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  • New Jersey District Court Dismisses Putative Securities Fraud Class Action For Failure To Plead Scienter
     
    02/12/2019

    On January 31, 2019, Judge Madeline Cox Arleo of the United States District Court for the District of New Jersey granted with leave to amend defendants’ motion to dismiss a putative securities fraud class action against a digital printing company (the “Company”) and two of its officers.  In Re:  Electronics For Imaging, Inc. Securities Litigation, No. 17-5592 (D. N.J. Jan. 31, 2019).  Plaintiffs alleged that defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder by intentionally misrepresenting the adequacy of the Company’s internal controls.  The Court disagreed, finding that because the complaint did not allege facts sufficient to show that the deficiencies were “‘so obvious’ that defendants must have known about them . . . , or allegations that defendants ignored ‘red flags,’” it failed to plead scienter.
    CATEGORY: Scienter
  • Seventh Circuit Affirms Dismissal Of Putative Securities Class Action, Holding SLUSA’s “Covered Class Action” Definition Includes Any Class Action Brought On A Representative Basis Regardless Of Proposed Class Size
     
    01/29/2019

    On January 24, 2019, the United States Court of Appeals for the Seventh Circuit affirmed the dismissal of a putative securities class action against several investment advisory and financial services firms for allegedly mismanaging the accounts of the putative class plaintiffs and failing to act in their best interests.  Susan Nielen-Thomas v. Concorde Investment Services LLC, et al., No. 18-cv-00229 (7th Cir. Jan. 24, 2019).  Plaintiff brought claims under Wisconsin and Nebraska securities laws, common law claims under Wisconsin and Nebraska law for breach of contract, fraud, fraudulent misrepresentation, negligence, failure to supervise, and breach of fiduciary duty, and a claim for breach of the Securities Act of 1933 that the district court dismissed with prejudice for failure to state a claim that plaintiff did not appeal.  Defendants removed the case to federal court pursuant to the Securities Litigation Uniform Standards Act of 1998 (“SLUSA”), and thereafter moved to dismiss the state law claims on the basis that the suit constituted a “covered class action” that was precluded by SLUSA.  Plaintiff, in moving to remand and in opposing the motion to dismiss, argued that the case is not governed by SLUSA because the proposed class action contained fewer than fifty members and therefore could not be a covered class action as defined by SLUSA.  Chief District Judge James D. Peterson of the United States District Court for the Western District of Wisconsin agreed with defendants, finding that the suit was a covered class action, denying plaintiff’s motion to remand, and dismissing plaintiff’s state law claims with prejudice.  Plaintiff appealed and the Seventh Circuit affirmed.
    CATEGORY: SLUSA
  • California District Court Dismisses Exchange Act Claims Based On The PSLRA Safe Harbor For Forward Looking Statements
     
    01/23/2019

    On December 13, 2018, Judge Manuel L. Real of the United States District Court for the Central District of California granted defendants’ motion to dismiss plaintiffs’ first amended complaint asserting claims for violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the “Exchange Act”).  Steamfitters Local 449 Pension Plan v. Molina Healthcare, Inc., No. CV 18-3579-R, 2018 WL 6787349, at *1 (C.D. Cal. Dec. 13, 2018).  Defendants are a company that provides managed health care services (“the Company”) and certain of its senior executives.  Plaintiffs alleged that defendants repeatedly claimed that their existing administrative infrastructure was scalable and could handle an increase in business generated from its entry into the Affordable Care Act (“ACA”) marketplace, even though they allegedly knew that this statement was not true.  The Court dismissed the action, holding that the alleged misstatements were protected as a matter of law by the Private Securities Litigation Reform Act’s (“PSLRA”) safe harbor for forward-looking statements.
  • Supreme Court Argument On Third-party Counterclaim Defendant Removal
     
    01/23/2019

    On January 15, 2019, the Supreme Court heard argument on an appeal from a unanimous decision of the U.S. Court of Appeals for the Fourth Circuit holding that a third-party defendant against whom class action counter-claims are asserted in state court is not a “defendant” for purposes of the general removal statute, 28 U.S.C. § 1441 (“Section 1441”) or the Class Action Fairness Act, 28 U.S.C. § 1453 (“CAFA”).  The third-party defendant to the class action counterclaims therefore could not rely on those statutes to remove the case.  Home Depot U.S.A., Inc., v. Jackson, No. 17-1471.
    CATEGORIES: JurisdictionClass Actions
  • Supreme Court Rules That Agreements Delegating Arbitrability Determinations To Arbitrators Must Be Enforced As Written And Are Not Subject To A “Wholly Groundless” Exception
     
    01/15/2019

    On January 8, 2019, in a unanimous opinion authored by Justice Kavanaugh, the United States Supreme Court held that courts must enforce as written arbitration agreements that require the “gateway” question of arbitrability to be decided through arbitration.  In so doing, the Court reversed a decision of the United States Court of Appeals for the Fifth Circuit which had held (as had other Courts of Appeals) that, when a motion to compel arbitration is “wholly groundless,” the court may resolve whether the dispute is properly subject to arbitration — even if the parties’ agreement requires that such determinations shall be made by the arbitrator.  Henry Schein, Inc., v. Archer & White Sales, Inc., —U.S.—, 2019 WL 122164 (2019).
    CATEGORY: Jurisdiction
  • Supreme Court Seeks Solicitor General’s Input On Granting Certiorari For Case Raising The Question Of Whether A Non-U.S. Corporate Issuer With No Involvement In Establishing Or Selling ADRs Can Be Subject To Section 10(b) As Long As Plaintiff’s Alleged Securities Transaction Was “Domestic”
     
    01/15/2019


    On January 14, 2019, the United States Supreme Court invited the Solicitor General to file a brief expressing the views of the United States in connection with a pending petition for writ of certiorari regarding whether, in determining if Section 10(b) of the Securities Exchange Act of 1934 (the “Exchange Act”) may apply to a securities transaction—including one involving American Depositary Receipts (“ADRs”) which are not sponsored by the foreign issuer and are traded on over-the-counter markets—it is sufficient to show that the transaction itself was domestic.  Toshiba Corp. v. Auto. Indus. Pension Trust Fund, et al., No. 16-56058 (Jan. 14, 2019).  Under the Ninth Circuit decision for which review is being sought, a foreign issuer that has no involvement in establishing or selling the ADRs can be subject to Section 10(b) as long as the plaintiff purchased or sold the ADRs in a domestic transaction.  As noted by the defendant and various amici in support of the petition for certiorari, the Ninth Circuit’s holding significantly extends the extraterritorial application of Section 10(b) to non-U.S. companies which have not elected to avail themselves of the U.S. capital markets.
     

