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  • New York State Trial Courts Remove COVID-19 Emergency Restriction On Filing New Commercial Actions
     
    05/27/2020

    On May 20, 2020, in light of evolving circumstances with respect to the COVID-19 health emergency, the Chief Administrative Judge of the New York State Courts issued a Memorandum lifting some of the restrictions previously put in place concerning court filings and other activities in New York State trial courts.  The most significant change is that certain electronic filings will now be permitted again.
     
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  • Southern District Of New York Holds Syndicated Term Loan Notes Sold To Buyers Are Not “Securities”
     
    05/27/2020

    On May 22, 2020, Judge Paul G. Gardephe of the United States District Court for the Southern District of New York dismissed a complaint asserting claims under state blue-sky laws as well as common-law claims against financial institutions that acted as arrangers on syndicated Term Loan B notes (“TLBs”), holding that the notes at issue are not “securities.”  See Kirschner v. JPMorgan Chase Bank, N.A., No. 17-cv-6334 (PGG) (May 22, 2020).  This is an important decision in that it is the first case of which we are aware to address whether TLBs are securities.  Plaintiff was granted leave to amend, although the basis for an amendment is not apparent.
     
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  • District Of New Jersey Largely Upholds Claims In Putative Class Action Alleging Misleading Asbestos-Related Liability Projections
     
    05/27/2020

    On May 18, 2020, Judge William J. Martini of the United States District Court for the District of New Jersey denied a motion to dismiss a putative class action asserting claims under Section 10(b) of the Securities Exchange Act and Rule 10b-5 promulgated thereunder against a consumer and industrial products company and certain of its executives.  Kanefsky v. Honeywell Int’l Inc., No. 18-cv-15536, slip op. (D.N.J. May 18, 2020), ECF No. 106.  Plaintiff alleged that the company made misrepresentations in SEC filings and public statements regarding the projected asbestos liability arising from its acquisition of a manufacturer of automobile brakes.  The Court held that plaintiff adequately alleged falsity, scienter, and loss causation as to certain alleged misstatements.
     
  • Second Circuit Affirms Dismissal Of Actions Seeking Disgorgement Of “Short-Swing” Profits From Investment Advisors’ Clients, Holding That Clients’ Delegation Of Discretionary Investment Authority Did Not Render Them Members Of A “Group” With Their Investment Advisors
     
    05/27/2020

    On May 20, 2020, the United States Court of Appeals for the Second Circuit issued two decisions affirming, on substantially similar grounds, the dismissal of two actions asserting claims under Section 16(b) of the Securities Exchange Act against clients of investment advisors.  Rubenstein v. International Value Advisers, LLC, No. 19-560-cv (2d Cir. May 20, 2020) (“IVA”); Rubenstein v. Rofam Inv. LLC, No. 19‑796‑cv (2d Cir. May 20, 2020).  Plaintiff alleged that certain investment advisors’ clients earned improper “short-swing” profits from equity trades because the advisors, who were statutory insiders of the issuers of the stock, bought and sold securities on their clients’ behalf within a six-month period; plaintiff, a shareholder of the issuers in question, thus sought disgorgement of the clients’ profits.  Affirming the lower courts’ decisions, the Second Circuit held that plaintiff failed to establish that the clients formed a “group” with their investment advisors such as to impute insider status on the clients, and therefore failed to show that the trades were prohibited under the Exchange Act.
     
  • Eastern District Of New York Denies Motion To Dismiss Putative Class Action Against Subscription-Based Meal Kit Company But Rejects Claims Based On Alleged Omission Of Intra-Quarter Decline In Key Metric
     
    05/12/2020

    On April 22, 2020, Judge William F. Kuntz II, of the United States District Court for the Eastern District of New York granted in part and denied in part a motion to dismiss a putative securities fraud class action based on purportedly misleading statements in the prospectus and registration statement (the “Offering Materials”) filed by a subscription-based meal kit service (the “Company”) in connection with its initial public offering (“IPO”).  The complaint asserted claims under Sections 11 and 15 of the Securities Act of 1933 against the Company and certain of its officers.  In re Blue Apron Holdings, Inc. Sec. Litig., No. 17-CV-4846 (E.D.N.Y. Apr. 22, 2020).  Plaintiffs alleged that the Company, which provides meal kits to customers through a weekly subscription service, concealed known risks and made misleading statements concerning challenges the Company faced with one of its product fulfilment centers.  Although the Court denied defendants’ motion to dismiss claims that the Company had failed to disclose risks associated with the performance of this fulfillment center, it rejected plaintiffs’ claims based on the alleged non-disclosure of declines in a Company statistic for measuring the number of meal kits delivered on time with all of their ingredients, which were announced by the Company in the quarter immediately following the IPO.  Confirming that Section 11 claims generally cannot be based on disclosures in earnings announcements following an offering, even when the quarterly earnings announcements closely follow, the Court held that the complaint failed to allege sufficiently that the declines were known even though the quarter ended one day after the IPO.
     
  • Northern District Of California Dismisses Complaint Against A Ticketing Platform Provider For Failure To Plead Falsity
     
    05/12/2020

    On April 28, 2020, Judge Edward J. Davila of the United States District Court for the Northern District of California granted a motion to dismiss a putative securities fraud class action based on purportedly misleading statements in the prospectus and registration statement (the “Offering Materials”) filed by a ticketing platform provider (the “Company”) in connection with its initial public offering (“IPO”).  The complaint asserted claims under Sections 11 and 15 of the Securities Act of 1933 and Section 10(b) and 20(a) of the Securities Exchange Act of 1934 against the Company and certain of its officers, and violations of Section of 11 of the Securities Act against the underwriters for the IPO.  In re Eventbrite Inc. Sec. Litig., No. 5:18-CV-02019-EJD (N.D. Cal. Apr. 28, 2020).  In granting the motion to dismiss, the Court held that it could rely on documents incorporated into the complaint by reference to negate conclusory allegations in the complaint and for context, and further held that plaintiffs failed to adequately plead falsity and that the Company, in any event, sufficiently disclosed risks associated with the acquisition.  The Court also held that the heightened pleading requirements of Rule 9(b) of the Federal Rules of Civil Procedure applied to the Section 11 claims and that its risk disclosures were sufficient under Item 303.
     
