Thomas v. Citigroup Global Markets Holding Inc.

Background

Sean H. Thomas, representing himself, filed a complaint against Citigroup Global Markets Holdings Inc. He asserted a claim under Section 11 of the Securities Act of 1933 and sought compensatory and punitive damages. Although the complaint did not expressly plead fraud, the court said it could be read to assert a New York common-law fraud claim.

Citigroup moved to dismiss under Federal Rule of Civil Procedure 12(b)(1), arguing that Thomas lacked standing, and under Rules 8(a), 9(b), and 12(b)(6), arguing that the complaint did not adequately state a claim. Magistrate Judge Freeman recommended granting the motion and allowing Thomas to amend his complaint.

Court’s Review of the Recommendation

Neither party objected to the magistrate judge’s report and recommendation. Because there were no objections, Judge Caproni reviewed the recommendation for clear error—an obvious mistake in the record—and found none. The court therefore adopted the recommendation in part and modified it in part.

Ruling

The court granted Citigroup’s motion to dismiss. It expressed serious doubt that Thomas could allege additional facts that would save his complaint, particularly because Thomas had admitted that the prospectus supplement at issue was accurate when issued.

The court modified the recommendation concerning amendment. Thomas may not simply file an amended complaint. Instead, he may file a motion seeking permission to amend by April 22, 2022, with a proposed amended complaint attached. His supporting brief may not exceed ten double-spaced pages. Citigroup’s opposition, if any, is due May 20, 2022, and Thomas’s reply, if any, is due June 3, 2022, subject to the page limits stated in the order.

The court stated that it would grant permission to amend the federal Section 11 claim only if the proposed complaint alleges facts supporting equitable tolling of the one-year filing deadline and pleads with particularity that the registration statement contained a materially false statement or omission when it became effective. If Thomas includes a New York fraud claim, he must plead each required element with particularity. If he does not timely file the motion or does not attach a proposed amended complaint, the court will dismiss his claims with prejudice and close the case. The court also held that the lack of objections waived appellate review of the decision.