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  • District Court Dismisses Putative Class Action Asserting Securities Fraud, Holding That Plaintiffs Failed To Adequately Allege Actionable Material Misstatements Or Omissions And Scienter
     
    05/14/2019

    On April 30, 2019, the United States District Court for the District of Massachusetts granted a motion to dismiss a putative class action asserting claims under Section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”) and Rule 10b-5 thereunder against a biopharmaceutical company (the “Company”) and certain of its executives, and claims under Section 20(a) of the Exchange Act against the executives.  In re Ocular Therapeutix, Inc. Securities Litigation, No. 17-CV-12288 (D. Mass. Apr. 30, 2019).  Plaintiffs alleged that defendants made misstatements regarding manufacturing issues with respect to an ocular pain drug developed by the Company.  The Court held that plaintiffs failed to adequately allege actionable misstatements or omissions and scienter, and granted the motion to dismiss.
  • Second Circuit Summarily Affirms Dismissal Of Putative Securities Fraud Class Action Against Pharmacy Benefits Manager Company, Finding That Plaintiffs Failed To Adequately Allege Material Misstatements And Scienter

     
    05/14/2019

    On May 7, 2019, the United States Court of Appeals for the Second Circuit summarily affirmed the judgment by Judge Edgardo Ramos of the United States District Court for the Southern District of New York granting defendants’ motion to dismiss in a putative securities class action.  In re Express Scripts Holdings Co. Securities Litigation No. 18-cv-1850 (2d Cir. May 7, 2019).  Plaintiffs alleged that defendants—a pharmacy benefit manager (“the Company”) and certain of its officers—violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (“Exchange Act”) by making materially false or misleading statements in connection with the purchase or sale of securities.  As discussed in our prior post, the District Court granted defendants’ motion to dismiss, finding that plaintiffs did not adequately plead that defendants made any misleading statements or that defendants acted with the requisite scienter.  On appeal, plaintiffs argued that the District Court incorrectly held that the Amended Complaint failed to adequately allege that defendants made materially false and misleading statements and omission and acted with scienter.  The Second Circuit affirmed in a summary order.  Summary orders do not have binding precedential effect.
  • New York Federal Court Dismisses Charter School’s Section 10(b) Claims For Lack Of Standing, Rejecting Plaintiff’s Constructive Seller Theory
     
    05/07/2019

    On April 10, 2019, Judge Loretta A. Preska of the United States District Court for the Southern District of New York dismissed an action asserting violations of Section 10(b) of the Securities and Exchange Act of 1934 and claims under state law against a broker-dealer (the “Broker-Dealer”) and several individuals who participated in a bond offering facilitated by the Broker-Dealer.  Palm Beach Maritime Museum v. Hapoalim Sec. USA, Inc., 19 Civ. 908 (LAP), 2019 WL 1950139 (S.D.N.Y. Apr. 10, 2019).  Plaintiff, a non-profit corporation approved as a charter school in Florida, alleged that defendants made materially false statements in connection with a bond purchase agreement to finance plaintiff’s purchase and expansion of property.  The Court held that plaintiff lacked standing to pursue its Section 10(b) claim because it was not the buyer or seller of a security. 
     
    CATEGORIES: Exchange ActStanding
  • The Second Circuit Affirms Denial Of Plaintiffs’ Motion For Leave To Amend Securities Class Action On The Ground That Any Such Amendment Would Be Futile
     
    05/07/2019

    On April 29, 2019, the United States Court of Appeals for the Second Circuit affirmed the denial of plaintiffs’ motion for leave to file an amended complaint alleging securities fraud against an international pharmaceutical corporation (the “Company”) and several of its past and present executives.  Steamfitters’ Indus. Pension Fund v. Endo Int’l PLC, 18-1669-cv (2d Cir. Apr. 29, 2019).  Upon reviewing the district court’s decision de novo, the Second Circuit concluded that an amendment would be futile because the alleged misrepresentations and omissions contained in plaintiffs’ proposed amended complaint (the “Proposed Amended Complaint”) failed to allege any plausible violation of Section 10(b) and 20(a) of the Securities and Exchange Act of 1934 (“Exchange Act”) and Rule 10b-5.
  • After Oral Argument, Supreme Court Dismisses Emulex Appeal, Prompting Speculation As To Court’s View Regarding Existence Of Private Right Of Action Under Section 14(e), While Leaving In Place Circuit Split Regarding Section 14(e)’s Required Mental State
     
