Source: http://www.corporatesecuritieslawblog.com/cat-securities-litigation.html
Timestamp: 2013-05-20 05:27:06
Document Index: 401822369

Matched Legal Cases: ['§ 78', '§ 77', '§ 77', '§ 7243', '§ 78', '§ 78']

Corporate Securities Law Blog: Securities Litigation
Home > Securities Litigation > April 9, 2013 | Posted By Sheppard Mullin |
& comments March 11, 2013 | Posted By Sheppard Mullin |
& comments March 7, 2013 | Posted By Sheppard Mullin |
& comments February 11, 2013 | Posted By Sheppard Mullin |
& comments January 31, 2013 | Posted By Sheppard Mullin |
& comments January 10, 2013 | Posted By Sheppard Mullin |
In Gibbons v. Malone, No. 11-3620-cv, 2013 WL 57844 (2d Cir. Jan. 7, 2013), the United States Court of Appeals for the Second Circuit held that the “short-swing profits rule” imposed by Section 16(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78p(b), requiring corporate insiders to disgorge profits earned from certain purchases and sales of their company’s securities that take place within a six month period, applies only to purchases and sales of the same equity security of the company. This decision clarified the restrictions that Section 16(b) places on the types of securities that are covered by the statute, thereby limiting the scope of the statute.
& comments January 8, 2013 | Posted By Sheppard Mullin |
& comments November 14, 2012 | Posted By Sheppard Mullin |
& comments September 25, 2012 | Posted By Sheppard Mullin |
& comments September 5, 2012 | Posted By Sheppard Mullin |
& comments July 27, 2012 | Posted By Sheppard Mullin |
& comments July 25, 2012 | Posted By Sheppard Mullin |
& comments May 25, 2012 | Posted By Sheppard Mullin |
& comments May 9, 2012 | Posted By Sheppard Mullin |
& comments January 12, 2012 | Posted By Sheppard Mullin |
In Dow Chemical Canada ULC v. Superior Court, 2011 WL 6382110 (Cal. App. 2d Dist. Dec. 21, 2011), the California Court of Appeal, Second District, held that “plac[ing] products into the stream of commerce in a foreign country (or another state), aware that some may or will be swept into the forum state[,]” is not, by itself, sufficient to support the forum state’s exercise of personal jurisdiction over the manufacturer of the products. The Court’s decision explores the limits of personal jurisdiction after the recent decision by the United States Supreme Court in J. McIntyre Machinery, Ltd. v. Nicastro, 131 S. Ct. 8780 (2011), and provides more certainty to foreign corporations regarding the likelihood of being forced to litigate in California courts.
& comments January 4, 2012 | Posted By Sheppard Mullin |
& comments December 9, 2011 | Posted By Sheppard Mullin |
& comments November 23, 2011 | Posted By Sheppard Mullin |
& comments September 30, 2011 | Posted By Sheppard Mullin |
& comments September 13, 2011 | Posted By Sheppard Mullin |
In Fait v. Regions Financial Corp., No. 10-2311-cv, 2011 WL 3667784 (2d Cir. Aug. 23, 2011), the United States Court of Appeals for the Second Circuit affirmed the dismissal of claims under Section 11 and Section 12(a)(2) of the Securities Act of 1933 (“1933 Act”), 15 U.S.C. §§ 77k, 77l(a)(2), alleging that statements concerning goodwill and loan loss reserves contained in a prospectus and registration statement were false and misleading. The Court held that such statements were “opinions” which can be false or misleading only if defendants did not genuinely believe the opinions at the times they were made. This decision is notable because it recognizes squarely that estimates of goodwill and loan loss reserves are inherently subjective and thus constitute “opinions” rather than statements of fact.
& comments July 21, 2011 | Posted By Sheppard Mullin |
& comments July 12, 2011 | Posted By Sheppard Mullin |
In RGH Liquidating Trust v. Deloitte & Touche, LLP, 2011 WL 2471542 (N.Y. June 23, 2011), the New York Court of Appeals held that a liquidating trust established pursuant to a bankruptcy reorganization plan was a single “person” within the meaning of the “single-entity exemption” in the Securities Litigation Uniform Standards Act of 1998 (“SLUSA”). SLUSA effectively vests federal courts with exclusive jurisdiction over most securities fraud actions involving more than fifty plaintiffs. It provides further that for purposes of counting the number of plaintiffs, “a corporation, investment company, pension plan, partnership, or other entity, shall be treated as one person or prospective class member, but only if the entity is not established for the purpose of participating in the action.” Here, the Court of Appeals held that the bankruptcy liquidating trust fell within that single-entity exemption because the primary purpose of the trust was not to pursue the litigation. For this reason, the action brought by the trust was not subject to preemption or removal to federal court. With this decision, the Court clarified the scope of state court jurisdiction over securities fraud class actions.
