Securities Law Alert
Year in Review:• Supreme Court Decisions• Significant Circuit Court Decisions• Significant Delaware Chancery Court Decisions

2022

Supreme Court Decisions
Supreme Court: Duty to Monitor
ERISA Plan Investments andRemove Imprudent Ones Is Not
Satisfied by Offering Low-CostInvestments as Plan Options“Recognized for its‘world class lawyering,’
Simpson Thacher & Bartlett
LLP has a leading litigation
practice with wide-ranging
capabilities.”– The Legal 500

On January 24, 2022, the Supreme
Court unanimously vacated the Seventh
Circuit’s judgment in favor of defendant
plan fiduciaries in a lawsuit where ERISA
plan participants alleged that defendants
violated their duty of prudence by failingto remove imprudent investments from theplans’ offerings. Hughes v. Northwestern,
142 S.Ct. 737 (2022) (Sotomayor, J.). The
Court disagreed with the Seventh Circuit’s
conclusion that the offering of petitioners’
preferred type of low-cost investments asplan options eliminated any concern that
other plan options were imprudent. The
Court held that “[s]uch a categorical rule
is inconsistent with the context-specificinquiry that ERISA requires and fails totake into account respondents’ duty tomonitor all plan investments and remove any
imprudent ones.”
The Court explained that petitioners’
allegation “must be considered in light ofSimpson Thacher & Bartlett LLP

the principles set forth in Tibble [v. Edison
International, 575 U. S. 523 (2015)] to
determine whether petitioners have stated aplausible claim for relief.” In Tibble, the Court
considered a plan fiduciary’s duty of prudence
under ERISA where plaintiffs alleged thatthe plan fiduciaries had offered higher priced
retail-class mutual funds as plan investments
when lower priced institutional-class mutual
funds were available. The Court in Tibble
concluded that plaintiffs had identified apotential violation because “a fiduciary is
required to conduct a regular review of its
investment.” The Court further determinedthat this duty is “continuing” and that “aplaintiff may allege that a fiduciary breached
the duty of prudence by failing to properly
monitor investments and remove imprudent
ones.”In this case, the Court noted that the Seventh
Circuit did not apply Tibble’s guidance andinstead focused on “a fiduciary’s obligation
to assemble a diverse menu of options.”
However, the Court found that “[t]he Seventh
Circuit erred in relying on the participants’ultimate choice over their investments to
excuse allegedly imprudent decisions by
respondents.” The Court held that fiduciaries
could breach their duty if they “fail to remove
an imprudent investment from the plan
within a reasonable time[.]”Significant Circuit Court
Decisions“then they repeatedly and with apparent
premeditation promoted it as important tothe company without at least checking that it
had ever worked.”First Circuit: Reverses Dismissalof Action Claiming Investors Were
Misled About a New—Allegedly
Non-Functional—ProductThe court also rejected the argument thatthe company’s efforts to remedy the issues
with the product suggested “a sincere belief
that [the product] could be made operationalwith enough work, such that [the company]
believed [the product] was fixable.” The court
pointed out that the executives’ statements
were framed in the present tense and,
therefore, “were not projections of hoped-for
future performance.” The court characterized
the statements as “flat-out claims about the
product as it then stood.”

On December 22, 2021, the First Circuit
reversed the dismissal of a securities fraudclass action under Section 10(b) alleging
that a software company and certain of its
executives misled investors by touting a new
data-backup product that they knew did
not work. Constr. Indus. & Laborers Joint
Pension Tr. v. Carbonite, 22 F.4th 1 (1st Cir.
2021) (Kayatta, J.). On the issue of scienter,the court held that the complaint alleged facts
raising a strong inference that the CEO and
CFO either inquired about the new productbefore deciding to promote it to investors or
were reckless in failing to do so.
Following its launch, plaintiff alleged thatthe new product did not work and thatthe company set up a team focused on
fixing the product, while at the same timecompany executives publicly stated that the
new product “significantly improves our
performance” and is “just a super strong
product,” among other statements.
The First Circuit disagreed with the district
court that plaintiff failed to successfully
plead scienter. Specifically, plaintiff asserted
that defendants must have known that the
product did not work because its professed
importance to the company strongly impliedthat senior officers were following it closely
and were aware of its failings. Plaintiff
alternatively asserted that defendants were atleast highly reckless in promoting the productbecause, if they were not aware of the issues,

