Sixth Circuit Affirms Dismissal of Claims Against Credit Rating Agencies

On December 3, the United States Court of Appeals for the Sixth Circuit affirmed a decision by Judge James K. Graham of the Southern District of Ohio dismissing, with prejudice, claims against three credit-rating agencies – Standard and Poor’s Financial Services LLC, Moody’s Investors Service, Inc. and Fitch, Inc. (the “agencies”) – relating to $457 million in alleged losses on RMBS purchased by the plaintiff pension and retirement funds.  The plaintiffs brought claims for alleged violations of Ohio Blue Sky Laws and for negligent misrepresentation in connection with the allegedly fraudulent sale of 308 RMBS between 2005 and 2008.  The Sixth Circuit adopted each the District Court’s holdings in affirming its decision.  First, it held that the agencies could not be sued under the Ohio securities laws because they did not receive profits accruing from the sale of securities.  The court found that the agencies’ fees were fixed costs paid for work performed and were not contingent on the sale of the securities or variable depending on the securities’ performance.  The fact that the agencies were paid out of proceeds of the sale did not mean that they received profits accruing from the sale.  Second, the court held that the plaintiffs’ complaint failed to allege, even in conclusory terms, any underlying securities fraud for which the agencies could be held liable as aiders and abettors.  Third, the court held that the plaintiffs failed to allege any affirmative misrepresentation by the agencies.  Finally, the court rejected the plaintiffs’ negligent misrepresentation claim because (1) plaintiffs did not adequately allege any duty owed by the Agencies, and (2) the credit ratings for the RMBS were not actionable misrepresentations.  Opinion.