  • Northern District Of California Declines To Dismiss Putative Class Action Against Enterprise Software Company
     
    05/05/2020

    On April 28, 2020, Judge Susan Illston of the United States District Court for the Northern District of California denied a motion to dismiss a putative class action asserting claims under Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder against an enterprise software company and certain of its executives.  Roberts v. Zuora, Inc., No. 19-cv-03422-SI, slip op. (N.D. Cal. Apr. 28, 2020), ECF No. 75.  Plaintiff alleged that, prior to its initial public offering, the company misstated that its two flagship products could be integrated together and that such integration was a key part of its business strategy, when in fact the product integration was not functional.  The Court held that plaintiff adequately alleged that such statements were false or misleading and made with the requisite scienter.
     
  • Central District Of California Dismisses Putative Class Action Against Yoga Instruction Provider As Time-Barred
     
    05/05/2020

    On April 23, 2020, Judge Cormac J. Carney of the United States District Court for the Central District of California dismissed with prejudice a putative class action asserting claims under Sections 11 and 12(a)(2) of the Securities Act of 1933 against a yoga instruction company, certain of its officers, and the underwriters for the company’s initial public offering.  In re YogaWorks, Inc. Sec. Litig., No. CV 18-10696, slip op. (C.D. Cal. Apr. 23, 2020), ECF No. 70.  The Court had dismissed plaintiff’s prior complaint as time-barred under the Securities Act because plaintiff had alleged that the truth about purported misrepresentations regarding the company’s financial metrics had been disclosed no later than the publication of the company’s disclosures for the second quarter of 2017 (the “Q2 2017 Disclosures”), which occurred more than one year before the suit was filed.  Although plaintiff’s amended complaint removed references to those Q2 2017 Disclosures, the Court held that this did not cure the statute of limitations issue and dismissed the action with prejudice.
     
  • District Of New Jersey Dismisses Putative Class Action Against Blockchain Company For Failure To Adequately Allege Misstatements Or “Scheme” Liability
     
    05/05/2020

    On April 30, 2020, Chief Judge Freda L. Wolfson of the United States District Court for the District of New Jersey dismissed a putative class action asserting claims under Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder against a company that supports and operates blockchain technologies and certain of its executives and investors.  Takata v. Riot Blockchain, Inc., No. 18-02293 (FLW), slip op. (D. N.J. Apr. 30, 2020).  Plaintiff alleged that defendants engaged in a “pump-and-dump” scheme to inflate the price of the company’s stock before selling to unsuspecting retail investors.  Id.  The Court held that plaintiff failed to adequately allege any actionable misrepresentations and otherwise failed to establish “scheme” liability, and dismissed the action without prejudice.
     
  • Southern District Of New York Dismisses Securities Fraud Claims Against Biopharmaceutical Company For Failure To Adequately Allege Misstatements Or Scienter
     
    05/05/2020

    On April 28, 2020, Judge Victor Marrero of the United States District Court for the Southern District of New York dismissed a putative class action asserting claims under Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder against a biopharmaceutical company and certain of its executives.  Schaeffer v. Nabriva Therapeutics plc, No. 19-cv-4183, slip op. (S.D.N.Y. Apr. 28, 2020), ECF No. 40.  Plaintiffs alleged that the company made false or misleading statements suggesting that a drug it submitted to the FDA for marketing approval would be approved in 2019.  The Court held that the alleged misstatements were either non-actionable puffery, or were protected forward-looking statements, or were not sufficiently alleged to have been made with scienter.
     
  • New York State Trial Courts Loosen COVID-19 Emergency Restrictions On Court Filings
     
    05/05/2020

    On April 30, 2020, the Chief Administrative Judge of the New York State Courts issued a Memorandum lifting some of the prior restrictions put in place concerning court filings and other activities in New York State trial courts, in light of evolving circumstances with respect to the COVID-19 health emergency.  The most significant change is that certain electronic filings will now be permitted again.
     
    CATEGORY:
  • Eastern District Of New York Sua Sponte Orders Transfer Of Action To Southern District Of New York, Finding Parties Failed To Establish Proper Venue 
     
    04/28/2020

    On April 22, 2020, Judge Kiyo Matsumoto of the Eastern District of New York issued an order and notice of venue to parties in a securities action against a foreign coffee chain (the “Company”), placing parties on notice of the Court’s decision to transfer the action to the Southern District of New York if the parties failed to present compelling legal and factual reasons against the transfer; the transfer order went into effect two days later.  Sterckx v. Luckin Coffee Inc. et al., No. 20-cv-01677 (E.D.N.Y. April 22, 2020).  The Court rejected plaintiffs’ argument against transfer based on a provision in a governing agreement pursuant to which the Company consented and submitted to the “jurisdiction of any state or federal court in the State of New York.”
     
    CATEGORIES: JurisdictionVenue/Forum
  • Northern District Of California Denies In Part Motion To Dismiss Securities Act Claims Against Software Company, Finding That Plaintiff Met Section 11 “Tracing” Requirements In Connection With Direct Listing Of Preexisting Shares
     
    04/28/2020

    On April 21, 2020, Judge Susan Illston 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 class action lawsuit asserting claims under Sections 11, 12(a)(2), and 15 of the Securities Act of 1933 (the “Securities Act”) against a software company (the “Company”), certain of its executives and directors, and three venture capital firms (the “VC Defendants”) that held a significant percentage of the Company’s voting power.  Fiyyaz Pirani v. Slack Technologies, Inc., et. al., No. 19-cv-05857-SI (N.D. Cal. Apr. 21, 2020).  Plaintiff alleged that defendants were liable for materially misleading statements and omissions concerning the Company’s service outages, competition, scalability, and growth strategy in offering materials in connection with the Company’s direct listing of preexisting shares to the public.  The Court granted in part and denied in part defendants’ motion to dismiss, and granted plaintiff leave to amend to cure the amended complaint’s deficiencies.
     