& comments July 5, 2011 | Posted By Sheppard Mullin |
& comments June 20, 2011 | Posted By Sheppard Mullin |
& comments May 27, 2011 | Posted By Sheppard Mullin |
& comments May 23, 2011 | Posted By Sheppard Mullin |
In In re Lehman Brothers Mortgage-Backed Securities Litigation, Nos. 10-0712-cv, 10-0898-cv, 10-1288-cv, 2011 WL 1778726 (2d Cir. May 11, 2011), the United States Court of Appeals for the Second Circuit affirmed three lower court decisions holding that various defendant rating agencies, including The McGraw Hill Companies, Inc., Moody’s Investors Service Inc. and Fitch, Inc. (“Rating Agencies”), were not liable as “underwriters” or as “controlling persons” under Sections 11 and 15 of the Securities Act of 1933 (“Securities Act”), 15 U.S.C. §§ 77k, 77o. Rating agencies typically assign credit ratings for issuers of certain types of debt obligations as well as the debt instruments themselves; plaintiffs argued, however, that the Rating Agencies here exceeded their traditional, passive role as credit risk evaluators by actively aiding the issuers in the structuring and securitization process, thereby assuming the role of underwriters or controlling persons of the issuers. In rejecting plaintiffs’ arguments, the Second Circuit clarified who would qualify as an underwriter and controlling person under the Securities Act, and in the process stymied yet another attempt by securities plaintiffs to hold rating agencies liable for losses in rated securities.
& comments May 2, 2011 | Posted By Sheppard Mullin |
In New Mexico State Investment Council v. Ernst & Young LLP, 2011 WL 1419642 (9th Cir. Apr. 14, 2011), the United States Court of Appeals for the Ninth Circuit reversed the dismissal of securities fraud claims against an independent accountant, holding that the complaint pleaded particularized facts giving rise to a strong inference that the auditor acted with scienter when it certified the financial statements of its client, Broadcom Corporation (“Broadcom”). In doing so, the Ninth Circuit declined to apply a “rule of thumb” that a plaintiff bears a “heavier burden” in pleading a strong inference of scienter against an independent accountant than it would in a similar securities fraud action against in issuer or its executives.
& comments March 29, 2011 | Posted By Sheppard Mullin |
& comments March 16, 2011 | Posted By Sheppard Mullin |
& comments February 2, 2011 | Posted By Sheppard Mullin |
& comments December 29, 2010 | Posted By Sheppard Mullin |
& comments December 9, 2010 | Posted By Sheppard Mullin |
& comments November 17, 2010 | Posted By Sheppard Mullin |
& comments October 28, 2010 | Posted By Sheppard Mullin |
& comments October 27, 2010 | Posted By Sheppard Mullin |
& comments October 22, 2010 | Posted By Sheppard Mullin |
& comments October 12, 2010 | Posted By Sheppard Mullin |
& comments October 11, 2010 | Posted By Sheppard Mullin |
& comments October 8, 2010 | Posted By Sheppard Mullin |
In Cohen v. Viray, 2010 WL 3785243 (2d Cir. Sept. 30, 2010), the United States Court of Appeals for the Second Circuit held that no private right of action exists under Section 304 of the Sarbanes Oxley Act, 15 U.S.C. § 7243 (“Section 304”), to recover from chief executive officers (“CEOs”) and chief financial officers (“CFOs”) any bonus or similar compensation, or any profits realized from stock sales, they may have received during the twelve-month period prior to a restatement of company financial statements due to misconduct. The Second Circuit concluded further that because only the Securities & Exchange Commission (“SEC”) may enforce Section 304, a settlement agreement between a shareholder derivative plaintiff and a CEO and CFO may not purport to indemnify or release those senior corporate executives from liability under Section 304. This decision follows that of the Ninth Circuit on the question of whether a private right of action exists under Section 304.