Second Circuit: No Duty to Disclose
Payment for Promotional Articles
Where Payor Did Not Have
Ultimate Control Over the Articles
On May 24, 2022, the Second Circuit affirmedin part the dismissal of a putative securities
fraud class action alleging that a company, its
former CEO, and former CFO violated Section
10(b) of the Exchange Act and SEC Rule 10b-5
by failing to disclose that they paid authors
to write positive online articles to promote
the company’s stock. Noto v. 22nd Century
Grp., 35 F.4th 95 (2d Cir. 2022) (Walker, J.).
The court held that plaintiffs failed to statea claim that the existence of the stock
promotion scheme constituted a materiallymisleading omission because the complaint
did not adequately allege that defendants
had a duty to disclose that they paid for thearticles’ publication.
The Second Circuit explained that “onlyan article’s maker, not its benefactor, has aduty to disclose that it was paid for.” Janus
Capital Group v. First Derivative Traders,2564 U.S. 135 (2011). The court stated that
Janus made it clear that neither the company
nor the executives qualified as a maker.1 The
Second Circuit determined that plaintiffs did
not adequately allege that defendants had“ultimate control” over the articles as requiredby Janus. The court found that the complaint
did not contain sufficient factual allegations
to support the contention that “defendants
furnished information and language for,prepared, reviewed, approved, and/or ratified
the articles . . . .” The Second Circuit also
pointed out that even if the CEO did provide
some input on the articles’ content, thecomplaint did not support the conclusionthat he was the articles’ maker. Among otherthings, the court found that the complaint did
not sufficiently allege that the authors lacked
final control over the content of the articles.

Second Circuit: Acquirer
Shareholders Lacked Standing to
Sue a Merger Target Under Section
10(b) Because They Never Bought
or Sold the Target’s Shares
On September 30, 2022, the Second Circuit
affirmed a district court’s dismissal of aputative securities fraud class action broughtby shareholders of a U.S. company that
acquired a non-U.S. target company, alleging
that the target made misstatements about
itself in advance of the merger in violationof Section 10(b). Menora Mivtachim Ins.
v. Frutarom Indus., 49 F.4th 790 (2d Cir.
2022) (Park, J.). Creating a bright-line rule,
the Second Circuit held that plaintiffs lacked
standing under Section 10(b) to sue the target
because plaintiffs had bought shares of theacquirer, not shares of the target.
Following the acquisition, the acquirer
experienced a stock drop after it
acknowledged that the target had made“improper payments.” Plaintiffs sued theacquirer, two of its officers, the target, andfive of its officers alleging that in the lead up
to the acquisition the target made materially
1. In Janus, the Supreme Court held that a mutual fundinvestment advisor could not be liable for misstatements
included in its client mutual funds’ prospectuses because “themaker of a statement is the person or entity with ultimate
authority over the statement, including its content andwhether and how to communicate it.” The mutual funds inJanus were determined to be the makers of the statements inthe prospectuses because they filed the prospectuses with the
SEC and had ultimate control over their content, while theinvestment advisor was not a “maker,” even if he was involvedin the preparation of the prospectuses.

misleading statements about the sources of
its business growth and its compliance with
anti-bribery laws. The Southern District of
New York dismissed, concluding, in part,that “plaintiffs lack statutory standing under
Section 10(b) to bring claims against the[target] defendants for statements madeabout [the target].” Plaintiffs appealed thedecision only against the target and certain of
its officers.
Plaintiffs argued on appeal that as acquirer
shareholders, they had standing because
there was a “sufficiently direct relationship”
between the target’s misstatements about
itself and the price of the acquirer’s shares.
However, the Second Circuit rejected thisargument as meritless, explaining that
judicially created private rights of action
should be narrowly construed. The Second
Circuit refused to adopt plaintiffs’ “direct
relationship” test stating that doing so would
erode the purchaser-seller rule established inBlue Chip Stamps v. Manor Drug Stores, 421
U.S. 723 (1975), which “requires plaintiffs tohave bought or sold a security of the issuer
about which a misstatement was made inorder to have standing to sue under Section
10(b).”

