Ravi v. Citigroup Global Markets Holdings, Inc.

Background

Umashankar Ravi and Saritha Ravi proceeded without lawyers and sued Citigroup Global Markets Holdings, Inc. They sought to recover losses allegedly sustained when exchange-traded notes that they had purchased from Citigroup were redeemed. Their amended claims asserted common-law fraud and violations of the Securities Act of 1933.

Citigroup moved to dismiss the second amended complaint. Magistrate Judge Jennifer E. Willis recommended granting that motion. She concluded that the plaintiffs had not adequately alleged a material false statement because the pricing supplement disclosed that the notes’ trading prices were variable and could be influenced by unpredictable factors. That disclosure qualified statements that the notes would faithfully track an index. Judge Willis also concluded that the plaintiffs had not adequately pleaded scienter—the required state of mind for their fraud claims—under Federal Rule of Civil Procedure 9(b).

The plaintiffs objected by presenting facts they said showed that the notes tracked the index until March 2020 and then stopped doing so. The district court found that the objections did not address Judge Willis’s main reasoning about the pricing supplement or the separate scienter issue. It therefore reviewed those recommendations for clear error. The court nevertheless stated that the recommendation was correct even under the more searching review that applies to specific objections.

Court’s reasoning

The court held that the alleged misrepresentations could be identified only by selectively reading the pricing supplement. Because the supplement expressly disclosed the risk about which the plaintiffs claimed they were misled, the court concluded that the plaintiffs had not pleaded a material misrepresentation. That failure was fatal to both the common-law fraud claim and the federal securities-fraud claim. The court also found no clear error in the conclusion that the plaintiffs had failed to plead scienter.

Disposition

The court adopted Judge Willis’s Report and Recommendation in full and dismissed the second amended complaint with prejudice. It denied the plaintiffs leave to amend again, noting that they had already amended twice and had not identified additional facts that could cure the stated deficiencies. The Clerk was directed to enter judgment for Citigroup, terminate the outstanding motions, and close the case.

The court also certified under 28 U.S.C. § 1915(a)(3) that any appeal would not be taken in good faith and denied the plaintiffs fee-free appeal status. This order disposed of the case through a motion-to-dismiss ruling rather than a trial on the alleged losses.