    04/30/2019

    On April 23, 2019, the Supreme Court dismissed the writ of certiorari as “improvidently granted” in a closely-watched appeal raising the question whether an assertion of mere negligence is sufficient to plead and prove a claim under Section 14(e) of the Securities Exchange Act of 1934 and—perhaps—whether a private right of action exists under Section 14(e) at all.  Emulex Corporation, et al. v. Varjabedian, —U.S.—, slip op. (Apr. 23, 2019).  As discussed in our prior post, most of the oral argument concerned whether a private right of action under Section 14(e) exists, but some justices expressed concern over whether the Court should weigh in on that question because it was not presented below.
  • Western District Of Washington Revives Securities Class Action Previously Dismissed For Failure To Adequately Allege Material Misstatements And Scienter
     
    04/30/2019

    On April 19, 2019, Judge John C. Coughenour of the United States District Court for the Western District of Washington 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 thereunder against Zillow Group, Inc. and certain of its executives.  In re Zillow Group, Inc. Securities Litig., No. C17-1387-JCC, 2019 WL 1755293 (W.D. Wash. Apr. 19, 2019).  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”) that allegedly arose out of Zillow’s “co-marketing” program between real estate agents and mortgage lenders.  As discussed in our prior post, the Court had previously granted defendants’ motion to dismiss plaintiffs’ first amended complaint, but allowed plaintiffs leave to file a second amended complaint.  In considering the second amended complaint, the Court explained how plaintiffs had cured the defects the Court noted in its prior ruling regarding allegations of material misstatements and scienter.
  • Supreme Court Holds That Parties Must Unambiguously Consent To Class Arbitration
     
    04/30/2019

    On April 24, 2019, the United States Supreme Court, in a 5-4 decision authored by Chief Justice Roberts, held that an agreement ambiguous as to whether arbitration had been agreed for class claims as well as individual claims could not provide a contractual basis for class arbitration.  Lamps Plus, Inc. v. Varela, 587 U.S. ___, 2019 WL 1780275 (2019).  The Court addressed two questions:  (i) whether the Court had jurisdiction, given that the district court had compelled arbitration in connection with its dismissal of the underlying claims; and (ii) whether state contract law principles could be applied to interpret an arbitration clause that was ambiguous with regard to the authorization of class arbitration as authorizing such arbitration.  The Court held that it had jurisdiction because dismissal of the underlying claims qualified as a “final decision” under the Federal Arbitration Act (“FAA”).  On the merits issue, the Court held that a contract that was ambiguous as to whether class arbitration was permitted lacked the explicit “consent” to such arbitration required under the FAA.
    CATEGORY: Class Actions
  • Supreme Court Hears Argument On Whether Mere Negligence Is Sufficient To Sustain Investor Claims Under Section 14(e) Of The Exchange Act In Connection With A Tender Offer And—Perhaps—Whether A Private Right of Action Exists Under Section 14(e) At All
     
    04/23/2019

    On April 15, 2019, the Supreme Court heard argument in a closely-watched case asking whether mere negligence is sufficient to plead and prove a claim under Section 14(e) of the Securities Exchange Act of 1934 (the “Exchange Act”) in connection with a tender offer and – perhaps – whether a private right of action exists under Section 14(e) at all.  Emulex Corporation, et al. v. Varjabedian, No. 18-459 (Apr. 15, 2019).  The argument was particularly lively, with the Justices posing numerous questions about both a defendant’s required mental state, as well as whether an implied right of action ought to be recognized – although it remains unclear whether the Court will actually decide the latter question.
    CATEGORIES: Exchange ActScienter
  • Southern District Of New York Dismisses Claim That Underwriter Of Regulation A+ Offering Was A Seller Of Unregistered Securities, But Allows Securities Fraud Claim To Proceed Past The Pleading Stage
     