Fourth Circuit: Affirms Dismissalof Class Action Alleging That Data
Protection and Privacy Statements
Were False or Misleading
On April 21, 2022, the Fourth Circuit affirmed
a district court’s dismissal of a putative
securities fraud class action against a hotel
chain company and certain of its officers
and directors alleging that the company’s
failure to disclose vulnerabilities in certain
IT systems it acquired in a merger renderedvarious of its public statements false or
misleading in violation of Section 10(b).
3In re Marriott Int’l, 31 F.4th 898 (4th Cir.
2022) (Heytens, J.). The court held thatplaintiff failed to adequately allege thatany of the company’s statements were false
or misleading.
In 2018, the company learned of a data
breach related to a guest reservation databasethat it had subsumed following a 2016 merger
with another hotel chain. Subsequently,
plaintiff sued alleging that the company’s
failure to disclose severe vulnerabilities in thesubsumed IT systems rendered various publicstatements false or misleading. The district
court dismissed with prejudice, concludingthat plaintiff did not adequately allege a false
or misleading statement or omission. Plaintiff
appealed, narrowing its challenge to 18
statements.
On appeal, the Fourth Circuit explained that“an omission is actionable only if—absent
the fact omitted—a reasonable investor,
exercising due care, would gather a false
impression from a statement, which would
influence an investment decision.” Phillips
v. LCI Int’l, 190 F.3d 609 (4th Cir. 1999).
Plaintiff challenged the company’s publicstatements that “the integrity and protectionof customer, employee, and company
data is critical to us . . . .” Plaintiff claimed
that by failing to disclose the “vulnerable
state” of the subsumed IT systems, thecompany’s statements created a misleading
impression that the company was securing
and protecting the acquired customer data.
The Fourth Circuit disagreed, finding thatthe facts alleged did not contradict the
public disclosures. The court noted that theplaintiff’s “whole theory of the case turns
on the [disclosures] being true—i.e., thatdata integrity is critically important to [thecompany] and its investors.” The court
explained that “[r]eiterating this basic truthis neither misleading nor creates the false
impression [plaintiff] suggests.”

Sixth Circuit: Alleging That Index
Funds Outperformed Managed
Funds Fails to State a Breach of the
Duty of Prudence ClaimOn June 21, 2022, the Sixth Circuit affirmed
a district court’s dismissal of a putative classaction brought by a participant in a defined
contribution 401(k) plan alleging that her
401(k) plan administrator and her former

employer had breached the duty of prudence
under ERISA2 by offering several actively
managed investment funds when available
index funds offered higher returns and lower
fees. Smith v. CommonSpirit Health, 37 F.4th
1160 (6th Cir. 2022) (Sutton, J.). Plaintiff
pointed to three-year and five-year periods inwhich three actively managed funds trailed
the rates of return for related index funds.
The Sixth Circuit held that plaintiff failed toplead that defendants acted imprudently inoffering the managed funds by alleging onlythat the managed funds’ performance trailed
the index funds’ performance over a period offive years.

The Sixth Circuit considered Tibble v. Edison
Int’l, 575 U.S. 523 (2015), which held thata fiduciary’s duty of prudence creates “acontinuing duty to monitor trust investments
and remove imprudent ones.” The Sixth
Circuit held that plaintiff failed to plausibly
plead that the company violated ERISA by
imprudently offering these specific actively
managed funds. After noting that index
funds offer a mix of investment types andlow management fees, the court stated thatthese features did not “make all other fundtypes imprudent.” The court pointed out thatwhile an actively managed fund may costmore than an index fund, it may generate
greater returns in the long term. The court
stated that “these claims require evidence
that an investment was imprudent fromthe moment the administrator selected it,that the investment became imprudent overtime, or that the investment was otherwise
clearly unsuitable for the goals of the fundbased on ongoing performance.” The court
concluded that merely pointing to anotherinvestment that has performed better over a
five-year period does not plausibly plead an
imprudent decision.
2. 29 U.S.C. § 1104(a)(1)(B).
4

derivative actions be filed in the Delaware
Court of Chancery.