  • Arizona Federal Court Upholds Rule 10b-5(b) Claims Against Renewable Energy Company And Its Executives, But Dismisses 10b-5(a) And (c) Claims
     
    04/21/2020

    On April 8, 2020, Chief Judge G. Murray Snow of the United States District Court for the District of Arizona granted in part and denied in part a motion to dismiss a putative securities class action filed against a renewable energy company (“Company”) and its executives, alleging violations of Sections 10(b) and 20(a) of the Securities and Exchange Act of 1934 and SEC Rule 10b-5.  Zhu v. Taronis Techs. Inc., 2020 WL 1703680 (D. Ariz. Apr. 8, 2020).  Plaintiffs alleged defendants misled investors about the existence of a contract with the City of San Diego.  The Court denied defendants’ motion to dismiss as to plaintiffs’ claims under Rule 10b-5(b) but granted the motion as to claims asserted under Rule 10b-5(a) and (c).
     
  • Eighth Circuit Affirms Dismissal Of Putative Class Action Against Major American Retailer For Failure To Adequately Plead Falsity And Scienter
     
    04/21/2020

    On April 10, 2020, the United States Court of Appeals for the Eighth Circuit affirmed the dismissal of a putative class action against a large American retailer (the “Company”) and certain of its current and former executives for violations of Sections 10(b) and 20(a) of the Securities and Exchange Act of 1934 (the “Exchange Act”) and SEC Rule 10b-5.  In re Target Corp. Sec. Litig., 2020 WL 1814268 (8th Cir. 2020).  Plaintiffs alleged that defendants made materially misleading statements about problems facing the Company’s Canadian subsidiary (“Canadian Subsidiary”), which filed for bankruptcy less than two years after opening in the Canadian market.  The district court dismissed the action, holding that plaintiffs failed to meet the pleading standards of the Private Securities Litigation Reform Act (“PSLRA”), and denied reconsideration and leave to amend.  The Eighth Circuit affirmed, holding that plaintiffs failed to plead scienter adequately for any of the alleged misleading statements and falsity for some of the alleged misstatements. 
     
  • Northern District Of California Denies Motion To Dismiss Putative Class Action Against Automaker Alleging Misstatements Based On CEO’s Social Media Posts
     
    04/21/2020

    On April 15, 2020, Judge Edward M. Chen of the United States District Court for the Northern District of California denied a motion to dismiss a putative securities fraud class action asserting violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 against a designer and manufacturer of electric cars (the “Company”), its co-founder and CEO and its directors.  In re Tesla Inc. Securities Litigation, No. 3:18-cv-04865 (N.D. Cal. Apr. 15, 2020).  Plaintiff alleged that the statements made by the Company’s CEO on Twitter regarding securing funding for a going-private transaction were materially misleading.  The Court denied defendants’ motion to dismiss for failure to state a claim, finding that plaintiff adequately pleaded falsity, scienter, and loss causation.
     
  • Southern District Of New York Certifies Class After Again Paring Claims Against Pharmaceutical Company
     
    04/14/2020

    On April 6, 2020, Judge J. Paul Oetken of the United States District Court for the Southern District of New York partially granted a motion to dismiss claims under the Securities Exchange Act of 1934 against a pharmaceutical company and certain of its executives, and then granted plaintiffs’ unopposed motion for class certification.  In re Mylan N.V. Sec. Litig., No. 16-CV-7926 (JPO), 2020 WL 1673811 (S.D.N.Y. Apr. 6, 2020).  As noted in our prior posts regarding the company’s motions to dismiss the first and second amended complaints, plaintiffs alleged that defendants made misleading statements regarding, among other things, an alleged rebate scheme involving the company’s EpiPen, and that defendants engaged in an illegal conspiracy to inflate the prices for various of the company’s generic drugs.  After plaintiffs filed a third amended complaint attempting to address deficiencies identified by the Court in its prior opinions, the Court held that plaintiffs had met their burden to plead scienter with respect to some, but not all, of the alleged misstatements.
     
  • Southern District Of New York Dismisses Putative Class Action Against Automotive Seating Manufacturer For Failure To Adequately Allege Misrepresentations And Scienter
     
    04/14/2020

    On April 2, 2020, Judge Ronnie Abrams of the United States District Court for the Southern District of New York dismissed a putative class action asserting claims under the Securities Exchange Act of 1934 against a manufacturer of automotive seating and certain of its executives.  In re Adient PLC Sec. Lit., No. 18-CV-9116 (RA) (S.D.N.Y. Apr. 2, 2020).  Plaintiffs alleged that the company made false and misleading statements with respect to improvements in the projected margin of “Adient,” a business spun off of its parent company, and in a particular Adient business segment (the “Metals” segment).  The Court held that plaintiffs failed to adequately allege an actionable misstatement or scienter, and, noting that plaintiffs had already voluntarily amended their complaint after defendants filed a previous motion to dismiss, denied leave to amend.
  • First Circuit Affirms Dismissal Of Putative Class Action Against Pharmaceutical Company For Failure To Adequately Allege Scienter
     
    04/14/2020

    On April 9, 2020, the United States Court of Appeals for the First Circuit affirmed the dismissal of a putative class action asserting claims under the Securities Exchange Act of 1934 against a pharmaceutical company and certain of its executives.  Gallagher v. Ocular Therapeutix, Inc., No. 19-1557 (1st Cir. Apr. 9, 2020).  Plaintiffs alleged that the company made misrepresentations regarding manufacturing processes that served as the basis for the FDA’s rejection of the company’s New Drug Application (“NDA”).  The lower court dismissed the action for failure to allege an actionable misstatement or omission or to sufficiently allege scienter.  The First Circuit affirmed, holding that plaintiffs failed to allege sufficient facts to support a strong inference of scienter. 
     
