action asserted against Defendant
Toronto-Dominion Bank (“TD Bank”) and several TD
Bank executives (collectively, “Individual
Defendants”). The executives include Bharat Masrani,
CEO, Riaz Ahmed, CFO, Teri Currie, Group Head, Canadian
Personal Banking, Leo Salom, Group Head, Wealth Management
and TD Insurance, TD Bank Group (formerly, Executive Vice
President, Wealth Management), Mike Pedersen, President and
CEO until October 27, 2016 (formerly, Group Head, U.S.
Banking), and Mark Chauvin, Group Head and Chief Risk
Officer. The putative class consists of those who held United
States-traded, TD Bank stock between December 3, 2015 and
March 9, 2017, inclusive.
securities claims are centered around TD's public
statements about (1) strong risk management, (2) solid
organic growth, and (3) growth in the Canadian Retail
segment. Those statements, Plaintiffs allege, were false.
Instead, Plaintiffs allege that a “highly pressurized
work environment” and “forced sales
targets” - among other things - led to violations of TD
Bank's Code of Conduct, behavior that “exceeded
TD's articulated risk appetite, ” and possibly
illegal activity. Plaintiffs suggest that these allegations
are supported by hundreds of confidential witnesses
presents statements from nineteen CWs, who are non-parties.
Those individuals and their statements are discussed as
relevant, infra. The CWs statements generally allege
that TD Bank implemented a strict sales quota on tellers,
loan advisors, financial advisors, and customer service
representatives. These sales quotas were consistently used by
management to both reward and punish TD Bank employees. This
so-called high-pressure environment led tellers to allegedly
sign up customers - without authorization - for TD Bank
products, services, and accounts. This also led loan advisors
to bend rules and guidelines - governing TD Bank's risk
tolerance - in order to authorize a higher percentage of
loans. Managers (at various levels) and the human resources
department were unable to stop these unauthorized sales
because it was the employees' word versus the
customers' word, and serious discipline would only occur
if the manager had personal knowledge of an unauthorized
complain of statements made in press releases, SEC filings,
TD Bank's Code of Conduct, and investor teleconferences
by TD Bank and Individual Defendants, which they say
contradict the alleged experience of the CWs. These
statements will be discussed as relevant, infra.
Generally, Plaintiffs have separated these statements into
three fraud categories: (1) risk management and internal
controls fraud, (2) business operations fraud, and (3)
reported results fraud.
filed their first complaint on March 12, 2017. This Court
consolidated this case with a similar action filed by Janet
Tucci (No. 1:17-cv-1735 (NLH/JS)) and appointed Plaintiff
Ethan Silverman as the lead plaintiff on December 13, 2017.
Plaintiffs filed the operative FAC on March 5, 2018, alleging
two counts. First, Plaintiffs allege violations of Section
10(b) of Securities Exchange Act of 1934 (the “Exchange
Act”) and Securities and Exchange Commission
(“SEC”) Rule 10b-5 (codified at 17 C.F.R.
240.10b-5) against all Defendants. Second, Plaintiffs allege
violations of Section 20(a) of the Exchange Act against
filed their Motion to Dismiss on April 16, 2018. The Motion
to Dismiss has been fully briefed. Additionally, Plaintiffs
filed their Motion for Leave to File a Sur-Reply or, in the
Alternative, to Strike Exhibit 1 on July 24, 2018. This
motion has also been fully briefed. Therefore, these motions
are ripe for adjudication.
Subject Matter Jurisdiction
Court has subject matter jurisdiction over this case because
it presents a federal question under the Exchange Act.
See 28 U.S.C. § 1331; 15 U.S.C. § 78aa.
Motion to File a Sur-Reply
24, 2018, Plaintiffs filed a Motion to File a Sur-Reply and
attached, as an exhibit, a proposed sur-reply brief. In the
alternative, Plaintiffs request this Court to strike Exhibit
1 of Susan Leming's Supplemental Declaration, which was
attached to Defendants' reply brief. Plaintiffs' only
complaint concerns one footnote in Defendants' reply
brief, which mentions a Financial Consumer Agency of Canada
(“FCAC”) report (the “FCAC Report”).
Plaintiffs believe the FCAC Report was improperly first set
forth in a reply brief instead of being presented in
Defendants' moving brief. Defendants disagree, arguing
the FCAC Report was properly presented in the reply brief in
reply to one of Plaintiffs' arguments.