    04/23/2019

    On April 11, 2019, Judge Denise Cote of the United States District Court for the Southern District of New York granted in part and denied in part an underwriter’s motion to dismiss a putative class action lawsuit filed against a financial and technological services company (the “Company”), its executives, and the lead underwriter (“Underwriter”) of the Company’s Regulation A+ (“Reg A+”) offering in 2017 (the “Offering”).  In re Longfin Corp. Securities Class Action Litigation, 1:18-cv-02933 (DLC) (S.D.N.Y. Apr. 11, 2019).  Reg A+ was created to exempt certain categories of offerings from registration requirements and is an alternative to a traditional initial public offering.  Plaintiffs alleged that all defendants sold unregistered securities in violation of Section 12(a)(1) of the Securities Act of 1933 (“Securities Act”) in order to list on the NASDAQ, and committed fraud in violation of the Securities Exchange Act of 1934 (“Exchange Act”) and Rule 10b-5 thereunder, and that certain of the individual defendants were liable under Section 20(a) of the Exchange Act and/or engaged in insider trading in violation of Section 20A of the Exchange Act.  The gravamen of plaintiffs’ claims is that the Company fraudulently issued more than 400,000 Class A shares to 24 individuals for $0 consideration in order to meet the NASDAQ’s listing requirement that the Company has issued 1,000,000 publicly held shares.  With respect to the Underwriter’s motion to dismiss, the Court dismissed the Securities Act claim, finding that it was not a “seller” of securities, but held that the Exchange Act claim could proceed because plaintiffs’ amended complaint adequately alleged, for the purpose of the motion to dismiss, the Underwriter’s knowledge and participation in a “scheme” under Rule 10b-5.
  • Central District Of California Sustains Putative Class Action Against Canadian Silver Company And Its Auditor For Failing To Disclose Major Potential Tax Liability In Its Public Financial Statements
     
    04/16/2019

    On March 25, 2019, Judge Christina A. Snyder of the United States District Court for the Central District of California denied a motion to dismiss a class action filed against a Canadian silver company (the “Company”), current and former executives of the Company, and its auditor and tax consultant (the “Auditor”), alleging violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5.  In Re Silver Wheaton Corp. Secs. Lit., No. 2:15-cv-05146; 2:15-cv-5173 (C.D. Cal. Mar. 25, 2019).  Plaintiffs allege defendants failed to disclose USD$207 million in Canadian tax liabilities and that the Auditor wrongfully issued clean audit opinions.  The Court held that plaintiffs sufficiently pleaded claims against all defendants.  Of particular note, while the Court acknowledged several hurdles that generally result in the dismissal of claims against auditors, it held that those hurdles had been surmounted by plaintiffs given the unique circumstances of the case.
  • District of Colorado Dismisses Putative Class Action Against Restaurant Chain For Failure To Adequately Allege Misstatements Or Omissions
    04/09/2019

    On March 29, 2019, Judge Wiley Y. Daniel of the United States District Court for the District of Colorado dismissed with prejudice a putative securities class action asserting claims under the Securities Exchange Act of 1934 and Rule 10b-5 thereunder against the restaurant chain Chipotle and certain of its executives.  Nardy v. Chipotle Mexican Grill, Inc., No. 1:17-cv-1760 (WYD) (STV), slip op. (D. Colo. Mar. 29, 2019), ECF No. 64.  Plaintiffs alleged that, in the wake of foodborne illness outbreaks at Chipotle restaurants, defendants made misrepresentations and omissions regarding the company’s compliance with food safety regulations and its implementation and training of employees on food safety practices.  The Court held that plaintiffs’ various allegations failed to assert actionable misrepresentations, or in certain cases did not adequately allege scienter, or loss causation.
  • Southern District Of New York Dismisses Putative Class Action Against Pharmaceutical Company For Failure To Adequately Allege Misstatements And Scienter
     
    04/09/2019

    On March 28, 2019, Judge William H. Pauley of the United States District Court for the Southern District of New York granted a motion to dismiss a putative securities class action asserting claims under the Securities Exchange Act of 1934 and Rule 10b-5 thereunder against a pharmaceutical company and certain of its executives.  Gagnon v. Alkermes PLC, —F. Supp. 3d—, 2019 WL 1388700 (S.D.N.Y. Mar. 28, 2019).  Plaintiff alleged that defendants made misleading statements in investor and analyst calls and public filings concerning the efficacy of the company’s opioid-dependence drug Vivitrol and the reasons for increased revenue from Vivitrol, which plaintiff alleged actually resulted from deceptive marketing and lobbying tactics.  Id. at *2.  The Court held that all but one of the alleged misstatements were not actionable, and as to the one actionable misstatement, plaintiff had failed to adequately allege scienter.  Because the Court had previously given plaintiff an opportunity to replead, the action was dismissed with prejudice.
  • Southern District Of New York Holds Scienter Adequately Alleged In Putative Class Action Against Forex Services Company
     