    CATEGORY: Scienter
  • Second Circuit Holds That Price Impact Can Be Established For Class Certification Based On “Inflation Maintenance” Theory Even Where Inflation Is Not “Fraud-Induced,” And Affirms, In A Split Panel, District Court’s Determination That Defendants Failed To Rebut The Basic Presumption Of Reliance
     
    04/14/2020

    On April 7, 2020, the United States Court of Appeals for the Second Circuit upheld certification of a shareholder class asserting claims under the Securities Exchange Act of 1934 against a financial institution and certain of its executives.  Arkansas Teacher Ret. Sys. v. Goldman Sachs Group, Inc., ––F.3d––, 2020 WL 1682772 (2d Cir. 2020).  Plaintiffs alleged that the company made misrepresentations about its practices with respect to collateralized debt obligations (“CDOs”) and failed to disclose alleged conflicts of interest involving the selection of the subprime mortgages underlying the CDOs.  As discussed in our prior post, in 2018 the Second Circuit vacated the district court’s prior class certification order and remanded with instructions to apply a “preponderance of the evidence” standard in determining whether the company had rebutted the presumption of reliance under Basic Inc. v. Levinson, 485 U.S. 224 (1988), and to consider certain of defendants’ evidence of lack of price impact from the alleged misrepresentations in assessing whether the presumption had been rebutted.  Arkansas Teacher Ret. Sys. v. Goldman Sachs Group, Inc., 879 F.3d 474, 484–85 (2d Cir. 2018).  On remand, the district court again certified a class.  On an interlocutory appeal pursuant to Rule 23(f), the Second Circuit affirmed.  The Court unanimously held that the “inflation-maintenance” theory was properly applied, rejecting defendants’ argument that the theory should not apply where the inflation resulted from “general statements” about the company’s business practices.
     
  • ARRC Releases Summary Of Proposed New York Law Aimed At Amending Legacy Transactions Referencing USD LIBOR
     
    04/07/2020

    On March 6, 2020, the Alternative Rate Reference Committee (ARRC), the Federal Reserve’s LIBOR-transition working group comprised of private-sector entities and industry regulators, issued a press release of its New York State legislative proposal for amending financial contracts that lack adequate fallback language.  The proposed New York law would apply to certain LIBOR-based financial contracts executed prior to LIBOR’s discontinuation and amend them, by operation of law, to include ARRC’s recommended fallback rate plus a spread adjustment.  ARRC drafted the law to provide legal certainty and to minimize the potentially adverse economic consequences associated with the industry’s transition away from LIBOR.
     
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  • The Second Circuit Holds That New York Business Registration Does Not Constitute Consent To General Personal Jurisdiction
     
    04/07/2020

    On March 30, 2020, the United States Court of Appeals for the Second Circuit held that business registration under the New York Business Corporation Law (the “BCL”) Section 1301 does not “constitute consent to general personal jurisdiction in New York.”  Chen v. Dunkin’ Brands, Inc., No. 18-cv-3087 (2d Cir. Mar. 30, 2020).  The Court accordingly affirmed the dismissal of a putative class action asserting various state consumer protection law claims against a fast food franchise chain (the “Company”).  The Court’s opinion was based in part on a consideration of the Supreme Court’s decision in Daimler AG v. Bauman, 571 U.S. 117 (2014), which held that a state’s exercise of general personal jurisdiction over foreign corporations would be unconstitutional if it did not establish that the corporation had “continuous and systematic” contact with the state rendering it “essentially at home in the forum.”
     
    CATEGORY: Jurisdiction
  • District Of Connecticut Dismisses Securities Class Action Against A Consumer Financial Services Company, Certain Of Its Officers And Directors And Its Underwriters, Holding That Plaintiffs Failed To Adequately Allege Any Material Misrepresentations
     
    04/07/2020

    On March 31, 2020, Judge Victor A. Bolden of the District of Connecticut dismissed a putative securities class action against a provider of private label credit cards (the “Company”), certain of its officers and directors, and its underwriters in connection with a notes offering.  In re Synchrony Financial Sec. Litig., No. 3:18-cv-1818 (VAB) (D. Conn. Mar. 31, 2020).  Plaintiffs alleged violations of Section 11 of the Securities Act of 1933 (the “Securities Act”) by all defendants, as well as Section 15 of the Securities Act against the individual defendants.  Plaintiffs also alleged violations of Sections 10(b), 20A, and 20(a) of the Securities and Exchange Act of 1934 (the “Exchange Act”) by the Company and certain of the individual defendants.  The Court granted defendants’ motion to dismiss the Amended Complaint in its entirety with prejudice.
     
  • District Of Delaware Dismisses Putative Securities Class Action Against Energy Company Based On Failure To Adequately Plead Materiality And Loss Causation
     
    04/02/2020

    On March 18, 2020, Judge Richard G. Andrews of the United States District Court for the District of Delaware dismissed a putative class action claiming violations of Sections 14(a) and 20(a) of the Securities and Exchange Act of 1934, SEC Rule 14a-9 and Regulation G, and breach of fiduciary duty, in connection with the acquisition of an oil and gas exploration company (the “Company”).  Mack v. Resolute Energy Corp., No. CV 19-77-RGA, 2020 WL 1286175 (D. Del. Mar. 18, 2020).  Plaintiffs alleged, among other things, that the proxy statement omitted certain financial projections.  The Court dismissed the complaint, holding that it did not adequately plead materiality or loss causation.
     
    CATEGORY:
  • So Long, Cyan?—Delaware Supreme Court Endorses Federal Forum-Selection Provisions For Securities Act Claims
     
    03/24/2020

    On March 18, 2020, the Supreme Court of Delaware reversed a decision of the Delaware Court of Chancery and affirmatively endorsed the enforceability of federal forum-selection provisions, in a Delaware corporation’s certificate of incorporation, that require claims under the Securities Act of 1933 be filed in federal court as opposed to state court.  Salzberg v. Sciabacucchi, No. 346, 2019 (Del. Mar. 18, 2020).  The decision should help to stem the tide of, or even substantially eliminate, state court Securities Act filings that have increasingly proliferated since the March 2018 decision of the United States Supreme Court in Cyan Inc. v. Beaver County Employees Retirement Fund, 138 S. Ct. 1061 (2018), which held that state courts have jurisdiction to adjudicate class actions brought under the Securities Act, notwithstanding the Securities Litigation Uniform Standards Act of 1998 (“SLUSA”), and that such actions generally cannot be removed from state to federal court.
     