& comments September 30, 2010 | Posted By Sheppard Mullin |
& comments September 28, 2010 | Posted By Sheppard Mullin |
In Iowa Public Employees’ Retirement System v. MF Global, Ltd., No. 09-3919, 2010 WL 3547602 (2d Cir. Sept. 14, 2010), the United States Court of Appeals for the Second Circuit vacated the dismissal of plaintiffs’ securities fraud claims and remanded the case to the district court, holding that the district court applied the “bespeaks caution” doctrine erroneously to statements that contained both present and future elements. This decision provides guidance as well to the application in the Second Circuit of the safe harbor for forward-looking statements established under the Private Securities Litigation Reform Act of 1995 (the “Reform Act”), 15 U.S.C. § 78u-5.
& comments August 27, 2010 | Posted By Sheppard Mullin |
& comments August 23, 2010 | Posted By Sheppard Mullin |
& comments August 11, 2010 | Posted By Sheppard Mullin |
& comments July 30, 2010 | Posted By Sheppard Mullin |
& comments July 23, 2010 | Posted By Sheppard Mullin |
In In re Cutera Securities Litigation, 2010 WL 2595281 (9th Cir. June 30, 2010), the United States Court of Appeals for the Ninth Circuit concluded that the Private Securities Litigation Reform Act’s (“Reform Act”) safe harbor provision, 15 U.S.C. § 78u-5, protects forward-looking statements accompanied by meaningful cautionary language” andforward-looking statements in the absence of meaningful cautionary language not made with “actualknowledge” that the statement was false or materially misleading when made. This decision greatly clarifies the law in the Ninth Circuit. Previously, in dicta, a Ninth Circuit court had suggested that if plaintiffs could prove a sufficiently strong inference that a forward-looking statement made with actual knowledge of its falsity, such a statement would not protected by the safe harbor provision of the Reform Act even if accompanied by meaningful cautionary language. In re Cutera puts this notion to rest. A forward-looking statement that is either accompanied by meaningful cautionary language or is made without actual knowledge of its falsity may not form the basis for a federal securities fraud claim.
In Solis v. Tennessee Commerce Bancorp, Inc., a three-judge panel of the Sixth Circuit recently reversed a lower court’s decision to enforce a preliminary order by the Department of Labor (“DOL” or “Department”) to reinstate an alleged whistleblower under the Sarbanes-Oxley Act of 2002 (“SOX”). The court avoided determining whether it had authority under SOX to enforce preliminary orders, instead deciding the case based on the “balance of harms” test that applies in all cases seeking preliminary injunctive relief.
& comments June 21, 2010 | Posted By Sheppard Mullin |
& comments June 15, 2010 | Posted By Sheppard Mullin |
In Securities & Exchange Commission v. Jenkins, No. CV-09-1510-PHX-GMS, 2010 WL 2347020 (D. Ariz. Jun. 9, 2010), the United States District Court for the District of Arizona held that the responsibility of a CEO under Section 304 of the Sarbanes-Oxley Act of 2002 (the “Act”) to reimburse an issuer for bonuses, incentive compensation and stock sale proceeds he or she received in the year prior to a restatement of the issuer’s financial statements does not require a showing that CEO committed or even knew of misconduct that led to the restatement. This decision marks the first time a court has applied Section 304 of the Act in the absence of allegations that the targeted CEO personally committed any wrongdoing, enforcing strict liability of CEOs and CFOs in the event of a restatement due to corporate (as opposed to their own) misconduct.
& comments June 8, 2010 | Posted By Sheppard Mullin |
& comments May 10, 2010 | Posted By Sheppard Mullin |
& comments May 7, 2010 | Posted By Sheppard Mullin |
In Merck & Co. v. Reynolds, No. 08-905, 2010 U.S. LEXIS 3671 (Apr. 27, 2010), the Supreme Court of the United States held that a private securities fraud claim accrues for statute of limitations purposes at the earlier of when (1) the plaintiff does in fact discover, or (2) a reasonably diligent plaintiff would have discovered, “the facts constituting the violation.” The Supreme Court held further that “facts constituting the violation” include the “fact” of defendants’ scienter, i.e., “a mental state embracing intent to deceive, manipulate, or defraud.” This unanimous clarification by the Supreme Court of how lower courts should apply the statute of limitations for private securities fraud claims provides a bit more breathing room for would-be plaintiffs.