    04/09/2019

    On March 28, 2019, Judge Ronnie Abrams of the United States District Court for the Southern District of New York largely denied a motion to dismiss a putative class action asserting claims under the Securities Exchange Act of 1934 and Rule 10b-5 thereunder.  In re Global Brokerage, Inc., 17-cv-00916 (RA) (S.D.N.Y. Mar. 28, 2019).  Plaintiffs principally alleged that defendants, a foreign exchange trading and services company and certain of its executives, made misleading statements or omissions regarding (a) the company’s reliance on an agency-trading model and (b) the nature of payments the company received from another company, “Effex,” that had been spun-off from the defendant company.  The Court had dismissed plaintiffs’ prior amended complaint without prejudice, holding, inter alia, that plaintiffs had not adequately alleged scienter.  The Court held, however, that plaintiffs’ second amended complaint adequately alleged actionable misrepresentations and scienter as to the majority of claims and all but one individual defendant.
  • Second Circuit Affirms District Court’s Denial Of Motions To Remand, Finding That Removal Prior To Service Of The Complaints Was Proper Under The “Forum Defendant Rule”
     
    04/09/2019

    On March 26, 2019, the United States Court of Appeals for the Second Circuit affirmed the removal and dismissal of claims brought against two pharmaceutical companies.  Gibbons v. Bristol-Myers Squibb Company and Pfizer Inc., No. 17-2638 (2d. Cir. Mar. 26, 2019).  Plaintiffs asserted over a dozen claims across multidistrict litigation (“MDL”) against defendants alleging that plaintiffs or their decedents suffered injuries as a result of the allegedly improper design of and insufficient warning labels for a certain blood-thinning drug used to reduce the risk of stroke in patients with atrial fibrillation that was manufactured and distributed by defendants.
    CATEGORIES: PreemptionRemoval
  • Southern District Of New York Pares Claims In Putative Class Action Against Pharmaceutical Company
     
    04/09/2019

    On March 29, 2019, 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 and Rule 10b-5 thereunder in a putative class action against a pharmaceutical company and certain of its executives.  In re Mylan N.V. Securities Litigation, No. 16-cv-7926 (JPO) (S.D.N.Y. Mar. 29, 2019).  Plaintiffs alleged that defendants made misleading statements regarding, among other things, an alleged rebate scheme involving the company’s EpiPen, and the alleged inflation of prices for various generic drugs.  After the Court dismissed in part plaintiffs’ first amended complaint as noted in our prior post, plaintiffs filed a second amended complaint that added an executive as a defendant, new allegations to support scienter for previously dismissed claims, a new alleged corrective disclosure in support of loss causation arguments, and additional claims asserting fraud based on the failure to disclose illegal anticompetitive misconduct.  The Court held certain of plaintiffs’ new allegations based on anticompetitive behavior were inadequately pleaded but permitted one claim to go forward, and also held that certain new allegations of scienter were sufficient.
  • District Court Dismisses Putative Class Action, Holding That Company’s Optimistic Guidance Fell Within PSLRA Safe Harbor Provision
     
    03/26/2019

    On March 15, 2019, Judge Edward M. Chen of the United States District for the Northern District of California dismissed a putative class action asserting violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 against a camera technology company (“Company”), along with its officers and executives.  Park v. GoPro, Inc., et. al., 18-cv-00193-EMC (N.D. Cal. Mar. 15, 2019).  Plaintiffs claimed defendants made false statements during an earnings call following the announcement of the Company’s results for the third quarter of the 2017 fiscal year (“Q3 2017”), and engaged in suspicious stock transactions.  The Court dismissed the action on the ground that plaintiffs did not adequately plead falsity or scienter.
  • Southern District Of Texas Dismisses Putative Class Action Against Oil And Gas Exploration Company For Failure To Adequately Allege Scienter
     
