united states district court northern district of … · michelle hartmann state bar no. 24032402...

UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF TEXAS

DALLAS DIVISION

SAMUEL TROICE, MARTHA DIAZ, PAULA GILLY-FLORES, PUNGA PUNGA FINANCIAL, LTD., MANUEL CANABAL, DANIEL GOMEZ FERREIRO and PROMOTORA VILLA MARINO, C.A. individually and on behalf of a class of all others similarly situated, Plaintiffs, v. WILLIS OF COLORADO, INC., WILLIS LTD., WILLIS GROUP HOLDINGS LTD., AMY S. BARANOUCKY, ROBERT S. WINTER, and BOWEN, MICLETTE & BRITT, INC.,

Defendants.

CIVIL ACTION NO. 3:09-CV-01274-N (ECF) Judge David C. Godbey (ORAL ARGUMENT REQUESTED) In re: Stanford Entities Securities Litigation, MDL 2099

Related Actions: Case No. 3:09-CV-2042-N Case No. 3:10-CV-00799-N Case No. 3:10-CV-01862-N Case No. 5:11-CV-00290-FB

WILLIS’S BRIEF IN SUPPORT OF ITS MOTION TO DISMISS PLAINTIFFS’ THIRD AMENDED CLASS ACTION COMPLAINT

Respectfully submitted,

Yvette Ostolaza State Bar No. 00784703 Michelle Hartmann State Bar No. 24032402 WEIL, GOTSHAL & MANGES LLP 200 Crescent Court, Suite 300 Dallas, Texas 75201-6950 Telephone: (214) 746-7700 Facsimile: (214) 746-7777 ATTORNEYS FOR DEFENDANTS WILLIS OF COLORADO, INC. AND WILLIS LIMITED

Case 3:09-cv-01274-N Document 125 Filed 05/02/11 of 58 PageID 2127

TABLE OF CONTENTS

Page

i

I. PRELIMINARY STATEMENT ....................................................................................... 1

II. STATEMENT OF RELEVANT FACTS .......................................................................... 6

A. Parties..................................................................................................................... 6

B. Allegations Involving Willis.................................................................................. 8

C. The Purported Class and Claims.......................................................................... 11

III. ARGUMENT AND AUTHORITIES.............................................................................. 12

A. Plaintiffs Have Not and Cannot State Viable Claims Related to Their Purchases of Stanford Securities.......................................................................... 12

1. SLUSA Preempts and Requires Dismissal of This Entire Case .............. 12

2. Plaintiffs’ TSA and Texas Insurance Code Claims Must Be Dismissed Under the Supreme Court’s Reasoning in Morrison.............. 16

a. Morrison Requires Dismissal of Securities Claims Based on Foreign Securities Transactions.............................................. 16

b. Like the Federal Securities Laws, The TSA Does Not Apply to Foreign Securities Transactions.................................... 19

c. The Same Statutory-Construction and Comity Principles Confirm that the Texas Insurance Code Has No Extraterritorial Reach................................................................... 23

B. Plaintiffs’ Principal Claim Under the TSA Must Be Dismissed for Failure to Plead That Willis Sold Any Securities ............................................................ 24

C. Plaintiffs’ Remaining Fraud-Based Claims Must Be Dismissed for Failure to Plead Knowledge and Intent, False Statements, or Reliance........................... 26

1. The Complaint Fails to Allege That Willis Knew That Stanford Was a Ponzi Scheme or That Willis Intended to Further Stanford’s Fraud ........................................................................................................ 27

2. The Complaint Must Be Dismissed Because Plaintiffs Have Failed to Allege That Willis Made False Statements.......................................... 29

3. Plaintiffs’ Fraud and Negligent Misrepresentation Claims Must Be Dismissed Because Plaintiffs Have Failed to Plead Reliance ................. 32

D. Plaintiffs’ TSA Registration Claims Must Be Dismissed.................................... 35

1. Plaintiffs’ Claim Based on the Sale of Unregistered Securities Is Preempted by Federal Law ...................................................................... 35


TABLE OF CONTENTS (continued)

Page

ii

2. Plaintiffs’ Claim for Aiding and Abetting Sales By an Unregistered Dealer Must Fail ......................................................................................36

E. Plaintiffs’ Claims Under the Insurance Code Must Be Dismissed...................... 37

1. Plaintiffs Are Not Proper Parties To Bring Suit ...................................... 37

2. The Insurance Claims Must Be Dismissed Because Plaintiffs Fail to Allege Any Affirmative Misrepresentations Concerning a Policy...... 40

F. The Negligence-Based Claims Must Be Dismissed Because Willis Did Not Owe Plaintiffs Any Duty of Care.................................................................. 43

IV. CONCLUSION AND REQUESTED RELIEF ............................................................... 44

V. REQUEST FOR ORAL ARGUMENT ........................................................................... 44


US_ACTIVE:\43696865\10\81181.0008 i

TABLE OF AUTHORITIES

CASES

Absolute Activist Value Master Fund Ltd. v. Homm, No. 09 CV 08862 GBD, 2010 WL 5415885 (S.D.N.Y. Dec. 22, 2010) .....................18

Aetna Cas. & Sur. Co. v. Marshall,

724 S.W.2d 770 (Tex. 1987)..................................................................................38, 39

Allstate Ins. Co. v. Watson, 876 S.W.2d 145 (Tex. 1994)........................................................................................37

In re Alstom S.A. Sec. Litig.,

741 F. Supp. 2d 469 (S.D.N.Y. 2010)..........................................................................18

Am. Realty Trust, Inc. v. Travelers Cas. & Sur. Co. of Am., 362 F. Supp. 2d 744 (N.D. Tex. 2005) ..................................................................27, 29

Anderson v. Zurich Am. Ins. Co.,

C.A. No. H-05-3652, 2009 WL 540795 (S.D. Tex. Mar. 4, 2009)..............................42

Ariz. Corp. Comm’n v. Media Prods., Inc., 763 P.2d 527 (Ariz. Ct. App. 1988).............................................................................23

Ashcroft v. Iqbal,

129 S. Ct. 1937 (2009)................................................................................9, 25, 29, 33, ................................................................................................................................35, 42

In re Banco Santander Sec.-Optimal Litig.,

732 F. Supp. 2d 1305 (S.D. Fla. 2010) ..................................................................12, 18

Bank of La. v. Aetna U.S. Healthcare, Inc., 571 F. Supp. 2d 728 (E.D. La. 2008), aff’d, 326 F. App’x 321 (5th Cir. 2009) ..........34

Barron v. Igolnikov,

No. 09 CIV 4471 (TPG), 2010 WL 882890 (S.D.N.Y. Mar. 10, 2010) ......................14

Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007)........................................................................................25, 26, 29, ................................................................................................................................33, 35

Berry v. Indianapolis Life Ins. Co.,

608 F. Supp. 2d 785 (N.D. Tex. 2009) ........................................................................37


US_ACTIVE:\43696865\10\81181.0008 ii

Brackens v. Ennis State Bank, 252 F.3d 434 (5th Cir. 2001) .......................................................................................33

Carreras v. Marroquin,

No. 09-0857, 2011 WL 1206377 (Tex. Apr. 1, 2011) .................................................22

Cascade Fund, LLP v. Absolute Capital Mgmt. Holdings Ltd., No. 08-CV-01381-MSK-CBS, 2011 WL 1211511 (D. Colo. Mar. 31, 2011) ......12, 18

Ceshker v. Bankers Commercial Life Ins. Co.,

558 S.W.2d 102 (Tex. Civ. App.—Tyler 1977, writ ref’d n.r.e.) ................................42

Ceshker v. Bankers Commercial Life Ins. Co., 568 S.W.2d 128 (Tex. 1978)........................................................................................42

Chaffin v. Transamerica Ins. Co.,

731 S.W.2d 728 (Tex. App.—Houston [14th Dist.] 1987, writ ref’d n.r.e.) ...............37

Choucroun v. Sol L. Wisenberg Ins. Agency-Life & Health, Div., Inc., No. 01-03-00637-CV, 2004 WL 2823147 (Tex. App.—Houston [1st Dist.] Dec. 9, 2004, no pet.)...................................................................................................44

Clark v. Martinez,

543 U.S. 371 (2005).....................................................................................................23

Coca-Cola Co. v. Harmar Bottling Co., 218 S.W.3d 671 (Tex. 2006)..................................................................................20, 23

Cogan v. Triad Am. Energy,

944 F. Supp. 1325 (S.D. Tex. 1996) ............................................................................43

Collins v. Morgan Stanley Dean Witter, 224 F.3d 496 (5th Cir. 2000) ...................................................................................4, 32

Compass Bank v. King Griffin & Adamson P.C.,

No. 3:01-CV-2028-N, 2003 WL 22077721 (N.D. Tex. Sept. 5, 2003) .......................27

Cordova v. Lehman Bros., Inc., 413 F. Supp. 2d 1309 (S.D. Fla. 2006) ........................................................................14

Crescendo Invs., Inc. v. Brice,

61 S.W.3d 465 (Tex. App.—San Antonio 2001, pet. denied) ...............................26, 30

Curtin v. United Airlines, Inc., 275 F.3d 88 (D.C. Cir. 2001) .......................................................................................12


US_ACTIVE:\43696865\10\81181.0008 iii

D. Houston, Inc. v. Love, 92 S.W.3d 450 (Tex. 2002)..........................................................................................35

Edgar v. MITE Corp.,

457 U.S. 624 (1982).....................................................................................................23

Elliott Assocs. v. Porsche Automobil Holding, SE, -- F. Supp. 2d. --, No. 10-CV-0532 HB, 2010 WL 5463846 (S.D.N.Y. Dec. 30, 2010)..........................17

In re Enron Corp. Sec.,

535 F.3d 325 (5th Cir. 2008) .......................................................................................13

In re Enron Corp. Sec., Deriv. & ERISA Litig., 258 F. Supp. 2d 576 (S.D. Tex. 2003) ...................................................................24, 25

In re Enron Corp. Sec., Deriv. & ERISA Litig.,

310 F. Supp. 2d 819 (S.D. Tex. 2004) .........................................................................35

In re Enron Corp. Sec., Deriv. & ERISA Litig., 540 F. Supp. 2d 759 (S.D. Tex. 2007) .........................................................................24

In re Enron Corp. Sec., Deriv. & MDL-1446 ERISA Litig.,

C.A. No. H-01-3624, 2006 U.S. Dist. LEXIS 90526 (S.D. Tex. Dec. 12, 2006) ............................................................................................12

Envtl. Proc., Inc. v. Guidry,

282 S.W.3d 602 (Tex. App.—Houston [14th Dist.] 2009, pet. denied) ................43, 44

Equal Emp’t Opportunity Comm’n v. Arabian Am. Oil. Co., 499 U.S. 244 (1991).....................................................................................................20

Fernea v. Merrill Lynch Pierce Fenner & Smith, Inc.,

No. 03-09-00566-CV, 2011 WL 56057 (Tex. App.—Austin Jan. 7, 2011, no pet.) ....................................................................................................27

Flaherty & Crumrine Preferred Income Fund, Inc. v. TXU Corp.,

565 F.3d 200 (5th Cir. 2009) .................................................................................27, 30

Formosa Plastics Corp. USA v. Presidio Eng’rs & Contractors, Inc., 960 S.W.2d 41 (Tex. 1998)....................................................................................27, 30

Frank v. Bear, Stearns & Co.,

11 S.W.3d 380 (Tex. App.—Houston [14th Dist.] 2000, pet. denied) ........................25

Grant Thornton LLP v. Prospect High Income Fund, 314 S.W.3d 913 (Tex. 2010)..................................................................................33, 35


US_ACTIVE:\43696865\10\81181.0008 iv

Grippo v. Perazzo, 357 F.3d 1218 (11th Cir. 2004) ...................................................................................14

Hermann Hosp. v. Nat’l Standard Ins. Co.,

776 S.W.2d 249 (Tex. App.—Houston [1st Dist.] 1989, pet. denied)..................37, 38, ................................................................................................................................39, 43

Hogue v. United Olympic Life Ins. Co.,

39 F.3d 98 (5th Cir. 1994) .....................................................................................32, 41

Instituto De Prevision Militar v. Merrill Lynch, 546 F.3d 1340 (11th Cir. 2008) ...................................................................................15

Jeffcoat v. Phillips,

534 S.W.2d 168 (Tex. App.—Houston [14th Dist.] 1976, writ ref’d n.r.e.) ...............32

Kastner v. Jenkens & Gilchrist, P.C., 231 S.W.3d 571 (Tex. App.—Dallas 2007, no pet.)....................................................26

Levinson v. PSCC Servs., Inc.,

No. 3:09-CV-00269 (PCD), 2009 WL 5184363 (D. Conn. Dec. 23, 2009) ................14

Lillard v. Stockton, 267 F. Supp. 2d 1081 (N.D. Okla. 2003).....................................................................36

Lone Star Ladies Inv. Club v. Schlotzsky’s Inc.,

238 F.3d 363 (5th Cir. 2001) .................................................................................25, 29

Luna v. Walgreen Co., No. 3:00-CV-2248-R, 2001 WL 1142806 (N.D. Tex. Sept. 21, 2001) .......................35

Marmon v. Mustang Aviation, Inc.,

430 S.W.2d 182 (Tex. 1968)........................................................................................20 Marshall v. Quinn-L Equities, Inc.,

704 F. Supp. 1384 (N.D. Tex. 1988) ...........................................................................25

Massey v. Armco Steel Co., 652 S.W.2d 932 (Tex. 1983)........................................................................................35

Matthews v. Home Ins. Co.,

916 S.W.2d 666 (Tex. App.—Houston [1st Dist.] 1996, writ denied) ........................41 May v. United Servs. Ass’n of Am.,

844 S.W.2d 666 (Tex. 1992)........................................................................................44


US_ACTIVE:\43696865\10\81181.0008 v

Mayer v. Spanel Int’l Ltd., 51 F.3d 670 (7th Cir. 1995) .........................................................................................31

McCamish, Martin, Brown & Loeffler v. F.E. Appling Interests,

991 S.W.2d 787 (Tex. 1999)........................................................................................30

In re Mercer, 246 F.3d 391 (5th Cir. 2001) .......................................................................................31

Merrill Lynch, Pierce, Fenner & Smith Inc. v. Dabit,

547 U.S. 71 (2006).................................................................................................13, 14

Miller v. Raytheon Aircraft Co., 229 S.W.3d 358 (Tex. App.—Houston [1st Dist.] 2007, no pet.) ...............................32

Mobil Oil Corp. v. Ellender,

968 S.W.2d 917 (Tex. 1998)........................................................................................27

Moore v. Whitney-Vaky Ins. Agency, 966 S.W.2d 690 (Tex. App.—San Antonio 1998, no pet.)....................................41, 42

Morris v. JTM Materials, Inc.,

78 S.W.3d 28 (Tex. App.—Fort Worth 2002, no pet.) ................................................44

Morrison v. Nat’l Australia Bank Ltd., 130 S. Ct. 2869 (2010)................................................................................2, 16, 17, 20, ................................................................................................................................22, 23

In re Nat’l Century Fin. Enters., Inc., Inv. Litig.,

No. 2:03-MD-1565, 2010 WL 5174585 (S.D. Ohio Dec. 13, 2010) ...........................23

Nathenson v. Zonagen Inc., 267 F.3d 400 (5th Cir. 2001) .......................................................................................33

Newman v. Family Mgmt. Corp.,

748 F. Supp. 2d 299 (S.D.N.Y. 2010)..........................................................................14

Norex Petroleum Ltd. v. Access Indus., Inc., 631 F.3d 29 (2d Cir. 2010)...........................................................................................23

Parra v. Markel Int’l Ins. Co.,

300 F. App’x 317 (5th Cir. 2008) ................................................................................38

In re Payment Card Interchange Fee & Merchant Disc. Antitrust Litig., No. 05-MD-1720 JG JO, 2010 WL 3420517 (E.D.N.Y. Aug. 27, 2010)....................23