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  • Central District Of California Denies Class Certification Of Securities Act Claims Because Common Issues Found Not To Predominate Over Individualized Knowledge Issues
     
    03/24/2020

    On March 13, 2020, Judge Philip S. Gutierrez of the United States District Court for the Central District of California denied class certification in an action against a restaurant franchising company and certain of its executives asserting claims under Section 12(a)(2) of the Securities Act of 1933 in connection with the company’s IPO.  Vignola v. FAT Brands, Inc., No. CV 18-7469 PSG (C.D. Cal. Mar. 13, 2020), ECF No. 94.  The Court previously determined at the motion to dismiss stage that allegations based on a statement in an SEC filing expressing confidence in the “track record and vision” of the management team was potentially misleading because it allegedly omitted that certain subsidiaries had entered bankruptcy and the involvement of a company executive in managing those subsidiaries.  Slip op. at 3, 6-7.  However, the Court denied the motion for class certification, holding that the predominance and superiority requirements were not satisfied because individualized inquiries would be necessary to establish putative class members’ knowledge (or lack of knowledge) of the bankruptcies and the executive’s involvement with those subsidiaries.  Id. at 7, 9.
     
  • Southern District Of New York Dismisses Putative Class Action Against Shoe Manufacturer For Failure To Adequately Allege Misrepresentations And Scienter
     
    03/24/2020


    On March 12, 2020, Judge Naomi Reice Buchwald of the United States District Court for the Southern District of New York dismissed a putative class action asserting claims under Section 10(b) of the Securities Exchange Act of 1934 against a shoe manufacturer and certain of its executives.  In re Skechers USA, Inc. Sec. Lit., No. 18-CV-8039 (NRB) (S.D.N.Y. Mar. 12, 2020).  Plaintiffs alleged that the company made misstatements and omissions in earnings calls and SEC filings regarding the growth rate of expenses in comparison to the growth rate of sales.  The Court held that plaintiffs failed to adequately allege either an actionable misrepresentation or scienter, and denied leave to amend.

     
  • Southern District Of New York Dismisses Putative Class Action Alleging Misleading Statements About Company Workplace Environment And Culture
     
    03/24/2020


    On March 16, 2020, Judge Kimba Wood of the United States District Court for the Southern District of New York dismissed a putative class action asserting claims under Section 10(b) of the Securities Exchange Act of 1934 against a restaurant chain and certain of its executives.  Oklahoma Law Enforcement Ret. Sys. v. Papa John’s Int’l, Inc., No. 18-CV-7927 (KMW), 2020 WL 1243808 (S.D.N.Y. Mar. 16, 2020).  Plaintiff alleged that the company made misleading public statements regarding the company’s culture while at the same time enabling workplace sexual harassment.  The Court held that plaintiff had failed to adequately allege any actionable misstatements or omissions but granted plaintiff leave to amend to attempt to cure the deficiencies.

     
  • Northern District Of California Dismisses Putative Class Action Against Technology Company For Failure To Adequately Allege Falsity And Scienter
     
    03/24/2020


    On March 16, 2020, Judge Haywood S. Gilliam, Jr. of the United States District Court for the Northern District of California dismissed a putative class action against a technology company and its executives asserting claims under Section 10(b) of the Securities Exchange Act of 1934.  Iron Workers Loc. 580 Jt. Funds v. NVIDIA Corp., No. 18-CV-07669-HSG, 2020 WL 1244936 (N.D. Cal. Mar. 16, 2020).  Plaintiffs alleged that the company made misrepresentations regarding its sales of graphic processing units (“GPUs”) for computer gaming and the proportion of such sales that were actually made to cryptocurrency miners—for which demand was allegedly more volatile.  The Court dismissed the action, holding that plaintiffs failed to adequately plead that the alleged misstatements were materially false or made with scienter, while permitting plaintiffs to file an amended complaint to attempt to cure these deficiencies.

     
  • Northern District Of California Grants Motion To Dismiss Securities Fraud Claims Against Software Company, Finding That Plaintiffs Did Not Adequately Allege Falsity Or Scienter With Respect To Alleged Material Omissions
     
    03/17/2020

    On March 9, 2020, Judge William H. Orrick of the United States District Court for the Northern District of California granted a motion to dismiss a putative securities class action asserting claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the “Exchange Act”), and Rule 10b-5 promulgated thereunder, against a software company (the “Company”) and two of its executive officers.  Ryan Scheller, et. al. v. Nutanix, Inc., et. al., No. 19-cv-01651-WHO (N.D. Cal. Mar. 9, 2020).  Plaintiffs alleged—based primarily on statements allegedly made by seven confidential witnesses (the “CWs”)—that defendants made false and misleading statements and omissions concerning, among other things, the Company’s internal operations, business relationships, product quality, and sales performance.  The Court granted defendants’ motion to dismiss, finding that plaintiffs failed to allege that the Company’s public statements were false or misleading, and that plaintiffs failed to sufficiently allege scienter.
     
  • New York State Supreme Court Grants In Part Motion To Dismiss Securities Act Claims, Holding That Plaintiffs Did Not Adequately Allege Falsity With Respect To Alleged Omissions Regarding Changes To The Company’s Business Model, But Holding That An Issue Of Fact Exists Concerning Alleged Misstatements Regarding The Company’s Financial And Operational Data
     
    03/17/2020

    On March 9, 2020, Justice Andrew Borrok of the Supreme Court of the State of New York, New York County, Commercial Division, granted in part a motion to dismiss a putative securities class action asserting claims under Sections 11, 12 and 15 of the Securities Act of 1933 (the “Securities Act”) against a used car e-commerce company (the “Company”), certain of its executives and directors, and the underwriters for its initial public offering (“IPO”) of American Depository Shares (“ADSs”).  In re Uxin Limited Securities Litigation, No. 650427/2019 (N.Y. Sup. Ct. Mar. 9, 2020).  Plaintiffs alleged that the Company made materially false and misleading statements and omissions concerning changes to the Company’s business model and certain financial and operational data reported by the Company in connection with its IPO.  The Court granted in part and denied in part defendants’ motion to dismiss.
     
  • Southern District Of New York Dismisses Securities Fraud Complaint Against An Insurance Company, Finding That Confidential Witness Statements And Short-Seller Reports Were Not Sufficiently Particularized To Allege An Actionable Misstatement Or Omission
     
    03/11/2020

    On March 2, 2020, Judge Paul A. Engelmayer of the United States District Court for the Southern District of New York dismissed a putative securities fraud class action asserting violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 against a foreign insurance company (the “Company”) and certain current and former officers (the “individual defendants,” and collectively, “defendants”).  Long v. Fanhua Inc. et al., No. 1:18-CV-08183 (S.D.N.Y. Mar. 2, 2020).  Plaintiff, who commenced the action on behalf of all persons who purchased the Company’s American Depository Shares (“ADSs”), alleged that defendants failed to disclose certain related-party dealings and that the Company’s stock price declined once those dealings were disclosed to the market.  The Court dismissed plaintiff’s complaint and held that plaintiff’s reliance on uncorroborated short-seller reports was insufficient to state a claim. 
     
