Source: https://appellate.typepad.com/appellate/securities/
Timestamp: 2019-04-24 17:58:24+00:00

Document:
First Marblehead v. House, No. 07-2789 affirms a jury verdict in an employee stock option case. The First time the case was at the First was here: First Marblehead Corp. v. House, 473 F.3d 1 (1st Cir. 2006) (our coverage here) The plaintiff resigned. According to the jury, the company negligently told him that he could exercise his stock options up to ten years after the resignation (as opposed to three months). But the jury found that if had been aware of that three month time limit, he wouldn’t have exercised them.
The First turns back a Daubert challenge. It points out a couple of things: 1) Voir dire of expert witnesses need not be outside the presence of the jury; and 2) an expert can explain to the jury how stock options work (I think this is a dubious proposition, since stock options are just about as legal an issue as they get).
Kevin LaCroix has an interesting (albeit late) account of New Jersey Carpenters Pension & Annuity Fund v. Biogen Idec which we covered here.
New Jersey Carpenter v. Biogen Idec Inc., No. 07-2626 affirms the dismissal of a Private Securities Litigation Reform Act of 1995 ("PSLRA"), Pub. L. No. 104-67, 109 Stat. 737 case. The underlying issue involves a drug company with a drug that did some bad things, and when voluntarily withdrawn the price of the stock went down. The plaintiffs allege that the various insiders traded stock based on their knowledge of the drug and made false statements about the drug and the company. So, the question comes down to one of whether the plaintiffs were plea scienter with enough particularity.
The first says that knowledge of five adverse events doesn’t create the kind of knowledge necessary to know the drug is bad. Essentially, the plaintiffs didn’t claim that the defendants knew enough of a significant risk. The Court also dismisses a similar theory regarding a different period of time that insiders knew about these problems.
Weems v. Citigroup. No. 06-2565 (7/24/08). This is a pretty large MDL case, in which the plaintiffs claim that it is wrong for their employer to give them the option of receiving part of their salary as stock (at a discount rate), but requiring them to forfeit said stock if they “voluntarily” leave the company before they “vest” (usually after two or three years).
Despite the fact that most of the people involved in litigating this issue probably tell everyone they meet that they work in “securities” this comes down to a fairly straight-forward contract claim. Not really that glamorous. The First says that there was no breach of a contract.
Someone found a memo which says that the purpose of this thing is to punish people that go work for competitors, and therefore it is an unlawful restrictive covenant. (There are far, far, worse things companies do to their employees.) But the First says this is fine, because forfeiture occurs whether or not they work for a competitor. This doesn't really ring true, and it seems they are not taking this part of the argument too seriously.
Similarly, the First treats the rest of the common-law contract claims (under Florida law) with almost no degree of seriousness.
Plaintiff's theory is that the investing world was aware of reports of patient death and injury involving TAXUS. However, defendants said that the problems with the TAXUS stents were caused by doctor unfamiliarity with the new product. It was natural for investors to conclude the problems would disappear over time as doctors became more familiar with the product, and there would be no recalls. Having given that explanation, the defendants, plaintiff argues, were required to disclose as soon as they could the connection between the patient problems, the manufacturing defect, and the manufacturing change remedying this problem.
The First concludes that there was enough in the complaint to show that the managers knew what they knew at a certain time, and acted with scienter.
As well, the insider trading dismissals are also reversed.
The D&O Diary Comments here.
Mariasch v. Gillette Company, 07-1549. An employee got some stock options from his employer. He says he gets to exercise them late. There is a choice of law issue, but the First says that this is really a matter of internal corporate governance, and therefore the state of incorporation of the corporation (Delaware) provides the rule of decision. Applying First Marblehead Corp. v. House, 473 F.3d 1 (1st Cir. 2006) (our coverage here), the First says that the option exercise period must be strictly enforced. An equitable estoppel argument fails, because at a deposition he said some things that foreclosed it.
ACA Financial v. Advest , 07-1367. The First proudly announces that this its first post-Tellabs, Inc. v. Makor Issues & Rights, Ltd., 127 S. Ct. 2499 (2007) PSLRA case. PSLRA, in case you are a moron, stands for Private Securities Litigation Reform Act of 1995, Pub. L. No. 104-67, 109 Stat. 737. And, of course, it affirms the dismissal of the claims of bond-holders that were defaulted on by Bradford College (the bonds were issued by the Massachusetts Industrial Finance Agency ("MIFA")).
And you are never going back to your old bankrupt school... so read on.

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