& comments April 29, 2010 | Posted By Sheppard Mullin |
& comments April 6, 2010 | Posted By Sheppard Mullin |
& comments March 26, 2010 | Posted By Sheppard Mullin |
& comments March 8, 2010 | Posted By Sheppard Mullin |
& comments March 1, 2010 | Posted By Sheppard Mullin |
& comments February 22, 2010 | Posted By Sheppard Mullin |
& comments February 12, 2010 | Posted By Sheppard Mullin |
NERA and Cornerstone Research (in cooperation with Stanford Law School’s Securities Class Action Clearinghouse) recently issued their respective assessments of securities litigation for 2009. (Their findings and analyses are summarized in press releases here: NERA, Cornerstone.) Both report that federal securities class action filings decreased from 2008, due to the easing of the financial crisis and reduced stock price volatility since the first quarter of 2009. (We previously reported on mid-year 2009 assessments here.) One notable trend: an increasing number of cases are being filed six months or more after the end of the putative class periods, instead of immediately after a stock price drop, suggesting that plaintiffs’ counsel have turned to “clearing out inventory” of potential cases.
& comments January 4, 2010 | Posted By Sheppard Mullin |
In Bader v. Anderson, No. CV041521, 2009 Cal. App. LEXIS 1880 (Cal. App. Nov. 23, 2009), the California Court of Appeal for the Sixth Appellate District addressed two important issues affecting shareholder derivative actions under California law. First, the Court offered guidance regarding the distinctions between direct claims and derivative claims by shareholders against corporate management, holding that “incidental harm” to shareholders, in the form of reduced share value, does not transform a derivative claim into a direct cause of action. Second, the Court confirmed that no exception to the presuit demand requirement exists for claims alleging misleading statements or omissions in proxy statements. Continue Reading
& comments December 22, 2009 | Posted By Sheppard Mullin |
& comments December 21, 2009 | Posted By Sheppard Mullin |
& comments December 9, 2009 | Posted By Sheppard Mullin |
& comments December 7, 2009 | Posted By Sheppard Mullin |
& comments October 13, 2009 | Posted By Sheppard Mullin |
& comments October 6, 2009 | Posted By Sheppard Mullin |
& comments October 1, 2009 | Posted By Sheppard Mullin |
& comments August 7, 2009 | Posted By Sheppard Mullin |
& comments July 31, 2009 | Posted By Sheppard Mullin |
In the latest of a series of chats with high-profile securities lawyers, Law 360 conducted a Q&A session with Sheppard Mullin partner and head of the firm's Corporate/Securities Litigation team, John P. Stigi III.
& comments July 29, 2009 | Posted By Sheppard Mullin |
NERA and Cornerstone Research (in cooperation with Stanford Law School’s Securities Class Action Clearinghouse) recently issued their respective assessments of securities litigation for the first half of 2009. Both appear to report that federal securities class action filings, which had increased in 2008, have stabilized or dropped, due largely to a sharp decline in filings during the second quarter. Continue Reading
& comments June 18, 2009 | Posted By Sheppard Mullin |
& comments March 3, 2009 | Posted By Sheppard Mullin |
& comments February 3, 2009 | Posted By Sheppard Mullin |
Delaware Supreme Court Confirms that Directors' Fiduciary Duties of Loyalty and Care Apply Equally to Executive Officers
The Delaware Supreme Court's recent decision in Gantler v. Stephens, No. 132, 2008 (January 27, 2009), confirms that officers of Delaware corporations have the same fiduciary duties of loyalty and care as directors. This has important implications for non-director officers of Delaware corporations, in particular because, as the Court points out in a footnote, there is at present no statutory authorization for the exculpation of officers for monetary liability for breach of their duty of care. The Court also holds that a statutorily required shareholder vote, such as for the approval of a merger, does not constitute ratification of breaches of fiduciary duties. Delaware companies now need to revisit their internal processes and indemnification and insurance arrangements to be sure that their corporate officers are protected.
