Supreme Court Concludes That Dodd-Frank’s “For Cause” CFPB Director Removal Provision Violates Separation Of Powers, But Finds Provision Severable And Thus Leaves CFPB’s Authority Intact
On June 29, 2020, the United States Supreme Court, in a 5-4 decision authored by Chief Justice Roberts, held that the structure of the Consumer Financial Protection Bureau (“CFPB”), which permitted the President to remove the CFPB’s Director only for “inefficiency, neglect of duty, or malfeasance in office,” violated the Constitution’s separation of powers. The Court further concluded, however, that the provision was severable from the remainder of Title X of the Dodd-Frank Act (which created the CFPB), and thus the Court left the CFPB’s rulemaking, enforcement, and adjudicative powers intact. Seila Law LLC v. CFPB
, —U.S.—, 2020 WL 3492641 (June 29, 2020). The background of this case was further discussed in our prior post
Northern District Of Illinois Bankruptcy Court Holds That Executive Order Barring Restaurant Operations On-Premises In Light Of COVID-19 Is A Force Majeure Event That Partially Excuses Debtor Restaurant’s Payment Under The Lease
On June 2, 2020, Judge Donald R. Cassling of the United States Bankruptcy Court for the Northern District of Illinois held that a state executive order suspending dine-in services to address the COVID-19 pandemic (the “Executive Order”) constituted a force majeure event that partially excused performance under the applicable lease agreement. In re Hitz Restaurant Group, No. 20-B-05012, 2020 WL 2924523 (Bankr. N.D. Ill. June 2, 2020). The creditor, a property management company, sought to enforce the obligation of the debtor, a restaurant group that leased property from the creditor and filed for bankruptcy, to pay post-petition rent under Section 365(d)(3) of the Bankruptcy Code. 11 U.S.C. §§ 365(d)(3). Applying contract principles under Illinois law, the Court held that the force majeure clause of the lease agreement excused the debtor’s lease payments, but only to the extent the debtor’s operations were impacted by the Executive Order.
New York State Trial Courts Remove COVID-19 Emergency Restriction On Filing New Commercial Actions
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.
Southern District Of New York Holds Syndicated Term Loan Notes Sold To Buyers Are Not “Securities”
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.
New York State Trial Courts Loosen COVID-19 Emergency Restrictions On Court Filings
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.
ARRC Releases Summary Of Proposed New York Law Aimed At Amending Legacy Transactions Referencing USD LIBOR
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.
District Of Delaware Dismisses Putative Securities Class Action Against Energy Company Based On Failure To Adequately Plead Materiality And Loss Causation
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.
So Long, Cyan?—Delaware Supreme Court Endorses Federal Forum-Selection Provisions For Securities Act Claims
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.
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
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.
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
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.
Overview Of Cases Of Particular Interest Currently Pending Before The Supreme Court Of The United States
Looking ahead, we preview cases currently pending before the Supreme Court—which have already been accepted for review by the Court—that may be of particular interest to readers of the Need-to-Know Litigation Weekly. These cases pertain to various topics in Securities, Enforcement, and, as to one, arbitration.
Supreme Court Denies Petition For Certiorari In Toshiba, Leaving In Place Arguable Circuit Split Regarding Extraterritorial Reach Of Section 10(b)
On June 24, 2019, the United States Supreme Court denied a petition for certiorari to review a decision from the United States Court of Appeals for the Ninth Circuit, which held that a foreign issuer that has no involvement in establishing or selling ADRs can be subject to liability under Section 10(b) of the Securities Exchange Act of 1934 as long as plaintiff purchased or sold the ADRs in a domestic transaction. Toshiba Corp. v. Auto. Indus. Pension Trust Fund, et al., No. 18-486 (U.S. June 24, 2019). Pursuant to its typical practice, the Court did not comment on its reasons for denying certiorari.
Supreme Court Expands Scope Of Confidential Information Disclosure Exemption Under Freedom Of Information Act
On June 24, 2019, the United States Supreme Court, in an opinion by Justice Gorsuch, held that information that “is both customarily and actually treated as private by its owner and provided to the government under an assurance of privacy” is protected from disclosure under the Freedom of Information Act (“FOIA”) pursuant to Exemption 4 thereto, which protects “commercial or financial information obtained from a person and privileged or confidential.” Food Mktg. Inst. v. Argus Leader Media, —U.S.—, 2019 WL 2570624 (June 24, 2019). The Court thus reversed a decision of the Eighth Circuit that had required an additional showing that disclosure would cause “substantial competitive harm.”
Third Circuit Upholds Customer’s Right To FINRA Arbitration Despite Brokerage Agreements’ Forum-Selection Clause Providing Right To Litigate In Federal Court
On August 7, 2018, the U.S. Court of Appeals for the Third Circuit affirmed a district court order compelling defendant, a broker-dealer and member of the Financial Industry Regulatory Authority (FINRA), to submit to FINRA arbitration, even though the broker-dealer agreements with plaintiff contained a forum-selection clause providing that all actions and proceedings arising out of the agreements and underlying transactions had to be filed in federal court in New York. See Reading Health Sys. v. JPM Secs., No. 16-4234 (3d Cir. Aug. 7, 2018). The Court held that, because the forum-selection clauses in broker-dealer agreements did not explicitly reference arbitration, it lacked the specificity required to advise plaintiff that it was waiving its affirmative right to arbitrate under FINRA’s rules.
U.S. Supreme Court Holds That Only Statutory Appellate Filing Deadlines Are Jurisdictional; Non-Statutory Deadlines Can Be Waived
On November 8, 2017, the Supreme Court of the United States, in a unanimous decision, held that not all deadlines for filing appeals are jurisdictional; instead, if a time limit on filing an appeal appears only in a court-made rule, and not in a statute, the limitation is a “claim-processing rule,” not a jurisdictional bar, and therefore can be waived or forfeited. Hamer v. Neighborhood Hous. Servs. of Chicago
, 583 U.S. —, 2017 WL 5160782 (2017). On this basis, the Court vacated the Seventh Circuit’s dismissal of petitioner’s appeal for lack of jurisdiction, remanding for further proceedings.
Second Circuit Overturns District Court Denial Of Leave To Add Securities Fraud Claims Because Release Clause In Stock Sale Agreement Violated Anti-Waiver Provision Of The Exchange Act
On July 13, 2017, the United States Court of Appeals for the Second Circuit vacated a part of a district court decision denying a plaintiff’s motion to amend a complaint to add securities fraud claims based on a contractual release of claims on the ground that “blanket releases” from compliance with federal securities laws were barred by the anti-waiver provision of the Securities Exchange Act of 1934 (the “Exchange Act”). Pasternack v. Shrader
, et al.
No. 16-217 (2d Cir. July 13, 2017). This provision provides that “[a]ny condition, stipulation, or provision binding any person to waive compliance with any provision of [the Exchange Act] or any rule or regulation [promulgated] thereunder . . . shall be void.” 15 U.S.C. § 78cc(a).