  • California Federal Judge Holds That Claims Under Section 10(b) Require “Out-of-Pocket” Loss
     
    03/11/2020

    On February 28, 2020, Judge M. James Lorenz of the United States District Court for the Southern District of California dismissed a putative securities class action against an investment management company (“Company”) and its clearing bank (“Clearing Bank,” and collectively, “Defendants”) that alleged violations of Section 10(b) of the Securities and Exchange Act of 1934 (“Exchange Act”) and Rule 10b-5.  Jiao v. Merrill Lynch, Pierce, Fenner & Smith, 17-cv-409-L (MDD) (S.D. Cal. Feb. 28, 2020).  Plaintiffs, who were customers of Defendants, brought the lawsuit after the Securities and Exchange Commission (“SEC”) entered into a consent and cease-and-desist order with Defendants (“SEC Order”) for violations of the Customer Protection Rule of the Exchange Act, 15 U.S.C. § 78aa; 17 C.F.R. § 240.15c3-3 (“CPR”), which required Defendants to maintain physical possession or control over customers’ fully paid and excess margin securities.  The Court dismissed the action with prejudice because claims under Section 10(b) require a plaintiff to plead and prove an “out-of-pocket” loss, which Plaintiffs failed to do.
     
    CATEGORIES: DamagesExchange Act
  • Tenth Circuit Affirms Dismissal Of Putative Class Action For Failure To Adequately Allege Scienter
     
    03/03/2020

    On February 25, 2020, the United States Court of Appeals for the Tenth Circuit affirmed the dismissal of a putative class action asserting claims under Section 10(b) of the Securities Exchange Act of 1934 against a money-transfer services company and certain of its former executives.  Smallen v. W. Union Co.,—F.3d—, 2020 WL 893826 (10th Cir. 2020).  Plaintiff alleged that the company made misrepresentations in SEC filings and public statements concerning its compliance with anti-money laundering and anti-fraud laws.  The lower court determined that plaintiff failed to adequately allege scienter.  Id. at *1.  The Tenth Circuit affirmed, holding that, although the complaint “may give rise to some plausible inference of culpability,” it fell short of the heightened standard imposed by the Private Securities Litigation Reform Act (“PSLRA”).  Id.

     
    CATEGORY: Scienter
  • Central District Of California Dismisses Putative Class Action Against Real Estate Investment Trust For Failure To Adequately Allege Misrepresentations
     
    03/03/2020

    On February 21, 2020, Judge George H. Wu of the United States District Court for the Central District of California adopted as final its tentative ruling, dated February 20, dismissing a putative class action asserting claims under Section 10(b) of the Securities Exchange Act of 1934 against a real estate investment trust and certain of its executives.  Brian Barry v. Colony NorthStar, Inc. et al., No. 18-CV-02888 (C.D. Cal. Feb. 21, 2020).  Plaintiff alleged that the company made misrepresentations in public statements regarding financial projections and fundraising that were misleading because those projections had become unreachable.  The Court held that plaintiff failed to allege an actionable misstatement or omission and, because plaintiff had already amended its complaint twice before, the Court denied leave to amend.
     
  • Southern District Of New York Dismisses Putative Class Action Against Mining Company For Failure To Adequately Allege Actionable Omissions Or Scienter
     
    03/03/2020

    On February 27, 2020, Judge Loretta A. Preska of the United States District Court for the Southern District of New York dismissed a putative class action asserting claims under Section 10(b) of the Securities Exchange Act of 1934 against a precious metals mining company and certain of its executives.  In Re Pretium Resources Inc. Sec. Lit., No. 18-CV-08199 (S.D.N.Y. Feb. 27, 2020).  Plaintiffs alleged that the company made misleading public statements expressing confidence in an existing plan for a particular gold mine, notwithstanding substantially increased excavation costs the mine was facing.  As noted by the Court and discussed in our prior post, the Southern District of New York previously dismissed another action filed against the company regarding alleged misrepresentations relating to its projections for the same mine.  Here, too, the Court held that plaintiffs failed to allege an actionable omission or scienter.
     
  • Northern District Of California Dismisses Certain Claims In Putative Class Action Against Cryptocurrency Company For Failure To Adequately Allege Falsity
     
    03/03/2020

    On February 26, 2020, Judge Phyllis J. Hamilton of the United States District Court for the Northern District of California dismissed certain claims in a putative class action asserting violations of the Securities Act of 1933 and California state law by a cryptocurrency firm and certain of its executives.  Vladi Zakinov, et al. v. Ripple Labs, Inc., et al., No. 18-CV-06753-PJH (N.D. Cal. Feb. 26, 2020).  Plaintiff alleged that the cryptocurrency created by the company was an unregistered security and, further, that the company had misrepresented the cryptocurrency’s long-term value.  The Court held that plaintiff had sufficiently alleged that the cryptocurrency was an unregistered security, but dismissed the misrepresentation claims for failure to allege an actionable misstatement or omission.
     
  • U.S. Supreme Court Holds Plaintiffs Need Actual Knowledge Of Breach Of Fiduciary Duty To Be Held To Three-Year Statute Of Limitations Under ERISA
     
    03/03/2020

    On February 26, 2020, the United States Supreme Court, in a unanimous decision by Justice Samuel Alito, held that for purposes of assessing the appropriate statute of limitations for a breach of fiduciary duty claim under the Employee Retirement Income Security Act of 1974 (“ERISA”), a plaintiff does not gain “actual knowledge” of allegedly improper investments disclosed in documents that he receives but does not read or cannot recall reading.  Intel Corp. Inv. Policy Comm. v. Sulyma,—U.S.—, 2020 WL 908881 (2020).  Thus, under such circumstances, the applicable statute of limitations is ERISA’s general six-year statute of repose, which begins to run from “the date of the last action which constituted a part of the breach or violation,” rather than the three-year limitations period, which begins to run from the earliest date on which a plaintiff gains “actual knowledge” of the breach or violation.  Id. at *2.
     
