The opinion of the court was delivered by: Rufe, J.
MEMORANDUM OPINION & ORDER
Plaintiffs bring this securities class action on behalf of a putative class of individuals who purchased Advanta Corporation ("Advanta") RediReserve notes between February 29, 2008, and November 28, 2009. These notes were the subject of Registration Statements Advanta filed with the Securities Exchange Commission ("SEC"). *fn1 This is Plaintiffs' Second Amended Complaint. By Memorandum Opinion and Order dated September 9, 2011, the Court dismissed certain claims set forth in Plaintiffs' First Amended Complaint and allowed Plaintiffs to file an amended pleading. In their Second Amended Complaint, Plaintiffs allege that the officers and directors of Advanta ("the Advanta Defendants") *fn2 signed Registration Statements containing material misstatements and omissions in order to sell $500 million worth of RediReserve notes, in violation of Sections 11, 12(a)(2), and 15 of the Securities Exchange Act of 1933. *fn3 The Second Amended Complaint also alleges that KPMG LLP ("KPMG"), the accounting and auditing firm which reviewed the accuracy of and certified Advanta's financial statements, is liable for certifying the false or misleading contents of the Registration Statements. *fn4
Both the Advanta Defendants and KPMG move under Federal Rule of Civil Procedure 12(b)(6) to dismiss all counts of the Second Amended Complaint. For the reasons set forth below, both motions are denied.
Advanta was an issuer
of credit cards to small businesses. *fn6 On
August 18, 2006, Advanta
filed a "shelf" Registration Statement and prospectus with the
SEC, indicating Advanta's intent to offer $500 million worth of
unsecured debt securities called RediReserve notes. *fn7
The initial Registration Statement was amended once in
2008, and twice in 2009. The Registration Statements
assured investors that Advanta was a prudent company in "very
strong" financial condition. *fn8
Advanta's notes were marketed to individual rather than institutional investors, primarily through newspaper advertisements. *fn9
The Second Amended Complaint alleges that the Registration Statements contained several misstatements or omissions of material fact. First, Plaintiffs allege that the Advanta Defendants falsely asserted that they were in compliance with capital adequacy requirements. *fn10 Second, Plaintiffs allege that the Advanta Defendants did not follow their own disclosed method for calculating the adequacy of the loan loss reserve, by failing to adjust for changes in customer behavior driven by repricing and/or the economic downturn; therefore investors were misled regarding the adequacy of Advanta's loan loss reserve and net income. *fn11 Plaintiffs also allege that Advanta's accounting firm, KPMG, improperly certified that the loan loss reserve calculations accurately reflected Advanta's financial health, ignoring significant adverse credit data in violation of general auditing standards. Finally, Plaintiffs allege that the Advanta Defendants violated their duty to disclose material trends as required by 17 C.F.R. § 229.303 (a)(3)(ii) ("Item 303"), by failing to disclose the fact that Advanta had repriced 68% of its credit card portfolio without regard to the customers' credit histories, causing a significant increase in payment delinquencies. *fn12
In reviewing a Rule 12(b)(6) motion to dismiss for failure to
state a claim upon which relief may be granted, the Court must accept
a plaintiff's factual allegations as true and construe the complaint
in the light most favorable to the plaintiff. *fn13
Courts are not, however, bound to accept as true legal
conclusions couched as factual allegations, *fn14
or "accept as true unsupported conclusions and
unwarranted inferences." *fn15 The Complaint
must set forth "direct or inferential allegations [for] all the
material elements necessary to sustain recovery under some viable
legal theory." *fn16 And it must allege
"enough facts to state a claim to relief that is plausible on its
face." *fn17 "The plausibility standard is
not akin to a 'probability requirement,' but it asks for more than a
mere possibility that a defendant has acted unlawfully."
A. Absence of Genuine Case and Controversy The Advanta Defendants first argue that there is no genuine case and controversy before this Court, as Plaintiffs lack Article III standing and the case is not ripe for review. The Court disagrees.
The Advanta Defendants argue that Plaintiffs lack Article III standing because they have not yet suffered an injury in fact. The Advanta Defendants explain that Plaintiffs may yet recover 100% of their losses through Advanta's Chapter 11 bankruptcy, as the Disclosure Statement approved by the Bankruptcy Court indicates that Plaintiffs and other holders of Retail Notes should recover between 64.4% and 100% under the terms of the reorganization plan. This argument is not persuasive. Plaintiffs have alleged an injury in fact, which occurred when Advanta went into bankruptcy, over two years ago, with approximately $140 million in unpaid RediReserve notes outstanding. The injury alleged is neither speculative nor theoretical. *fn19 The mere possibility that Advanta may compensate Plaintiffs for this injury through the bankruptcy process does not deny Plaintiffs standing to sue the Advanta Defendants in this Court for the same injury. Were Advanta a co-defendant to this litigation, this Court would not dismiss the claims against the Advanta Defendants simply because Plaintiffs might, at some future date, obtain a judgment covering 100% of their losses from Advanta. As Plaintiffs have otherwise adequately pled grounds for holding the Advanta Defendants liable for a genuine injury, Defendants' speculation that Plaintiffs may receive partial or full relief from another party in another court at some point in the future does not impair their standing to sue in this Court at this point in time.
The Advanta Defendants also argue that the controversy is not ripe
for judicial review, as Plaintiffs may recover all of their alleged
losses through Avanta's bankruptcy process. "The function of the
ripeness doctrine is to determine whether a party has brought an
action prematurely. . . ." *fn20 The Court
must examine whether "the parties [are] in a sufficiently adversarial
posture to be able to defend their positions vigorously[,]" whether
the facts of the case can be sufficiently
developed so that the Court can decide liability conclusively, and
whether a party has genuinely been injured. *fn21
Here, the Court finds that the parties are in an
adversarial posture, the case involves the analysis of past
Registration Statements, which will allow the Court to decide
liability conclusively, and Plaintiffs have alleged a genuine injury.
While their recovery from Advanta through the bankruptcy process might
ultimately affect the Court's calculation of damages, the pending
bankruptcy reorganization does not affect the ripeness of the
controversy. Accordingly, the Court finds this dispute is
"sufficiently concrete to satisfy the constitutional and prudential
requirements of the [ripeness] doctrine." *fn22
Finally, the Advanta Defendants ask this Court to exercise its discretion to stay this litigation until the bankruptcy distributions are completed. However, they provide the Court with no information regarding the time frame for the distributions. ...