    CATEGORIES: Exchange ActJurisdiction
  • Supreme Court Will Hear Case Raising Whether A Private Action May Be Brought For Alleged Misrepresentations In Connection With A Tender Offer Under Section 14(e) Of The Exchange Act, Based Only On A Showing Of Negligence, Not Scienter
     
    01/08/2019

    On January 4, 2019, the United States Supreme Court granted a petition for writ of certiorari concerning whether Section 14(e) of the Securities Exchange Act of 1934 includes an implied private right of action for negligent misrepresentation or omission made in connection with a tender offer.  Emulex Corporation, et al. v. Varjabedian, No. 18-459 (Jan. 4, 2019). 
    CATEGORY: Scienter
  • Third Circuit Affirms In Part And Vacates In Part Dismissal Of Putative Securities Class Action Resulting From Merger, Finding Sufficient Certain Allegations That Bank Failed To Adequately Disclose Non-Compliant Practices In Proxy Materials
     
    01/08/2019

    On December 26, 2018, the United States Court of Appeals for the Third Circuit affirmed in part and vacated in part the dismissal of a putative securities class action against M&T Bank Corporation (the “Company”) and certain of its officers and directors.  Jaroslawicz v. M&T Bank Corp., et al., No. 17-3695 (3d Cir. Dec. 26, 2018).  Plaintiffs alleged that defendants violated Section 14(a) of the Securities Exchange Act of 1934 (the “Exchange Act”) and SEC Rule 14a-9 by making misleading omissions in joint proxy statement materials (“Joint Proxy”) leading up to the merger of the Company with another consumer bank.  The alleged omissions concerned two non-compliant practices: “(1) M&T’s having advertised no-fee checking accounts but later switching those accounts to fee-based accounts (the ‘consumer violations’); and (2) deficiencies in M&T’s Bank Secrecy Act/anti-money laundering compliance program, particularly its ‘Know Your Customer’ program (the ‘BSA/AML deficiencies’).”  The United States District Court for the District of Delaware dismissed plaintiffs’ first and second amended complaints for failing to plausibly allege an actionable omission.  Plaintiffs appealed to the Third Circuit.
  • District Of New Jersey Denies Motion To Dismiss Class Action Against Blockchain-Based Company, Finding That Plaintiff Adequately Pled Defendants’ Initial Coin Offering Constituted The Offer And Sale Of Unregistered Securities
     
    12/18/2018

    On December 10, 2018, Judge Susan D. Wigenton of the United States District Court for the District of New Jersey denied defendants’ motion to dismiss a putative class action asserting violations of Sections 12(a)(1) and 15 of the Securities Act of 1933 (the “Securities Act”).  Solis v. Latium Network, Inc., et al., No. 18-10255 (D. N.J. Dec. 10, 2018).  Plaintiff alleged that the defendants, a blockchain-based tasking platform (the “Company”) and its co-founders and officers, sold over $17 million in cryptocurrency tokens in an initial coin offering (“ICO”) without registering the tokens.  The Court held that plaintiff sufficiently alleged that the Company’s tokens were securities that should have been registered under the Securities Act prior to the ICO.
    CATEGORY: Control Person
  • Eastern District Of Pennsylvania Denies In Part And Grants In Part Motion To Dismiss Stock Drop Suit, Finding Plaintiffs Adequately Pled Global Pharmaceutical Company Misrepresented The Safety Of Its Opioid
     
    12/18/2018

    On December 10, 2018, Judge Timothy J. Savage of the United States District Court for the Eastern District of Pennsylvania denied in large part defendants’ motion to dismiss a putative class action asserting violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the “Exchange Act”) and Sections 11 and 20 of the Securities Act of 1933 (the “Securities Act”).  SEB Inv. Mgmt. AB v. Endo Int’l, PLC, No. 17-cv-03711 (E.D. Pa. Dec. 10, 2018).  The Court held that plaintiffs adequately pled that the corporate defendant, a global pharmaceutical company (the “Company”), and five of the ten officers against whom plaintiffs asserted Exchange Act claims (collectively, the “Exchange Act Defendants”), misrepresented and omitted material facts regarding the abuse-deterrent properties of the opioid pills manufactured by the Company, such that plaintiffs could maintain an action under Section 10(b).  Furthermore, the Court concluded that plaintiffs also adequately alleged Securities Act claims against the Company and nine of its officers (the “Securities Act Defendants”) on largely similar grounds.
  • Massachusetts District Court Dismisses Putative Class Action For Failure To Adequately Allege Material Misstatements And Scienter
     
    12/11/2018

    On December 6, 2018, Chief Judge Patti Saris of the United States District Court for the District of Massachusetts dismissed a putative class action asserting claims under the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder against the early-stage biopharmaceutical company Genocea Biosciences, Inc. and certain of its officers and directors. Emerson v. Genocea Biosciences, Inc., No. 17-12137-PBS (D. Mass. Dec. 6, 2018). Plaintiffs alleged that Genocea omitted to disclose to investors certain six-month post-dosing clinical trial test results because it knew the results to be negative, thereby causing class members to purchase Genocea stock at an inflated price. The Court dismissed the action, holding that the alleged omissions were not material and that other disclosures weighed against finding the required strong inference of scienter.
  • Supreme Court Hears Argument On “Scheme Liability” Under Section 10(b) And Rule 10b-5
     
    12/05/2018

    On December 3, 2018, the Supreme Court heard argument on an appeal in a case where a divided panel of the D.C. Circuit held that a defendant who did not “make” a misstatement within the meaning of Janus Capital Group v. First Derivative Traders, 564 U.S. 135, 142 (2011), nonetheless could be liable for participating in a “scheme” to defraud under Section 10(b) of the Exchange Act, SEC Rule 10-b5 promulgated thereunder, and Section 17(a) of the Securities Act, by disseminating with fraudulent intent a misstatement made by someone else.  See Lorenzo v. S.E.C., No. 17-1077. 
  • Southern District Of New York Denies Motion To Dismiss Putative Securities Class Action Against Diamond Jewelry Retailer, Finding Sufficient Allegations Of False Misstatements Regarding Credit Portfolio And Sexual Harassment Litigation
     