In Zucco Partners, LLC v. Digimarc Corp., 2009 WL 311070 (9th Cir. Feb. 10, 2009), the United States Court of Appeals for the Ninth Circuit reaffirmed that when pleading a claim for securities fraud under the Private Securities Litigation Reform Act of 1995 (the “Reform Act”), plaintiffs are bound by prior Ninth Circuit authority that requires them to plead particularized facts giving rise to a strong inference that defendants knew, or were deliberately reckless in not knowing, that their statements were false when made. The viability of the Ninth Circuit’s particularity requirement has been the subject of much debate since the Supreme Court’s decision in Tellabs, Inc. v. Makor Issues & Rights, Ltd., 127 S. Ct. 2499 (2007). In Tellabs, the Court held that, in order to survive dismissal, plaintiffs must plead an inference of scienter that is “cogent and at least as compelling as any opposing inference of nonfraudulent intent.” [See blog article on Tellabs.] In South Ferry LP, No. 2 v. Killinger, 542 F.3d 776 (9th Cir. 2008), a panel of the Ninth Circuit suggested in dicta that Tellabs’ holistic analysis may have superseded the Ninth Circuit’s particularity requirement. [See blog article on South Ferry.] That same term, however, two other panels confirmed that the earlier cases governing scienter were controlling. See Metzler Inv. GMBH v. Corinthian Colleges, Inc., 540 F.3d 1049 (9th Cir. 2008) [blog article on Metzler]; Glazer Capital Management, LP v. Magistri, 549 F.3d 736 (9th Cir. 2008) [blog article on Glazer]. Now, with its most thorough decision to date on this issue, the Zucco court appears to have definitively resolved this question in favor of particularity, holding clearly that “Tellabs does not materially alter the particularity requirements for scienter claims established in our previous decisions.”
& comments January 7, 2009 | Posted By Sheppard Mullin |
NERA and Cornerstone Research (in cooperation with Stanford Law School’s Securities Class Action Clearinghouse) recently issued their respective assessments of securities litigation for 2008. Both report that federal securities class action filings increased over 2007, due largely to the economic crisis and the Madoff scandal. The bulk of class action filings were made in the Second Circuit, and were focused heavily on the financial sector. In fact, nearly one-third of all large investment banks were hit with securities class actions in 2008. (We previously reported on mid-year 2008 assessments here.)
& comments January 6, 2009 | Posted By Sheppard Mullin |
& comments December 4, 2008 | Posted By Sheppard Mullin |
In Glazer Capital Management, LP v. Magistri, 2008 WL 5003306 (9th Cir. Nov. 26, 2008), the United States Court of Appeals for the Ninth Circuit held that when pleading scienter as to a corporate defendant, the Private Securities Litigation Reform Act of 1995 (the “Reform Act”) “requires [plaintiff] to plead scienter with respect to those individuals who actually made the false statements.” This ruling clarifies that in all but the most unusual cases, a plaintiff in this Circuit may not rely upon notions of “collective scienter” — that is, the idea that a corporation’s state of mind for purposes of pleading securities fraud can be inferred from the collective knowledge of the totality of its employees, instead of the knowledge of a particular officer or director — to state a claim for securities fraud against a corporate defendant. In addition, Glazer reaffirms longstanding Ninth Circuit authority holding that, when alleging scienter as to an individual defendant, the Reform Act requires plaintiff to “plead, in great detail, facts that constitute strong circumstantial evidence of deliberately reckless or conscious misconduct” on the part of the defendant.
& comments November 11, 2008 | Posted By Sheppard Mullin |
In Hexion Specialty Chemicals, Inc. v. Huntsman Corp., 2008 WL 4457544 (Del. Ch. Sept. 29, 2008), the Delaware Chancery Court, after an expedited six day trial, ruled that Hexion Specialty Chemicals, Inc. had breached various provisions of a July 2007 merger agreement. By that agreement, Hexion, which is controlled by a private equity group, had agreed to acquire Huntsman Corp. in a leveraged cash transaction at a steep price following a bidding contest. The terms of the merger agreement left Hexion with no “financing out” if it could not close due to a lack of funding. Hexion’s efforts to extricate itself from the transaction arose in connection with the continuing crisis affecting the world-wide credit markets. Hexion had sought to excuse any failure to close on its part by claiming that Huntsman’s operations had suffered a Material Adverse Effect (MAE) under the terms of the merger agreement and that the combined entity would be insolvent. Issuing its decision before the merger agreement’s October 2, 2008 termination date, the court rejected these claims in a manner that suggested it found them pretextual and ordered Hexion to specifically perform all obligations necessary to close the deal (save the obligation to actually close, which the merger agreement exempted from a specific performance remedy). This case is significant for its illustration of the approach that Delaware courts take in interpreting and applying a MAE clause when invoked to excuse performance under a merger agreement. Also notable is the finding that Hexion had breached its covenant to use its reasonable best efforts to consummate the deal, a determination that required the court to reconcile a party’s contractual duty to use reasonable best efforts to consummate a transaction with that party’s alleged perceived need to avoid insolvency. The case also demonstrates that Delaware courts will not hesitate to impose a specific performance remedy when a contract so provides, even when the consequences to one party may be ruinous.