US_ACTIVE:\43696865\10\81181.0008 vi

In re Perry, 404 B.R. 196 (Bankr. S.D. Tex. 2009) ........................................................................31

Pinnacle Commc’ns Int’l, Inc. v. Am. Family Mortg. Corp.,

417 F. Supp. 2d 1073 (D. Minn. 2006)........................................................................36

Pinter v. Dahl, 486 U.S. 622 (1988).....................................................................................................25

Plumbers’ Union Local No. 12 Pension Fund v. Swiss Reinsurance Co.,

753 F. Supp. 2d 166 (S.D.N.Y. 2010)..........................................................................12

Prime Income Asset Mgmt. Inc. v. One Dallas Centre Assocs. L.P., 358 F. App’x 569 (5th Cir. 2009) ................................................................................34

Prospect High Income Fund v. Grant Thornton, LLP,

203 S.W.3d 602 (Tex. App.—Dallas 2006), rev’d in part on other grounds, 314 S.W.3d 913 (Tex. 2010)..................................................................................34, 35

Prudential Ins. Co. of Am. v. Jefferson Assocs., Ltd.,

896 S.W.2d 156 (Tex. 1995)........................................................................................32

Psarianos v. Standard Marine, Ltd., 12 F.3d 461 (5th Cir. 1994) .........................................................................................38

Reece v. Chubb Lloyds Ins. Co. of Tex.,

No. H-11-507, 2011 WL 841430 (S.D. Tex. Mar. 8, 2011) ........................................37

Rowinski v. Salomon Smith Barney Inc., 398 F.3d 294 (3d Cir. 2005).........................................................................................15

Santana v. Arpin Am. Moving Sys., LLC,

No. 2-08-132-CV, 2009 WL 2462500 (Tex. App.—Fort Worth Aug. 13, 2009, no pet.) ................................................................................................35

Schlumberger Well Surveying Corp. v. Nortex Oil & Gas Corp.,

435 S.W.2d 854 (Tex. 1968)........................................................................................27

Schnorr v. Schubert, No. CIV 05-303-M, 2005 WL 2019878 (W.D. Okla. Aug. 18, 2005) ........................14

Scottish Heritable Trust, PLC v. Peat Marwick Main & Co.,

81 F.3d 606 (5th Cir. 1996) ...................................................................................32, 33

Sec. Exch. Comm’n v. Zandford, 535 U.S. 813 (2002).....................................................................................................14


US_ACTIVE:\43696865\10\81181.0008 vii

Siepel v. Bank of Am., N.A.,

526 F.3d 1122 (8th Cir. 2008) .....................................................................................15

Sledge v. Mullin, 927 S.W.2d 89 (Tex. App.—Fort Worth 1996, no writ) .............................................41

Sterling Trust Co. v. Adderley,

168 S.W.3d 835 (Tex. 2005)........................................................................................27

Tamez v. Certain Underwriters at Lloyd’s, London Int’l Accident Facilities, Inc., 999 S.W.2d 12 (Tex. App.—Houston [14th Dist.] 1998, pet. denied) ........................37

Temple v. Gorman,

201 F. Supp. 2d 1238 (S.D. Fla. 2002) ........................................................................36

Tradex Global Master Fund SPC Ltd. v. Rieden, slip op., No. 09-CV-6395 (S.D.N.Y. July 23, 2010) .................................................................18

U.S. Mortg., Inc. v. Saxton,

494 F.3d 833 (9th Cir. 2007) .......................................................................................14

United States ex rel. Willard v. Humana Health Plan of Tex., Inc., 336 F.3d 375 (5th Cir. 2003) ...........................................................................29, 33, 35

United States v. Texarkana Trawlers,

846 F.2d 297 (5th Cir. 1988) .................................................................................30, 31

W. Reserve Life Assurance Co. of Ohio v. Graben, 233 S.W.3d 360 (Tex. App.—Fort Worth 2007, no pet.)......................................41, 43

Warfield v. Fidelity & Deposit Co.,

904 F.2d 322 (5th Cir. 1990) .................................................................................38, 39

In re Westcap Enters., 230 F.3d 717 (5th Cir. 2000) .......................................................................................19

In re Westinghouse Sec. Litig.,

90 F.3d 696 (3d Cir. 1996)...........................................................................................25

Wingsco Energy One v. Vanguard Groups Res. 1984, Inc., No. H-86-452, 1988 WL 142135 (S.D. Tex. Sept. 15, 1988)......................................26


US_ACTIVE:\43696865\10\81181.0008 viii

RULES, STATUTES & OTHER

15 U.S.C. § 77p(b) .......................................................................................................12, 13 15 U.S.C. § 77p(b)(1) ........................................................................................................13 15 U.S.C. § 77p(f)(2)(A)(i)(1) ...........................................................................................13 15 U.S.C. § 77p(f)(3) .........................................................................................................14 15 U.S.C. § 77r(a)(1)(A)....................................................................................................35 15 U.S.C. § 77r(b)(4)(D)....................................................................................................35 15 U.S.C. § 78bb(f)(1) .................................................................................................12, 13 15 U.S.C. § 78bb(f)(1)(A)..................................................................................................13 15 U.S.C. § 78bb(f)(5)(E) ..................................................................................................14 15 U.S.C. § 78bb(f)(5)(B)(i)(I) ..........................................................................................13 17 C.F.R. § 230.506(a).......................................................................................................35

Pub. L. 111-203, July 21, 2010, 124 Stat. 1376 § 929P(b)................................................22

Unif. Sec. Act. § 414 (1956) (superseded 2002)................................................................19

TEX. REV. CIV . STAT. ANN. art. 581-4 (C) ...................................................................21, 36 TEX. REV. CIV . STAT. ANN. art. 581-4 (D) .........................................................................21 TEX. REV. CIV . STAT. ANN. art. 581-4 (E)..........................................................................22 TEX. REV. CIV . STAT. ANN. art. 581-7 (A) .........................................................................35 TEX. REV. CIV . STAT. ANN. art. 581-10-1(A).....................................................................19 TEX. REV. CIV . STAT. ANN. art. 581-12..............................................................................21 TEX. REV. CIV . STAT. ANN. art. 581-33A(2) ......................................................................29 TEX. REV. CIV . STAT. ANN. art. 581-33F ...........................................................................26 TEX. REV. CIV . STAT. ANN. art. 581-33F(2).......................................................................25 TSA Financial Institutions cmt., 56th Leg., ch. 160 ..........................................................19 TSA Financial Institutions cmt., 66th Leg., ch. 160 ..........................................................19

TEX. GOV’T CODE § 311.023(5).........................................................................................22

TEX. INS. CODE ANN. § 541.001.............................................................................23, 24, 39 TEX. INS. CODE ANN. § 541.003 ............................................................................23, 24, 39 TEX. INS. CODE ANN. § 541.005.........................................................................................23 TEX. INS. CODE ANN. § 541.006 ........................................................................................23 TEX. INS. CODE ANN. § 541.051.........................................................................................39 TEX. INS. CODE ANN. § 541.051(1)....................................................................................40 TEX. INS. CODE ANN. § 541.051(4)....................................................................................40 TEX. INS. CODE ANN. § 541.052...................................................................................39, 40 TEX. INS. CODE ANN. § 541.059 ........................................................................................23 TEX. INS. CODE ANN. § 541.060(b) ....................................................................................37 TEX. INS. CODE ANN. § 541.061.........................................................................................40


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TEX. INS. CODE ANN. § 541.082.........................................................................................23 TEX. INS. CODE ANN. § 541.101.........................................................................................23 TEX. INS. CODE ANN. § 541.102.........................................................................................23 TEX. INS. CODE ANN. § 541.151...................................................................................42, 43 TEX. INS. CODE ANN. § 541.201.........................................................................................23 TEX. INS. CODE ANN. § 541.255.........................................................................................37 TEX. INS. CODE ANN. § 541.256.........................................................................................37 TEX. INS. CODE ANN. § 541.257.........................................................................................37 TEX. INS. CODE ANN. § 541.259.........................................................................................37


WILLIS’S BRIEF IN SUPPORT OF ITS MOTION TO DISMISS PLAINTIFFS’ THIRD AMENDED CLASS ACTION COMPLAINT Page 1

I. PRELIMINARY STATEMENT

Plaintiffs are foreign residents who bought foreign securities outside of the United

States. Specifically, Plaintiffs allege that they lost billions of dollars when they purchased

certificates of deposit issued by the Antigua-based Stanford International Bank, Ltd., and its

marketing arm, Stanford Group Company. They assert that Stanford, although for years a well-

regarded, high profile financial services firm regulated by the U.S. Securities and Exchange

Commission, in fact sold fraudulent securities to them as part of a massive Ponzi scheme.

Remarkably, Plaintiffs have not sued the obvious defendant for this alleged fraud:

Stanford. Rather, in an effort to circumvent the Stanford receivership, with its limited assets,

Plaintiffs seek to recover from an available “deep pocket” and have sued Willis—Stanford’s

insurance broker.1 Plaintiffs do not allege, however, that Willis knew about Stanford’s alleged

Ponzi scheme; Plaintiffs do not allege that Willis participated in or profited from Stanford’s

alleged CD sales; and Plaintiffs do not claim that Willis itself ever sold securities to Plaintiffs, or

for that matter, that Willis even interacted with Plaintiffs in any way.

Plaintiffs instead allege that Willis, an arm’s-length middleman between Stanford

and its insurers, somehow should have known that Stanford was operating a Ponzi scheme—

something that neither the investing public, nor even the SEC ever deduced. And, they allege

that Willis intentionally furthered Stanford’s scheme—and, thus, itself committed fraud—

because a Willis employee sent to Stanford certain letters accurately verifying Stanford’s

purchase of particular lines of insurance and expressing her opinions about the Stanford contacts

1 In addition to suing Willis of Colorado, Inc., and Willis Limited (together Willis), Plaintiffs also name Willis Group Holdings Public Limited Company (f/k/a Willis Group Holdings Limited) as a defendant in the Third Amended Class Action Complaint (the Complaint or Compl.). On February 25, 2010, WGH moved to dismiss Plaintiffs’ Second Amended Class Action Complaint for lack of personal jurisdiction. (See Mot. to Dismiss for Lack of Personal Jurisdiction [Dkt. no. 40].) On February 8, 2011, the parties entered into a stipulation that, among other things, stayed further briefing on and the disposition of WGH’s motion pending the disposition of any merits-based motions to dismiss. (See Feb. 8, 2011 Stipulation [Dkt. no. 109].)



with whom she dealt. Plaintiffs’ allegations make clear that their dispute is with Stanford, not

Willis, and that Plaintiffs’ claims arising from their purchases of Stanford securities can be

litigated, if at all, solely within the confines of the Stanford receivership.

The Complaint fails, and must be dismissed, for multiple reasons, including both

dispositive legal barriers to the entire complaint, as well as pleading defects that make specific

claims legally deficient:

First, Federal law—namely, the Securities Litigation Uniform Standards Act

(SLUSA)—prohibits Plaintiffs’ attempt to evade the strict pleading requirements of the Private

Securities Litigation Reform Act (PSLRA) by deliberately omitting claims under the federal

securities laws and by invoking, instead, Texas’s state-law analogue, the Texas Securities Act

(TSA) and various other state-law fraud theories.2 Specifically, SLUSA preempts class actions

that, as here, allege fraud in connection with the purchase or sale of securities and assert claims

solely under state law. SLUSA requires such actions to be brought, if at all, exclusively under

the federal securities laws. Plaintiffs have ignored this requirement, and the Complaint must

therefore be dismissed in its entirety.

Second, while SLUSA preempts and requires dismissal of all of Plaintiffs’ claims,

Morrison v. National Australia Bank Ltd., 130 S. Ct. 2869 (2010), requires dismissal of

Plaintiffs’ TSA and Texas Insurance Code claims, in particular. Morrison declared that the

federal securities laws do not apply extraterritorially to foreign securities transactions, such as

those alleged by Plaintiffs. Had Plaintiffs sued under the federal securities laws (as SLUSA

2 The Complaint alleges claims against Willis (based on the exact same conduct) for both primary and secondary (i.e., aiding and abetting) liability under the TSA (Compl. ¶¶ 168-84), participation in a fraudulent scheme, (id. ¶ 185), civil conspiracy, (id. ¶¶ 186-89), violations of the Texas Insurance Code (id. ¶¶ 190-93), common-law fraud, (id. ¶ 194), negligent misrepresentation, (id. ¶ 195), negligence/gross negligence, (id. ¶¶ 196-98), and negligent retention/supervision, (id. ¶ 199).



requires), Morrison unquestionably would require dismissal of those claims. And, because the

TSA must be interpreted consistent with the federal securities laws, Morrison mandates the same

result here with respect to Plaintiffs’ TSA claims. Moreover, Morrison turned on a statutory

presumption against extraterritorial application that the Texas Supreme Court, in interpreting

Texas statutes, also has long embraced, and, thus, because neither the TSA nor the Insurance

Code expressly provides for extraterritorial application, Plaintiffs’ claims under these statutes

must be dismissed for this reason as well.

Third, even if not preempted under SLUSA and even if given extraterritorial

effect, Plaintiffs’ principal state-law claim for fraud under the TSA must be dismissed because

Plaintiffs do not allege one of the TSA’s basic pleading requirements: that Willis, as Stanford’s

insurance broker, directly sold securities (or anything else) to Plaintiffs. A defendant is liable

only if it directly sells securities and, therefore, Plaintiffs’ primary fraud claim under the TSA

must be dismissed.

Fourth, a defendant obviously cannot be liable for either committing or aiding

and abetting a fraud of which it was unaware. Plaintiffs’ fraud-based claims must be dismissed

therefore because Plaintiffs cannot allege, as they must, that Willis knew about Stanford’s

purported fraud, much less tried to further it. Notably absent from the Complaint are allegations

that anyone affiliated with Stanford told Willis about the business’s illicit nature, that Willis

received anything of value from Stanford’s CD sales to Plaintiffs, or that Willis received

anything other than its normal brokerage fees for assisting Stanford in obtaining certain

insurance policies from various insurance companies. To the contrary, Plaintiffs allege that

Stanford was a large, seemingly reputable company operating internationally and overtly under



the regulatory eye of the SEC; and that it successfully fooled everyone, for years, about the

allegedly fraudulent nature of its business.

Fifth, all of Plaintiffs’ fraud-based claims must be dismissed because Plaintiffs

have failed to plead that Willis made any false statements. Plaintiffs do not deny that Stanford

did, in fact, obtain the two specific lines of insurance reported in the letters at issue in this suit.

Rather, they allege that Willis’s representations of coverage in the letters, though accurate, were

misleading because they omitted the amounts of coverage of the referenced policies and, in turn,

gave Plaintiffs the impression that their investments were fully insured. Plaintiffs’ inferences

from Willis’s truthful assertion, however, are not actionable in fraud. The same can be said

about the letters’ reference to the “stringent” audit of Stanford’s business. Aside from asserting

that they interpreted the letters to misleadingly suggest annual risk reviews (the letters said no

such thing), Plaintiffs identify no false statement and indeed acknowledge that an outside firm

did, in fact, conduct an audit.3 And, while Plaintiffs challenge the audit firm’s competence, they

do not (and cannot) allege that Willis shared those concerns. Moreover, Willis’s characterization

of the audit as “stringent” or of the Stanford’s executives as “first class business people” are

simply statements of opinion that, as a matter of law, are not actionable.