Seventh Circuit: Reverses BylawBased Dismissal of a Derivative
Suit Under Section 14(a) of the
Exchange Act
On January 7, 2022, a split Seventh Circuit
panel reversed a derivative suit’s dismissal
based on a company forum-selection bylaw
requiring derivative actions be filed in the
Delaware Court of Chancery. Seafarers
Pension Plan v. Bradway, 23 F.4th 714 (7thCir. 2022) (Hamilton, J.). The court heldthat the “forum bylaw cannot be applied tothis derivative action asserting a claim thatis subject to exclusive federal jurisdiction.”
The court explained that if the bylaw wereso applied then plaintiff’s derivative action
could not be heard in any forum because the
Exchange Act gives federal courts exclusive
jurisdiction over actions under it. Further,
the court stated that this “result would becontrary to Delaware corporation law, which
respects the non-waiver provision in Section
29(a) of the federal Exchange Act, 15 U.S.C.
§ 78cc(a).”Following two fatal plane crashes involving
the same aircraft model, plaintiff filed thisderivative suit under Section 14(a) of the
Exchange Act in the Northern District ofIllinois where the manufacturer of the planes
is headquartered. Plaintiff alleged that thecompany’s officers and directors madematerially false and misleading statements
about the aircraft model in the company’s
proxy materials. The district court dismissedon forum non conveniens grounds after
applying a company bylaw3 requiring that any
3. The bylaw provided in relevant part, “With respect to any
action arising out of any act or omission occurring after the
adoption of this By-Law, unless the Corporation consents
in writing to the selection of an alternative forum, the Courtof Chancery of the State of Delaware shall be the sole andexclusive forum for . . . any derivative action or proceedingbrought on behalf of the Corporation . . . .”On appeal, the Seventh Circuit stated thatthe “most straightforward resolution ofthis appeal is under Delaware corporation
law, which we read as barring applicationof the [company’s] forum bylaw to this caseinvoking non-waivable rights under thefederal Exchange Act.” The court concluded
that Section 1154 of the Delaware General
Corporation Law, “does not authorize useof a forum-selection bylaw to avoid whatshould be exclusive federal jurisdiction overa case, particularly under the ExchangeAct.” The court concluded that as appliedhere, the company’s forum bylaw violates
Section 115 because it is inconsistent withthe jurisdictional requirements of the
Exchange Act.

Eighth Circuit: Affirms Dismissal of
Derivative Action After Applying theDelaware Supreme Court’s Recently
Revised Demand Futility Test
On April 7, 2022, the Eighth Circuit affirmed
a district court’s dismissal, for failure toplead demand futility, of a derivative action
alleging that a pre-merger proxy statement
contained false and misleading statements
in violation of Section 14(a) of the ExchangeAct. Carpenters’ Pension Fund of Illinois
v. Neidorff, 30 F.4th 777 (8th Cir. 2022)(Shepherd, J.). The Eighth Circuit heldthat plaintiffs failed to plead a material
misrepresentation or omission and therefore
failed to plead facts demonstrating that atleast half of the board faced a substantial
likelihood of liability on the Section 14(a)claim.
Shortly after merging with a target company,
the corporation disclosed an increase inreserves for the target’s increased liabilities. A
stock drop followed. Among other derivative
claims, plaintiffs alleged that certain of
the corporation’s former and then-current
directors and officers concealed theirknowledge of the target’s various financial
and business problems. Defendants moved
to dismiss on the ground that plaintiffs failed
to plead demand futility. The district court
4. Section 115 provides that “bylaws may require, consistent withapplicable jurisdictional requirements, that any or all internal
corporate claims shall be brought solely and exclusively in any
or all of the courts in this State.” 8 Del. C. § 115.
5

granted defendants’ motion and dismissed thecase with prejudice.
As the nominal defendant was a Delaware
corporation, the Eighth Circuit applied thethree-part demand futility test articulated
last year by the Delaware Supreme Court in
UFCW Union & Participating Food Indus.
Emps. Tri-State Pension Fund v. Zuckerberg,
262 A.3d 1034 (Del. 2021) (Tri-State). The
court focused exclusively on the second TriState question, i.e., whether at least half ofthe board (here, five of the nine directors)
faced a substantial likelihood of liability as toany of plaintiffs’ claims. The court concluded
that plaintiffs failed to plead particularizedfacts demonstrating that at least half of thedirectors faced a substantial likelihood of
liability on the Section 14(a) claim because
plaintiffs failed to plead facts showing thatthe proxy statement at issue contained amaterial misrepresentation or omission. The
court found that this cautionary language inthe proxy statement related directly to theallegedly misleading pro forma analyses andtherefore rendered the alleged omissions
immaterial as a matter of law.