    12/05/2018

    On November 26, 2018, Judge Colleen McMahon of the United States District Court for the Southern District of New York denied a motion to dismiss a putative securities class action against Signet Jewelers Limited (the “Company”) and certain of its officers and directors.  In re Signet Jewelers Limited Sec. Litig., No. 16-cv-6728 (S.D.N.Y. Nov. 26, 2018).  Plaintiffs—purchasers of the Company’s shares between August 2013 and March 2018—claimed that defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 by making materially false and misleading statements relating to (1) the health and management of the Company’s credit portfolio and (2) the Company’s corporate culture of “pervasive” sexual harassment, leading to a sharp drop in the Company’s share price when the truth allegedly was revealed.  The Court held that plaintiffs adequately alleged false and misleading statements, scienter and loss causation, and denied defendants’ motion to dismiss.
  • Northern District Of California Grants In Part And Denies In Part Motion To Dismiss Class Action Against Online Platform Devoted To Reviews Of Businesses, Finding Certain Statements Regarding Company’s Advertising Program Inactionable Under PSLRA
     
    12/05/2018

    On November 27, 2018, Judge Edward M. Chen of the United States District Court for the Northern District of California granted in part and denied in part a motion to dismiss a putative securities class action against Yelp, Inc. (the “Company”) and several of its senior officers.  Azar v. Yelp, Inc., No. 18-cv-00400 (N.D. Cal. Nov. 27, 2018).  Plaintiffs—purchasers of Company stock between February 10, 2017 and May 9, 2017—alleged that defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 by making materially false and misleading statements regarding the Company’s expected revenues in relation to its advertising program with local businesses, leading to a drop in the Company’s stock price when the Company subsequently made downward adjustments to its projections in May 2017.  The Court held that while certain of the Company’s statements were protected by safe harbor provisions of the Private Securities Litigation Reform Act of 1995 (“PSLRA”), other alleged statements were actionable misrepresentations.  The Court also held that plaintiffs adequately pleaded scienter and loss causation.  The Court thus granted in part and denied in part defendants’ motion to dismiss.
  • California State Court Stays Putative Class Action Based On Forum Selection Clause
     
    11/27/2018

    On September 5, 2018, Judge Marie Weiner of California Superior Court, San Mateo County, granted defendants’ motion to stay a putative class action on grounds of forum non conveniens in order for plaintiff to pursue the action in New York.  Plaintiff asserted claims under Sections 11, 12(a)(2), and 15 of the Securities Act of 1933 (the “Securities Act”) against an early childhood education service provider in the People’s Republic of China (the “Company”), several of its officers and directors, and the underwriters based on the Company’s initial public offering of American Depository Shares (“ADSs”).  Relying largely on a mandatory forum selection clause contained in a deposit agreement that set the terms for the deposit of the non-U.S. securities so that they could be traded on the New York Stock Exchange as ADS, the Court held New York was a more convenient forum and stayed the action in California
    CATEGORY: Jurisdiction
  • Second Circuit Summarily Affirms Grant Of Summary Judgment In Section 11 Securities Class Action, Finding That Defendants-Appellees Established Negative Causation As A Matter Of Law
     
    11/27/2018

    On November 19, 2018, the United States Court of Appeals for the Second Circuit summarily affirmed the grant of summary judgment in a securities class action in favor of a financial institution (the “Company”), several of its officer and directors, and the underwriters of the Company’s April 2008 offering.  In re Barclays Bank PLC Sec. Litig., No. 17-3293-CV, 2018 WL 6040846 (2d Cir. Nov. 19, 2018), as amended (Nov. 20, 2018).  Plaintiff, on behalf of purchasers of the Company’s April 8, 2008 Series 5 offering of American Depository Shares (“ADS”), alleged that those securities were issued pursuant to materially false and misleading offering materials, and brought claims against a group of defendants under Sections 11 and 15 of the Securities Act of 1933 (“Securities Act”).  Judge Paul A. Crotty of the United States District Court for the Southern District of New York granted summary judgment in favor of defendants-appellees, finding that (i) the Company had no duty to disclose the allegedly omitted information and (ii) the Company established its negative causation affirmative defense—i.e., that the alleged omissions did not cause plaintiff’s losses.  Plaintiff appealed and the Second Circuit affirmed in a summary order.   Summary orders do not have binding precedential effect.
  • Third Circuit Affirms Dismissal Of Putative Class Action Without Leave To Amend
     
    11/20/2018

    On November 14, 2018, the United States Court of Appeals for the Third Circuit affirmed the dismissal of and denial of leave to amend a putative class action complaint against Altisource Asset Management Corporation (“AAMC”) and certain of its former directors and officers under Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. Plaintiffs alleged that AAMC — a provider of asset management and corporate governance advising services related to mortgage servicing — made material misstatements concerning its relationships with the mortgage servicing company Ocwen Financial Corporation (“Ocwen”) and certain affiliated companies. City of Cambridge Ret. Sys. v. Altisource Asset Mgmt. Corp., —F. Supp. 3d—, 2018 WL 5931509 (3d Cir. Nov. 14, 2018). The appealed order was a July 5, 2017 decision of the District Court of the Virgin Islands that rejected plaintiffs’ motion to amend for the reasons noted in the District Court’s April 6, 2017 motion to dismiss decision, as reviewed in our prior post.
  • Second Circuit Affirms Dismissal Of Securities Fraud Claims With Prejudice For Failure To Plead Reliance
     
    11/06/2018

    On October 26, 2018, the United States Court of Appeals for the Second Circuit affirmed the dismissal of a putative securities class action under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 against a financial services company, its broker-dealer (the “Company”), and one current and one former officer of the financial services company. Schwab v. E*TRADE Fin. Corp. et al, 1:18-cv-461 (2d Cir. Oct. 26, 2018). Plaintiff alleged that the Company failed to disclose that it was purportedly violating the duty of “best execution,” which requires broker-dealers to use “reasonable diligence” to obtain the most favorable price for a customer under “prevailing market conditions.” Earlier this year, the United States District Court for the Southern District of New York dismissed plaintiff’s third amended complaint with prejudice after finding that plaintiff had failed to adequately allege reliance, among other elements. The Second Circuit affirmed the judgment, reiterating that the Affiliated Ute presumption of reliance does not apply where the claim is primarily based on misrepresentations rather than on omissions.
    CATEGORY: Reliance
  • Putative Securities Class Action Dismissed Against Biopharmaceutical Company Where Statements Regarding Clinical Trials Were Not Actionable And Plaintiffs Failed To Plead Scienter
     
    11/06/2018

    On October 26, 2018, Judge Thomas D. Schroeder of the United States District Court for the Middle District of North Carolina dismissed a putative class action brought against a biopharmaceutical company (the “Company”) and certain of its officers and directors under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. Hirtenstein v. Cempra, Inc., No. 16-cv-1303 (M.D.N.C. Oct. 26, 2018). Plaintiffs sought to recover for alleged stock losses occurring after the Company allegedly failed to disclose risks associated with an experimental antibiotic used to treat pneumonia. The Court dismissed the action, finding that the challenged statements about the drug’s safety constituted opinions and plaintiffs’ allegations of motive were insufficient to establish a strong inference of scienter.
  • Middle District Of Pennsylvania Dismisses Putative Class Action Based On Lead Plaintiff’s Loss Of Standing