    CATEGORY:
  • Northern District Of Ohio Grants Motion To Dismiss Securities Fraud Claims Against Aerospace Component Company, Finding That Plaintiffs Did Not Adequately Allege Materiality Or Loss Causation With Respect To Alleged Misstatements And Omissions
     
    02/25/2020

    On February 19, 2020, Judge Pamela A. Barker of the United States District Court for the Northern District of Ohio granted a motion to dismiss a putative securities class action, asserting claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the “Exchange Act”), and Rule 10b-5 promulgated thereunder, against an aerospace component design and manufacturing company (the “Company”) and two of its executive officers.  In re TransDigm Group Inc., No. 17-cv-01677-PAB (N.D. Ohio Feb. 19, 2020).  Plaintiffs alleged that defendants made materially false and misleading statements and omissions concerning the Company’s operations, business, and prospects that resulted in a drop in the Company’s stock price when the Company made certain purported corrective disclosures.  The Court granted defendants’ motion to dismiss plaintiffs’ Third Amended Complaint, finding that plaintiffs failed to sufficiently allege materiality or loss causation, and denied leave to amend.
     
  • Middle District Of Florida Dismisses Securities Fraud Action Against Foodservice Equipment Company For Failure To Plead Scienter
     
    02/19/2020

    On February 6, 2020, Judge James S. Moody, Jr. of the United States District Court for the Middle District of Florida dismissed a putative class action asserting violations of Section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”) and Rule 10b-5 promulgated thereunder against a foodservice equipment company (the “Company”) and certain of its former officers.  Metropolitan Transportation Authority Defined Benefit Pension Plan Master Trust v. Welbilt Inc., No. 8:18-cv-03007 (M.D. Fl. Feb. 6, 2020).  Plaintiffs alleged that the Company made misleading statements about its disclosure controls in quarterly and annual reports from February 2017 to November 2018, and that its share price fell after it revealed that its financial statements should not be relied upon because of various accounting and reporting errors.  The Court dismissed the complaint without prejudice, holding that plaintiffs failed to plead sufficient facts to give rise to a strong inference of scienter.
     
  • District Of Delaware Partially Sustains Securities Fraud Case Against Automotive Parts Distributor For False Sales Growth Projections
     
    02/19/2020

    On February 7, 2020, Judge Richard G. Andrews of the United States District Court for the District of Delaware granted in part and denied in part motions to dismiss a putative securities class action against an automotive aftermarket parts provider (the “Company”), certain members of its management (the “Company Individual Defendants”), a hedge fund that owned approximately four percent of the Company’s shares, and the fund’s Chief Executive Officer who was a member of the Company’s board of directors.  In re Advance Auto Parts, Inc., Sec. Litig., No. CV-18-212-RGA (D. Del. Feb. 7, 2020).  Plaintiffs alleged that defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 by making misleading misstatements and omissions about the Company’s projected growth and financial condition.  The Court dismissed the claims to the extent it found them to be puffery or lacking sufficient allegations of falsity, but denied the motion with respect to claims based on statements related to projections and opinions regarding the Company’s financial outlook. 
     
  • Northern District Of California Pares Claims In Putative Class Action Against Food Supplement Manufacturer
     
    02/11/2020

    On February 4, 2020, Judge James Donato of the United States District Court for the Northern District of California partially dismissed a putative class action asserting claims under Section 10(b) of the Securities Exchange Act of 1934 against a food supplement company and certain of its former executives.  In Re TerraVia Holdings, Inc. Sec. Litig., No. 16-CV-06633-JD, 2020 WL 553939 (N.D. Cal. Feb. 4, 2020).  Plaintiffs alleged that the company made misrepresentations regarding the health benefits and commercial viability of certain ingredients it created and sourced for its food manufacturing partners, based on the company having received reports that these ingredients were causing illnesses, ultimately leading to product recalls.  The Court held that certain of the alleged misstatements were non-actionable, but that plaintiffs’ allegations respecting certain other alleged misstatements were sufficient to state a claim.
  • Maryland District Court Dismisses Majority Of Claims In Putative Class Action Against Media Company
     
    02/11/2020

    On February 4, 2020, Judge Catherine C. Blake of the United States District Court for the District of Maryland dismissed certain claims in a putative class action asserting claims under Section 10(b) of the Securities Exchange Act of 1934 against a media company and certain of its executives.  In re Sinclair Broadcast Group, Inc. Sec. Litig., slip op., No. 18-cv-2445 (D. Md. Feb. 4, 2020).  Plaintiffs alleged that the company made various misstatements to the FCC in connection with an ultimately unsuccessful merger with another media company, and that the company had engaged in an illegal price-fixing conspiracy regarding advertising rates.  The Court dismissed most of plaintiffs’ claims, but held that plaintiffs had sufficiently alleged falsity and scienter with respect to certain specific statements concerning proposed divestitures in connection with the merger.
  • Southern District Of New York Dismisses Putative Class Action Against Tobacco Company For Failure To Adequately Allege Falsity And Scienter
     
    02/11/2020

    On February 4, 2020, Judge Ronnie Abrams of the United States District Court for the Southern District of New York dismissed a putative class action asserting claims under Section 10(b) of the Securities Exchange Act of 1934 against a tobacco company and certain of its executives.  In re Philip Morris Int’l Inc. Sec. Litig., No. 18-CV-08049 (S.D.N.Y. Feb. 4, 2020).  Plaintiffs alleged that the company made misrepresentations in securities filings and public statements regarding clinical studies it published in connection with its application to the U.S. Food and Drug Administration to sell its vapor-based product in the United States and to market it as presenting a lower risk than traditional tobacco products.  Plaintiffs also alleged that the company made misrepresentations regarding sales growth in Japan for the same product.  The Court held that plaintiffs failed to allege an actionable misstatement or omission or to establish scienter, but granted leave to amend with respect to certain allegations.
  • Northern District Of Illinois Sustains But Pares Putative Class Actions Against Pharmaceutical Company
     