Ninth Circuit: Forum-Selection
Clause Does Not Contravene
Strong Public Policy Even Where
It Forecloses Plaintiff’s Ability toBring Section 14(a) Claims
On May 13, 2022, the Ninth Circuit affirmed
the dismissal of a shareholder derivative
action, which plaintiff had filed in a California
federal district court despite a forumselection clause in the company’s bylaws
designating the Delaware Court of Chancery
as the exclusive forum for derivative claims.
Lee v. Fisher, 34 F.4th 777 (9th Cir. 2022)(Smith, J.). The court held that plaintiff had
not shown that the forum-selection clause
was unenforceable, as enforcement would
not contravene strong federal public policy.
Notably, the Ninth Circuit’s decision was
vacated on October 24, 2022 in Lee v. Fisher,
2022 WL 13874339 (9th Cir. 2022), andrehearing en banc was granted.
In its May 13, 2022 decision, the Ninth
Circuit explained that in Atlantic Marine
Construction v. U.S. District Court, 571 U.S.
49 (2013), the Supreme Court established therule that “a district court should transfer thecase [and thereby enforce the forum-selection

clause] unless extraordinary circumstances. . . clearly disfavor a transfer.” To define“extraordinary circumstances,” the Ninth
Circuit looked to M/S Bremen v. Zapata
Off-Shore, 407 U.S. 1 (1972) and focusedon its second factor: whether the clause’s
enforcement would contravene strong public
policy. To determine whether a forumselection clause contravenes public policy,
the Ninth Circuit first looks to “the forum inwhich suit is brought” and then “determine[s]whether the plaintiff has identified a statuteor judicial decision in that forum that clearlystates strong public policy rendering theclause unenforceable.”

Weighing whether the Exchange Act’s
antiwaiver provision in Section 78cc(a) was
proof of strong public policy, the court statedthat “the strong federal policy in favor ofenforcing forum-selection clauses supersedes
antiwaiver provisions in state statutes aswell as federal statutes . . . .” The court
further pointed out that the Exchange Act’s
antiwaiver provision does not contain a clear
declaration of federal policy because it does
not explicitly state that any waiver is void asagainst public policy.

Ninth Circuit: Market Growthand Sales Performance
Statements Determined to Be
Non-Actionable Puffery
On July 7, 2022, the Ninth Circuit affirmed
a district court’s dismissal of a securities
fraud class action against a medical productmanufacturer and certain of its executives
alleging that senior executives misrepresented
the company’s sales growth in China.
Macomb Cnty. Emps. Ret. Sys. v. Align Tech.,
39 F.4th 1092 (9th Cir. 2022) (McKeown, J.).
The court agreed with the district court thatsix of the challenged statements were puffery.
6

In 2019, the company’s revenue growthrate in China decreased and a stock drop
occurred. Subsequently, the plaintiff pension
plan filed a class action under Section 10(b)and Rule 10b-5, alleging that company
executives had misrepresented the company’s
growth in China throughout Q2 of 2019,“claiming strong numbers despite knowing(or recklessly disregarding) that the growthrate in China had slowed significantly.”
The district court dismissed the action
with prejudice, holding that the challenged
statements, which described the market forthe company’s products in China and thecompany’s performance there, were either
non-actionable puffery or were not false or
misleading. Plaintiff appealed.

On appeal, the Ninth Circuit held that the
district court correctly found that six of thechallenged statements were non-actionablepuffery. Under Ninth Circuit precedent,
puffery involves “expressing an opinion thatis not capable of objective verification.” Retail
Wholesale & Dep’t Store Union Local 338 Ret.
Fund v. Hewlett-Packard, 845 F.3d 1268 (9thCir. 2017). Such statements are not actionablebecause professional investors, and mostamateur investors, “know how to devalue theoptimism of corporate executives.” PoliceRet. Sys. of St. Louis v. Intuitive Surgical,
759 F.3d 1051 (9th Cir. 2014). The Ninth
Circuit explained that six of the challenged
statements used vague, generically positive
terms, such as describing China as “a market
that’s growing significantly for us,” anddescribing the company’s performance in
China as “tremendous” and “great.” Thecourt determined that such characterizations
were not “objectively verifiable” and did notpresent the kind of “precise information” onwhich investors rely.

