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State v. Moody's Investors Service, Inc.

Supreme Court of Wyoming

May 11, 2015

THE STATE OF WYOMING, by and through the State Treasurer of Wyoming and the State of Wyoming Retirement System, Appellant (Plaintiff),
v.
MOODY'S INVESTORS SERVICE, INC., MCGRAW-HILL COMPANIES, INC., and STANDARD & POOR'S FINANCIAL SERVICES, LLC, Appellees (Defendants)

Appeal from the District Court of Laramie County. The Honorable Thomas T.C. Campbell, Judge.

For Appellant: David P. Hersh, Special Assistant Attorney General, Burg, Simpson, Eldredge, Hersh & Jardine, P.C., Englewood, Colorado; William L. Simpson, Special Assistant Attorney General, and Larry B. Jones, Special Assistant Attorney General, Burg, Simpson, Eldredge, Hersh & Jardine, P.C., Cody, Wyoming. Argument by Mr. Hersh.

For Appellees: Floyd Abrams, Susan Buckley, and Peter J. Linken, Cahill, Gordon & Reindel, LLP, New York, New York; James J. Coster, Joshua M. Rubins, and Glenn C. Edwards, Satterlee, Stephens, Burke & Burke, LLP, New York, New York; Patrick R. Day and Isaac N. Sutphin, Holland & Hart, LLP, Cheyenne, Wyoming; Ryan J. Schwartz, Williams, Porter, Day & Neville, P.C., Casper, Wyoming. Argument by Mr. Day.

Before BURKE, C.J., and HILL, KITE, and FOX, JJ., and RUMPKE, D.J.

OPINION

Page 980

RUMPKE, District Judge.

[¶1] The State of Wyoming appeals the district court's decision granting Appellees Moody's Investors Service, Inc., McGraw-Hill Companies, Inc., and Standard & Poor's Financial Services, LLC's (hereinafter the " Rating Agencies" ) motion to dismiss for lack of personal jurisdiction. [1] Finding no error, we affirm the district court's decision.

ISSUES

[¶2] Appellant presents two issues on appeal, stated as follows:

1. Whether the district court committed error as a matter of law in granting Defendants' motions to dismiss, because

Page 981

the court failed to analyze and apply properly the " causing important consequences" test as explained in Application of Black Diamond Energy Partners 2001-Black Diamond Energy Partners 2001-A Ltd. v. S& T Bank, 2012 WY 84, ¶ 17, 278 P.3d 738, 742 (Wyo. 2012) (" Black Diamond" ).
2. Whether the district court committed error as a matter of law by granting Defendants' motions to dismiss the Plaintiff's claim that Defendants violated the Wyoming state securities statute, Wyo. Stat. Ann. § 17-4-101, et seq.

Appellees present a single issue on appeal:

Whether the district court properly dismissed the claims against Defendants-Appellees The McGraw-Hill Companies, Inc., Standard & Poor's Financial Services LLC, and Moody's Investors Service, Inc. (collectively the " Rating Agencies" ), pursuant to Wyo. R. Civ. P. 12(b)(2), on the grounds that Plaintiff-Appellant State of Wyoming failed to establish a prima facie case of personal jurisdiction over the Rating Agencies.

We conclude this appeal presents only one issue, which the Court restates as follows: Did the district court err in dismissing the State's claims against the Rating Agencies for lack of personal jurisdiction?

FACTS

[¶3] The facts are largely undisputed. Instead, the parties dispute which facts are relevant to the personal jurisdiction determination and the legal import of those relevant facts. The following facts are undisputed and relevant to the court's personal jurisdiction inquiry.

[¶4] On July 7, 2011, Appellant State of Wyoming, by and through the State Treasurer of Wyoming and the State of Wyoming Retirement System (hereinafter the " State" ) filed this action in Laramie County against Appellees, the Rating Agencies, and Fitch, Inc.[2] The State alleged that the Rating Agencies were liable for hundreds of millions of dollars in investment losses on mortgage-backed securities during the 2007-2008 financial crisis. Specifically, the State alleged that it pursued certain investments relying on the Rating Agencies' fraudulent ratings of the securities as safe, " investment grade" securities. The complaint presented eight separate claims for relief against the Rating Agencies: fraud, fraudulent concealment, negligence or reckless conduct, negligent misrepresentation, civil conspiracy, unjust enrichment, violation of the Wyoming Securities Act, and aiding and abetting in violation of the Wyoming Securities Act. On October 24, 2011, the State filed an amended complaint wherein it set forth the same eight claims separately against each of the three Rating Agencies.

[¶5] Moody's is a Nationally Recognized Statistical Rating Organization (NRSRO), which publishes credit ratings on all manner of debt. Moody's is a Delaware corporation and maintains an office and its principal place of business in New York City, New York. At the time the State filed its complaint, McGraw-Hill was an information services provider serving the financial services, education, and business information markets. Before November 2010, McGraw-Hill had three principal divisions: Education, Information & Media, and Financial Services. McGraw-Hill's Financial Services division, operating under the " S& P" brand, provided independent credit ratings, indices, risk evaluation, investment research and data. McGraw-Hill is a New York corporation. Its wholly owned subsidiary, S& P, is a Delaware corporation. Both McGraw-Hill and S& P have their principal places of business in New York. The analysts who provided the ratings for securities purchased by the State were based in New York and Illinois.

[¶6] There are no allegations in the Amended Complaint that the Rating Agencies had a physical presence in Wyoming. Likewise, there are no allegations in the Amended Complaint that any of the Rating Agencies sold the Asset Backed Securities (ABS), Residential Mortgage Backed Securities (RMBS), and Collateralized Debt Obligations

Page 982

(CDO) securities to the State. Instead, the securities were " created, marketed, and sold" by various investment institutions. The Rating Agencies were paid by the issuers of the securities who actually sold the securities to the State. The Rating Agencies' fees were contingent on the independent actions of third-parties, namely the investment banks that sold the securities to the State. The gravamen of the Amended Complaint is that the Rating Agencies provided ...


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