    02/11/2020

    On February 5, 2020, Judge Matthew F. Kennelly of the United States District Court for the Northern District of Illinois sustained some but not all claims in a putative class action asserting violations of Sections 10(b) and 18 of the Securities Exchange Act of 1934 against a pharmaceutical company and certain of its executives.  Twin Master Fund, Ltd. v. Akorn, Inc., No. 19-CV-3648 (N.D. Ill. Feb. 05, 2020).  Plaintiffs alleged that the company knowingly made false statements and omissions regarding the company’s compliance with FDA regulations governing data integrity and manufacturing in public statements and filings and in a publicly filed merger agreement.  The Court held that plaintiffs had adequately alleged misrepresentations as to a number of statements, but dismissed plaintiffs’ claims with respect to certain others.
  • Central District Of California Allows Exchange Act Claims To Proceed Against Non-U.S. Corporate Issuer In Connection With ADRs, Holding That Plaintiffs Sufficiently Alleged A Domestic Transaction Under Morrison And Involvement Of Toshiba In The ADRs
     
    02/05/2020

    On January 28, 2020, Judge Dean D. Pregerson of the United States District Court for the Central District of California denied defendant’s motion to dismiss a putative securities class action brought against a multinational technology and communications corporation headquartered in Tokyo, Japan, in connection with American Depositary Receipts (“ADRs”) which were not sponsored by the foreign issuer and were traded on over-the-counter markets.  Stoyas v. Toshiba Corp., No. 15-cv-4194 (C.D. Cal. 2020).  The Court had previously dismissed plaintiffs’ first amended complaint and denied leave to amend.  The Court’s dismissal of plaintiffs’ claims under Section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”), and Rule 10b-5 promulgated thereunder, was based on the Supreme Court’s seminal decision in Morrison v. National Australia Bank Ltd., 561 U.S. 247 (2010), which held that Section 10(b) and SEC Rule 10b-5 only apply to (i) the purchase or sale of a security listed on a U.S. securities exchange, or (ii) the purchase or sale of any other security in the United States. 
     
    CATEGORIES: Exchange ActJurisdiction
  • Northern District Of California Grants Motion To Dismiss Securities Fraud Claims Against Pharmaceutical Company, Finding That Plaintiffs Did Not Adequately Allege Falsity And Scienter With Respect To Alleged Material Omissions
     
    02/05/2020

    On January 27, 2020, Judge Richard G. Seeborg of the United States District Court for the Northern District of California granted a motion to dismiss a putative securities class action asserting claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the “Exchange Act”), and Rule 10b-5 promulgated thereunder, against a pharmaceutical company (the “Company”) and two of its executive officers.  Immanuel Lake, et al. v. Zogenix, Inc., et. al., No. 19-cv-01975-RS (N.D. Cal. Jan. 27, 2020).  Plaintiffs alleged that defendants made material omissions concerning the Company’s New Drug Application (“NDA”) it was submitting to the U.S. Food and Drug Administration (“FDA”) for a medication designed to treat seizures.  According to plaintiffs, the Company’s stock price fell approximately 20% when the alleged omission was revealed to the market through the FDA’s rejection of the NDA.  The Court granted defendants’ motion to dismiss, finding that plaintiffs failed to sufficiently allege a misstatement or omission of a material fact and scienter, but granted leave to amend.
     
  • New York District Court Dismisses Securities Class Action Against Tax Services Provider Alleging Fraudulent Concealment Of CEO’s Misconduct On Materiality And Loss Causation Ground
     
    01/28/2020

    On January 17, 2017, Judge Nicholas G. Garaufis of the United States District Court for the Eastern District of New York dismissed a putative class action asserting claims under Sections 10(b), 14(a), and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5, against a tax preparation services provider (the “Company”) and its former CEO and CFO (collectively, “Defendants”).  In re Liberty Tax, Inc. Sec. Litig., No. 2:17-CV-07327 (NGG) (RML) (E.D.N.Y. Jan. 17, 2020).  Plaintiffs alleged that Defendants made false and misleading statements and omissions about the Company’s compliance efforts and internal controls, which concealed the CEO’s extensive misconduct that ultimately caused steep declines in the Company’s stock price.  The Court dismissed the action on the basis that the statements at issue were unrelated to the CEO’s misconduct or were mere puffery, and that plaintiffs failed to establish loss causation linked to any corrective disclosures. 
     
  • Court of Appeals Of Texas Affirms Dismissal Of Nonresident Issuer, Individual Defendants And Underwriters For Lack Of Personal Jurisdiction In Securities Lawsuit Due To Insufficient Contacts With The State
     
    01/28/2020

    On January 21, 2020, the Court of Appeals of Texas dismissed for lack of personal jurisdiction a putative class action against a chemical products manufacturer (the “Company”), certain of its officers and directors, and underwriters of the Company’s initial public offering (“IPO”) and secondary public offering (“SPO”) (the “Underwriters”).  The Court remanded claims against the remaining defendants, companies from which the Company was spun off in the IPO (“Predecessors”), for the trial court to transfer the venue from Dallas County to Montgomery County.  Venator Materials PLC v. Macomb Cnty. Employees’ Retirement Sys. & Firemen’s Retirement Sys. of St. Louis, No. 05-19-01177-CV, 2020 WL 289296 (Tex. App. Jan. 21, 2020).  Plaintiffs allege that defendants violated sections 11, 12(a)(2), and 15 of the Securities Act of 1933 by failing to disclose the effects of a fire at one of the Company’s facilities.  The Court held that the Texas contacts of the Company, the individual defendants, and the Underwriters were insufficient to confer general or specific personal jurisdiction.
     
    CATEGORY:
  • Northern District Of Illinois Certifies Class In A Commodities Market Manipulation Suit, Holding That Proposed Class Made A Sufficient Showing Of Rule 23 Requirements
     
    01/14/2020

    On January 3, 2020, Judge Edmond E. Chang of the United States District Court for the Northern District of Illinois Eastern Division granted Plaintiffs’ motion to certify a class of investors in an action alleging that two major food companies (“Defendants”) manipulated the wheat futures market.  Plaintiffs asserted claims against Defendants under Sections 6(c)(1) and 9(a)(2) of the Commodity Exchange Act (“CEA”), under Section 2 of the Sherman Antitrust Act (“Sherman Act”), and for common law unjust enrichment.  Harry Ploss v. Kraft Foods Group Inc. et al., No. 1:15-cv-02937 (N.D. Ill. Jan. 3, 2020).     
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