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Perez v. Higher One Holdings, Inc.

United States District Court, D. Connecticut

September 25, 2017

BRIAN PEREZ, INDIVIDUALLY and on behalf of all others similarly situated, and ROBERT E. LEE, Plaintiffs,


          Alvin W. Thompson United States District Judge

         Lead plaintiff Brian Perez and additional plaintiff Robert E. Lee bring this class action on behalf of all persons, other than the defendants and their affiliates, who purchased Higher One Holdings, Inc. (“Higher One”) securities during the period from August 7, 2012 to August 6, 2014 (the “Class Period”). The plaintiffs allege two claims for violations of the Securities Exchange Action of 1934 (the “Exchange Act”), under Sections 10(b) and 20(a) of the Exchange Act and Rule 10b-5, 17 C.F.R. § 240.10b. The defendants, Higher One and current or former executives at and/or directors of Higher One, have moved to dismiss the plaintiffs' Second Amended Complaint. For the reasons set forth below, the defendants' motion to dismiss is being granted in part, i.e. with respect to the false statements alleged in paragraphs 89, 91 and 93 of the Second Amended Complaint.


         Defendant Higher One was co-founded in 2000 and is headquartered in New Haven, Connecticut. The company provides products and services to higher education institutions and to students. Those services include financial aid refund disbursements, educational institution performance analytics, banking services, tuition payment plans, and financial management. Its products include a line of electronic refund management and disbursement products and retail banking products, including federally insured online deposit and checking accounts (“OneAccounts”) and a debit card. Higher One provides its services and products to more than 1, 900 campuses and 13 million students across the country.

         Defendant Mark Volchek (“Volcheck”) was a co-founder of Higher One, and from June 2012 to April 2014 he served as Chief Executive Officer (“CEO”); he was a Director throughout the Class Period. Defendant Miles Lasater (“Lasater”) was a co-founder of Higher One and, during the Class Period, he served as its President, Chief Operating Officer (“COO”), and a Director. He left the COO position in May 2013 and resigned as President in January 2014. Defendant Christopher Wolf (“Wolf”) has served as Higher One's Chief Financial Officer (“CFO”) since March 2013. Defendant Jeffrey Wallace (“Wallace”) has served as Higher One's President of Finance at all relevant times. Defendant Dean Hatton (“Hatton”) was President and CEO prior to the Class Period and was a Director during most of the Class Period. Defendant Patrick McFadden (“McFadden”) served as a Director and Chairman of the Board's Audit Committee throughout the Class Period.


         When deciding a motion to dismiss under Rule 12(b)(6), the court must accept as true all factual allegations in the complaint and must draw inferences in a light most favorable to the plaintiff. Scheuer v. Rhodes, 416 U.S. 232, 236 (1974). Although a complaint “does not need detailed factual allegations, a plaintiff's obligation to provide the ‘grounds' of his ‘entitle[ment] to relief' requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do.” Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007) (citing Papasan v. Allain, 478 U.S. 265, 286 (1986) (on a motion to dismiss, courts “are not bound to accept as true a legal conclusion couched as a factual allegation”)). “Nor does a complaint suffice if it tenders naked assertions devoid of further factual enhancement.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Twombly, 550 U.S. at 557). “Factual allegations must be enough to raise a right to relief above the speculative level, on the assumption that all allegations in the complaint are true (even if doubtful in fact).” Twombly, 550 U.S. at 555 (citations omitted). However, the plaintiff must plead “only enough facts to state a claim to relief that is plausible on its face.” Id. at 570. “The function of a motion to dismiss is ‘merely to assess the legal feasibility of the complaint, not to assay the weight of the evidence which might be offered in support thereof.'” Mytych v. May Dept. Stores Co., 34 F.Supp.2d 130, 131 (D. Conn. 1999) (quoting Ryder Energy Distrib. v. Merrill Lynch Commodities, Inc., 748 F.2d 774, 779 (2d Cir. 1984)). “The issue on a motion to dismiss is not whether the plaintiff will prevail, but whether the plaintiff is entitled to offer evidence to support his claims.” United States v. Yale New Haven Hosp., 727 F.Supp. 784, 786 (D. Conn. 1990) (citing Scheuer, 416 U.S. at 232).

         In its review of a motion to dismiss for failure to state a claim, the court may consider “only the facts alleged in the pleadings, documents attached as exhibits or incorporated by reference in the pleadings and matters of which judicial notice may be taken.” Samuels v. Air Transp. Local 504, 992 F.2d 12, 15 (2d Cir. 1993). The court may consider a document if “the complaint ‘relies heavily upon its terms and effect, ' which renders the document ‘integral' to the complaint.” Chambers v. Time Warner, Inc., 282 F.3d 147, 153 (2d Cir. 2002) (quoting Int'l Audiotext Network, Inc. v. Amer. Tel. and Tel. Co., 62 F.3d 69, 72 (2d Cir. 1995)). “[A] plaintiff's reliance on the terms and effect of a document in drafting the complaint is a necessary prerequisite to the court's consideration of the document on a dismissal motion; mere notice or possession is not enough.” Id. (citing Cortec Indus., Inc. v. Sum Holding L.P., 949 F.2d 42, 47-48 (2d Cir. 1991)). The court may also consider “public disclosure documents required by law to be, and that have been, filed with the SEC.” Rothman v. Gregor, 220 F.3d 81, 88 (2d Cir. 2000).