     
    10/31/2018

    On October 24, 2018, Judge John E. Jones III of the United States District Court for the Middle District of Pennsylvania granted judgment on the pleadings and dismissed a putative securities class action against Rite Aid Corporation, Walgreens Boots Alliance, Inc., and certain of their executives under Section 10(b) of the Exchange Act and Rule 10b-5 promulgated thereunder relating to the ultimately unsuccessful merger between the two companies. Hering v. Walgreens Boots Alliance, Inc., —F. Supp. 3d—, 2018 WL 5276189 (M.D. Pa. 2018). This decision follows from a decision issued earlier this summer and reviewed in a prior post. In that earlier decision, Judge Jones dismissed claims with respect to Rite Aid’s statements and held that only Walgreens’ statements made after October 2016 were actionable. In its most recent decision, the Court held that, since the named plaintiff’s last alleged stock purchase predated October 2016, he no longer had standing. Further, the Court denied a motion to intervene filed by putative class members, but noted that the proposed intervenors were free to file their own actions.
    CATEGORY: Standing
  • Southern District Of New York Dismisses Putative Securities Class Action Against Electronics Manufacturer, Finding That The Alleged Misstatements Are Protected By The PSLRA’s Safe Harbor
     
    10/23/2018

    On October 10, 2018, Judge Paul G. Gardephe of the United States District Court for the Southern District of New York issued a memorandum opinion and order setting forth the reasoning for his September 30, 2018, dismissal of a putative securities class action against SuperCom Inc. (the “Company”), an Israeli manufacturer of electronic identification and location tracking products, and certain of its officers and directors.  In re SuperCom Inc. Sec. Litig., No. 20-cv-9650 (S.D.N.Y. Oct. 10, 2018).  Plaintiffs—purchasers of the Company’s common stock during a ten-month putative class period—alleged violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (“Exchange Act”) as a result of defendants allegedly making materially false and misleading statements regarding the Company’s revenue and earnings projections for 2015, which plaintiffs allege led to a 40% decline in the Company’s stock price when the Company subsequently announced lower-than-expected financial results.  The Court disagreed, finding that the alleged misstatements are protected by the Private Securities Litigation Reform Act of 1995 ( “PSLRA”) safe harbor because plaintiffs either failed to adequately allege material misstatements or failed to adequately allege the requisite scienter necessary to support their claims.
  • Exchange Act Claims Dismissed Against Solar Energy Company For Plaintiffs’ Failure To Allege Falsity Of Optimistic Projections Or Scienter
     
    10/16/2018

    On October 9, 2018, Judge Richard Seeborg of the United States District Court for the Northern District of California dismissed with prejudice a putative class action against a solar energy company (the “Company”) and certain of its officers under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934. In re SunPower Corp. Secs. Litig., No. 16-cv-04710-RS (N.D. Cal. Oct. 9, 2018). Plaintiffs alleged the Company misrepresented demand for its projects by failing to report that an extension of an investment tax credit (“ITC”) and other tax rules would decrease demand in the near-term. Observing that the gravamen of the complaint is that the Company made bad predictions, the Court dismissed the action because plaintiffs failed to identify a material misrepresentation or omission and failed to plead facts sufficient to give rise to a strong inference of scienter, as required by the Private Security Litigation Reform Act (“PSLRA”).
  • Southern District Of Florida Dismisses Certain Securities Fraud Claims For Failure To Adequately Allege Scienter And Sustains Others
     

    10/09/2018

    On October 4, 2018, Magistrate Judge Bruce Reinhart of the United States District Court for the Southern District of Florida granted in part and denied in part a motion to dismiss claims asserted under Rule 10b-5 of the Securities Exchange Act of 1934 by certain investment funds against Ocwen Financial Corporation.  Owl Creek I, L.P. v. Ocwen Financial Corp., No. 18-80506-CIV (Oct. 4, 2018).  Plaintiffs alleged that Ocwen and certain of its executives induced plaintiffs to invest by making inaccurate statements regarding Ocwen’s financial statements, its purported regulatory compliance, and the effectiveness of its internal controls and procedures.  The Court dismissed claims based on statements in one conference call due to lack of scienter, but otherwise denied defendants’ motion.
  • Northern District Of Illinois Dismisses Securities Class Action For Failure To Adequately Allege Misstatements and Scienter
     

    10/09/2018

    On September 30, 2018, Judge Andrea R. Wood of the United States District Court for the Northern District of Illinois dismissed a putative shareholder class action against VASCO Data Security International, Inc. and certain of its officers. Plaintiff asserted claims under Sections 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. Rossbach v. VASCO Data Sec., Int’l, 2018 WL 4699796, (N.D. Ill. Sept. 30, 2018). Plaintiff alleged that VASCO made a number of misstatements suggesting that revenue sources other than the company’s largest client were stronger than they really were. When the company disclosed that the revenue associated with those other products and services remained essentially flat, the stock price allegedly fell. The Court held that plaintiff’s amended complaint failed to adequately allege a false statement or scienter. Plaintiff was, however, granted leave to file a second amended complaint.
  • Western District Of Washington Dismisses Securities Class Action For Failure To Adequately Allege Material Misstatements And Scienter
     

    10/09/2018

    On October 2, 2018, Judge John C. Coughenour of the United States District Court for the Western District of Washington dismissed a putative class action against Zillow Group, Inc. and certain of its executives asserting claims under Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder.  In re Zillow Group, Inc. Securities Litigation, No. C17-1387-JCC (W.D. Wash. Oct. 2, 2018).  Plaintiffs alleged misstatements by defendants regarding a Consumer Financial Protection Bureau (“CFPB”) investigation into, among other things, potential violations of the Real Estate Settlement Procedures Act (“RESPA”) arising out of Zillow’s “co-marketing” program between real estate agents and mortgage lenders.  The Court dismissed the action for failure to adequately allege material misstatements or scienter, but granted plaintiffs leave to amend.
  • Fifth Circuit Affirms Dismissal Of Securities Class Action For Failure To Adequately Allege Material Misstatements And Loss Causation
     

    10/09/2018
     

    On October 3, 2018, the United States Court of Appeals for the Fifth Circuit affirmed the dismissal of a putative securities class action against Whole Foods Market, Inc. and certain of its executives under Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder.  Emps.’ Ret. Sys. of the State of Haw. v. Whole Foods Mkt., Inc., —F.3d—, 2018 WL 4770729 (5th Cir. Oct. 3, 2018).  In connection with various regulatory investigations, Whole Foods admitted to mislabeling prepackaged foods such that it charged consumers for more food than the packages actually contained.  Plaintiffs alleged that, by virtue of those “weights and measures” violations, the company had made three categories of misstatements to investors:  (1) statements touting the company’s price competitiveness or efforts to increase its price competitiveness; (2) statements about the company’s commitment to transparency, quality, and corporate responsibility; and (3) statements announcing the company’s revenues, which plaintiffs alleged were artificially inflated as a result of the mislabeled packaging.  The Court held that the first two categories of allegations did not constitute material representations, and the third did not cause plaintiffs’ alleged loss.