Sixth, Plaintiffs’ common-law fraud and negligent misrepresentation claims fail

because Plaintiffs cannot allege that they justifiably relied on the letters when they decided to

invest with Stanford. According to the Complaint, all but one of the named Plaintiffs originally

purchased their Stanford CDs before Ms. Baranoucky of Willis wrote the first letter on which

3 The audit firm concluded that Stanford had “reasonable internal controls and risk management systems . . . to minimize the exposure to claims covered by the insurance policies.” (Appendix (App.) at 10 (emphasis in original).) Citations to the Appendix are to the page of the consecutively numbered Appendix filed concurrently with this motion and incorporated herein by reference. The Court may consider exhibits to a motion to dismiss particularly when, as here, the Complaint cites the documents; and the Court may also take judicial notice of documents that are a matter of public record. See Collins v. Morgan Stanley Dean Witter, 224 F.3d 496, 498-99 (5th Cir. 2000).



they base their claims. As to the other Plaintiff, there is no allegation that she saw, read, or relied

on a Willis letter when she invested. Moreover, any conclusory allegation that Plaintiffs relied

on the letters is contradicted by Plaintiffs’ claims to have relied predominantly, if not

exclusively, on the “representations and omissions of material fact made to Plaintiffs repeatedly

and uniformly over the years, both in person by Stanford Financial FAs and via Stanford

Financial promotional materials.” (Compl. ¶ 138 (emphasis added).) Plaintiffs’ claims cannot

be salvaged by additional, conclusory allegations in the latest Complaint that they relied on the

letters in deciding to continue to hold SIB CDs. The facts alleged do not support these formulaic

recitations of reliance, which are insufficient as a matter of law to state a viable claim.

Seventh, Plaintiffs’ allegation that Willis aided and abetted Stanford’s alleged sale

of unregistered securities is preempted by the National Securities Markets Improvement Act

(NSMIA). NSMIA prohibits applying state law to securities, such as the Stanford CDs that are

subject to the federal securities laws’ registration requirements (i.e., Regulation D of the

Securities Act). Although Plaintiffs also assert that Willis aided and abetted the alleged sale of

securities by an unregistered dealer, NSMIA precludes these claims, as well, because Plaintiffs

acknowledge that SGC, Stanford’s agent and registered dealer, made all of the relevant sales.

Eighth, Plaintiffs’ Texas Insurance Code claims must be dismissed because

Plaintiffs do not have standing to bring claims under the code. Texas courts dictate that standing

exists only as to the insureds or the designated beneficiaries under a policy, or to parties who

share a close and direct relationship with the insurer, the insured, or a named beneficiary under a

policy. Plaintiffs, of course, do not fit any of these categories. Moreover, the law is clear that

Insurance Code claims must be dismissed if they fail to allege a misrepresentation about the

scope or availability of coverage under a policy. There are no such allegations in the Complaint.



Plaintiffs seek to recover investment losses from the purchase of CDs, not from a failure to pay

on an insurance policy; indeed, no Stanford insurance policy even relates to those alleged losses,

and Plaintiffs cite no alleged misrepresentations by Willis regarding any benefits due under any

insurance policy purchased by Stanford. Instead, Plaintiffs assert their own mistaken belief

about Stanford’s insurance coverage (e.g., for investment losses). Settled Texas law requires

dismissal of Plaintiffs’ Insurance Code claims.

Finally, Plaintiffs’ common-law claims for negligence and negligent hiring,

supervision, and retention must be dismissed because Willis did not owe a duty to Plaintiffs.

Texas law is clear that an insurance broker owes a duty only to its client, the insured—which

Plaintiffs admit is Stanford. (See Compl. ¶ 93.) Accordingly, Willis did not owe any duty to

Stanford’s customers, with whom it had no relationship (contractual or otherwise). Plaintiffs

also claim that Willis was negligent because it failed to explain to them that Stanford’s insurance

policies did not guarantee their investments. But Texas law does not obligate insurance brokers

to explain the nature of purchased insurance even to their own customers (although a broker may,

of course, choose to do so). As Willis owed no such duty to its own customers, it cannot

possibly have owed such a duty to Plaintiffs, who were not Willis customers.

For all of these reasons, the Complaint must be dismissed in its entirety and with

prejudice.

II. STATEMENT OF RELEVANT FACTS

A. Parties

1. The Foreign Plaintiffs. Plaintiffs are all foreign individuals or entities:

Mexican or Venezuelan citizens; a Venezuelan company with its principal place of business in

Venezuela that is wholly owned and controlled by Venezuelan citizens; and a Panamanian

company with its principal place of business in Mexico City, wholly owned and controlled by



Mexican citizens from Mexico City. (See Compl. ¶¶ 2-9.) Plaintiffs purchased the CDs from

SIB, a foreign issuer, outside of Texas and, for that matter, outside of the U.S. (See id. ¶¶ 26,

136-57.) Specifically, Plaintiffs describe SIB as an “Antiguan offshore bank . . . operating [as]

an outlaw investment company from [a] Caribbean safe haven completely outside the regulatory

confines of the laws of . . . the United States.” (Id. ¶¶ 26, 106; see also id. ¶¶ 111-15 (describing

Antigua and Stanford’s operations there in detail).) And Plaintiffs allegedly bought the CDs at

issue “in Mexico and Venezuela alone.” (Id. ¶ 26 (emphasis added).) The foreign nature of the

transaction is confirmed by additional allegations that:

• Plaintiff Troice “invested in SIB CDs through Stanford Mexico,” (id. ¶ 139);

• Plaintiff Diaz “and her husband invested . . . via Stanford Mexico,” (id. ¶ 142);

• Plaintiff Flores purchased her SIB CDs after a meeting “at the Hotel Villa Florida en Pueblo [in Mexico],” (id. ¶¶ 145-46);

• Plaintiff Punga Punga Financial, Ltd. purchased its SIB CDs in meetings in Mexico “because Punga’s business was located right next to Stanford Mexico’s offices in Mexico City,” (id. ¶¶ 147-51); and

• Plaintiffs Canabal, Ferreiro and Promotora “all invested in the SIB CDs through Stanford Venezuela at various times in the late 1990s and 2000s.” (Id. ¶ 152.)4

Plaintiffs do not allege—because they cannot—any CD sales in Texas or elsewhere in the U.S.

2. Willis. Willis is an insurance broker that places certain lines of

commercial insurance for its clients with insurance companies. The Complaint states that Willis

began serving as Stanford’s insurance broker in 2004 for certain financial lines of insurance. (Id.

¶¶ 54, 55 and id., Ex. 4.)

4 (See also, e.g., Compl. ¶ 48 (alleging that “Spanish-language promotional materials . . . [were] distribute[ed] in Mexico and Venezuela and . . . use[d] by Stanford . . . in the sale of SIB CDs in those and other countries”).)



B. Allegations Involving Willis

The overwhelming majority of Plaintiffs’ allegations are devoted to describing the

alleged Stanford fraud, based largely on the SEC’s complaint against Stanford. From that

pleading, Plaintiffs emphasize Stanford’s efforts to market and obtain additional investments in

its CDs to perpetuate the “massive Ponzi scheme.” (Compl. ¶¶ 1, 134-35 (citing Sec. Exch.

Comm’n v. Stanford Int’l Bank, Ltd., No. 3:09-cv-0298-N (N.D. Tex. Jan. 8, 2010) [Dkt. no.

952] (the SEC Complaint).) In that regard, Plaintiffs allege that, in 2001, Stanford filed for an

SEC Regulation D exemption to permit it to sell CDs to U.S. investors. (Compl. ¶ 116.) It

thereafter began to recruit financial advisors by “paying enormous signing bonuses to financial

advisors to . . . transfer their book of clients to Stanford.” (Id.) Plaintiffs also allege that

Stanford induced investors to purchase the CDs by misrepresenting that its assets were invested

in “safe, liquid investments” and that the “liquidity/marketability of SIB’s invested assets” was

the “most important factor to provide security to SIB clients . . . .” (Id. ¶¶ 180, 121.) Plaintiffs

allege that these representations by the advisors were false because, among other things, “nearly

80% of SIB’s investments were concentrated in high-risk, illiquid categories.” (Id. ¶ 121.)

Willis is conspicuously and entirely absent from all of these allegations. As to Willis, Plaintiffs

allege only that in 2004 (after all but one of the Plaintiffs originally purchased their CDs),

Ms. Baranoucky provided Stanford with letters that confirmed Stanford’s purchase of particular

insurance policies—specifically, a directors-and-officers-liability insurance and a bankers

blanket bond with Lloyds of London. (Id. ¶ 83-87.) The Complaint does not allege that these

representations were false, or that these lines of insurance had not in fact been purchased by

Stanford from a reputable insurance company. Plaintiffs further allege that Ms. Baranoucky

provided similar letters to Stanford annually from 2005 to 2008. (Id. ¶ 88.) Plaintiffs contend, in

only general terms, that Stanford’s sales agents later sent these letters to investors, which



somehow “creat[ed] the impression that the insurance policies provided coverage for all

investments in SIB.” (Id. ¶ 44 (emphasis in original); but see id. ¶ 93 (alleging that “[n]one of

the insurance policies listed in the letters actually cover[ed] or provide[d] insurance for any SIB

investor/depositor”).) The Complaint contains no factual representations to render Plaintiffs’

purported impression reliable or facially plausible, as they must be to survive a motion to

dismiss. See Ashcroft v. Iqbal, 129 S. Ct. 1937, 1949-50 (2009).

Plaintiffs also reference the letters’ statement that Stanford, in order to qualify for

the insurance policies it purchased, underwent a “stringent” risk survey by an outside audit firm.

(Compl. ¶ 77.) But despite alleging that the letters “misleadingly suggest[ed] that the risk

management reviews were done on an annual basis,” (id. ¶ 91), Plaintiffs admit that an actual

risk management review was in fact conducted by an outside audit firm (see id. ¶¶ 77, 92, 169),

which concluded that “reasonable internal controls and risk management systems have been

established to minimize the exposure to claims covered by the insurance policies.” (App. at 10

(emphasis in original).) While Plaintiffs allege that the review were “perfunctory” and

conducted by a “‘mom and pop’ audit shop under the control of Allan Stanford,” (Compl.

¶¶ 137, 170), they do not allege that Willis knew this or otherwise had any reason for concern.

Finally, Plaintiffs also note that the letters stated that Amy Baranoucky had found

Stanford personnel to be “first-class business people” and “professional.” (Id. ¶ 77.) Ms.

Baranoucky’s opinions, of course, are not actionable.

Significantly, none of the Willis letters attached to the Complaint were addressed

to any of the Plaintiffs. (See id. Ex. 4.) All but one of the named Plaintiffs first purchased their

CDs before the Willis letters were even written, making it impossible for Plaintiffs to have relied

on these letters in making their original investments and calling into serious question Plaintiffs’



assertion that they “formed the belief that their investments in the SIB CDs were insured” based

on the letters. (Id. ¶ 194.) Further, although Plaintiffs now include conclusory allegations

regarding their alleged reliance on the letters, these conclusions lack any factual support. (See id.

¶¶ 139-42, 148-54, 156-57.) And, as for the one named plaintiff who allegedly purchased CDs

after Willis sent its first letter to Stanford, the Complaint contains no allegation that she received,

saw, read, or relied upon the letter when she made her investment. (Id. ¶¶ 144-46.)

Moreover, the Complaint alleges that, during the time in which Willis was

operating as Stanford’s insurance broker, the remaining named Plaintiffs—as one would expect

in making a financial investment—relied on factors other than the letters to maintain their

investments in Stanford. In particular, Plaintiffs emphasize that they relied upon the statements

made by Stanford salespeople, especially David Nanes. (Id. ¶¶ 139-57.) Nanes is not alleged to

have had any relationship with Willis—no one at Willis is alleged ever to have met him, or even

heard of him, much less that Willis was aware of what Nanes said to potential investors. (Id.)

Excerpts from the Complaint illustrate, instead, the Stanford sales force’s significant role in

convincing Plaintiffs to invest:

• Plaintiff Troice : When investing with Stanford, Troice “received the Stanford Financial marketing materials regarding Stanford Financial’s operations as a whole, including that it was a Houston, Texas-based financial services conglomerate, and also was informed by Nanes that his investments in [Stanford] were insured.” (Id. ¶ 139.) When Troice later voiced concerns about the financial markets, Nanes told him that Stanford was “solid,” “in excellent condition,” and able to continue to pay higher interest rates” because it “was not a regular commercial bank.” (Id. ¶ 141.)

• Plaintiff Diaz : Diaz renewed her investments annually and, thus, had “direct dealings with Nanes every year,” when he would “convince[] Diaz and her husband to invest and reinvest” in Stanford CDs. (Id. ¶ 142.) Nanes also told Diaz that there was no need for diversification because “[Stanford] was very strong and insured.” (Id. ¶ 143.)

• Plaintiff Gilly Flores : Gilly Flores was told in 2007 by Stanford broker Miguel Valdez that “(1) an investment in SIB CDs was safer than investing in U.S. banks because SIB did not make loan [sic]; (2) SIB and Stanford Financial were U.S.-based businesses regulated by the U.S. Government; and (3) that an investment in SIB CDs was



completely safe and secure because it was guaranteed and insured by Lloyd’s.” (Id. ¶ 145.)

• Plaintiff Punga: Nanes and Punga’s principal became quite close, and Punga’s principal “came to trust Nanes and they developed a friendship,” even taking Punga’s principal on one of Stanford’s private jets. (Id. ¶ 150.) Punga’s principal allegedly invested in Stanford CDs “based on the trust and confidence that had grown between” him and Nanes. (Id.) And “[e]very single time that they met, Nanes represented to Punga’s principals that Stanford was solid, insured, and were growing rapidly.” (Id. ¶ 148.)

• Plaintiffs Canabal, Gomez Ferreiro, and Promotora: They relied on information provided by their financial advisors to make the decision to invest. (See id. ¶ 152 (Canabal relied on advisor’s statements regarding “Stanford Financial’s operations as a whole,” Stanford’s insurance, and marketing materials in deciding to maintain investments in Stanford CDs); ¶ 154 (Gomez Ferreiro relied on advisor’s “touting [Stanford’s] safety and solidity and the fact that the investments were insured” when deciding to reinvest); ¶ 156 (Promotora “continued to invest in [Stanford] CDs per the advice of its Stanford Financial Advisor”).)

All of these core, factual allegations confirm that Plaintiffs’ dispute arises from the alleged

misdeeds of Stanford, not Willis.

C. The Purported Class and Claims

Plaintiffs seek actual and punitive damages on behalf of a worldwide class of

investors who purchased (presumably at any time, even before the Willis letters were sent to

Stanford) and, as of February 2009, still held CDs or other depository accounts with Stanford.

(Id. ¶ 161(i).) Plaintiffs assert class claims for alleged primary and secondary violations of the

TSA, civil conspiracy, and participation in a fraudulent scheme, (id. ¶¶ 168-89); and individual

claims for alleged violations of the Texas Insurance Code, common-law fraud, negligent

misrepresentation, negligence, gross negligence, and negligent hiring, supervision, and retention

of Ms. Baranoucky. (Id. ¶¶ 190-99.)



III. ARGUMENT AND AUTHORITIES

A. Plaintiffs Have Not and Cannot State Viable Claims Related to Their Purchases of Stanford Securities.

Plaintiffs’ Complaint suffers from two fundamental flaws. First, SLUSA

preempts and requires dismissal of class-action claims that are based on state law and allege

misrepresentations in connection with the purchase or sale of securities. Second, even if SLUSA

does not preempt Plaintiffs’ claims, the statutory presumption against extraterritoriality applied

by the United States Supreme Court in Morrison—and required by the Texas Supreme Court as

to all Texas statutes—requires dismissal of Plaintiffs’ claims under the TSA and the Texas

Insurance Code.5

1. SLUSA Preempts and Requires Dismissal of This Entire Case.

SLUSA expressly prohibits Plaintiffs’ attempt to evade the PSLRA’s heightened

pleading requirements by omitting federal securities law violations from their Complaint and by

relying exclusively on state-law claims. Specifically, SLUSA mandates dismissal of class-action

claims that are based on state law and allege misrepresentations in connection with the purchase

or sale of securities. See 15 U.S.C. §§ 77p(b), 78bb(f)(1); see also In re Enron Corp. Sec.,

Deriv. & MDL-1446 ERISA Litig., C.A. No. H-01-3624, 2006 U.S. Dist. LEXIS 90526, at *5-*6

(S.D. Tex. Dec. 12, 2006) (dismissing complaints asserting civil conspiracy, aiding-and-abetting,

and TSA claims).