    03/19/2019

    On March 13, 2019, Judge Lee H. Rosenthal of the United States District Court for the Southern District of Texas granted a motion to dismiss claims under Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder in a putative class action against an oil and gas exploration and production company and certain of its officers.  Edgar v. Anadarko Petroleum Corporation, et al., No. 17-cv-01372 (S.D. Tex. Mar. 13, 2019).  After the Court dismissed the prior amended complaint as noted in our prior post, plaintiff filed a second amended complaint attempting to add allegations supporting an inference of scienter.  The Court held, however, that the amended complaint still failed to adequately allege scienter, and therefore dismissed the action with prejudice.
    CATEGORY: Scienter
  • Southern District Of New York Dismisses Action Against Automobile Logistics Company For Failure To Adequately Allege Misstatements Or Scienter
     
    03/19/2019

    On March 8, 2019, Judge William H. Pauley of the United States District Court for the Southern District of New York granted a motion to dismiss an action asserting claims under Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder against a provider of logistics to automobile manufacturers and certain of the company’s officers.  River Birch Capital, LLC, v. Jack Cooper Holdings Corp., No. 17-CV-9193, 2019 WL 1099943 (S.D.N.Y. Mar. 8, 2019).  The Court held that plaintiff failed to allege any actionable misstatements or omissions and, further, that plaintiff failed to adequately allege scienter.  Because the Court had previously given plaintiff an opportunity to replead, the action was dismissed with prejudice.
  • Second Circuit Affirms Dismissal Of Putative Securities Class Action, Holding That The Occurrence Of Regulatory Problems Do Not Render Materially Misleading Generic Positive Statements Regarding A Corporation’s Compliance Efforts
     
    03/12/2019

    On March 5, 2019, the United States Court of Appeals for the Second Circuit affirmed the dismissal of a putative securities class action against Cigna and several of its officers.  Minohor Singh v. Cigna Corporation, et al., No. 17-CV-3484 (2d Cir. Mar. 5, 2019).  Plaintiffs alleged that defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and Rule 10b-5 promulgated thereunder, by making a series of materially misleading statements concerning Cigna’s compliance with regulatory requirements.  Defendants filed a motion to dismiss.  Judge Vanessa L. Bryant of the United States District Court for the District of Connecticut granted the motion, holding that plaintiffs did not adequately allege material misstatements and scienter.  Plaintiffs appealed.  The Second Circuit affirmed, emphatically, agreeing that plaintiffs failed to adequately plead actionable material misrepresentations. 
  • Eighth Circuit Reverses Dismissal Of Securities Class Action Resulting From Merger, Finding Question of Materiality Of Alleged Misstatements And Omissions In Proxy Statement Could Not Be Resolved As A Matter Of Law
     
    03/12/2019

    On March 1, 2019, the United States Court of Appeals for the Eighth Circuit reversed the dismissal of a class action arising from the merger of a biotechnical company (“Biotech Company”) and a cancer-diagnostics company (“Diagnostics Company”) against the Biotech Company, its former president, and the company that was formed by the merger (“Post-Merger Company”).  Campbell v. Transgenomic, Inc., No. 18-2198, 2019 WL 983676 (8th Cir. Mar. 1, 2019).  Plaintiffs, former shareholders of the Biotech Company, allege that defendants violated Sections 14(a) and 20(a) of the Securities Exchange Act (“Exchange Act”), and Rule 14a-9 promulgated thereunder, by providing a materially false and misleading proxy statement to shareholders that failed to accurately convey the value of the Diagnostics Company.  Judge John M. Gerrard of the United States District Court for the District of Nebraska dismissed the case and held that the alleged misstatements and omissions were immaterial as a matter of law.  Plaintiffs appealed and the Eighth Circuit reversed the judgment, holding that whether the alleged misstatements and omissions were material was a question for the trier of fact.
  • District Of New Jersey Dismisses Putative Securities Class Action Against Technology Company Based On Its Statements About Its International Distributor Agreement
     