  • Sixth Circuit Reverses Dismissal Of Putative Securities Class Action Against Pharmaceutical Company, Finding That Statements About Future Events Were Not Covered By The PSLRA Safe Harbor Provisions
     
    10/02/2018

    On September 27, 2018, the United States Court of Appeals for the Sixth Circuit reversed the dismissal of a putative securities class action against pharmaceutical company Esperion Therapeutics, Inc. (the “Company”) and its CEO.  Dougherty v. Esperion Therapeutics, Inc., et al., No. 17-1701 (6th Cir. Sept. 27, 2018).  Plaintiffs, investors in the Company, alleged that defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the “Exchange Act”) by falsely stating that, based on feedback received by the Company at a meeting with the Food and Drug Administration (the “FDA”), the FDA would not require additional testing of the Company’s pre-approval anti-cholesterol drug ETC-1002.  The Company’s stock price allegedly plummeted when, over a month later, the Company issued a press release indicating that, according to the FDA’s own final meeting minutes which had just been provided to the Company, additional testing would be required prior to any approval of the drug.  The United States District
    Court for the Eastern District of Michigan had dismissed plaintiffs’ complaint, finding that plaintiffs failed to adequately plead a strong inference of scienter because they failed to identify facts demonstrating that defendants actually understood the FDA’s communications in a way that was different than what the Company publicly disclosed, and that defendants had not been reckless.  Plaintiffs appealed, and the Sixth Circuit reversed.
  • Northern District Of California Dismisses Securities Class Action Against Media Services Provider For Failure To Adequately Allege Material Misstatements
     
    10/02/2018

    On September 25, 2018, Judge Haywood S. Gilliam, Jr. of the United States District Court for the Northern District of California dismissed a putative securities class action against Netflix, Inc. (the “Company”), its CEO and CFO.  Ziolkowski v. Netflix, Inc., et al., No. 17-cv-01070 (N.D. Cal Sept. 25, 2018).  Plaintiffs—purchasers of the Company’s common stock during the proposed class period—claimed that the Company violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 by making materially false and misleading statements and omissions in order to minimize the effects of a recently enacted pricing increase on subscription figures.  In dismissing the complaint without prejudice, the Court held that plaintiffs failed to adequately allege any untrue statement of material fact and also failed to adequately allege scienter.
  • Ninth Circuit Affirms District Court’s Dismissal Of State Law Claims Based On Alleged Misrepresentations And Omissions As Barred Under SLUSA
     
    09/25/2018

    On September 14, 2018, the United States Court of Appeal for the Ninth Circuit affirmed the District Court’s dismissal of class claims brought by a financial advisor on behalf of itself and shareholders of a bond fund (the “Fund”) against defendants an investment company and its board, on the basis that the claims were barred by the Securities Litigation Uniform Standards Act (“SLUSA”).  Northstar Fin. Advisors v. Schwab Invs., No. 16-15303 (9th Cir. Sept. 14, 2018).  Plaintiff alleged that defendants made certain investments in the Fund that deviated from the investment policies and objectives that resulted in negative returns for the Fund.  Based on those deviations, plaintiff asserted claims of breaches of fiduciary duty, contract, and covenant of good faith and fair dealing against defendants.  The Ninth Circuit affirmed the District Court’s dismissal, agreeing with the District Court that the claims were preempted by SLUSA because the essence of plaintiff’s allegations related to misstatements or omissions in connection with a sale of a security, and that plaintiff could not “avoid preclusion through artful pleading that removes the covered words . . . but leaves in the covered concepts.”
    CATEGORY: SLUSA
  • Exchange Act Claim Survives Because Sarbanes-Oxley’s Two Year Statute Of Limitations Extended The Time For Plaintiffs To Initiate Section 18 Claim
     
    09/25/2018

    On September 14, 2018, United States District Court Judge Michael Shipp of the District of New Jersey declined to dismiss as untimely plaintiffs’ claim against a major pharmaceutical company (the “Company”) and certain of its executives under Section 18 of the Securities Exchange Act of 1934.  Pentwater Equity Opportunities Master Fund Ltd v. Valeant Pharmaceuticals International, Inc., No. 1707552 (D.N.J. Sep’t 14, 2018).  In denying defendants’ motion to dismiss, the Court deepened a split among courts over whether the Sarbanes-Oxley Act of 2002 (“SOX”) extends the time to file a Section 18 claim to two years of when the violation is discovered.
  • Third Circuit Affirms Dismissal Of Securities Fraud Class Action For Failure To Plead Scienter In Fourth Amended Complaint
     
    09/25/2018

    On September 20, 2018, the United States Court of Appeals for the Third Circuit affirmed dismissal of a putative securities fraud class action brought against Hertz Global Holdings Inc. (the “Company”) and several of its executives for failure to plead a strong inference of scienter.  In Re Hertz Global Holdings Inc., No. 17-2200 (3d Cir. Sep’t 20, 2018).  Plaintiffs alleged that defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 by making materially false and misleading statements concerning the Company’s financial results, internal controls, and future earnings projections.  The panel found that plaintiffs’ allegations more plausibly suggested defendants were “just bad leaders,” confirming that claims of mismanagement cannot be converted into a claim of securities fraud, and that the complaint failed to allege factual allegations sufficient to give rise to a strong inference of scienter.
  • Northern District Of California Dismisses Putative Securities Class Action For Failure To Adequately Allege Misstatements, Scienter, And Loss Causation
     
    09/17/2018

    On September 7, 2018, Judge Haywood S. Gilliam, Jr. of the United States District Court for the Northern District of California dismissed a putative class action against Impax Laboratories and certain of its officers under Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder alleging that the company made material misstatements regarding (1) the cause of substantial price increases for two generic drugs and (2) trends associated with other drugs.  Fleming v. Impax Labs. Inc., No. 16 Civ. 6577 (N.D. Cal. Sept. 7, 2018).  The Court held that (a) the allegations regarding drug price increases adequately pleaded a material misstatement, but insufficiently alleged scienter or loss causation, and (b) the allegations regarding trends failed to plead either a material misstatement or scienter.  Plaintiff was, however, granted leave to replead.
  • Northern District Of Texas Dismisses With Prejudice Accounting-Related Claims For Failure To Adequately Allege Scienter
     