5 Although this matter has not yet progressed to the class-certification stage, it is clear from the face of the pleading that all of the named plaintiffs are from Mexico and Venezuela and that all of the class allegations involve foreign purchases of foreign securities and transactions that occurred outside of the United States. This class action on its face, therefore, contravenes established law and cannot be brought in the United States. When there are “fatal flaws in plaintiffs’ claims…. a district court does not abuse its discretion by resolving the merits before considering the question of class certification.” Curtin v. United Airlines, Inc., 275 F.3d 88, 92-93 (D.C. Cir. 2001). Indeed, numerous putative securities class actions have been dismissed in light of Morrison prior to certification. See, e.g., Cascade Fund, LLP v. Absolute Capital Mgmt. Holdings Ltd., No. 08-CV-01381-MSK-CBS, 2011 WL 1211511, at *7 (D. Colo. Mar. 31, 2011); In re Banco Santander Sec.-Optimal Litig., 732 F. Supp. 2d 1305, 1317 (S.D. Fla. 2010); Plumbers’ Union Local No. 12 Pension Fund v. Swiss Reinsurance Co., 753 F. Supp. 2d 166, *6-10 (S.D.N.Y. 2010).



SLUSA applies when claims involve (i) a “covered class action,” (ii) based on

state law, (iii) alleging a “misrepresentation or omission of a material fact” (iv) “in connection

with” (v) “the purchase or sale of a covered security.” 15 U.S.C. §§ 77p(b), 78bb(f)(1). Because

Congress enacted SLUSA in response to certain plaintiffs’ attempts to frustrate the PSLRA’s

purpose, this Court should analyze these factors in favor of preemption. See, e.g., Merrill Lynch,

Pierce, Fenner & Smith Inc. v. Dabit, 547 U.S. 71, 86 (2006) (Congress “envisioned a broad

construction” for SLUSA that is not limited to class actions asserting traditional federal

securities fraud claims); In re Enron Corp. Sec., 535 F.3d 325, 337 (5th Cir. 2008) (SLUSA was

enacted to “stem this shift from Federal to State court” in securities class actions).

Under any reasonable construction of the five factors, SLUSA’s requirements are

easily met here, requiring this Court to dismiss Plaintiffs’ state-law claims. First, Plaintiffs

allege that the putative class potentially includes “[t]housands of investors,” (Compl. ¶ 160),

making this a “covered class action”—i.e., a “single lawsuit” seeking “damages on behalf of

more than 50” people. 15 U.S.C. §§ 77p(f)(2)(A)(i)(1), 78bb(f)(5)(B)(i)(I).

Second, this case is “based upon the statutory or common law of a[] State,”

id. §§ 77p(b), 78bb(f)(1), because Plaintiffs assert only Texas state-law claims.

The third requirement is met because Plaintiffs’ Complaint centers on allegations

of “untrue statement[s] or omissions[s] of . . . material fact[s],” id. §§ 77p(b)(1), 78bb(f)(1)(A),

including pervasive assertions that Stanford was a “massive Ponzi scheme.” (Compl. ¶ 118.)

Additionally, Plaintiffs allege that Stanford’s CDs were marketed as safe investments due to the

supposed diversification and high liquidity of Stanford’s underlying investment portfolio, (see,

e.g., id. ¶¶ 68, 73, 121, 136, 145), but that “none of that was true” because “nearly 80% of SIB’s

investments were concentrated in high-risk, illiquid categories.” (Id. ¶ 121.) Moreover,



Plaintiffs assert various misrepresentation and fraud claims under the TSA, (see id. ¶¶ 168-84),

the Texas Insurance Code, (see id. ¶¶ 190-93), and Texas common law, (see id. ¶¶ 185-89, 194-

95), all of which by definition trigger SLUSA.

Finally, SLUSA’s fourth (“in connection with”) and fifth (“covered security”)6

prongs are likewise satisfied. These prongs require only that: (i) “the fraud alleged ‘coincide

with’ a [covered] securities transaction—whether by the plaintiff or someone else,” Dabit, 547

U.S. at 85;7 or (ii) the “fraudulent scheme was in connection with the trading in . . . [covered]

securities in which [the alleged perpetrator] claimed to be engaged” even if no such trades were

ever consummated Barron v. Igolnikov, No. 09 CIV 4471 (TPG), 2010 WL 882890, at *5

(S.D.N.Y. Mar. 10, 2010) (emphasis added). Analysis of these two factors, therefore, does not

turn on whether the specific CDs Plaintiffs purchased are themselves covered securities.8 This

prong is independently satisfied because Plaintiffs’ claims are based on the alleged Stanford

fraud, which encompassed the purchase and sale of covered securities—including, transactions

6 Under SLUSA, a “covered security” includes any security that trades on a regulated national securities exchange or on the NASDAQ market. See 15 U.S.C. §§ 77p(f)(3), 78bb(f)(5)(E).

7 See also U.S. Mortg., Inc. v. Saxton, 494 F.3d 833, 845 (9th Cir. 2007) (SLUSA applies regardless whether specific debt instruments purchased by plaintiffs were “covered” when, as here, “misrepresentations undoubtedly ‘coincide’” with transactions in other covered securities); Levinson v. PSCC Servs., Inc., No. 3:09-CV-00269 (PCD), 2009 WL 5184363, at *12 (D. Conn. Dec. 23, 2009) (because complaint focused on defendants’ role in aiding and abetting Madoff’s Ponzi scheme, which involved trading in covered securities, “[the d]efendants’ own misrepresentations that unintentionally facilitated Madoff’s fraud coincided with the purchase and sale of securities”).

8 See Dabit, 547 U.S. at 85; Sec. Exch. Comm’n v. Zandford, 535 U.S. 813, 825 (2002); Grippo v. Perazzo, 357 F.3d 1218, 1223 (11th Cir. 2004); Cordova v. Lehman Bros., Inc., 413 F. Supp. 2d 1309, 1316-20 (S.D. Fla. 2006); see also Newman v. Family Mgmt. Corp., 748 F. Supp. 2d 299, 312 (S.D.N.Y. 2010) (“That the trades never took place does not preclude finding a connection” for purposes of SLUSA); Barron, 2010 WL 882890, at *5 (explaining, in Bernard L. Madoff “feeder fund” action, that “Madoff told investors that he would purchase and sell securities in the S & P 100 Index . . . but never consummated any trades,” and holding that SLUSA preempted state-law claims because “it is enough that this fraudulent scheme was in connection with the trading in the nationally listed securities in which Madoff claimed to be engaged. It is not essential that Madoff actually performed any trades or acquired any securities.”) (emphasis added); Schnorr v. Schubert, No. CIV 05-303-M, 2005 WL 2019878, at *6 (W.D. Okla. Aug. 18, 2005) (holding that SLUSA applied in context of alleged Ponzi scheme in which plaintiffs claimed that they “purchased what they believed were either covered securities or options to purchase covered securities, [and] that [defendant] never consummated any such purchases on their behalf”).



accomplished through Stanford’s so-called “proprietary mutual fund wrap program” known as

“SAS.” (SEC Compl. ¶¶ 94-100.) Mutual fund shares are unquestionably covered securities.9 It

also is a matter of public record, including via news articles cited in the Complaint, that Stanford

invested proceeds generated through the sale of its CDs in covered securities such as stocks and

bonds. (See Compl. ¶ 132 (citing Alex Dalmady, Duck Tales, VenEconomy Monthly, January

2009, at 13).)10

Indeed, Plaintiffs’ own allegations satisfy SLUSA’s requirement that the scheme

involve covered securities. Plaintiffs allege that Stanford promised to invest assets in “first grade

investment bonds (AAA, AA+, AA) and shares of stock (of great reputation, liquidity and

credibility) and in negotiable instruments in the financial markets and easily made liquid should

it be necessary,” (Compl., Ex. 2 at 2 (Plaintiffs’ certified translation).)11

Because all five requirements are met, SLUSA bars the claims against Willis, and

the Court must dismiss the Complaint in its entirety.

9 See Instituto De Prevision Militar v. Merrill Lynch, 546 F.3d 1340, 1351 n.2 (11th Cir. 2008) (“Because mutual funds are issued by investment companies registered under the 1940 Act . . . they qualify as ‘covered securities’ under SLUSA.”); Siepel v. Bank of Am., N.A., 526 F.3d 1122, 1126 (8th Cir. 2008) (holding that mutual fund satisfied SLUSA’s definition of “covered security”).

10 The “in connection with” requirement is also satisfied by the fact that Plaintiffs are seeking to recover investment losses. See Rowinski v. Salomon Smith Barney Inc., 398 F.3d 294, 301 (3d Cir. 2005) ("The plaintiff's theory of damages also bears on the SLUSA ‘in connection’ inquiry. . . . [T]he relief sought by plaintiffs—such as the recovery of investment losses or trading fees—may be relevant in 'connecting' the allegations to the purchase or sale of securities."); see, e.g., TAC ¶ 74 (“All Plaintiffs invested in the Stanford Financial charade by purchasing CDs or placing their money in other depository accounts with SIB.”); ¶ 189 (“Defendants’ participation in the conspiracy proximately caused Plaintiffs to lose their investments.”).

11 See also id. at 2-3 (“NASD and SIPC . . . are two safety entities that are utilized by the New York stock exchange, where Stanford Group is a member, which insure that the financial companies that invest the funds of their clients in financial instruments of any kind that are traded in the stock exchange, be invested in companies that represent for the stock exchange of high security and trust for these two supervision and guarantee entities in the stock exchange markets, measuring firmness and safety so that the funds utilized be well invested.”); Compl., Ex. 3 at 1 (Plaintiffs’ certified translation) (“Stanford International Bank Ltd. invests its funds in a portfolio of securities that because it is highly diversified and managed under a criterion of maximum stability and cautiousness, has a minimal risk of loss, in that most of the portfolio is made up of bonds issued by the government of the United States or by multinational companies and banks with international prestige.”).



2. Plaintiffs’ TSA and Texas Insurance Code Claims Must Be Dismissed Under the Supreme Court’s Reasoning in Morrison.

Although SLUSA, alone, requires dismissal of all of Plaintiffs’ claims, the TSA

and Insurance Code claims also must be dismissed under the Supreme Court’s reasoning in

Morrison v. National Australia Bank Ltd., 130 S. Ct. 2869 (2010), which held that the federal

securities laws do not apply to foreign securities transactions—even if the alleged fraudulent

conduct occurs in the United States. See id. at 2883-84. The statute at issue in Morrison was the

Securities Exchange Act of 1934. Here, Plaintiffs have sued under the TSA and Insurance Code.

Nonetheless, Morrison, together with analogous Texas Supreme Court precedent, requires

dismissal of Plaintiffs’ statutory claims for the reasons discussed in detail below.12

a. Morrison Requires Dismissal of Securities Claims Based on Foreign Securities Transactions.

In Morrison, Australian plaintiffs bought shares in National Australia Bank

(NAB), Australia’s then-largest bank. When NAB’s shares plummeted in value because of

NAB’s alleged fraud, the plaintiffs sued in the United States purporting to represent a class of

similarly situated investors. See 130 S. Ct. at 2875-76. Although the securities at issue were all

purchased on foreign exchanges, the plaintiffs sued in the United States based on allegations that

NAB’s Florida-based subsidiary orchestrated the alleged fraud. See id. In determining that the

plaintiffs could not sue under the federal securities laws, Justice Scalia, writing for the Court,

emphasized the “longstanding principle of American law that legislation of Congress, unless a

contrary intent appears, is meant to apply only within the territorial jurisdiction of the United

States.” Id. at 2873 (internal quotation marks omitted). Applying this presumption, the Court

12 As will be discussed, Plaintiffs’ TSA and Insurance Code claims also must be dismissed for failure to plead facts sufficient to state a claim under each of those statutes, even assuming they apply extraterritorially, which they do not. See infra Part III.B-E.



observed that “there is no affirmative indication in the [statute that it] applies extraterritorially,

and we therefore conclude it does not.” Id. at 2883.13 Because the Australian plaintiffs in

Morrison purchased their securities on foreign exchanges and had not alleged any United States-

based transactions—namely, “transactions in securities listed on domestic exchanges, and

domestic transactions in other securities,” id. at 2884—they failed to state a claim and the case

was dismissed.

Significantly, it was irrelevant that the fraudulent conduct alleged by the Morrison

plaintiffs emanated from Florida: “[T]he presumption against extraterritorial application would

be a craven watchdog indeed if it retreated to its kennel whenever some domestic activity is

involved in the case.” Id. at 2884. Instead, the critical factor for application of federal securities

laws, the Court held, is not the place of the fraud, but the place of the transaction, since

“purchase-and-sale transactions are the objects of the statute’s solicitude.” Id. at 2884

(emphasis added).

In the wake of Morrison, numerous courts have dismissed securities claims

involving foreign transactions, even when (as in Morrison itself) the alleged fraud emanated

from the United States. See Elliott Assocs. v. Porsche Automobil Holding SE, No. 10-CV-0532

HB, --- F. Supp. 2d ---, 2010 WL 5463846, at *5 (S.D.N.Y. Dec. 30, 2010) (“[T]he Morrison

court changed the presumption long-held . . . that the locus of deceptive conduct is relevant to the

applicability of section 10(b).”). In one such case, foreign plaintiffs who invested in investment

funds based in the Bahamas, which in turn invested in feeder funds to Bernard Madoff’s massive

13 Morrison dealt specifically with Section 10(b) of the Securities Exchange Act of 1934 (the “Exchange Act”), but the Court made clear that its holding extends beyond that provision. See, e.g., 130 S. Ct. at 2885 (“The same focus on domestic transactions is evident in the Securities Act of 1933 [the “Securities Act”)], . . . enacted by the same Congress as the Exchange Act, and forming part of the same comprehensive regulation of securities trading”); see also id. at 2883 (noting that Section 30(a) is the only section of the Exchange Act that expressly provides for extraterritorial application).



Ponzi scheme operated out of the United States, sued various financial institutions connected

with those Bahamian funds. See In re Banco Santander, 732 F. Supp. 2d at 1311-12. The court

dismissed the plaintiffs’ Section 10(b) claim in light of Morrison because “the Plaintiffs neither

purchased shares on an American stock exchange, nor did they purchase shares in the United

States. They made off-shore purchases in off-shore Bahamian investment funds. . . .” Id. at

1317.14

Here, there is no dispute that, as in Morrison, the alleged securities transactions

occurred wholly outside of the United States. Plaintiffs specifically allege that they all bought

their CDs through Stanford entities in Mexico and Venezuela. (Compl. ¶¶ 139-57; see also supra

Part II.A.1.) More specifically, Plaintiffs allege at length that Stanford Mexico and Stanford

Venezuela (and their off-shore sales forces) were established “with one primary purpose: to sell

SIB CDs to Mexican and Venezuelan citizens in violation of the laws of the respective countries.”

(Id. ¶ 27 (emphasis added).) Moreover, the foreign locations of the alleged transactions is further

evidenced by Plaintiffs’ alternative request that the Court certify two separate classes of Mexican

and Venezuelan investors who purchased CDs from or maintained accounts with Stanford as of

February 2009. (See id. ¶ 9.) Nowhere do Plaintiffs contend that they bought CDs in Texas or

anywhere else in the United States. And, in light of Morrison, Plaintiffs’ allegations pertaining

14 See also Cascade Fund, 2011 WL 1211511, at *7 (applying Morrison to dismiss claims of U.S. investors in Cayman Island fund, despite solicitations in U.S. and wiring of funds through New York, because “the location of the ‘transaction’” itself controls); Absolute Activist Value Master Fund Ltd. v. Homm, No. 09 CV 08862 GBD, 2010 WL 5415885, at *1-2 (S.D.N.Y. Dec. 22, 2010) (applying Morrison to dismiss claims against foreign investment managers of Cayman Island funds who allegedly caused funds to make private investments in nearly valueless penny stocks issued by U.S. companies registered with the SEC as part of “pump-and-dump scheme”); In re Alstom S.A. Sec. Litig., 741 F. Supp. 2d 469, 473 (S.D.N.Y. 2010) (applying Morrison to dismiss claim against French issuer, despite alleged fraudulent conduct in the United States); Tradex Global Master Fund SPC Ltd. v. Rieden, slip op., No. 09-CV-6395 (S.D.N.Y. July 23, 2010) (another Madoff feeder fund action; denying motion to amend to assert federal securities claim as “futile” under Morrison’s “transactional test,” given that proposed amendment “involve[d] no securities listed on a domestic exchange, nor any securities purchased in the United States”).



to conduct in Texas (e.g., that Houston was the “nerve center” for the alleged Stanford fraud,

(id. ¶ 29)), are now irrelevant.