Eleventh Circuit: Solicitation of
Unregistered Securities Under
Section 12 Can Occur Through
Online Videos, Including on
Social MediaOn February 18, 2022, the Eleventh Circuit
reversed the district court’s dismissal of aclass action alleging that the promoters ofa new cryptocurrency violated Section 12 of
the Securities Act by soliciting the purchaseof unregistered securities through online
videos. Wildes v. BitConnect, 25 F.4th 1341
(11th Cir. 2022) (Grant, J.). The court heldthat neither the Securities Act nor Eleventh
Circuit precedent restrict liability to sales
pitches to individual people, while excluding
liability for communications directed tothe public at large. Noting that solicitation
has long occurred through other masscommunications, the court determinedthat solicitation under Section 12 can occur
through online videos.
This case arose when promoters of a new
cryptocurrency urged people to buy it byposting thousands of videos on independentwebsites and on social media. Subsequently,
buyers of the cryptocurrency sued alleging
that the promoters were liable under Section
12 of the Securities Act for soliciting thepurchase of unregistered securities throughtheir videos. The district court dismissed,
concluding that plaintiffs failed to state a
Section 12 claim because they needed to allege
that the promoters had “individually” urged
plaintiffs to purchase the cryptocurrency.
The Eleventh Circuit observed that “nothing
in the Securities Act makes a distinction
between individually targeted sales efforts
and broadly disseminated pitches.” The court
explained that Section 12 authorizes buyers ofan unregistered security to sue a person who“offers or sells” it. Under the Securities Act, “aperson offers a security every time he makes
an offer to dispose of—or a solicitation of an
offer to buy—a security for value.” The court
noted that Congress did not limit solicitations
to individualized ones as the district court did.
Pointing out that the Securities Act suggests
the opposite, the court explained that the
Securities Act “makes a person who solicits
the purchase of an unregistered security liable
for using ‘any means’ of communication[,]”which the Securities Act defines to include
radio and television advertisements. The
7

court further stated that “Securities Act
precedents do not restrict solicitations underthe Act to targeted ones.” The Eleventh Circuit
declined to adopt an approach that would
allow a seller to dodge liability by selecting
one means of communication over another,
particularly where the Act expressly covers“any means” of communication. Determiningthat a “new means of solicitation is not any
less of a solicitation[,]” the court concluded
that when the promoters urged people tobuy the cryptocurrency in online videos, theysolicited the purchases that followed.

Eleventh Circuit: SLUSA Held to
Bar Class Action for Breach of
Fiduciary Duty Claims Brought
Under State Law
On May 31, 2022, the Eleventh Circuit
affirmed the dismissal of a putative classaction against a brokerage firm/investment
adviser alleging that under Georgia law thebrokerage firm breached its fiduciary duties
by recommending certain investments toclients. Cochran v. Penn Mut. Life Ins., 35
F.4th 1310 (11th Cir. 2022) (Carnes, J.).
The court held that the Securities Litigation
Uniform Standards Act (“SLUSA”) barred
plaintiff from using a class action to bring his
state law claims because the claims involved
allegations of misrepresentation or omissionthat should have been brought under thefederal securities laws. Referencing 15 U.S.C.
Section 77p(b), the court concluded that theclass action had been properly dismissed
because the complaint alleged “an untrue
statement or omission of material fact inconnection with the purchase or sale of acovered security.”

party alleging—(1) an untrue statement oromission of a material fact in connection withthe purchase or sale of a covered security;or (2) that the defendant used or employed
any manipulative or deceptive device orcontrivance in connection with the purchaseor sale of a covered security.” 15 U.S.C.
§ 77p(b). Citing Behlen v. Merrill Lynch, 311
F.3d 1087 (11th Cir. 2002), the court further
explained that “SLUSA’s bar applies when
(1) the suit is a covered class action, (2) theplaintiffs’ claims are based on state law,(3) one or more covered securities has beenpurchased or sold, and (4) the defendant
allegedly misrepresented or omitted amaterial fact in connection with the purchaseor sale of such security.”
The Eleventh Circuit stated that the
only issue was whether the complaint
alleged a misrepresentation or omission,
stating that if it does so, then it is barred.
The court explained that under Behlen,“[t]o determine whether a complaint alleges
a misrepresentation or omission, we look to
its gravamen or the essence of it.” The court
determined that the essence of the complaint
was that the brokerage firm, through its
investment advice and recommendations,“affirmatively made false statements, orfailed to disclose material facts, about thesuitability of the variable annuity investment
for the type of account plaintiff had, and inthat way made misrepresentations to theplaintiff.” The court observed that if thebrokerage firm’s recommendations had fully
disclosed all material facts, including that avariable annuity would not have tax benefits
and would be an unsuitable investment, thatplaintiff would have no cause of action.