Rule of Civil Procedure 7.1(d) controls the filing of a
sur-reply brief in this specific situation. It states:
“No sur-replies are permitted without permission of the
Judge or Magistrate Judge to whom the case is
assigned.” Loc. R. Civ. P. 7.1(d)(6). Since the
proposed sur-reply was accompanied by a brief in support,
Plaintiffs have complied with the Local Rules.
interests of justice, this Court will grant Plaintiffs'
Motion to File a Sur-Reply and consider both Plaintiffs'
and Defendants' arguments concerning the FCAC Report on
the merits, to the extent relevant, infra. While
this Court does not find either side's arguments
particularly helpful (or persuasive), it considers it wise -
in its discretion - to consider all argument on the merits.
Considering Defendants have responded to Plaintiffs
substantive arguments on the merits, this will not prejudice
any of the parties. This Court will deny the Plaintiffs'
alternative argument to strike the offending exhibit attached
to Defendants' reply brief. In light of this Court's
ruling to consider the sur-reply, that argument is moot.
Motion to Dismiss Standard
considering a motion to dismiss a complaint for failure to
state a claim upon which relief can be granted pursuant to
Federal Rule of Civil Procedure 12(b)(6), a court must accept
all well-pleaded allegations in the complaint as true and
view them in the light most favorable to the plaintiff.
Evancho v. Fisher, 423 F.3d 347, 351 (3d Cir. 2005).
It is well settled that a pleading is sufficient if it
contains “a short and plain statement of the claim
showing that the pleader is entitled to relief.”
a complaint attacked by a Rule 12(b)(6) motion to dismiss
does not need detailed factual allegations, a plaintiff's
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 Atl.
Corp. v. Twombly, 550 U.S. 544, 555 (2007) (alteration
in original) (citations omitted) (first citing Conley v.
Gibson, 355 U.S. 41, 47 (1957); Sanjuan v. Am. Bd.
of Psychiatry & Neurology, Inc., 40 F.3d 247, 251
(7th Cir. 1994); and then citing Papasan v. Allain,
478 U.S. 265, 286 (1986)).
To determine the sufficiency of a complaint, a court must
take three steps. First, the court must “tak[e] note of
the elements a plaintiff must plead to state a claim.”
Second, the court should identify allegations that,
“because they are no more than conclusions, are not
entitled to the assumption of truth.” Third,
“whe[n] there are well-pleaded factual allegations, a
court should assume their veracity and then determine whether
they plausibly give rise to an entitlement for relief.”
Malleus v. George, 641 F.3d 560, 563 (3d Cir. 2011)
(alterations in original) (citations omitted) (quoting
Ashcroft v. Iqbal, 556 U.S. 662, 664, 675, 679
(2009)). A court may “generally consider only the
allegations contained in the complaint, exhibits attached to
the complaint and matters of public record.”
Schmidt v. Skolas, 770 F.3d 241, 249 (3d Cir. 2014)
(citing Pension Benefit Guar. Corp. v. White Consol.
Indus., Inc., 998 F.2d 1192, 1196 (3d Cir. 1993)).
district court, in weighing a motion to dismiss, asks
“not whether a plaintiff will ultimately prevail but
whether the claimant is entitled to offer evidence to support
the claim.” Twombly, 550 U.S. at 563 n.8
(quoting Scheuer v. Rhoades, 416 U.S. 232, 236
(1974)); see also Iqbal, 556 U.S. at 684 (“Our
decision in Twombly expounded the pleading standard
for ‘all civil actions' . . . .”); Fowler
v. UPMC Shadyside, 578 F.3d 203, 210 (3d Cir. 2009)
(“Iqbal . . . provides the final nail in the
coffin for the ‘no set of facts' standard that
applied to federal complaints before
Twombly.”). “A motion to dismiss should
be granted if the plaintiff is unable to plead ‘enough
facts to state a claim to relief that is plausible on its
face.'” Malleus, 641 F.3d at 563 (quoting
Twombly, 550 U.S. at 570).
this is a claim covered by the Private Securities Litigation
Reform Act (“PSLRA”), heightened pleading
standards apply beyond those encapsulated by Rule 12(b)(6).
Federal Rule of Civil Procedure 9(b) requires that
“[i]n alleging fraud or mistake, a party must state
with particularity the circumstances constituting fraud or
mistake.” Moreover, to allege a material
misrepresentation, a plaintiff must “specify each
allegedly misleading statement, why the statement was
misleading, and, if an allegation is made on information or
belief, all facts supporting that belief with
particularity.” Institutional Inv'rs Grp. v.
Avaya, Inc., 564 F.3d 242, 252-53 (3d Cir. 2009).