Had Plaintiffs sued under federal securities law, as SLUSA requires, Morrison

unquestionably would mandate dismissal of their securities claims, and the analysis would stop

here. Nonetheless, as discussed below, the result is the same under the TSA.

b. Like the Federal Securities Laws, The TSA Does Not Apply to Foreign Securities Transactions.

Although the Plaintiffs here have sued under the TSA, not the federal securities

laws, Morrison requires this Court to dismiss the TSA claims for three reasons.

First, The Texas Legislature modeled the TSA after the federal securities laws

and, thus, Texas courts have looked to the federal securities laws in interpreting the TSA. See In

re Westcap Enters., 230 F.3d 717, 726 (5th Cir. 2000) (“Because the Texas Securities Act is so

similar to the federal Securities Exchange Act, Texas courts look to decisions of the federal

courts to aid in the interpretation of the Texas Act.”). In fact, the very reason the Texas

Legislature amended the TSA to incorporate the Uniform Securities Act15 was to “bring the

Texas civil liabilities into line with federal law.” TSA Financial Institutions cmt., 56th Leg., ch.

160. The Texas Legislature memorialized this goal in the TSA itself, providing that “[t]his Act

may be construed and implemented to effectuate its general purpose to maximize coordination

with federal and other states’ law and administration.” TEX. REV. CIV . STAT. ANN. art. 581-10-

1(A) (emphasis added). Accordingly, to preserve consistency with federal law, the TSA cannot

15 The “general purpose” of the Uniform Securities Act of 1956—the version originally adopted by Texas—was, among other things, “to coordinate the interpretation and administration of this act with the related federal regulation.” Unif. Sec. Act. § 414 (1956) (superseded 2002); see also TSA Financial Institutions cmt., 66th Leg., ch. 160 (“This bill conforms Texas law to federal securities law and to prevailing practices in most other states. . . .”).



exceed the territorial limits recognized by the Supreme Court in Morrison. Cf. Morrison, 130 S.

Ct. at 2883-84.

Second, Morrison turned on the presumption against extraterritorial application of

the Exchange Act, and the Texas Supreme Court has independently adopted the identical

presumption with respect to Texas’s statutes: “We start with the principle that a statute will not

be given extraterritorial effect by implication but only when such intent is clear.” Coca-Cola Co.

v. Harmar Bottling Co., 218 S.W.3d 671, 682 (Tex. 2006) (citing Equal Emp’t Opportunity

Comm’n v. Arabian Am. Oil. Co., 499 U.S. 244, 248 (1991)). Indeed, as that Court in Coca-Cola

recognized, this principle of statutory construction has been firmly engrained in Texas

jurisprudence for decades:

Unless the intention to have a statute operate beyond the limits of the state or country is clearly expressed or indicated by its language, purpose, subject matter, or history, no legislation is presumed to be intended to operate outside the territorial jurisdiction of the state or country enacting it. To the contrary the presumption is that the statute is intended to have no extraterritorial effect, but to apply only within the territorial jurisdiction of the state or country enacting it, and it is generally so construed. An extraterritorial effect is not to be given statutes by implication.

Coca-Cola, 218 S.W.3d at 683 n.33 (quoting Marmon v. Mustang Aviation, Inc., 430 S.W.2d

182, 187 (Tex. 1968)) (emphasis added).

More specifically, the Texas Supreme Court observed that, when a Texas statute

is to be construed consistently with federal law (as is the TSA), and the federal analogue has not

been given extraterritorial effect, nor should the Texas statute. See id. at 683 (noting, in

declining to give Texas Free Enterprise and Antitrust Act broad extraterritorial reach, that the

Sherman Act has been extended by the Supreme Court only in limited circumstances). And, like

the federal statutes upon which it is based, the TSA contains no indication that it was intended to



apply extraterritorially. To the contrary, the TSA provisions on which Plaintiffs premise Willis’s

alleged liability expressly limit their application to Texas-based transactions.

For example, Article 12 of the TSA, which Plaintiffs cite in connection with their

claim for aiding and abetting sales of securities by unregistered dealers, (see Compl. ¶ 177),

expressly limits its reach to sales of securities in Texas:

Except as provided in Section 5 of this Act, no person, firm, corporation or dealer shall, directly or through agents, offer for sale, sell or make a sale of any securities in this state without first being registered as in this Act provided. No agent shall, on behalf of any dealer, sell, order for sale, or make sale of any securities within the state unless registered as an agent for that particular registered dealer under the provisions of the Act.

TEX. REV. CIV . STAT. ANN. art. 581-12 (emphasis added). Additionally, intra-state limits exist

regarding the TSA’s Article 33 (and Article 7, regarding registration of securities incorporated

by reference into Article 33), on which Plaintiffs either expressly or implicitly base their claims

for aiding and abetting sales of securities by unregistered dealers, (see Compl. ¶ 177), for sales of

securities through untruths or omissions, (id. ¶ 168), for aiding and abetting untruths or

omissions, (id. ¶¶ 180-83), and for sales of unregistered securities, (id. ¶ 176). These articles

rely on the TSA definitions for “agent”16 and “dealer,”17 which are expressly limited to persons

16 “The term ‘agent’ shall include every person or company employed or appointed or authorized by a dealer to sell, offer for sale or delivery, or solicit subscriptions to or orders for, or deal in any other manner, in securities within this state, whether by direct act or through subagents; provided, that the officers of a corporation or partners of a partnership shall not be deemed agents solely because of their status as officers or partners, where such corporation or partnership is registered as a dealer hereunder.” TEX. REV. CIV . STAT. ANN. art. 581-4 (D) (emphasis added).

17 “The term ‘dealer’ shall include every person or company other than an agent, who engages in this state, either for all or part of his or its time, directly or through an agent, in selling, offering for sale or delivery or soliciting subscriptions to or orders for, or undertaking to dispose of, or to invite offers for any security or securities and every person or company who deals in any other manner in any security or securities within this state. . . .” TEX. REV. CIV . STAT. ANN. art. 581-4 (C) (emphasis added).



“within this state,” and on the definitions of “sale,” “offer for sale,” and “sell,” which include

similar limiting language.18

Third, the Supreme Court’s analysis in Morrison reflected significant concerns

about interfering with foreign securities regulation and principles of international comity. See

130 S. Ct. at 2885-86. Indeed, the Court questioned whether the United States could regulate

securities transactions outside of its borders as a matter of international law. See id. at 2884-85

(“The probability of incompatibility with the applicable laws of other countries is so obvious that

if Congress intended such foreign application ‘it would have addressed the subject of conflicts

with foreign laws and procedures.’”) (citations omitted).19 Certainly, if the Supreme Court had

concerns about Congress’s ability to regulate foreign securities transactions, then this Court

should hesitate to apply the TSA, a state statute, to cover foreign transactions. It makes no sense

for state law to provide Plaintiffs greater rights in securities cases than under federal law. See,

e.g., Carreras v. Marroquin, No. 09-0857, 2011 WL 1206377, at * 5 (Tex. Apr. 1, 2011)

(reiterating requirement to “interpret statutes to avoid an absurd result”); TEX. GOV’T CODE §

311.023(5). Such a reading of the TSA would undermine the Supreme Court’s effort in

Morrison to quell “fear[s] that [the United States] has become the Shangri-La of class-action

18 “The term ‘sell’ means any act by which a sale is made, and the term ‘sale’ or ‘offer for sale’ shall include a subscription, an option for sale, a solicitation of sale, a solicitation of an offer to buy, an attempt to sell, or an offer to sell, directly or by an agent, by a circular, letter, or advertisement or otherwise, including the deposit in a United States Post Office or mail box or in any manner in the United States mails within this State of a letter, circular or other advertising matter. . . .” TEX. REV. CIV . STAT. ANN. art. 581-4 (E) (emphasis added).

19 The Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”)—enacted after Morrison—amended the Exchange Act and the Securities Act of 1933 in an attempt to give them extraterritorial reach solely for actions brought by the SEC and United States Department of Justice (the “DOJ”). See Pub. L. 111-203, July 21, 2010, 124 Stat. 1376 § 929P(b). Dodd-Frank does not alter Morrison’s holding regarding private actions and claims, but merely directs the SEC to study and report to Congress within eighteen months as to whether private rights of action under the Exchange Act should be given the same reach as SEC and DOJ actions. Id. at § 929Y.



litigation for lawyers representing those allegedly cheated in foreign securities markets.”

Morrison, 130 S. Ct. at 2886.20

c. The Same Statutory-Construction and Comity Principles Confirm that the Texas Insurance Code Has No Extraterritorial Reach.

The presumption against extraterritoriality applied by the United States Supreme

Court in Morrison and by the Texas Supreme Court in Coca-Cola Co. also means that Plaintiffs

cannot sue under the Texas Insurance Code, because that statute, like the TSA, does not apply to

conduct committed outside of the State, much less outside of the country.21

The plain language of Chapter 541 of the Texas Insurance Code makes clear that

the legislature intended to limit its application to transactions that occurred within the state of

Texas, by including the limiting language of “in this state” in eight different provisions. See

TEX. INS. CODE Ann. §§ 541.001, .003, .005, .006, .059, .082, .101, .102, .201. Most notably, the

“Purpose” of Chapter 541 and the section therein prohibiting deceptive acts expressly limit

20 Moreover, if this Court allowed Plaintiffs to sue under the TSA, it would raise federal constitutional concerns under the Commerce Clause that can and should be avoided. See, e.g., Clark v. Martinez, 543 U.S. 371, 396 (2005) (“[S]tatute[s] should be read to avoid a constitutional doubt. . . .”). State securities (or “Blue Sky”) laws are limited by the Commerce Clause to transactions occurring within the regulating state. Edgar v. MITE Corp., 457 U.S. 624, 641 (1982) (collecting cases and noting that state securities acts have survived Commerce Clause challenges when “they only regulated transactions occurring within the regulating States”); accord Ariz. Corp. Comm’n v. Media Prods., Inc., 763 P.2d 527 (Ariz. Ct. App. 1988) (Arizona state securities law registration provision violated Commerce Clause when applied to transactions in securities of non-Arizona incorporated issuer that occurred outside of Arizona between out-of-state purchasers and sellers); see also In re Nat’l Century Fin. Enters., Inc., Inv. Litig., No. 2:03-MD-1565, 2010 WL 5174585, at *22, *28 (S.D. Ohio Dec. 13, 2010) (holding, in light of Morrison, that the “‘commerce’ or ‘conduct’ reached by the Ohio Securities Act is the securities transaction and not the fraud,” and thus “applying [the Ohio Securities Act] to the [out-of-state] transactions [at issue] would violate the extraterritoriality principle of the Commerce Clause”). For this reason as well, the TSA cannot be given extraterritorial effect.

21 The presumption against extraterritoriality is a generally applicable principle of statutory construction. See, e.g., In re Payment Card Interchange Fee & Merchant Disc. Antitrust Litig., No. 05-MD-1720 JG JO, 2010 WL 3420517, at *5 (E.D.N.Y. Aug. 27, 2010) (“[I]nternational comity animates the canon of statutory construction that, unless a contrary intent appears, acts of Congress do not apply extraterritorially.”). Indeed, courts have used the presumption in precluding extraterritorial application of statutes outside the securities context. See, e.g., Coca-Cola, 218 S.W.3d at 682-83 (Texas Free Enterprise and Antitrust Act); Norex Petroleum Ltd. v. Access Indus., Inc., 631 F.3d 29, 32-33 (2d Cir. 2010) (Racketeer Influenced and Corrupt Organizations Act (RICO)).



claims—including Plaintiffs’—to acts and practices occurring within Texas. See id. § 541.001

(“The purpose of this chapter is to regulate trade practices in the business of insurance by: (1)

defining or providing for the determination of trade practices in this state that are unfair methods

of competition or unfair or deceptive acts or practices . . . .”) (emphasis added); id. § 541.003

(“A person may not engage in this state in a trade practice that is defined in this chapter as or

determined under this chapter to be an unfair method of competition or an unfair or deceptive act

or practice in the business of insurance.”).

Accordingly, Plaintiffs’ Insurance Code claims must be dismissed to avoid giving

the code an extraterritorial reach that the Texas legislature did not intend. Plaintiffs allege that

the insurance letters were drafted in Colorado, (Compl. ¶¶ 83, 90), and presented to or received

by them in Mexico, (Compl. ¶¶ 139-51), or Venezuela, (Compl. ¶¶ 152-57). Because Plaintiffs’

rely on extraterritorial conduct the Insurance Code does not regulate, the Court should dismiss

these claims.

B. Plaintiffs’ Principal Claim Under the TSA Must Be Dismissed for Failure to Plead That Willis Sold Any Securities.

Plaintiffs’ securities-fraud claim under TSA Article 581-33A(2), (see Compl. ¶¶

168-72), must be dismissed for failure to plead a mandatory element: that Willis sold securities

to Plaintiffs. See In re Enron Corp. Sec., Deriv. & ERISA Litig., 540 F. Supp. 2d 759, 767-68

(S.D. Tex. 2007) (“Under the TSA a statutory ‘seller’ is the person who sold the security directly

to the purchaser. . . .”); In re Enron Corp. Sec., Deriv. & ERISA Litig., 258 F. Supp. 2d 576, 604

(S.D. Tex. 2003) (To impose primary liability under the TSA, “the plaintiff must have bought his

securities from the defendant whom the plaintiff is suing.”). Here, Plaintiffs’ concessions that

the SIB CDs were sold by Stanford, not Willis, means that their TSA claims must be dismissed.



(See, e.g., Compl. ¶ 26.) Willis was merely Stanford’s insurance broker, and it never owned any

Stanford CDs, much less sold any to Plaintiffs.

To establish that Willis is a “seller” under the TSA, Plaintiffs would have to plead

facts showing that Willis either: held title to and sold the CDs directly to Plaintiffs; or “directly

and actively participated in the solicitation of the immediate sale,” In re Westinghouse Sec.

Litig., 90 F.3d 696, 717 n.19 (3d Cir. 1996), “motivated at least in part by a desire to serve [its]

own financial interests or those of the securities owner.” Pinter v. Dahl, 486 U.S. 622, 647

(1988); accord Enron, 258 F. Supp. 2d at 606 (holding that “the Pinter rule, embraced by the

Fifth Circuit in Lone Star Ladies Inv. Club v. Schlotzsky’s Inc., [238 F.3d 363, 368 (5th Cir.

2001)] applies to seller liability under [the TSA] which is ultimately based on § 12(2)[22] and

embodies similar language and definition”).23 Moreover, “[t]ypically, a person who solicits the

purchase will have sought or received a personal financial benefit from the sale, such as where

he anticipat[es] a share of the profits . . . .” Pinter, 486 U.S. at 654 (quotations omitted).24

22 This TSA element tracks Section 12 of the Securities Act of 1933, from which the relevant TSA language derives. See, e.g., Marshall v. Quinn-L Equities, Inc., 704 F. Supp. 1384, 1391 (N.D. Tex. 1988) (“[T]he phrase ‘person who offers or sells[,]’ is taken from Section 12 of the 1933 Securities Act and is intended to have the same meaning.”).