    09/17/2018

    On September 11, 2018, Judge Barbara M. G. Lynn of the United States District Court for the Northern District of Texas dismissed with prejudice a third amended putative class action complaint against Global Power Equipment Group, Inc. and certain of its former officers asserting claims under Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder based on allegations that defendants filed false and misleading financial statements.  Budde v. Global Power Equip. Grp., Inc., No. 3:15-CV-1679-M, 2018 WL 4335670 (N.D. Tex. Sept. 11, 2018).  Global Power issued restated financials and acknowledged that it had recognized certain revenues and expenses in the wrong period for its Electrical Solutions (“ES”) Segment, had deficiencies in internal controls over financial reporting, and incorrectly accounted for goodwill upon the sale of a subsidiary.  Nevertheless, the Court held that plaintiffs failed to adequately allege scienter with respect to any individual defendant and dismissed the complaint with prejudice.
    CATEGORY: Scienter
  • Northern District Of California Finds Scienter And Individual Reliance Adequately Pleaded, But Stresses That Issues Respecting Class-Wide Reliance Remain To Be Considered
     
    09/17/2018

    On September 7, 2018, Judge Charles Breyer of the United States District Court for the Northern District of California denied a motion to dismiss a second amended putative class action complaint on behalf of Volkswagen bondholders asserting claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 against Volkswagen and certain of its former executives alleging that defendants failed to disclose Volkswagen’s use of “defeat device” software to mask emissions in the company’s diesel engines.  In re Volkswagen “Clean Diesel” Marketing, Sales Practices, and Products Liability Litigation, MDL No. 2672 CRB (JSC) (N.D. Cal. Sept. 7, 2018).  In its previous July 19, 2017 and March 2, 2018 orders, as discussed in our prior posts, the Court had first dismissed certain claims for failure to adequately plead scienter and then, reconsidering its prior holding that plaintiff was entitled to a presumption of reliance under Affiliated Ute, dismissed plaintiff’s first amended complaint in its entirety for failure to plead reliance.  In considering the second amended complaint, the Court held that scienter and individual, direct reliance were adequately alleged, but raised questions about plaintiff’s ability to prove class-wide reliance.
    CATEGORIES: Control PersonRelianceScienter
  • Third Circuit Allows Putative Class Action To Proceed Against Investment Services Provider, Finding Breach Of Contract Claim Not Barred Under SLUSA Where Alleged Misrepresentations Were Objectively Immaterial To Plaintiffs And The Claim Asserted
     
    09/10/2018

    On September 4, 2018, the United States Court of Appeals for the Third Circuit affirmed the partial denial of a motion to dismiss a putative class action against investment services provider Vanguard Group (the “Company”).  Alex Taksir, et al. v. The Vanguard Group, No. 17-3585 (3d. Cir. Sept. 4, 2018).  Plaintiffs alleged that the Company violated Pennsylvania’s Unfair Trade Practices and Consumer Protection Law (“UTPCPL”) and breached its contract with plaintiffs by overcharging on per-trade commissions.  According to the Complaint, the Company’s website represented that commissions were $2 per stock trade for customers who maintained account balances of between $500,000 and $1,000,000, but the Company allegedly charged plaintiffs—who met the prerequisite balance requirements—$7 per trade.  The United States District Court for the Eastern District of Pennsylvania dismissed the UTPCPL claim, but held that the breach of contract claim was not barred by the Securities Litigation Uniform Standards Act (“SLUSA”)—which precludes parties from bringing class actions based on state law claims relating to “a misrepresentation or omission of a material fact in connection with the purchase or sales of a covered security”—because no misrepresentations were made “in connection with” a covered security.  The Company sought leave to file an interlocutory appeal, which the Third Circuit granted.
    CATEGORY: SLUSA
  • Northern District Of Texas Dismisses Securities Class Action Against Educational Services Company For Failure To Adequately Allege Material Misrepresentations Or Omissions
     
    09/05/2018

    On August 24, 2018, Judge Karen Gren Scholer of the United States District Court for the Northern District of Texas dismissed with prejudice a putative securities class action against an educational services company (“the Company”), certain of its officers and directors, and the underwriters of its November 2015 initial public offering (the “IPO”).  David M. Stein v. Match Group Inc., No. 3:16-cv-00549 (N.D. Tex.).  Plaintiffs—investors in the IPO—claimed that defendants violated Sections 11 and 15 of the Securities Act of 1933 because the offering documents for the IPO allegedly contained material misstatements and omissions concerning expected sales and revenues from one of the Company’s business segments and failed to disclose certain information as required by Items 303 and 503 of Regulation S-K.  The Court held that plaintiffs had failed to plausibly allege any untrue statement of material fact because the alleged misrepresentations were accurate statements of historical results.  The Court also held that plaintiffs failed to allege a known trend that was required to be disclosed under Item 303 and failed to allege a significant risk factor that was required to be disclosed under Item 503.
  • Northern District Of California Dismisses Securities Class Action Against Electric Car Manufacturer, Finding Production Projections Were Forward-Looking Statements
     
    09/05/2018

    On August 24, 2018, Judge Charles Breyer of the United States District Court for the Northern District of California dismissed with leave to amend a putative class action against an electric car manufacturer (the “Company”), its Chief Executive Officer, and its Chief Financial Officer for violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the “Exchange Act”) and Rule 10b-5.  Wochos v. Tesla, Inc., et al., No. 17-cv-05828 (N.D. Cal. Aug. 24, 2018).  Plaintiffs alleged that defendants made false and misleading statements regarding production projections for the Company’s Model 3 that it failed to meet.  Stating that “[f]ederal securities laws do not punish companies for failing to achieve targets,” the Court held that the challenged statements were protected by the safe harbor provision of the Private Security Litigation Reform Act of 1995 (“PSLRA”) because they were forward-looking and accompanied by meaningful cautionary language.
  • In Action Asserting Parallel Securities Act And Exchange Act Claims, Massachusetts District Court Dismisses IPO-Based Securities Act Claims With Prejudice For Failure To Plead A Misstatement, And Post-IPO Exchange Act Claims Without Prejudice For Lack Of Standing
     