Finally, to allege scienter, a plaintiff must “state
with particularity facts giving rise to a strong inference
that the defendant acted with the required state of
Motion to Dismiss
allege a Section 10(b) claim, a plaintiff must plead
“(1) a material misrepresentation or omission, (2)
scienter, (3) a connection between the misrepresentation or
omission and the purchase or sale of a security, (4) reliance
upon the misrepresentation or omission, (5) economic loss,
and (6) loss causation.” City of Edinburgh Council
v. Pfizer, Inc., 754 F.3d 159, 167 (3d Cir. 2014).
“Every person who, directly or indirectly, controls any
person liable under any provision of” the Exchange Act
will be held jointly and severally liable under Section
20(a). As is apparent from the statutory text, Section 20(a)
liability may only be found if there is an underlying
violation of the Exchange Act - here Section 10(b).
present four main arguments concerning dismissal of
Plaintiffs' claims, focusing on the materiality and
falsity of the statements and whether scienter has been
appropriately pleaded. First, Defendants argue that the
statements complained of were neither material nor false or
misleading. Second, Defendants argue that Plaintiffs have not
presented the strong showing of scienter required for either
the Individual Defendants or Defendant TD Bank. Third,
Defendants argue as a result of dismissal under either of the
above two grounds, the Section 20(a) claims must also be
dismissed. Fourth and finally, Defendants argue that - at the
very least - claims against two Individual Defendants,
Pedersen and Chauvin, should be dismissed because of a lack
of the necessary factual predicates for a claim. This Court
will address each argument in turn.
Materially False and Misleading Statements
present three basic arguments in favor of dismissal of the
Section 10(b) claim. Essentially, Defendants argue the
statements complained of were either not material or not
false or misleading. First, Defendants argue Plaintiffs have
failed to plead the falsity of the statements with
particularity, as required by the Federal Rules of Civil
Procedure and applicable statutory law. Second, Defendants
argue Plaintiffs cannot base their claim on TD Bank's
earnings statements or certifications. Third, Defendants
argue Plaintiffs only cite general statements about risk
management, internal controls, and business operations. This
is - in Defendants' understanding - not enough to support
a Section 10(b) claim as the statements are so general as to
Whether Plaintiffs Fail to Plead the Alleged Underlying
Scheme with Particularity
assert Plaintiffs fail to plead facts with particularity
concerning the underlying illegal scheme that resulted in
improper, illegal, or unauthorized sales of TD Bank products,
services, and accounts. Defendants' argument here
contains two main facets: (1) Plaintiffs' CW allegations
do not meet the standards required under controlling Third
Circuit law and (2) even if they meet that standard, the
allegations do not state an illegal scheme with the requisite
particularity. Plaintiffs counter by stating the CW
allegations are proper and an illegal scheme was pleaded with
the requisite particularity. The details of those arguments
will be addressed infra.
Analysis of CWs' Statements under the Third Circuit
assessing the particularity of CWs' allegations, a court
should examine “the sources' base of knowledge, the
reliability of the sources, the corroborative nature of other
facts alleged, including from other sources, the coherence
and plausibility of the allegations, and similar
indicia.” Cal. Pub. Emples.' Ret. Sys. v. Chubb
Corp., 394 F.3d 126, 147 (3d Cir. 2004). When a
plaintiff relies solely on CWs to meet the particularity
requirement, those claims “assume a heightened
importance.” Id. at 148. This Court will not
engage in a wholesale examination of each CW under this test.
Instead, it will address the alleged deficiencies presented
this test, Defendants assert some CWs lack personal knowledge
as they were not employed during the class period, some
CWs' statements are conclusory, and some CWs'
statements are based merely on rumor or conjecture.
Defendants appear to be correct in that CW2, CW3, CW7, CW8,
and CW9 were not employed at TD Bank during the class period.
Although this seems to foreclose the possibility of personal
knowledge of facts during the class period, that does not
mean those CWs' statements must be - or can be - ignored.
As Plaintiffs point out, the misstatements at issue made
during the class period were based on TD Bank's conduct
before the class period. The CWs statements are certainly
relevant to those allegedly false statements - at least.
Additionally, they may also serve as corroboration of
CWs' statements regarding conduct within the class
are correct that CWs' statements which appear to be based
on rumor or conjecture do not meet the particularity
requirement. See Chubb Corp., 394 F.3d at 155
(“Generic and conclusory allegations based upon rumor
or conjecture are undisputedly insufficient to satisfy the
heightened pleading standard of 15 U.S.C. §
78u-4(b)(1).”). This Court will not consider these
statements in evaluating Plaintiffs Section 10(b) claim.
CWs' statements are not conclusory merely because they
state something happened “regularly, ”
“often, ” or “usually.” Even though
these statements are not exceedingly precise, Defendants
place too much emphasis on the particularity requirement.