23 Plaintiffs mistakenly allege that a statutory seller under the TSA can constitute anyone that is “in the chain of the selling process,” (Compl. ¶ 168), relying on an earlier version of the TSA that was amended and abrogated by the Texas Legislature more than 30 years ago. See TEX. REV. CIV . STAT. ANN. art. 581-33F(2); see also Frank v. Bear, Stearns & Co., 11 S.W.3d 380, 383 (Tex. App.—Houston [14th Dist.] 2000, pet. denied) (rejecting the pre-1977 “link in the chain” test because it has “no application to the new law, since § 33F provides quite specifically who, besides a person who buys or sells, is liable, and the criteria for such liability”).

24 Plaintiffs’ concession that the SIB CDs were sold by Stanford, not Willis, dooms their TSA claim. (See, e.g., Compl. ¶ 26.) In addition, the letters that are the subject of this action—Willis’s only alleged involvement in Stanford’s purported fraud—say absolutely nothing about the CDs or any other Stanford security. Consequently, they cannot plausibly be viewed as “soliciting” Plaintiffs or anyone else to purchase Stanford securities. Nor is there (nor could there be) any well-pled allegation that Willis issued those letters “motivated at least in part by a desire to serve [its] own financial interests or those of the securities owner.” Pinter, 486 U.S. at 647. Instead, the Complaint makes clear that Willis’s compensation on the Stanford account came from a “commission of the insurance premiums paid out by Stanford each year.” (Id. ¶ 66). Although Plaintiffs perfunctorily allege that “[d]efendants were motivated to serve their own financial interests or those of Stanford Financial and/or SIB,” (id. ¶ 168), that unsupported and conclusory “recitation of the elements of a cause of action” is insufficient to defeat a Rule 12(b)(6) motion. Iqbal, 129 S. Ct. at 1949 (quotations omitted); see also Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555



Because Plaintiffs have pled no facts demonstrating that Willis sold them SIB CDs, or that Willis

had any financial stake in the sales of those CDs, or that Willis was paid by Stanford for the

letters, the TSA claim must be dismissed.

C. Plaintiffs’ Remaining Fraud-Based Claims Must Be Dismissed for Failure to Plead Knowledge and Intent, False Statements, or Reliance.

Plaintiffs’ remaining claims for secondary (i.e., aiding and abetting) violations of

the TSA and for common-law fraud, civil conspiracy, participation in a fraudulent scheme, gross

negligence, and negligent misrepresentation, (Compl. ¶¶ 173-89, 194-98), must be dismissed for

failure to satisfy two elements required by all of these claims: that Willis (1) knew of and

specifically intended to further the alleged fraud and (2) made false statements in furtherance of

the fraud.25 Additionally, the fraud and negligent misrepresentation claims require detrimental

reliance on Willis’s alleged false statements, which Plaintiffs have not successfully pled.

Because the facts alleged by Plaintiffs do not satisfy any of these required elements—much less

(2007) (“[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.”).

25 Plaintiffs’ claims for secondary liability under the TSA, (see Compl. ¶¶ 173-84), suffer from an additional fatal failure to plead that Willis provided “substantial assistance” to the primary violator regarding the TSA violation, as opposed to assistance with the primary violator’s everyday business activities. See Crescendo Invs., Inc. v. Brice, 61 S.W.3d 465, 472-73 (Tex. App.—San Antonio 2001, pet. denied) (“Even if they knew [the primary violator] was absconding invested funds, the [defendants] did not substantially assist the violation i.e., the fraud.”). cf. Wingsco Energy One v. Vanguard Groups Res. 1984, Inc., No. H-86-452, 1988 WL 142135, at *2 (S.D. Tex. Sept. 15, 1988) (under federal securities law, “lender’s performance of [] mere ministerial task,” such as routinely extending loan, did not constitute “substantial assistance” and, thus, dismissing aiding and abetting claim under TSA for same reason). Accordingly, no substantial assistance has been pled here, where Willis is alleged merely to have served as an arms-length insurance broker that did not begin placing Stanford’s financial lines until 2004, long after Stanford’s alleged orchestration of the fraud and also after all but one Plaintiff allegedly purchased CDs. (Compl. ¶¶ 50, 51, 139-57.) See, e.g., Kastner v. Jenkens & Gilchrist, P.C., 231 S.W.3d 571, 578 (Tex. App.—Dallas 2007, no pet.) (opinion letter concerning partnership documents did not create derivative liability under TSA). Additionally, Plaintiffs’ separate claim that “Defendants” conspired to violate the TSA (id. ¶ 184) is not even cognizable under the TSA and, accordingly, must be dismissed. See TEX. REV. CIV . STAT. ANN. art. 581-33F.



plead them with the requisite particularity required by Rule 9(b) of all fraud claims26—these

claims must be dismissed.

1. The Complaint Fails to Allege That Willis Knew That Stanford Was a Ponzi Scheme or That Willis Intended to Further Stanford’s Fraud.

Plaintiffs seek to hold Willis liable for unspecified losses allegedly resulting from

Stanford’s “massive Ponzi scheme,” but Plaintiffs do not plead that Willis knew about or

specifically intended to further Stanford’s alleged fraud. Rather, they now allege, in the fourth

iteration of their complaint, that Willis “should have known” about the alleged fraud. (See

Compl. ¶ 91, 173, 177, 199) (emphasis added).) That is not enough. Constructive knowledge is

insufficient as a matter of law to state any fraud-based claim in Texas. See e.g., Sterling Trust

Co. v. Adderley, 168 S.W.3d 835, 841 (Tex. 2005) (rejecting the “should have known” standard

under the TSA because the Texas Legislature “presumably weighed these policy concerns when

it chose to adopt the ‘reckless disregard’ standard instead of a lower negligence or ‘should have

known’ standard”).27 Because Plaintiffs do not even conclusorily allege that Willis had actual

knowledge and intended to further Stanford’s fraud, dismissal is required.

26 See, e.g., Am. Realty Trust, Inc. v. Travelers Cas. & Sur. Co. of Am., 362 F. Supp. 2d 744, 754 (N.D. Tex. 2005) (“In all averments of fraud or mistake, the circumstances constituting fraud or mistake shall be stated with particularity.”); see also Flaherty & Crumrine Preferred Income Fund, Inc. v. TXU Corp., 565 F.3d 200, 207 (5th Cir. 2009) (Rule 9(b) “require[es] the plaintiff to specify the statements contended to be fraudulent, identify the speaker, state when and where the statements were made, and explain why the statements were fraudulent”).

27 Heightened scienter is required of Plaintiffs’ other fraud claims as well. See Compass Bank v. King Griffin & Adamson P.C., No. 3:01-CV-2028-N, 2003 WL 22077721, at *5 (N.D. Tex. Sept. 5, 2003) (dismissing negligent-misrepresentation because “‘should have known’ is not the standard under section 552”); Formosa Plastics Corp. USA v. Presidio Eng’rs & Contractors, Inc., 960 S.W.2d 41, 47 (Tex. 1998) (fraud requires scienter and intention to cause injury); Mobil Oil Corp. v. Ellender, 968 S.W.2d 917, 921 (Tex. 1998) (gross negligence requires that “defendant knew about the peril, but its acts or omissions demonstrated that it did not care,” i.e., “actual, subjective awareness of the risk involved”); Schlumberger Well Surveying Corp. v. Nortex Oil & Gas Corp., 435 S.W.2d 854, 856-57 (Tex. 1968) (civil conspiracy claim cannot be “proved by unreasonable inferences from other facts and circumstances. . . . One without knowledge of the object and purpose of a conspiracy cannot be a co-conspirator; he cannot agree, either expressly or tacitly, to the commission of a wrong which he knows not of.”); Fernea v. Merrill Lynch Pierce Fenner & Smith, Inc., No. 03-09-00566-CV, 2011 WL 56057, at *14-15 (Tex. App.—Austin Jan. 7, 2011, no pet.) (affirming summary judgment on TSA aiding and abetting claim because there was no evidence that defendant “had awareness about the nature of the specific transaction at issue . . . , much less that [it] was conducted illegally”).



Moreover, even if constructive knowledge were sufficient (which it is not),

Plaintiffs’ own allegations render it facially implausible that Willis—an arms-length middleman

that brokered some of Stanford’s insurance—should have known about the purported fraud.

According to the Complaint (as well as the June 18, 2009 Indictment incorporated by reference,

(see, e.g., Compl. ¶ 115)), Stanford purported and appeared to be a bona fide, international

financial services company subject to regulatory supervision by the SEC and foreign authorities.

(See Indictment ¶¶ 4, 26-33; see also id. ¶ 5). Plaintiffs themselves detail the great lengths to

which Stanford went to create and perpetuate its outwardly legitimate image: “[M]oney from

investors was just blown by Stanford on creating and perpetuating the image charade with lavish

offices, outsized bonuses, and commissions paid to lure and retain top performing sales

personnel, extravagant special events for clients and employees, and other accoutrements

necessary to shore up the Stanford Financial image of wealth, power, and prestige.” (Compl.

¶ 122.) In fact, as both the Complaint and the Indictment acknowledge, Stanford conducted

business for years without anyone suspecting that it was anything other than a major, legitimate

financial institution.

Tellingly, the Complaint does not contain a single allegation that anyone at Willis

knew about Stanford’s alleged fraud or believed Stanford to be engaged in anything illegal.

Plaintiffs do not allege that anyone from Stanford management informed anyone at Willis about

the Ponzi scheme, do not identify any connection between Willis and David Nanes or any of the

financial advisors alleged to have misrepresented the safety and soundness of Stanford

investments, and do not claim that Willis knew what Nanes or other salespeople were saying to

Plaintiffs. Further, Plaintiffs do not allege that Willis received anything of value from the CD

sales or, for that matter, anything other than its normal brokerage fees for assisting Stanford with



procuring certain limited lines of insurance—“[n]one” of which “actually cover[ed] or

provide[d] insurance for any SIB investor/depositor.” (Compl. ¶ 93.)

Plaintiffs cannot avoid dismissal with vague and unsupported allegations—

asserting, for example, that “Defendants” ignored alleged “red flags in their zeal to assist

Stanford Financial sell more CDs,” (Compl. ¶ 125), but failing to specify what those purported

“red flags” were or who at Willis observed or ignored them. Such bare, speculative conclusions,

unsupported by particularized facts, do not satisfy Rule 9(b)’s pleading requirements and, thus,

must be disregarded in evaluating the Complaint. See Twombly, 550 U.S. at 555; United States

ex rel. Willard v. Humana Health Plan of Tex., Inc., 336 F.3d 375, 379 (5th Cir. 2003); see also

Lone Star Ladies, 238 F.3d at 368; Am. Realty Trust, 362 F. Supp. 2d at 751.28

Instead, “[t]o survive a motion to dismiss, a complaint must contain sufficient

factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’” Iqbal,

129 S. Ct. at 1949 (emphasis added) (citation omitted). Facial plausibility requires “more than a

sheer possibility that a defendant has acted unlawfully,” id. at 1949, 1950, and cannot be

achieved here when the alleged misconduct “was not only compatible with, but . . . was more

likely explained by, lawful . . . behavior.” Id. Because the well-pleaded facts in the Complaint

do not give rise to a plausible fraud claim, dismissal is required.

2. The Complaint Must Be Dismissed Because Plaintiffs Have Failed to Allege That Willis Made False Statements.

All of Plaintiffs’ fraud-based claims require allegations that Willis made false

material statements. See, e.g., TEX. REV. CIV . STAT. ANN. art. 581-33A(2) (requiring proof that

28 Similarly, Plaintiffs circumstantially allege that Willis had access to Stanford’s financial statements (which Plaintiffs acknowledge were “fabricated”), knew that certain former employees who “quit and sued or were sued by Stanford” had accused Stanford of operating illicitly (which accusations Willis had no duty to investigate), and was aware that Stanford was engaged in large real estate projects that represented a substantial portion of investor deposits. (See Compl. ¶¶ 67-68, 70-73, 118, 123.) Again, such speculation about Willis’s potential or constructive knowledge does not satisfy either the scienter requirement for fraud or the pleading requirements of Rule 9(b).



defendant sold securities “by means of an untrue statement of a material fact or an omission”);

Formosa Plastics, 960 S.W.2d at 47 (holding that a fraud requires “‘a material

misrepresentation, which was false”) (citation omitted); McCamish, Martin, Brown & Loeffler v.

F.E. Appling Interests, 991 S.W.2d 787, 791 (Tex. 1999) (negligent misrepresentation claim

requires proof that defendant “supplie[d] false information for the guidance of others”);

Crescendo, 61 S.W.3d at 473 (finding lack of “reckless disregard for the truth of the

representations that could conceivably be attributed to” shareholder-defendants for TSA aider-

and-abettor liability) (emphasis added); accord Flaherty, 565 F.3d at 207 (plaintiffs averring

fraud must “specify the statements contended to be fraudulent, identify the speaker, state when

and where the statements were made, and explain why the statements were fraudulent”)

(emphasis added). No such allegations appear in the Complaint.

Plaintiffs’ purported misunderstanding of letters sent by Ms. Baranoucky to

Stanford (not to Plaintiffs) cannot satisfy this element as a matter of law. (Compl. ¶¶ 50-52, 75-

77.) The letters identify two particular types of insurance purchased by Stanford—“Directors

and Officers Liability” and “Bankers Blanket Bond” coverage. (Id. ¶ 93 and id., Ex. 4.)

Plaintiffs do not claim that these representations were false. Rather, they assert that Willis

knowingly omitted to disclose the amounts of coverage afforded by the referenced polices,

“thereby . . . intentionally creating the impression that the insurance policies provided coverage

for the recipient investor’s investments in SIB.” (Id. ¶ 77.) But Plaintiffs’ illogical inferences

from the letters’ truthful statements said does not give rise to a cause of action in fraud. See

United States v. Texarkana Trawlers, 846 F.2d 297, 304 n.19 (5th Cir. 1988) (“Where the

information recipient misunderstands what the information provider meant, there is no

misrepresentation at all. Misunderstandings may be mistakes, but they are not



misrepresentations.”). Because the letters do not state that Stanford had insurance coverage for

the CDs but, rather, specifically itemize the limited nature of Stanford’s coverage, (id. ¶ 93 and

id., Ex. 4.), no reasonable person could construe these limited lines of coverage to mean that

Stanford investments were 100% insured against loss. See In re Perry, 404 B.R. 196, 219

(Bankr. S.D. Tex. 2009) (“This Court must review the Investors’ allegations from the perspective

of a reasonable investor.”).29

Plaintiffs also focus on the following statements from the letters which similarly

cannot salvage their fraud claims:

• “In order to qualify for the above coverages, the Bank underwent a stringent Risk Management Review conducted by an outside audit firm.” (Compl., Ex. 4; id. ¶ 77 (emphasis in original));30 and

• “We have found that all our dealings with [SIB] have been conducted in a professional and satisfactory manner” and those worked with at Stanford to be “first class business people.” (Compl. ¶ 77; see also id., Ex. 4.)

Although Plaintiffs contend that “Defendants,” collectively, had “no reasonable basis” to

conclude that a “stringent” review was conducted or that the people they worked with at Stanford

were “first class business people,” (id. ¶ 91), Plaintiffs still fail to allege false statements that are

actionable as fraud.

In fact, Plaintiffs themselves admit that an outside audit firm did in fact conduct a

risk survey, (see id. ¶ 169), which concluded that “reasonable internal controls and risk

29 Even if Plaintiffs unjustifiably interpreted the letters to mean that all of their Stanford investments were insured, that would not give rise to liability against Willis because Plaintiffs could have verified such coverage with minimal initiative. See In re Mercer, 246 F.3d 391, 416 n.33 (5th Cir. 2001) (“If the investor possesses information sufficient to call the representation into question, he cannot claim later that he relied on or was deceived by the lie.”); Mayer v. Spanel Int’l Ltd., 51 F.3d 670, 676 (7th Cir. 1995) (alleged “false statement is not material under the circumstances” because it could be easily verified to be false).