    08/28/2018

    On August 23, 2018, Judge F. Dennis Saylor IV of the United States District Court for the District of Massachusetts dismissed the claims asserted in a putative class action against ReWalk Robotics and its officers, directors, and IPO underwriters under the Securities Act of 1933 (“Securities Act”) for misrepresentations made in a registration statement with prejudice, but dismissed the claims asserted under the Securities Exchange Act of 1934 (“Exchange Act”) for alleged post-IPO misstatements without prejudice.  Yan v. ReWalk Robotics Ltd., No. 17 Civ. 10169, slip op. (D. Mass. Aug. 23, 2018), ECF No. 107.
  • New Jersey District Court Dismisses Putative Securities Class Action Alleging Inappropriate Disclosures Regarding Sources Of Drug Revenue
     
    08/28/2018

    On August 21, 2018, Judge Kevin McNulty of the United States District Court for the District of New Jersey dismissed a putative class action against Galena Biopharma Inc. and several of its officers and employees that alleged defendants failed to make appropriate disclosures about the source of revenues associated with an opioid pain medication manufactured by Galena.  In re Galena Biopharma, Inc. Sec. Litig., 2018 WL 3993453 (D.N.J. Aug. 21, 2018).  Plaintiffs alleged that these omissions violated Item 303 of SEC Regulation S-K or, in the alternative, Section 10(b) of the Securities Exchange Act and Rule 10b-5 thereunder.  The Court held that, although plaintiffs had “identified several troubling practices regarding Galena,” the complaint failed to state a securities fraud claim and dismissed the complaint with leave to replead.
  • Second Circuit Affirms Dismissal Of Putative Class Action As Precluded By SLUSA
     
    08/28/2018

    On August 17, 2018, the United States Court of Appeals for the Second Circuit affirmed the dismissal of a putative class action asserting breach of contract and tort claims against the managers, auditors, consultant, and administrator of two feeder funds for Bernard L. Madoff Investment Securities arising out of defendants’ management and oversight of the funds.  In re Kingate Mgmt. Ltd. Litig., No. 16-3450 (2d. Cir. Aug. 17, 2018) (summary order).  The decision marks a second trip of the case through the Circuit.  The district court had previously dismissed all of plaintiffs’ claims as precluded by the Securities Litigation Uniform Standards Act of 1988 (“SLUSA”), but had its decision vacated by the Second Circuit, which held that SLUSA precluded only state law claims “predicated on conduct of the defendant specified in SLUSA’s operative provisions.”  Slip op. at 5 (citing In re Kingate Mgmt. Ltd. Litig., 784 F.3d 128, 149 (2d Cir. 2015)).  On remand, the district court dismissed certain claims as precluded by SLUSA and dismissed the rest for lack of standing and failure to state a claim under British Virgin Islands/Bermuda law.  The Second Circuit affirmed this second decision, holding in relevant part that certain negligent misrepresentation claims were preempted by SLUSA because they concerned statements that were material to a decision to buy or sell a covered security.
    CATEGORY: SLUSA
  • Northern District Of California Denies Motion To Remand Putative Class Action Asserting Both Securities Act And State Law Claims
     
    08/21/2018

    On August 10, 2018, United States District Judge Phyllis J. Hamilton of the United States District Court for the Northern District of California denied a motion to remand to state court a putative securities class action against digital currency issuer Ripple Labs, Inc., one of its subsidiaries, and its Chief Executive Officer.  Coffey v. Ripple Labs Inc., No. 18-cv-03286-PJH (N.D. Cal. Aug. 10, 2018).  Plaintiff, a purchaser of XRP, Ripple’s digital currency, sued defendants in California state court, alleging violations of the Securities Act of 1933 (the “Securities Act”) and California’s blue sky statute.  Plaintiff alleges that defendants’ sale of XRP to investors in an initial coin offering (in which digital assets are sold to consumers in exchange for legal tender or other cryptocurrencies) constituted an unregistered sale of securities in violation of the Securities Act and the California Corporations Code.  Defendants removed the action to federal court pursuant to Section 1453 of the Class Action Fairness Act (“CAFA”), and plaintiff moved to remand the action to state court.  The Court denied plaintiff’s motion, holding that Section 1453 of CAFA provides an independent right to removal that is not precluded by the anti-removal provision in Section 22(a) of the Securities Act, at least in cases not involving a “covered security” as defined in the Securities Litigation Uniform Standards Act (“SLUSA”).
    CATEGORY: Jurisdiction
  • Southern District Of New York Dismisses Securities Class Action Against Brokerage Firm For Failure To Adequately Allege Material Misrepresentations And Scienter
     
    08/21/2018

    On August 10, 2018, Judge Kimba M. Wood of the United States District Court for the Southern District of New York dismissed a putative securities class action against foreign exchange trading company FXCM Inc. (“FXCM” or the “Company”) and its CEO.  Ret. Bd. of the Policemen’s Annuity and Benefit Fund of Chicago v. FXCM, No. 15-cv-03599 (S.D.N.Y. Aug. 10, 2018).  Plaintiff alleged that defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the “Exchange Act”) and Rule 10b-5 by making material misstatements and omissions concerning certain risks associated with the Company’s business model.  The Court held that the alleged misrepresentations were inactionable “puffery,” too vague to be actionable, or were not misleading because the alleged risks were adequately disclosed when the Company’s disclosures were viewed as a whole.  The Court also held that plaintiff had failed to allege a strong inference of scienter.
  • Eastern District Of Michigan Holds That Exchange Act Statute Of Repose Starts To Run From Date Of Last Fraudulent Misrepresentation
     
    08/14/2018

    On August 3, 2018, Judge George C. Steeh of the United States District Court for the Eastern District of Michigan dismissed with leave to amend an individual action asserting, among other things, Section 10(b) of the Securities Exchange Act and Rule 10b-5 claims.  Equity Trust Co., et al., v. Kopacka, et al., No. 17-12275 (E.D. Mich. Aug. 3, 2018).  Defendant argued that plaintiffs’ Exchange Act claims were barred by the applicable five-year statute of repose, which he argued was triggered no later than plaintiffs’ final purchase of securities.  Noting that the Sixth Circuit had not ruled on when the Exchange Act repose period begins to run, the Court sided with plaintiffs, the Third Circuit, and district courts in the First and Second Circuits in ruling that the period begins to run with the last alleged misrepresentation, even if it is made after the last alleged security purchase.
    CATEGORY: Statute of Repose
  • Third Circuit Upholds Customer’s Right To FINRA Arbitration Despite Brokerage Agreements’ Forum-Selection Clause Providing Right To Litigate In Federal Court
     