    03/05/2019

    On February 22, 2019, Judge Kevin McNulty of the United States District Court for the District of New Jersey granted defendants’ motion to dismiss a putative class action against an Israeli-based technology company (“Company”) and its senior officers, asserting violations of Sections 10(b) and 20(a) of the Exchange Act of 1934, and Rule 10b-5. Padgett v. RIT Techs. Ltd., No. 2:16-cv-4579, 2019 WL 913154 (D.N.J. Feb. 22, 2019). Plaintiffs alleged defendants failed to disclose the extent of the Company’s reliance on an agreement with a non-exclusive distributor to provide its products and services in the Commonwealth of Independent States region (“CIS”). The Court dismissed the amended complaint without prejudice, holding that plaintiffs failed to adequately allege how defendants’ public statements and failure to use specific adjectives to characterize the distributor were misleading to investors.
  • U.S. Chamber Of Commerce’s Institute Of Legal Reform Publishes Report On “Broken Securities Class Action System” And Proposes Reforms
     
    03/05/2019

    On February 25, 2019, the U.S. Chamber of Commerce’s Institute of Legal Reform (the “ILR”) published a report entitled “Containing the Contagion: Proposals to Reform the Broken Securities Class Action System” (the “Report”). The Report describes various trends and problems affecting the securities class action system, which have led to the filing of securities cases “reaching levels not seen since before the enactment of the Private Securities Litigation Reform Act (PSLRA) in 1995.” According to the Report, the three main drivers of the steep increase in securities litigation filings are: (1) cases alleging misstatements in connection with M&A activity; (2) so-called “event-driven litigation,” whereby securities class actions are triggered by unexpected adverse events, such as fires, explosions, data breaches, and the like; and (3) the U.S. Supreme Court’s decision in Cyan Inc. v. Beaver County Employees Retirement Fund (138 S. Ct. 1061 (2018)), which confirmed that state courts retain non-removable (with limited exceptions) concurrent jurisdiction over Securities Act of 1933 class actions. The Report also describes perceived abuses and the need to curb such practices. Finally, the Report urges action from different parts of the federal government including the SEC, federal courts, and Congress, calling on each to do its part in curbing non-meritorious lawsuits that can ultimately harm investors and the U.S. capital markets system.
    CATEGORY: Securities Act
  • Supreme Court Rules That Deadline For Appealing Class Certification Decision Is Not Subject To Equitable Tolling
     
    03/05/2019

    On February 26, 2019, the United States Supreme Court unanimously reversed a decision from the United States Court of Appeals for the Ninth Circuit, which had held that Rule 23(f) of the Federal Rules of Civil Procedure is subject to equitable tolling in appropriate circumstances. Nutraceutical Corp. v. Lambert, No. 17-1094, -- S.Ct. -- (2019). The Supreme Court ruled that the deadline in Rule 23(f) is mandatory and not subject to equitable tolling.
     
  • Southern District Of New York Dismisses Putative Securities Fraud Class Action Against Biopharmaceutical Company, Finding Interpretations Of Clinical Studies To Be Nonactionable Statements Of Opinion
     
    02/20/2019

    On February 13, 2019, United States District Judge William H. Pauley III of the United States District Court for the Southern District of New York dismissed a putative securities class action against clinical stage biopharmaceutical company New Link Genetics Corporation (the “Company”) and its co-founders.  Nguyen and Nguyen v. New Link Genetics Corp., et al., No. 16-cv-03545 (S.D.N.Y. Feb. 13, 2019).  Plaintiffs contended that defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 by making a series of alleged misrepresentations regarding the development of the Company’s flagship pancreatic cancer drug that “painted a rosier picture for investors, who were misled into thinking the drug would obtain FDA approval.”  The Court dismissed without prejudice plaintiffs’ initial complaint, finding that, although plaintiffs adequately pled falsity concerning one alleged misstatement, plaintiffs had not sufficiently pled falsity as to any other statement and, in any event, failed to sufficiently plead loss causation for any of the alleged misstatements.  Having reviewed plaintiffs’ amended complaint and defendants’ motion to dismiss that complaint, the Court again dismissed plaintiffs’ claims, holding that plaintiffs’ new allegations regarding misstatements failed to sufficiently plead falsity and that plaintiffs’ loss causation allegations “merely parrot” the defective allegations in their previous complaint. 
  • 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.

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