30 Plaintiffs also allege that the letters “misleadingly suggest that the risk management reviews were done on an annual basis, because the letters were issued annually and discuss insurance policies that were issued annually, and the letters state that in order to qualify for the policies SIB had to undergo the risk management reviews.” (Compl. ¶ 91.) But the letters say no such thing and cannot reasonably support Plaintiffs’ illogical inference.



management systems have been established to minimize the exposure to claims covered by the

insurance policies.” (App. at 10 (emphasis in original.)) And, while Plaintiffs elsewhere allege

that this audit review was “a limited scope review” because it was conducted by a “a one man

shop in Florida,” (Compl. ¶¶ 169-70), they do not allege that Willis knew this or believed the risk

review to be illegitimate. Nor do Plaintiffs allege that Willis (or, in particular, Ms. Baranoucky,

the letters’ signatory) believed the audit review to be anything other than stringent. Regardless,

Willis’s characterization of the review as “stringent” is not actionable as a matter of law because

it is just a statement of opinion or “puffery.” See Prudential Ins. Co. of Am. v. Jefferson Assocs.,

Ltd., 896 S.W.2d 156, 163 (Tex. 1995) (statements that building was “superb,” “super fine,” and

“one of the finest little properties in the City of Austin” were not actionable misrepresentations

but mere “puffing” or opinion); Jeffcoat v. Phillips, 534 S.W.2d 168, 172 (Tex. App.—Houston

[14th Dist.] 1976, writ ref’d n.r.e.) (statements that physician “was ‘one of the finest surgeons in

Harris County,’ and that ‘he didn’t have any bad reports against him’” were non-actionable

puffery or opinion). Similarly, statements in the letter that Stanford personnel were “first class

business people” or “professional” constitute non-actionable puffery that cannot support

Plaintiffs’ claims. See Hogue v. United Olympic Life Ins. Co., 39 F.3d 98, 101 (5th Cir. 1994)

(statement that defendant was a “good insurance company” is not actionable).

3. Plaintiffs’ Fraud and Negligent Misrepresentation Claims Must Be Dismissed Because Plaintiffs Have Failed to Plead Reliance.

Plaintiffs have not alleged justifiable reliance, as required to withstand a motion

to dismiss their fraud and negligent misrepresentation claims. See Miller v. Raytheon Aircraft

Co., 229 S.W.3d 358, 380-81 (Tex. App.—Houston [1st Dist.] 2007, no pet.); Collins, 224 F.3d

at 501-502 (“As we have explained, ‘justifiable reliance comprises two elements: (1) the plaintiff

must in fact rely on the information; and (2) the reliance must be reasonable.’”) (quoting Scottish



Heritable Trust, PLC v. Peat Marwick Main & Co., 81 F.3d 606, 615 (5th Cir. 1996)); see also

Brackens v. Ennis State Bank, 252 F.3d 434, at *2 (5th Cir. 2001) (holding that allegations that

plaintiff “relied” on representations, with “no facts in support of these allegations,” were

insufficient to avoid dismissal and denial of motion for leave to amend). Plaintiffs rely solely on

conclusory assertions of reliance, unsupported by well-pleaded facts, which do not satisfy Rule

9(b) and will not suffice to overcome a motion to dismiss.31 See, e.g., Iqbal, 129 S. Ct. at 1949;

Twombly, 550 U.S. at 555; Willard, 336 F.3d at 379.

Moreover, Plaintiffs cannot plead justifiable reliance because all but one of them

initially purchased their Stanford CDs before Willis sent its first letter to Stanford. (Compare

Compl. ¶¶ 139-57 (including generalized allegations with no dates), ¶ 139 (Troice: 1997), ¶ 142

(Diaz: 1996), ¶ 147 (Punga: 1999), and ¶ 152 (Canabal: “late 1990s”), with id. ¶¶ 18, 50, 65, 75

and id., Ex. 4 (alleging that Willis did not serve as Stanford’s insurance broker on Stanford’s

financial lines or send any letters until 2004).) Plaintiffs cannot plausibly claim justifiable

reliance on representations in Willis letters that had not yet been written when Plaintiffs

purchased their CDs. See, e.g., Grant Thornton LLP v. Prospect High Income Fund, 314 S.W.3d

913, 923 (Tex. 2010) (“Obviously, bonds purchased before [the issuer] hired Grant Thornton . . .

could not have been bought in reliance on [Grant Thornton’s] audit reports.”); see also

Nathenson v. Zonagen Inc., 267 F.3d 400, 413 (5th Cir. 2001) (“Reliance . . . generally requires

that the plaintiff have known of the particular misrepresentation complained of, have believed it

to be true and because of that knowledge and belief purchased or sold the security in question.”);

31 (See, e.g., Compl. ¶ 194 (“Plaintiffs received the ‘safety and soundness’ letters created and transmitted by Defendants and justifiably relied upon them . . . .”); id. ¶ 195 (“Plaintiffs Troice, Diaz and Punga, Canabal, Feriero, and Promotora all received and relied on the ‘safety and soundness’ letters transmitted by Defendants and were justified in relying on Defendants’ false representations contained therein . . . .”); see also id. ¶¶ 139, 140, 142, 149-51, 153, 154, 157 (similar).)



Bank of La. v. Aetna U.S. Healthcare, Inc., 571 F. Supp. 2d 728, 736 (E.D. La. 2008) (same),

aff’d, 326 F. App’x 321 (5th Cir. 2009). As for the one Plaintiff who originally purchased CDs

after the date of the first Willis letter, Gilly Flores, there is no allegation that she ever received

that letter, let alone read and relied on it. (See Compl. ¶ 144.)

Plaintiffs’ allegations of reliance on the Willis letters, however conclusory, are

contradicted by the allegations of alleged misstatements by Stanford. Accordingly, Plaintiffs’

assertion that they relied predominantly, if not exclusively, on the “representations and omissions

of material fact made to Plaintiffs repeatedly and uniformly over the years, both in person by

Stanford Financial FAs and via Stanford Financial promotional materials,” (see, e.g., id. ¶ 138

(emphasis added)), further dooms their fraud claim against Willis, confirming that Stanford is the

true target of Plaintiffs’ suit. See, e.g., Prime Income Asset Mgmt. Inc. v. One Dallas Centre

Assocs. L.P., 358 F. App’x 569, 572 n.3 (5th Cir. 2009) (requiring “justifiable reliance on the

representations made by the defendant,” not by some third-party).

Finally, because Plaintiffs did not rely on the letters, those letters (and, in turn,

Willis) could not possibly have caused Plaintiffs to lose their investments. As elsewhere in the

Complaint, Plaintiffs’ unsupported conclusory allegations of “proximate cause,” (Compl. ¶¶ 172,

196, 198), must be disregarded, and the lack of well-pled facts establishing causation mandates

the dismissal of all of Plaintiffs’ fraud claims. See, e.g., Prospect High Income Fund v. Grant

Thornton, LLP, 203 S.W.3d 602, 618 (Tex. App.—Dallas 2006) (“To establish the element of

causation” for purposes of fraud and negligent misrepresentation, “a plaintiff must show that the

defendant’s acts or omissions, . . . beyond mere conjecture, guess, or speculation . . . w[ere] a

substantial factor in bringing about an injury which would not otherwise have occurred.”)



(internal quotation and citation omitted), rev’d in part on other grounds, 314 S.W.3d 913, 923

(Tex. 2010).32

D. Plaintiffs’ TSA Registration Claims Must Be Dismissed.

1. Plaintiffs’ Claim Based on the Sale of Unregistered Securities Is Preempted by Federal Law.

The NSMIA preempts Plaintiffs claim that Willis aided and abetted Stanford’s

sale of unregistered securities in violation of the TSA. See TEX. REV. CIV . STAT. ANN. art. 581-

7A; see also Compl. ¶¶ 173-76. Specifically, the NSMIA provides that no state registration law

“shall directly or indirectly apply” to a “covered security,” 15 U.S.C. § 77r(a)(1)(A), including

securities exempt under SEC Regulation D. See 15 U.S.C. § 77r(b)(4)(D); see also 17 C.F.R.

§ 230.506(a). Plaintiffs allege that, “[i]n 2001 Stanford filed for an SEC Regulation D

exemption to allow Stanford Financial to sell SIB CDs to” investors in the U.S. (Compl. ¶ 116;

see also id. ¶¶ 174, 176.) Accordingly, the CDs are “covered securities” under the NSMIA and,

thus, Plaintiffs must proceed under federal (and not Texas) law with respect to any alleged

registration violations.

Plaintiffs’ conclusory assertions that the offerings did not comply with the

requirements of Regulation D and that Stanford filed for just a “limited” Reg. D. exemption for

“accredited investors” in the U.S., (id. ¶¶ 116, 174, 176), must be disregarded. See, e.g., Iqbal,

129 S. Ct. at 1949; Twombly, 550 U.S. at 555; Willard, 336 F.3d at 379. Regardless, they are

32 See also D. Houston, Inc. v. Love, 92 S.W.3d 450, 454 (Tex. 2002) (negligence claims require defendant’s conduct to proximately cause plaintiff’s injuries); Luna v. Walgreen Co., No. 3:00-CV-2248-R, 2001 WL 1142806, at *5 (N.D. Tex. Sept. 21, 2001) (a negligent hiring, supervision, and retention claim “is only viable if the employer’s employee commits an underlying tort,” which likewise requires causation); Santana v. Arpin Am. Moving Sys., LLC, No. 2-08-132-CV, 2009 WL 2462500, at *6 (Tex. App.—Fort Worth Aug. 13, 2009, no pet.) (proximate causation is element of gross negligence claim); Massey v. Armco Steel Co., 652 S.W.2d 932, 934 (Tex. 1983) (essential elements of conspiracy include, among others, “damages as the proximate result”); accord In re Enron Corp. Sec., Deriv. & “ERISA” Litig., 310 F. Supp. 2d 819, 831 (S.D. Tex. 2004) (“Similar to loss causation, the proximate cause element of common law fraud requires that plaintiff adequately allege a causal connection between the defendants’ nondisclosures and the subsequent decline in the value of . . . [the] securities.”).



immaterial because the NSMIA preempts state registration requirements even when a defendant

only attempted or purported to qualify for a legitimate federal exemption.33 See, e.g., Temple v.

Gorman, 201 F. Supp. 2d 1238, 1243 (S.D. Fla. 2002) (“Regardless of whether the private

placement actually complied with the substantive requirements of Regulation D or Rule 506, the

securities sold to Plaintiffs are federal ‘covered securities’ because they were sold pursuant to

those rules.”); accord Pinnacle Commc’ns Int’l, Inc. v. Am. Family Mortg. Corp., 417 F. Supp.

2d 1073, 1087 (D. Minn. 2006); Lillard v. Stockton, 267 F. Supp. 2d 1081, 1116 (N.D. Okla.

2003). Accordingly, Plaintiffs’ allegations regarding Stanford’s application for a Regulation D

exemption, (Compl. ¶ 116; see also id. ¶¶ 174, 176), suffice to mandate dismissal.

2. Plaintiffs’ Claim for Aiding and Abetting Sales By an Unregistered Dealer Must Fail.

Plaintiffs allege that Willis “intentionally and actively” aided and abetted sales by

an unregistered dealer, in violation of the TSA. (Compl. ¶¶ 177-79.) This claim must be

dismissed because Plaintiffs fail to plead that Willis knew of Stanford’s fraud and because the

TSA specifically exempts issuers—like Stanford claims to be, (see Compl. ¶¶ 36, 116)—from

registering when their securities “are offered for sale or sold . . . only by or through a registered

dealer acting as fiscal agent for the issuer.” TEX. REV. CIV . STAT. ANN. art. 581-4C (emphasis

added). Here, Plaintiffs aver that the CDs were sold “through SGC brokers from Houston or

Miami.” (Compl. ¶ 33.) Because SGC is registered as a broker-dealer and investment advisor

with the Texas State Securities Board, (see Indictment ¶ 4), Plaintiffs’ claim fails under the plain

terms of the TSA exemption.

33 Plaintiffs’ allegation that the filing was “limited” (and that Willis knew so) is contrary to the public record, which may be considered by the Court without converting this Motion to one for summary judgment. (See App. at 54-63 (Stanford International Bank Ltd., Notice of Sale of Securities Pursuant to Regulation D (Form D), at 1 (Sept. 26, 2000).) In addition, SGC’s certification with the Texas State Securities Board as a registered dealer and investment advisor from September 21, 1995 to the present. (See App. at 64-65.)



E. Plaintiffs’ Claims Under the Insurance Code Must Be Dismissed.

Plaintiffs’ claims under the Insurance Code, (see Compl. ¶¶ 190-93), must be

dismissed because (1) Plaintiffs are neither insureds nor beneficiaries under any policy brokered

by Willis, and (2) they do not seek recovery for misrepresentations of coverage under any policy

brokered by Willis.34

1. Plaintiffs Are Not Proper Parties To Bring Suit.

The Insurance Code is not generally intended to protect third-parties, such as

Plaintiffs, who are neither insureds nor beneficiaries under the policies in question. See, e.g.,

TEX. INS. CODE Ann. § 541.060(b) (Texas insurance code “does not provide a cause of action to

a third party asserting one or more claims against an insured covered under a liability insurance

policy”); see also Allstate Ins. Co. v. Watson, 876 S.W.2d 145, 150 (Tex. 1994) (third-party

claimants do not have standing to sue an insurer directly in the context of settlement

negotiations); Tamez v. Certain Underwriters at Lloyd’s, London Int’l Accident Facilities, Inc.,

999 S.W.2d 12, 21-22 (Tex. App.—Houston [14th Dist.] 1998, pet. denied) (denying standing to

third-party claimants); Chaffin v. Transamerica Ins. Co. 731 S.W.2d 728, 731 (Tex. App.—

Houston [14th Dist.] 1987, writ ref’d n.r.e.) (finding no precedent for “a statutory remedy for an

injured third party against the insurance carrier of an insured”). Outside of the claims-settlement

context, protection has been extended to (and standing recognized regarding) only a narrow class

of persons who are in a special relationship with or in contractual privity to the insurer, the

insured, or a specified beneficiary under a policy. See, e.g., Hermann Hosp. v. Nat’l Standard

34 Plaintiffs’ claims under the Insurance Code fail for the additional reason that they are not pled with particularity. See Berry v. Indianapolis Life Ins. Co., 608 F. Supp. 2d 785, 800 (N.D. Tex. 2009) (holding that Rule 9(b) applies to claims under Chapter 541 of the Texas Insurance Code that were based on the same set of allegations as common law fraud and negligent misrepresentation claims.); accord Reece v. Chubb Lloyds Ins. Co. of Tex., No. H–11–507, 2011 WL 841430, at *2 (S.D. Tex. Mar. 8, 2011). Plaintiffs also have neglected to comply with any of the Insurance Code’s class-action provisions, (see TEX. INS. CODE Ann. §§ 541.256, 257, 259), including both its notice or demand requirements. (See id. § 541.255.)



Ins. Co., 776 S.W.2d 249, 252 (Tex. App.—Houston [1st Dist.] 1989, pet. denied) (hospital

treating insured had standing for allegedly misrepresenting that treatment fell within insurance

coverage because insurance companies and providers of health care have a direct relationship

and hospitals must be able to rely on representations of insurers); Aetna Cas. & Sur. Co. v.

Marshall, 724 S.W.2d 770, 772 (Tex. 1987) (plaintiff who settled a workman’s compensation

claim and whose settlement was incorporated into a judgment could sue, under the Insurance

Code, an insurance carrier who had engaged in unfair acts under the terms of the judgment).

Accepting Plaintiffs’ factual allegations as true, Plaintiffs do not (and cannot)

allege either insured or beneficiary status under any policy brokered by Willis. Nor do or can

they claim that a special relationship exists between them and Stanford concerning any policy

brokered by Willis, or that they had any special relationship with Willis. See Warfield v. Fidelity

& Deposit Co., 904 F.2d 322, 326-27 (5th Cir. 1990) (affirming trial court’s dismissal for lack of

standing, holding that “any person” includes only persons with a direct and close relationship

with the defendant); Psarianos v. Standard Marine, Ltd., 12 F.3d 461, 465 (5th Cir. 1994)

(holding that “Texas law requires ‘a direct and close relationship’ between the party and the

[insurance carrier]”); Parra v. Markel Int’l Ins. Co., 300 F. App’x 317, 319 (5th Cir. 2008)

(same).

