Arnold & Porter LLP Obtains Summary Judgment and Vindication for Major Securities Services Provider
Arnold & Porter recently obtained a favorable summary judgment decision on behalf of firm clients J.P. Morgan Securities Corp. and J.P. Morgan Clearing Corp. in a case in which plaintiffs alleged predecessors Bear, Stearns Securities Corp. and Bear, Stearns & Co. were responsible for failing to disclose the wrongful activities of Sterling Foster & Co., Inc., a now defunct broker dealer that cleared trades through Bear, Stearns Securities Corp.
On March 24, 2014, United States District Judge Arthur D. Spatt granted J.P. Morgan’s motion for summary judgment in Levitt v. J.P. Morgan Securities, et al., finding that plaintiffs’ Section 10(b) claims were properly read as allegations that Bear Stearns omitted information about Sterling Foster’s activities from their trade confirmations. Because clearing brokers do not owe duties of disclosure to customers of broker dealers that utilize their clearing services, plaintiffs could not establish an omissions claim under Section 10(b). In addition, the Court found that plaintiffs had failed to establish reliance.
The firm had previously obtained a 2013 Second Circuit decision vacating the District Court’s 2010 class certification order on the grounds that the plaintiffs’ allegations regarding Bear Stearns’ conduct did not establish that Bear Stearns went beyond normal clearing broker activities and in any way instigated or directed Sterling Foster’s wrongful trading activity. The District Court applied the Second Circuit’s analysis in granting JP Morgan’s summary judgment motion on Plaintiffs’ common law claim, finding that plaintiffs could not demonstrate Bear Stearns substantially assisted Sterling Foster’s wrongful conduct.