    08/14/2018

    On August 7, 2018, the U.S. Court of Appeals for the Third Circuit affirmed a district court order compelling defendant, a broker-dealer and member of the Financial Industry Regulatory Authority (FINRA), to submit to FINRA arbitration, even though the broker-dealer agreements with plaintiff contained a forum-selection clause providing that all actions and proceedings arising out of the agreements and underlying transactions had to be filed in federal court in New York.  See Reading Health Sys. v. JPM Secs., No. 16-4234 (3d Cir. Aug. 7, 2018).  The Court held that, because the forum-selection clauses in broker-dealer agreements did not explicitly reference arbitration, it lacked the specificity required to advise plaintiff that it was waiving its affirmative right to arbitrate under FINRA’s rules.
    CATEGORY:
  • Tennessee District Court Pares Exchange Act Claims Against Accounting Company, Dismissing Scheme Liability Claims
     
    08/07/2018

    On August 2, 2018, Chief Judge Thomas A. Varlan of the United States District Court for the Eastern District of Tennessee dismissed in part a putative securities class action against KPMG, LLP asserting claims under Section 10(b) of the Securities Exchange Act and Rule 10b-5 thereunder.  Plaintiffs alleged that defendant KPMG, as independent auditor to Miller Energy Resources, Inc., allowed Miller Energy to file financial statements with the SEC that were not in compliance with generally accepted accounting principles (“GAAP”), generally accepted auditing standards (“GAAS”), and standards set by the Public Company Accounting Oversight Board (“PCAOB”), because the statements overstated the value of Miller Energy’s Alaskan energy interests.  Cosby v. KPMG, LLP, No. 3:16-cv-121 (E.D. Tenn. Aug. 2, 2018).  Of note, the Court held that while plaintiffs’ allegations stated a claim under Rule 10b-5(b), they did not support a claim for “scheme liability” under Rule 10b-5(a) and (c) because KPMG’s claimed role in the scheme was too remote.
  • New Jersey District Court Dismisses Securities Class Action For Failure To Adequately Allege Scienter
     
    08/07/2018

    On August 1, 2018, Judge Kevin McNulty of the United States District Court for the District of New Jersey dismissed without prejudice a putative securities class action asserting claims under Section 10(b) of the Securities Exchange Act against the telecommunications company BT Group PLC and certain of its officers.  Plaintiffs, who purchased BT Group American Depository Receipts (“ADRs”), based their claims on allegations that defendants made a series of misstatements between 2013 and 2017 relating to control problems at a BT Group subsidiary in Italy.  Christian v. BT Group plc, No. 17-cv-497 (KM-JBC) (D.N.J. Aug. 1, 2018).  The Court held that plaintiffs failed to adequately allege scienter and therefore dismissed the action.
    CATEGORY: Scienter
  • Second Circuit Affirms Dismissal Of Putative Class Action Against E*TRADE As Precluded By SLUSA
     
    08/07/2018

    On July 31, 2018, the United States Court of Appeals for the Second Circuit unanimously affirmed the dismissal of a putative class action asserting state-law claims for breach of fiduciary duty, unjust enrichment, and declaratory relief. As discussed in our prior post, plaintiff’s claims were all based on the allegation that defendant violated its duty of best execution by routing customer trades—specifically, limit orders—to trading venues that were willing to pay the largest rebates to E*TRADE. Rayner v. E*TRADE Fin. Corp., --.3d--, 2018 WL 3625378 (2d Cir. 2018). The Second Circuit held that plaintiff’s claims were precluded by the Securities Litigation Uniform Standards Act of 1998 (“SLUSA”) because they alleged fraudulent misrepresentations even though framed as claims for breach of fiduciary duty.
    CATEGORY: SLUSA
  • Northern District Of California Certifies Class In Securities Stock Drop Suit, Finding That “In-and-Out” Traders Should Not Be Excluded From The Class Definition
     
    07/31/2018

    On July 17, 2018, Judge Jon S. Tigar of the United States District Court for the Northern District of California granted plaintiffs’ motion to certify a class in a securities class action against Twitter, Inc. (the “Company”) and two of its officers.  In re Twitter Inc. Securities Litigation, No. 3:16-cv-05314 (N.D. Cal. July 17, 2018).  Plaintiffs allege that defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the “Exchange Act”) by making materially false and misleading statements regarding user growth and engagement,  resulting in a 15 percent stock drop when the Company later disclosed that user engagement was “slowing quite dramatically.”  The Court previously had granted in part and denied in part defendants’ motion to dismiss.
  • Ninth Circuit Reverses Dismissal Of Securities Fraud Class Action And Rules That The Purchase And Sale Of American Depository Receipts Traded On An Over-The-Counter Market Could Be A Domestic Transaction Under Morrison
     
    07/24/2018

    On July 17, 2018, the United States Court of Appeals for the Ninth Circuit reversed the dismissal of a putative securities class action, which alleged that a technology company (the “Company”) and its current and former chief executive officers engaged in fraudulent accounting in violation of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as well as Japanese securities law. Automotive Industries Pension Trust Fund, et al. v. Toshiba Corp., No. 16-56058 (9th Cir. July 17, 2018). In its ruling, the Ninth Circuit analyzed the second prong of the transaction test articulated in Morrison v. National Australia Bank, 561 U.S. 247 (2010) and adopted the Second and Third Circuits’ “irrevocable liability” test, which evaluates where the purchasers incurred the liability to take and pay for securities, and where the seller incurred the liability to deliver the securities. The Ninth Circuit remanded the case to the district court so that plaintiffs could amend their complaint to try to meet this standard.
    CATEGORY: Jurisdiction
  • Pennsylvania District Court Limits Claims In Putative Class Action Concerning Walgreens–Rite Aid Merger
    07/17/2018
    On July 11, 2018, Judge John E. Jones III of the United States District Court for the Middle District of Pennsylvania dismissed certain claims in a putative securities fraud class action against Rite Aid Corporation and Walgreens Boots Alliance, Inc.  Plaintiff brought claims under Sections 10(b) and 20(a) of the Securities Exchange Act, alleging that Rite Aid, Walgreens, and certain executives at each company made various misstatements over the course of the failed merger between the two companies, which was announced in October 2015 and ultimately terminated in June 2017.  Hering v. Rite Aid Corp., —F. Supp. 3d—, 2018 WL 3373033 (M.D. Pa. July 11, 2018).  The Court held that the majority of the alleged misstatements were optimistic forward-looking statements that were immaterial and/or protected by the safe harbor provided by the Private Securities Litigation Reform Act of 1995, but that certain statements by the Walgreens defendants expressing confidence that the transaction would close based on purported inside information, made in response to negative reports in the press, were sufficiently pleaded with respect to falsity and scienter to state a claim for fraud.
    CATEGORY: Scienter
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