Plaintiff alleged that the brokeragefirm breached its fiduciary duties byrecommending variable annuities toclients with IRAs, which caused them to
pay high fees without getting an extra tax
benefit because the IRAs were already tax
advantaged. The district court dismissed,
agreeing with the brokerage firm that federal
law barred the class action.
On appeal, the Eleventh Circuit explainedthat SLUSA limits class actions by stating
that, “[n]o covered class action based upon
the statutory or common law of any Stateor subdivision thereof may be maintainedin any State or Federal court by any private
8Significant Delaware
Chancery Court Decisionsof the SPAC board was conflicted either
because the directors were self-interested or
because they lacked independence from theControlling Stockholder.

Court of Chancery of Delaware:
Applies Entire Fairness Standard
to De-SPAC Merger

The court explained that plaintiffs must
adequately plead that the Controlling
Stockholder engaged in a conflictedtransaction, where either “the controller
stands on both sides” (which did not
apply because the court found that thiswas an arms-length transaction between
two unaffiliated parties) or “the controller
competes with the common stockholders forconsideration.” The court explained that,among other things, a controller competes
with the common stockholders when he“receives a unique benefit by extracting
something uniquely valuable to the controller,even if the controller nominally receives thesame consideration as all other stockholders
to the detriment of the minority.” IRA Tr.
FBO Bobbie Ahmed v. Crane, 2017 WL
7053964 (Del. Ch. 2017, revised 2018). The
court determined that plaintiffs pleaded
facts supporting a reasonable inference that
there was a unique benefit to the Controlling
Stockholder. The court pointed out thatthe merger had a value to the common
stockholders if shares of the post-merger
entity were worth $10.04, while the merger
was valuable to the Controlling Stockholder“well below” $10.04 because the value of theControlling Stockholder’s founder shareswould drop to zero if no de-SPAC merger
occurred.

On January 3, 2022, the Court of Chancery of
Delaware largely denied motions to dismissin a class action for breach of fiduciary duties
alleging that certain SPAC directors, officers,
the SPAC’s sponsor, and the SPAC CEO/
Chair who also ultimately controlled the SPAC
sponsor (the “Controlling Stockholder”),
withheld material information from the publicstockholders, which allegedly impaired theirinformed exercise of their redemption andvoting rights before the de-SPAC merger. In
re MultiPlan S’holders Litig., 268 A.3d 784(Del. Ch. Ct. 2022) (Will, V.C.).5 Among otherthings, the court held that the entire fairness
standard of review applied at the pleading
stage.
The court determined that plaintiffs pleaded
facts supporting a reasonable inference
that the entire fairness standard of review—
Delaware’s “most onerous standard ofreview”—applied rather than the moredeferential business judgment rule. The court
concluded that entire fairness applied on two
independent bases because plaintiff alleged
that: (i) the de-SPAC merger was a conflicted
controller transaction; and (ii) a majority
5. Simpson Thacher represents defendant MultiPlan Corp. f/k/a
Churchill Capital Corp. III in this action.

This edition of the
Securities Law Alert was edited byPeter E. Kazanoff / +1-212-455-3525
pkazanoff@stblaw.com
Joshua Polster / +1-212-455-2266
joshua.polster@stblaw.com andKaren Porter / +1-202-636-5539
karen.porter@stblaw.com