These CW statements provide where the misconduct occurred -
to a specific branch location or department, the time period
when it occurred, how and why it occurred, and what products
may have been involved. It seems Defendants would only find
these statements “particular” if all the alleged
bad actors stepped forward and provided statements concerning
the specific date, location, and product that was improperly
sold to a specific customer. That is not required. Avaya,
Inc., 564 F.3d at 253 (stating that particularity only
requires a plaintiff to “plead the who, what, when,
where, and how: the first paragraph of any newspaper
story.” (internal quotations and citations
also challenge CW7's statements on grounds of
particularity. The crux of Defendants argument is that CW7
does not provide a basis for how he determined a certain
percentage of his subordinates' sales of certain services
were without customer authorization. Defendants point to
CW7's statements, which states he lacked “direct
evidence” and never “saw” unauthorized
sales occur. Plaintiffs counter that CW7's estimates are
sufficiently supported by the detailed allegations in the
citations to Chubb Corp. and Intelligroup
on this point are unhelpful. Both of those cases left the
court without any idea of how the CWs came by their purported
knowledge. As described in more detail infra, this
case is distinguishable. The Court has enough information
here to determine these estimates are based on personal
knowledge of CW7 acquired during his time supervising his
seventeen employees. The Court does not doubt - at this stage
- his knowledge or reliability, and his allegations appear to
be corroborated by other accounts and are plausible based on
the allegations of a high-pressure sales environment. Thus,
this Court will not ignore CW7's statements.
Defendants challenge the CW statements that appear to be
drawn from CBC reports released in March 2017. Defendants
assert these allegations do not contain the necessary
specificity or indicia of reliability. Defendants
specifically complain that Plaintiffs fail to allege when
these CBC CWs worked at TD Bank, the dates when they acquired
the information that serves as the basis of their
allegations, and the facts showing how they obtained the
information. Plaintiffs counter with the assertion that many
courts allow CW statements to be taken from other complaints.
Moreover, some courts find news reports - because of their
independence - a more reliable source than CW statements
provided in other actions.
Court will consider the allegations stemming from the CBC
CWs. Defendants' own case, In re Optionable Sec.
Litig., supports this holding. 577 F.Supp.2d 681
(S.D.N.Y. 2008). In it, the Court assumes the veracity of
allegations in a news report for purposes of a motion to
dismiss. Id. at 690. Considering Plaintiffs' CW
allegations are consistent with those made by the CBC CWs,
there is no reason to seriously doubt their reliability at
this stage in the proceedings.
Plaintiffs are correct that some courts have considered
“the probative value of an independent news article or
government report is much greater than that of confidential
witness statements recounted in another complaint.”
In re Lehman Bros. SEC. & ERISA Litig., No. 09
MD 2017 (LAK), 2013 U.S. Dist. LEXIS 107559, at *13 (S.D.N.Y.
July 31, 2013). This Court will follow in the footsteps of
the Southern District of New York and consider these
statements. To the extent a time period cannot be discerned
from the CBC CWs' statements, this Court will only
consider those statements for purposes of corroboration.
appear to be the only objections to the CWs statements under
the Third Circuit test. Thus, with the above caveats in mind,
this Court finds it may rely on the CWs' statements in
determining whether an underlying wrong has been sufficiently
Whether the CWs' Statements Allege an Underlying Illegal
this Court has found it may rely on certain CWs statements,
it must next determine whether those statements have
adequately pleaded an underlying illegal scheme. Defendants
provide several reasons why these statements do not show,
with particularity, an underlying illegal scheme. First, the
allegations mainly focus on “standard sales
practices” that are not unlawful. (Defs.' Br. 10.)
Second, the allegations pertain to only “isolated,
” “localized, ” or “episodic”
unlawful activities at most, not widespread illegal conduct
across the Canadian retail market. (Defs.' Br. 12-13.)
first argument on this point is a red herring. Plaintiffs do
not complain that TD Bank's sales practices were per se
illegal. Even if Plaintiffs did complain of the
legality of TD Bank's sales practices, it does not affect
the sufficiency of Plaintiffs' other allegations
concerning unauthorized sales. Moreover, Plaintiffs describe
TD Bank's sales practices to explain why they believe TD
Bank employees were engaging in improper or illegal conduct,
like unauthorized sales or nondisclosure of fees. This
provides helpful context for the Court in considering
Plaintiffs' allegations. Accordingly, the Court finds
Defendants' argument here does not bear on dismissal.