In In re Heritage Bond Litigation, 2008 WL 4415172 (9th Cir. Oct. 1, 2008), the United States Court of Appeals for the Ninth Circuit held that a class action settlement bar limits only contribution, indemnity or other comparative fault claims against settling defendants where damages are calculated based on the amount of the non-settler’s liability to the class. The appeal arose from a partial settlement in a securities fraud class action. The district court’s broad bar order precluded non-settlers from bringing any future claims against settlers “arising out of or related to . . . any of the transactions or occurrences alleged.” A non-settling defendant later brought breach of fiduciary duty, negligence, labor law and other claims against several settling defendants, including his former employer, and sought “both economic and reputational” damages. The district court determined that its bar order precluded such claims. The Ninth Circuit disagreed, vacating the order and remanded the matter to the district court. The decision offers greater clarity on the scope of settlement bar orders, important mechanisms designed to encourage partial settlements but, at the same time, protect non-settlers’ rights.
In Millowitz v. Citigroup Global Markets, Inc., 2008 WL 4426412 (2d Cir. Sept. 30, 2008), the United States Court of Appeals for the Second Circuit held that the fraud-on-the-market doctrine established in Basic Inc. v. Levinson, 485 U.S. 224 (1988), applies in Rule 10b-5 suits challenging alleged misstatements contained in research analyst reports. The fraud-on-the-market doctrine creates a presumption of reliance in 10b-5 securities fraud cases, and eliminates the need for plaintiffs to show individual reliance on the alleged fraudulent act. In Millowitz, the Second Circuit concluded that the district court in the case had properly invoked the doctrine to decide whether common questions of law and fact predominated over individualized ones for purposes of certifying a class under Fed. R. Civ. P. 23(b)(3). The Second Circuit also ruled that no showing of the analyst’s reports’ actual affect on the securities’ market price is required to trigger the presumption, something defendants had urged. The decision is important because it may impose a risk of class action liability on public misstatements of fact even when the speaker is neither the issuer nor an agent of the issuer, provided the misstatement is material.
& comments September 23, 2008 | Posted By Sheppard Mullin |
In South Ferry LP, #2 v. Killinger, 2008 WL 4138237 (9th Cir. Sept. 9, 2008), the United States Court of Appeals for the Ninth Circuit held that inferring scienter based upon nothing more than defendants’ senior management positions in a company does not satisfy the heightened pleading standards of the Private Securities Litigation Reform Act of 1995 (the “Reform Act”). The interlocutory appeal in this case arose from a series of apparently conflicting case law within the Ninth Circuit with respect the so-called “core operations inference” in securities fraud actions, i.e., an inference that senior management must be aware of all matters, including wrongdoing, affecting a company’s core operations. This decision resolves that apparent conflict by reaffirming pre-existing law and distinguishing a handful of seemingly contrary Ninth Circuit decisions.
& comments September 22, 2008 | Posted By Sheppard Mullin |
& comments September 19, 2008 | Posted By Sheppard Mullin |
The SEC today issued an emergency order to temporarily ease the restrictions on the ability of issuers to repurchase their securities. This change is intended to give issuers more flexibility to buy back their securities and, thereby, help restore liquidity to the securities markets. The SEC's emergency order is effective at 12:01 a.m. EDT on September 19, 2008 and terminates at 11:59 p.m. on October 2, 2008 unless further extended by the SEC.