9New York

Los Angeles

Martin S. Bell
Partner+1-212-455-2542
martin.bell@stblaw.com

Michael J. Osnato, Jr.
Partner+1-212-455-3252
michael.osnato@stblaw.com

Chet A. Kronenberg
Partner+1-310-407-7557
ckronenberg@stblaw.com

Marc P. Berger
Partner+1-212-455-2197
marc.berger@stblaw.com

Joshua Polster
Partner+1-212-455-2266
joshua.polster@stblaw.com

Palo Alto

Stephen M. Cutler
Partner+1-212-455-2773
stephen.cutler@stblaw.com

Rachel Sparks Bradley
Partner*+1-212-455-2421

Michael J. Garvey
Partner+1-212-455-7358
mgarvey@stblaw.com

Alan C. TurnerPartner+1-212-455-2472
aturner@stblaw.com

Nicholas S. Goldin
Partner+1-212-455-3685
ngoldin@stblaw.com

Craig S. Waldman
Partner+1-212-455-2881
cwaldman@stblaw.com

Meredith Karp
Partner*+1-212-455-3074
meredith.karp@stblaw.com

George S. Wang
Partner+1-212-455-2228
gwang@stblaw.com

Peter E. Kazanoff
Partner+1-212-455-3525
pkazanoff@stblaw.com

Alicia N. Washington
Partner*+1-212-455-6074
alicia.washington@stblaw.com

Joshua A. Levine
Partner+1-212-455-7694
jlevine@stblaw.com

Jonathan K. Youngwood
Partner+1-212-455-3539
jyoungwood@stblaw.com

Linton Mann III
Partner+1-212-455-2654
lmann@stblaw.com

David Elbaum
Senior Counsel+1-212-455-2861
david.elbaum@stblaw.com

Joseph M. McLaughlin
Partner+1-212-455-3242
jmclaughlin@stblaw.com

Janet A. Gochman
Senior Counsel+1-212-455-2815
jgochman@stblaw.com

Lynn K. Neuner
Partner+1-212-455-2696
lneuner@stblaw.com

rachel.sparksbradley@stblaw.com

Stephen P. Blake
Partner+1-650-251-5153
sblake@stblaw.com
Bo Bryan Jin
Partner*+1-650-251-5068
bryan.jin@stblaw.com
James G. Kreissman
Partner+1-650-251-5080
jkreissman@stblaw.com
Simona G. Strauss
Senior Counsel+1-650-251-5203
sstrauss@stblaw.com

Washington, D.C.
Meaghan A. Kelly
Partner+1-202-636-5542
mkelly@stblaw.com
Jeffrey H. Knox
Partner+1-202-636-5532
jeffrey.knox@stblaw.com
Karen Porter
Partner+1-202-636-5539
karen.porter@stblaw.com
Cheryl J. Scarboro
Partner+1-202-636-5529
cscarboro@stblaw.com*Effective January 1, 2023

The contents of this publication are for informational purposes only. Neither this publication nor the lawyers
who authored it are rendering legal or other professional advice or opinions on specific facts or matters,
nor does the distribution of this publication to any person constitute the establishment of an attorney-client
relationship. Simpson Thacher & Bartlett LLP assumes no liability in connection with the use of this publication.
Please contact your relationship partner if we can be of assistance regarding these important developments. The
names and office locations of all of our partners, as well as our recent memoranda, can be obtained from our
website, www.simpsonthacher.com.
10SimpsonThacherWorldwide

UNITED STATESEUROPEASIANew York
425 Lexington Avenue
New York, NY 10017+1-212-455-2000

Brussels
Square de Meeus 1, Floor 7
B-1000 Brussels
Belgium+32-472-99-42-26

Beijing
3901 China World Tower A
1 Jian Guo Men Wai Avenue
Beijing 100004
China+86-10-5965-2999

Houston
600 Travis Street, Suite 5400
Houston, TX 77002+1-713-821-5650
Los Angeles
1999 Avenue of the Stars
Los Angeles, CA 90067+1-310-407-7500
Palo Alto
2475 Hanover Street
Palo Alto, CA 94304+1-650-251-5000
Washington, D.C.
900 G Street, NW
Washington, D.C. 20001+1-202-636-5500

LondonCityPoint
One Ropemaker Street
London EC2Y 9HUEngland+44-(0)20-7275-6500

Hong Kong
ICBC Tower
3 Garden Road, Central
Hong Kong+852-2514-7600
Tokyo
Ark Hills Sengokuyama Mori Tower
9-10, Roppongi 1-Chome
Minato-Ku, Tokyo 106-0032
Japan+81-3-5562-6200

SOUTH AMERICA

São Paulo
Av. Presidente Juscelino
Kubitschek, 1455
São Paulo, SP 04543-011
Brazil+55-11-3546-1000

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