second argument, whether Plaintiffs have alleged an
underlying, nationwide illegal scheme, is substantive. The
Court is certainly cognizant that Plaintiffs have not
provided a CW - or even a statement - from someone occupying
a high position at TD Bank to show conclusively that untoward
conduct may have been occurring across the entire Canadian
retail sector. The Court is also aware that the CWs'
statements in the FAC provide snapshots of different
locations at different times. But this does not make the FAC
case is not Chubb Corp., which Defendants heavily
rely on in favor of dismissal. In Chubb Corp., the
shareholders generally asserted a rate initiative in its
commercial insurance business meant to improve Chubb's
bottom-line was failing and that executives engaged in
misleading accounting practices to cover up this failure. 394
F.3d at 140-41. In considering the CWs used in that case, the
Third Circuit noted:
Plaintiffs fail to aver . . . when any of [the CWs] were
employed by Chubb. Nor do Plaintiffs allege the dates that
these sources acquired the information they purportedly
possess, or how any of these former employees had access to
such information . . . Plaintiff heavily rely on former
employees who worked in Chubb's local branch offices for
information concerning Chubb's business on a national
scale. Moreover, many of these sources were branch employees
who worked in departments other than standard commercial . .
. we are left to speculate whether the anonymous sources
obtained the information they purport to possess by firsthand
knowledge or rumor.
Id. at 148.
contrast, the Plaintiffs have properly alleged where and when
the CWs worked for TD Bank, how the CWs had access to the
information they allege, and that they possess firsthand
knowledge. Moreover, the CWs were employed in the very
branches and departments that are alleged to have engaged in
improprieties. These allegations are much different than
those presented to the Third Circuit in Chubb Corp.
noted supra, Defendants are correct that Plaintiffs
have not brought forth one source with nationwide knowledge.
But, that is not dispositive of this matter. As even
Chubb Corp. states, “[c]iting to a large
number of varied sources may in some instances help provide
particularity, as when the accounts supplied by the sources
corroborate and reinforce one another.” Id. at
155. This is what Plaintiffs have accomplished here, relaying
markedly consistent allegations from across TD Bank's
Canadian retail segment.
fact, it appears Plaintiffs' case is most analogous to
the case cited by Plaintiffs out of the Central District of
California. In re Countrywide Fin. Corp. Derivative
Litig., 554 F.Supp.2d 1044 (C.D. Cal. 2008). There,
fourteen low-level CWs (underwriters, senior underwrites,
senior loan officers, vice presidents, auditors, and external
consultants) in four locations over the period of four years
were found to have sufficiently shown - at the motion to
dismiss stage - improper nationwide practices. Id.
at 1058-59. Particularly persuasive to the court there was
the consistency of the statements between different levels of
employees at different locations across time. Id.
Plaintiffs' allegations are sufficiently similar to those
in Countrywide to allow them to survive a motion to
attempt to distinguish this case is unavailing. Possibly,
Defendants arguments about whether the claims were elevated
to higher levels of the company could have a bearing on
scienter, but it does not bear on whether an underlying
scheme has been pleaded with particularity. Moreover,
Plaintiffs have presented CW statements from multiple levels
- tellers, advisors, customer service representatives, a
branch manager, a district vice president, a human resources
employee, and a senior credit analyst - not just the lowest
levels as Defendants attempt to argue. Accordingly, this
Court will not dismiss Plaintiffs Section 10(b) claim on
Whether Plaintiffs Fail to Plead the Falsity of
Defendants' Statements with Particularity
argue, even if this Court finds an underlying illegal scheme
was sufficiently pleaded, Plaintiffs have not explained why
each statement is misleading. Defendants assert
Plaintiffs' allegations concerning the falsity of these
statements are merely conclusory and boilerplate. Plaintiffs
counter that their allegations may be repetitive, but they
are far from conclusory or boilerplate.
Court first notes that it appears Plaintiffs have not merely
used identical language to explain why each statement was
allegedly misleading. Defendants seem to admit as much,
saying the paragraphs are only “nearly
identical.” Plaintiffs actually offer a number of
different versions of this paragraph that are specifically
tailored to the alleged misstatement at issue. As Plaintiffs
point out, this does not make their allegations conclusory,
nor is it a ground for dismissal. In re Honeywell
Int'l Sec. Litig., 182 F.Supp. 414, 426-27 (D.N.J.
are incorrect in that Plaintiffs do not refer to a public
statement and then allege “in a general and conclusory
manner, that those disclosures were false or
misleading.” In re Party City Sec. Litig., 147
F.Supp.2d 282, 300 (D.N.J. 2001). Instead, Plaintiffs explain
why the statement was misleading based on the CWs'