& comments September 5, 2008 | Posted By Sheppard Mullin |
SEC Sanctions E&Y and Director of Three Public Audit Clients for Failure to Disclose a Business Relationship that Impaired E&Y's Independence
On August 5, 2008, the SEC announced the settlement of administrative proceedings against Ernst & Young and Mark C. Thompson, a former director of three public audit clients of Ernst & Young. The proceedings arose from a business relationship between Ernst & Young and Mr. Thompson which the SEC determined impaired the audit firm's independence and, thereby, caused each company to violate the federal securities laws. The proceedings clarify certain aspects of the SEC's rules regarding auditor independence, and highlight the need for public companies to periodically review any changes in the relationship between each director and the company and its audit firm that might affect auditor independence.
& comments August 7, 2008 | Posted By Sheppard Mullin |
In United States v. Finnerty, 2008 U.S. App. LEXIS 15296 (2d Cir. July 18, 2008), the United States Court of Appeals for the Second Circuit set aside a guilty verdict imposing securities fraud liability against a New York Stock Exchange Specialist who engaged in “interpositioning” and “trading ahead” transactions, on the ground that the prosecution failed to prove that the defendant’s conduct constituted deceptive conduct under the federal securities laws. The court held that absent proof that the defendant actually conveyed a misleading impression to customers, finding securities fraud liability would “invite litigation beyond the immediate sphere of securities litigation.” This decision provides yet another instance where courts have retained and applied traditional limits to securities fraud liability.
NERA and Cornerstone Research (in cooperation with Stanford Law School’s Securities Class Action Clearinghouse) recently issued their respective assessments of securities litigation for the first half of 2008. Both report that federal securities class action filings are up, due largely to the sub-prime mortgage, credit and auction rate securities crises. The reports also note a correlation between increased market volatility and increased filings, as well as an increase in investor and market capitalization losses associated with the filed cases. The increase in filings and losses in 2008 reflects a continuation of a trend that started in 2007 following the sharp decrease in securities litigation activity in 2005 and 2006. Both summarize their findings and analyses in press releases (NERA, Cornerstone) issued on July 29, 2008.
& comments July 22, 2008 | Posted By Sheppard Mullin |
Delaware Chancery Court Holds That Self-Interested Directorial Compensation Decisions Made Without Independent Protections Will Not Survive An Entire Fairness Review
In Julian v. Eastern States Construction Services, Inc., 2008 WL 2673300 (Del. Ch. July 8, 2008), the Delaware Chancery Court held that board members of a close corporation breached their duty of loyalty and would be required to disgorge bonuses where the directors approved self-compensation without sufficient independent protections. This case provides guidance regarding the process board members must follow in order for a self-interested directorial compensation decision to survive an “entire fairness” review.
& comments July 17, 2008 | Posted By Sheppard Mullin |
In Teamsters Local 445 Freight Division Pension Fund v. Dynex Capital Inc., 2008 WL 2521676 (2d Cir. June 26, 2008), the United States Court of Appeals for the Second Circuit held that in order to state a claim for securities fraud against a corporate defendant, plaintiffs may not rely upon the theory of “collective scienter,” but instead must plead a strong inference of scienter by the individual “who was responsible for the [allegedly false or misleading] statements made” by or on behalf of the corporation. This decision aligns Second Circuit law with the law of the Ninth Circuit (see, e.g., In re International Rectifier Corp. Sec. Litig., 2008 U.S. Dist. LEXIS 44872 (C.D. Cal. May 23, 2008)), and sets an additional obstacle for plaintiffs to state a securities fraud claim against a corporation.
In SEC v. Talbot, 2008 WL 2574513 (9th Cir. June 30, 2008), the United States Court of Appeals for the Ninth Circuit held that a board member could be liable for insider trading under the “misappropriation theory” where the board member owed no fiduciary duty to the company whose stock he traded. This holding reversed summary judgment granted in favor of the board member, and broadened the scope of potential liability for misappropriation of information by board members and officers of companies.