         Federal Rule of Civil Procedure 8(a) requires that a pleading contain “a short and plain statement of the claim showing that the pleader is entitled to relief.” Fed.R.Civ.P. 8(a)(2). However, allegations of securities fraud pled under § 10(b) of the Exchange Act and Rule 10b-5 are subject to the pleading requirements of Federal Rule of Civil Procedure Rule 9(b). See Shields v. Citytrust Bancorp, Inc., 25 F.3d 1124, 1127 (2d Cir. 1994). Rule 9(b) provides: “In alleging fraud or mistake, a party must state with particularity the circumstances constituting fraud or mistake. Malice, intent, knowledge, and other conditions of a person's mind may be alleged generally.” Fed.R.Civ.P. 9(b). “[A] complaint making such allegations must ‘(1) specify the statements that the plaintiff contends were fraudulent, (2) identify the speaker, (3) state where and when the statements were made, and (4) explain why the statements were fraudulent.'” Shields, 25 F.3d at 1127-28 (quoting Mills v. Polar Molecular Corp., 12 F.3d 1170, 1175 (2d Cir. 1993)).

         Similarly, the Private Securities Litigation Reform Act of 1995 (“PSLRA”) requires that when a plaintiff claims that the defendant has made an untrue statement of a material fact or omitted a material fact necessary to make a statement not misleading, the plaintiff must “specify each statement alleged to have been misleading [and] the reason or reasons why the statement is misleading, and, if an allegation regarding the statement or omission is made on information and belief, the complaint shall state with particularity all facts on which that belief is formed.” 15 U.S.C. § 78u-4(b)(1)(2010). Furthermore, to state a claim for securities fraud, the plaintiff must “with respect to each act or omission . . . state with particularity facts giving rise to a strong inference that the defendant acted with the required state of mind.” 15 U.S.C. § 78u-4(b)(2)(2010). “The requisite state of mind in a Rule 10b-5 action is ‘an intent to deceive, manipulate or defraud.'” Ganino v. Citizens Utils. Co., 228 F.3d 154, 168 (2d Cir. 2000) (quoting Ernst & Ernst v. Hochfelder, 425 U.S. 185, 193 n. 12 (1976)).


         The Second Amended Complaint alleges false or misleading statements that the plaintiffs have recategorized as: (1) Higher One's legal compliance (“Legal Compliance Fraud”), (2) termination of the banking partner relationship between Higher One and Cole Taylor Bank (“Cole Taylor Fraud”), (3) Higher One's product transparency (“Products Transparency Fraud”), (4) changes in Higher One's practices as a result of the class action settlement (“Class Action Resolution Fraud”) and (5) false statements and omissions by Higher One in its public statements and filings announcing its financial and operating results (“Operating Results Fraud”).

         The defendants argue that the Second Amended Complaint should be dismissed because the plaintiffs have failed to plead facts that show that the defendants made any actionable statement or omission and because the plaintiffs have failed to plead with particularity facts that establish a strong inference of scienter.

         To state a claim for violation of Section 10(b) and Rule 10b-5, a plaintiff must allege “(1) a material misrepresentation or omission by the defendant; (2) scienter; (3) a connection between the misrepresentation or omission and the purchase or sale of a security; (4) reliance upon the misrepresentation or omission; (5) economic loss; and (6) loss causation.” Amgen Inc. v. Conn. Ret. Plan and Trust Funds, 133 S.Ct. 1184, 1192 (2013) (quoting Matrixx Initiatives, Inc. v. Siracusano, 563 U.S. 27, 37-38 (2011)).

         A plaintiff must allege “that the defendant[s] made a statement that was ‘misleading as to a material fact.'” Matrixx Initiatives, 563 U.S. at 38 (quoting Basic Inc. v. Levinson, 485 U.S. 224, 238 (1988)). The “materiality requirement is satisfied when there is ‘a substantial likelihood that the disclosure of the omitted fact would have been viewed by the reasonable investor as having significantly altered the “total mix” of information made available.'” Id., 563 U.S. at 38 (quoting Basic, 485 at 231-32 (2010)). “[W]hen presented with a Rule 12(b)(6) motion, ‘a complaint may not properly be dismissed . . . on the ground that the alleged misstatements or omissions are not material unless they are so obviously unimportant to a reasonable investor that reasonable minds could not differ on the question of their importance.'” Ganino v. Citizens Utils. Co., 228 F.3d 154, 162 (2d Cir. 2000) (quoting Goldman v. Belden, 754 F.2d 1059, 1067 (2d Cir. 1985)). “While each allegation of fraud must be sufficiently particularized, allegations of materiality should not be considered in isolation.” Manavazian v. Atec Grp., Inc., 160 F.Supp.2d 468, 478 (E.D.N.Y. 2001).

         “[Section] 10(b) and Rule 10b-5(b) do not create an affirmative duty to disclose any and all material information. Disclosure is required under these provisions only when necessary ‘to make . . . statements made, in the light of the circumstances under which they were made, not misleading.'” Matrixx Initiatives, 563 U.S. at 44 (quoting 17 CFR § 240.10b-5(b)).

         Courts distinguish between false or misleading statements of fact and false or misleading statements of opinion. Statements of opinion are considered false or misleading if at the time a statement was made, “the speaker did not hold the belief she professed” or “the supporting fact[s] she supplied were untrue.” Omnicare, Inc. v. Laborers Dist. Council Constr. Indus. Pension Fund, 135 S.Ct. 1318, 1327 (2015). The plaintiff

must identify particular (and material) facts going to the basis for the issuer's opinion--facts about the inquiry the issuer did or did not conduct or the knowledge it did or did not have--whose omission makes the opinion statement at issue misleading to a ...

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