To the contrary, Plaintiffs seek to recover investment losses that are not covered

by any policy. And, by the time Willis became a broker for Stanford’s financial lines of

insurance in late 2004, (Compl. ¶¶ 55, 65), all but one named plaintiff already had been making

investments in SIB CDs for years. (See id. ¶ 139 (Troice: 1997), ¶ 142 (Diaz: 1996), ¶ 147

(Punga: 1999), and ¶ 152 (Canabal: “late 1990s”).) The other plaintiff, who initially invested in

2007, (id. ¶¶ 144-46), does not allege that she received from Stanford one of the insurance letters



at issue in this lawsuit, but claims that she chose to purchase CDs from Stanford as a result of a

relationship with her financial advisor, who is not alleged to have had any contact with anyone

from Willis. These facts stand in stark contrast to the narrow set of unique circumstances in

which Insurance Code protection has been extended to third parties that are neither insureds nor

beneficiaries under a policy. Cf. Hermann, 776 S.W.2d at 252; Aetna, 724 S.W.2d at 772.

On similar facts, the Fifth Circuit affirmed this Court’s dismissal of Insurance

Code claims by the majority shareholders and directors of a bank against the issuer of banker’s

blanket bond coverage, emphasizing the need for “[a] line limiting liability“ to avoid expanding

the type of “person” protected by the code beyond statutory bounds:

Nor does the appellants’ position—that any person means each and every person—have any basis in logic. According to the appellants, [the defendant insurer] could be sued by every individual whose injury has some sort of causal nexus with the failure of the appellants’ bank. The restaurants in which the appellants ate but can no longer afford, the stores in which they once bought the necessities of daily life, and those businesses which sold their goods to the now failed bank have all suffered injury and could claim that they are entitled to relief under [the Texas Insurance Code]. A line limiting liability must be drawn somewhere and the appellants fall outside of this line.

Warfield, 904 F.2d at 327 (emphasis added). The same logic and limiting principle requires

dismissal of Plaintiffs’ Insurance Code claims, as well.

Finally, the impropriety of Plaintiffs’ attempt to sue under the Insurance Code is

underscored by the complete absence of any allegations of fact demonstrating that the “business

of insurance” was implicated when Plaintiffs decided to invest in CDs, as is expressly required

by the code. See TEX. INS. CODE Ann. §§ 541.001 (“[t]he purpose of this chapter is to regulate

trade practices in the business of insurance”), .003 ([a] person may not engage in . . . [a]

deceptive act or practice in the business of insurance”), .051 (“[i]t is an unfair method of

competition or an unfair or deceptive act or practice in the business of insurance to . . .”), .052



(“[i]t is . . . [a] deceptive act or practice in the business of insurance to make, publish,

disseminate, or circulate, or place before the public . . . an advertisement, announcement, or

statement containing an untrue . . . statement regarding the business of insurance”), .061 (“[i]t is

. . . [a] deceptive act or practice in the business of insurance to misrepresent an insurance

policy”) (emphases added).

2. The Insurance Claims Must Be Dismissed Because Plaintiffs Fail to Allege Any Affirmative Misrepresentations Concerning a Policy.

Even assuming Plaintiffs were proper parties to bring suit under the Insurance

Code, the insurance claims must be dismissed because Plaintiffs fail to allege any affirmative

misrepresentation made by Willis, much less an affirmative misrepresentation concerning the

scope or availability of coverage under a specific policy, as is required by the Insurance Code.35

Plaintiffs invoke three Insurance Code sections regarding alleged misrepresent-

ations of insurance coverage. (See Compl. ¶ 190-93.) But all of these claims fail because, as

previously discussed, the letters from Willis on which Plaintiffs rely accurately stated the limited

coverage held by Stanford under its “Directors and Officers Liability Insurance” and “Bankers

Blanket Bond” policies. (See Compl., Ex. 4; see also supra Part III.C.2.) Unable to allege that

Willis affirmatively misrepresented a term of coverage in any policy, Plaintiffs resort to an

allegation that they mistakenly believed that their investments were covered by the “Directors

and Officers Liability” and “Bankers Blanket Bond” policies discussed in the letters. But Texas 35 See Compl. ¶ 191 (citing TEX. INS. CODE Ann. § 541.051(4), which declares that it is a deceptive act to “use a name or title of a policy or class of policies that misrepresents the true nature of the policy or class of policies.”) (emphasis added); id. ¶ 190 (citing § 541.051(1), which declares it unlawful to “make, issue, or circulate or cause to be made, issued, or circulated an estimate, illustration, circular, or statement misrepresenting with respect to a policy issued or to be issued”) (emphasis added); id. ¶ 193 (citing § 541.061, which declares it unlawful to make “any misrepresentation relating to an insurance policy by: (i) making an untrue statement of material fact; (ii) failing to state a material fact necessary to make other statements made not misleading, considering the circumstances under which the statements were made; (iii) making a statement in a manner that would mislead a reasonably prudent person to a false conclusion of a material fact; (iv) making a material misrepresentation of law; or (v) failing to disclose a matter required by law to be disclosed, including failing to make a disclosure in accordance with another provision of this code.”) (emphasis added).



courts have consistently rejected this theory of Insurance Code liability—holding that, absent an

affirmative misrepresentation concerning coverage under a specific policy, the code affords no

cause of action for a party’s mistaken belief about the scope or availability of coverage. See,

e.g., Moore v. Whitney-Vaky Ins. Agency, 966 S.W.2d 690, 692 (Tex. App.—San Antonio 1998,

no pet.) (affirming dismissal of Texas Insurance Code claims where no specific

misrepresentation by the insurer or agent about the insurance policy was made); Sledge v. Mullin,

927 S.W.2d 89, 94 (Tex. App.—Fort Worth 1996, no writ) (fact that agent omitted to advise

insured of her insurance needs was not a misrepresentation under the Texas Insurance Code); see

also Matthews v. Home Ins. Co., 916 S.W.2d 666, 670 (Tex. App.—Houston [1st Dist.] 1996,

writ denied) (holding that even a subsequent representation that was at variance with the written

terms of the policy did not state a claim under section 541.051(1)); see also W. Reserve Life

Assurance Co. of Ohio v. Graben, 233 S.W.3d 360, 371-72 (Tex. App.—Fort Worth 2007, no

pet.) (broker did not engage in unfair or deceptive practices by managing investment accounts as

he had promised and statements that plaintiffs should keep their investments in the market “were

not misrepresentations of existing fact” and were not actionable under Texas Insurance Code

sections 541.051 and 541.061).36 As a matter of law, any mistaken belief that Plaintiffs allege

may have existed “in the minds of the individual investors,” (Compl. ¶ 94), fails to state a claim.

Further, any omission of the amount of the policies’ coverage amount cannot give

rise to a claim under the Insurance Code because it is not an affirmative representation and Willis

was under no obligation (indeed, it was prohibited by its insured Stanford) to disclose the

36 Nor, as previously discussed, can an affirmative misrepresentation about a policy be derived from allegations concerning Ms. Baranoucky’s characterization of the Stogniew audit as “stringent,” or her description of the “first-class business people” at Stanford with whom she worked See supra Part III.C.2. These statements did not implicate the scope of insurance coverage and, regardless, involve non-actionable expressions of opinion. See Hogue, 39 F.3d at 101 (holding, in affirming dismissal of insurance claims, that statements in health insurer’s letters that insurer was a good insurance company that was willing and able to undertake commitment of insured’s health insurance were inactionable “puffery”).



coverage amount. See Moore, 966 S.W.2d at 692 (holding that agent was under no duty to

disclose coverage amounts and stating that “we are unwilling to otherwise extend agent liability

beyond affirmative misrepresentations to failures to disclose policy coverage limitations”).

Finally, Plaintiffs unavailingly invoke section 541.052 of the Insurance Code,

(Compl. ¶ 192), which makes it unlawful to, directly or indirectly “make, publish, disseminate,

circulate, or place before the public” an “advertisement, announcement, or statement containing

an untrue, deceptive, or misleading assertion, representation, or statement regarding the business

of insurance or a person in the conduct of the person’s insurance business.” This section, which

is designed to protect insurance providers and potential insureds from false advertising about the

benefits of a policy or the business of insurance in general,37 affords no cause of action to third

parties seeking to recover personal investment losses unrelated to any insurance policy.

Moreover, section 541.052 requires an allegation that the defendant made a public

announcement, statement, or advertisement, which Plaintiffs do not and cannot allege here. See

Anderson v. Zurich Am. Ins. Co., C.A. No. H-05-3652, 2009 WL 540795, at *7 (S.D. Tex. Mar.

4, 2009) (granting summary judgment on section 541.052 claim because plaintiff “failed to

provide the Court with any evidence that [defendant] placed before the public any advertisement,

announcement, or statement,” but merely made a statement over the telephone) (emphasis

added).38

37 See Ceshker v. Bankers Commercial Life Ins. Co., 568 S.W.2d 128, 129 (Tex. 1978); Ceshker v. Bankers Commercial Life Ins. Co., 558 S.W.2d 102, 103 (Tex. Civ. App.—Tyler 1977, writ ref’d n.r.e.).

38 Far from alleging that Willis advertised to the public “regarding the business of insurance or a person in the conduct of the person’s insurance business,” Plaintiffs contend that, if one of Stanford’s insurers or brokers received any “request[s] for insurance information, of any kind, from a client,” that insurer or broker was instructed to refer clients back to Stanford and not to release any information without Stanford’s approval. (See Compl. ¶ 95.) Plaintiffs’ formulaic recitation of the elements for this claim is insufficient, see, e.g., Iqbal, 129 S. Ct. at 1949, and the claim must be dismissed. Additionally, the Texas Insurance Code extends a private right of action only to”[a] person who sustains actual damages . . . caused by the other person engaging in an act or practice” prohibited under the Code. TEX. INS. CODE Ann. § 541.151. Because Plaintiffs’ alleged damages are caused from their investment



F. The Negligence-Based Claims Must Be Dismissed Because Willis Did Not Owe Plaintiffs Any Duty of Care.

Plaintiffs allege that Willis violated the standard of care owed by an insurance

broker and breached its duty owed to Plaintiffs by failing to: (1) include the type and amounts of

existing insurance coverage in the letters; (2) describe the type of professional services it

provided to Stanford; or (3) exercise ordinary care in hiring, supervising, and retaining

Ms. Baranoucky. (See Compl. ¶¶ 195-99.) In Texas, however, an insurance broker has no duty

to non-insureds like Plaintiffs. See Cogan v. Triad Am. Energy, 944 F. Supp. 1325, 1332 (S.D.

Tex. 1996) (holding, in rejecting claim that insurance broker owed a duty to investors of insured,

that such a duty “in the insurance context arises only between insurers and their insureds. . . .

Investors, lenders, contractors, customers, and others that deal with a company have the means to

protect themselves by requiring certificates of insurance, by examining the policies, or by

accepting the risk that inheres in their transaction with the assured”); see also Envtl. Proc., Inc. v.

Guidry, 282 S.W.3d 602, 626-28 (Tex. App.—Houston [14th Dist.] 2009, pet. denied) (“Courts

do not create fiduciary relationships lightly. And as an intermediate appellate court, we decline

to extend the set of formal fiduciary relationships to encompass the relationship of an insurance

agent, agency, or broker to a client.”) (internal citation omitted and emphasis added). As a

matter of law, therefore, Willis owed no legal duty to Plaintiffs. The absence of a legal duty

therefore requires that this Court dismiss Plaintiffs’ negligence claims.

Indeed, even as to Willis’s client, Stanford, Willis had no duty to explain the

scope of coverage under the limited lines of insurance it had obtained for Stanford. (See Compl.

losses, not any policy loss or misrepresentation related to a policy term, their claims fail for this reason as well. See W. Reserve Life Assurance, 233 S.W.3d at 371-72 (holding that evidence was legally insufficient to support the finding that financial advisor’s representations caused investors any actual damages); Hermann, 776 S.W.2d at 252 (persons other than an actual or prospective insured or beneficiary must show detrimental reliance on insurer’s misrepresentation).



¶¶ 196-97.) See Envtl. Proc., Inc., 282 S.W.3d at 627 (citing Choucroun v. Sol L. Wisenberg Ins.

Agency-Life & Health, Div., Inc., No. 01-03-00637-CV, 2004 WL 2823147, at *4 (Tex. App.—

Houston [1st Dist.] Dec. 9, 2004, no pet.) (mem. op.) (broker who “procured” insurance for

insured “owed no duty to explain the terms of the insurance policy to [the insured] or to advise

him on other, alternative policy coverages”)).39 As Willis owed Stanford no duty to explain,

Texas law certainly creates no duty for Willis to explain Stanford’s coverage to third parties like

Plaintiffs, who were not Willis’s clients. Cf. id.40

IV. CONCLUSION AND REQUESTED RELIEF

Pursuant to Rules 9(b) and 12(b)(6) of the Federal Rules of Civil Procedure,

Willis seeks dismissal of Plaintiffs’ Complaint in its entirety and with prejudice, and also seeks

any further relief to which it is justly entitled.

V. REQUEST FOR ORAL ARGUMENT

Willis respectfully requests that the Court permit oral argument on this Motion.

39 Texas courts often refer to insurance brokers as insurance “agents,” and the Insurance Code does not distinguish these terms. See May v. United Servs. Ass’n of Am., 844 S.W.2d 666, 669 n.8 (Tex. 1992) (“In several states, a distinction is made between insurance agents and insurance brokers, the former representing a single insurer and the latter selling the policies of several different insurers … [however, ] the broker/agent distinction is not found in the Texas Insurance Code.”) (internal citation and quotation omitted).

40 Even assuming (incorrectly) that Willis owed a duty to its client’s customers that theoretically could form the basis for a negligence claim, Plaintiffs’ claim for negligent hiring, supervision, and retention of Ms. Baranoucky fails, in particular, because it does not include a single factual allegation describing how Willis went about hiring, supervising, or determining whether to retain Ms. Baranoucky, nor does it plead any wrongful conduct by Ms. Baranoucky. Cf. Morris v. JTM Materials, Inc., 78 S.W.3d 28, 49 (Tex. App.—Fort Worth 2002, no pet.) (“[A]n employer is liable for negligent hiring, retention, or supervision if it hires an incompetent or unfit employee whom it knows, or by the exercise of reasonable care should have known, was incompetent or unfit, thereby creating an unreasonable risk of harm to others.”).



Dated: May 2, 2011 Respectfully submitted,

/s/ Yvette Ostolaza Yvette Ostolaza State Bar No. 00784703 Michelle Hartmann State Bar No. 24032402 WEIL, GOTSHAL & MANGES LLP 200 Crescent Court, Suite 300 Dallas, Texas 75201-6950 Telephone: (214) 746-7700 Facsimile: (214) 746-7777 [email protected] [email protected]

OF COUNSEL: Jonathan D. Polkes Joshua S. Amsel WEIL, GOTSHAL & MANGES LLP 767 Fifth Avenue New York, New York 10153 Telephone: (212) 310-8000 Facsimile: (212) 310-8007 [email protected] [email protected] ATTORNEYS FOR DEFENDANTS WILLIS OF COLORADO, INC. AND WILLIS LIMITED.



CERTIFICATE OF SERVICE

I hereby certify that on the 2nd day of May, 2011, I electronically transmitted the foregoing document using the ECF system for filing and transmittal of a Notice of Electronic Filing to those parties registered for ECF in this case. I further certify that the foregoing document was served on all other counsel of record by United States mail.

/s/ Michelle Hartmann Michelle Hartmann


united states district court northern district of … · michelle hartmann state bar no. 24032402...

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