Delaware Chancery Court Holds That Advance Notice Provisions Must Clearly And Unambiguously Separate Nomination And Election Of Directors To Be Effective
In Levitt Corp. v. Office Depot, Inc., 2008 WL 1724244 (Del. Ch. Apr. 18, 2008), the Delaware Chancery Court held that a company’s advance notice provision did not preclude a dissident shareholder from nominating its own slate of directors. Levitt is part of a trio of cases recently issued by the Delaware Chancery Court that address the issue of the voting rights of shareholders. Consistent with JANA Master Fund v. CNET Networks, Inc., 2008 WL 660556 (Del. Ch. Mar. 13, 2008), aff’d, 2008 WL 2031337 (Del. May 13, 2008) [See blog article] and In re IAC/Interactive Corp., 2008 WL 2462767 (Del. Ch. Mar. 22, 2008) [See blog article], the Levitt court held that an advance notice provision that purported to require shareholders to give notice 120 days before nominating directors instead allowed shareholders to nominate directors without any independent notice.
In In re IAC/Interactive Corp., 2008 WL 2462767 (Del. Ch. Mar. 22, 2008), the Delaware Chancery Court held that management could spin the company into multiple parts without obtaining the approval of the majority shareholder. The court’s 78-page decision boiled down to a deceptively simple question: was the majority shareholder required to grant a consent to corporate management before IAC was broken up? The court held that such approval was not necessary, finding that IAC’s governance agreement did not allow IAC to exercise its voting right. This case, particularly when read with Levitt Corp. v. Office Depot, Inc., 2008 WL 1724244 (Del. Ch. Apr. 18, 2008) [See blog article] and JANA Master Fund v. CNET Networks, Inc., 2008 WL 660556 (Del. Ch. Mar. 13, 2008), aff’d, 2008 WL 2031337 (Del. May 13, 2008) [See blog article], should signal to shareholders and corporate management alike that shareholder agreements between sophisticated parties will be strictly construed.
Delaware Chancery Court Holds That Advance Notice Bylaws Must Clearly State That They Apply To Self-Funded Proxy Solicitations
In JANA Master Fund v. CNET Networks, Inc., 2008 WL 660556 (Del. Ch. Mar. 13, 2008), aff’d, 2008 WL 2031337 (Del. May 13, 2008), the Delaware Chancery Court held that CNET’s advance notice bylaw did not preclude JANA from financing and issuing its own proxy solicitation. This case, in combination with Levitt Corp. v. Office Depot, Inc., 2008 WL 1724244 (Del. Ch. Apr. 18, 2008) [See blog article], and In re IAC/Interactive Corp., 2008 WL 2462767 (Del. Ch. Mar. 22, 2008) [See blog article], serves to remind companies that advance notice provisions will be narrowly construed under Delaware law, particularly where the franchise of the stockholder is at stake.
& comments March 21, 2008 | Posted By Sheppard Mullin |
& comments February 29, 2008 | Posted By Sheppard Mullin |
New York's Highest Court Holds That Members Of Limited Liability Company May Bring Derivative Suits On The LLC'S Behalf
In Tzolis v. Wolff, 2008 WL 382345 (N.Y. Feb. 14, 2008), a majority of the New York State Court of Appeals held, over a vigorous dissent, that New York law permitted members of a limited liability company (“LLC”) to bring derivative suit on the LLC’s behalf. As a result, under New York law, the right to bring a derivative suit has been broadened, and is no longer limited to shareholders of a corporation or limited partners of a partnership. This ruling represents the third decision in just one week by a state’s highest court addressing the scope of legal standing for plaintiffs in shareholder derivative suits. (We previously reported on decisions by the Delaware Supreme Court and California Supreme Court.)
& comments February 25, 2008 | Posted By Sheppard Mullin |
California Supreme Court Imposes A Continuous Ownership Rule On Plaintiffs In Shareholder Derivative Actions
In Grosset v. Wenaas, Case No. 139285, 2008 WL 383196 (Cal. Feb. 14, 2008), the California Supreme Court held that California law, like Delaware law, imposes a “continuous ownership” requirement on plaintiffs in shareholder derivative suits. Thus, to have standing to assert and prosecute a shareholder derivative action, a plaintiff shareholder must hold stock in the corporation he or she is suing continuously throughout the entire litigation process. This requirement applies even where the shareholder is involuntarily divested of his or her ownership interest in the corporation by virtue of a corporate merger. While it was firmly established previously under both California and Delaware law that a shareholder could lose standing to sue by voluntarily selling his or her shares in the corporation, the decision in Grosset confirms that under California law a shareholder also may lose standing involuntarily by virtue of a merger.