Securities Law Summaries
Judy Nichols, et al. v. Alcatel USA, Inc.
No. 07-40477,
U.S. Court of Appeals for the Fifth Circuit, 06/20/2008
Holding: In this appeal, the U.S. Court of Appeals for the Fifth Circuit affirmed a district court’s ruling that retirees of Alcatel, Inc. were not entitled to injunctive relief that would restrain the company from reducing or eliminating their retirement medical benefits. In particular, the Fifth Circuit held that the retirees’ class action was unlikely to succeed, since they failed to demonstrate that the company was barred by estoppel from instituting any changes to the health plan, and that they have any vested rights to such benefits. In addition, the retirees were not able to establish that they faced a substantial threat of irreparable harm given the district court’s finding that no one among them was currently uninsured or unable to pay for coverage. The district court also highlighted that no evidence was offered that suggested these retirees could not continue their current coverage until a judgment was rendered in this lawsuit.
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New York v. Richard A. Grasso, et al.
04-401620,
State Court of Appeals of New York, 06/25/2008
Holding: The State Court of Appeals of New York upheld the dismissal of the Attorney General’s claims that challenged the legality of the $187.5 million compensation of a former head of the New York Stock Exchange (NYSE). The Attorney General filed an action to invalidate the compensation awarded by the NYSE to its then Chairman and Chief Executive Officer Richard Grasso for being excessive, and an indication of a breakdown of corporate governance. The State Court of Appeals however rejected such causes of action since the Attorney General did not have the authority to institute actions of this type under the state’s Not For-Profit Corporation Law (N-PCL). According to the Court of Appeals, the Attorney General crafted such claims with a lower burden of proof than that required by the statute, thus disregarding the fault-based scheme specified by the law. The Attorney General merely sought to ascribe liability on the basis merely of the size of Grasso’s compensation package, contrary to the higher burden of proof called for by the legislature. The Court of Appeals however sustained the authority of the Attorney General to bring two claims, namely, unlawful transfer of properties and breach of fiduciary duty. In this connection, the Court of Appeals held that the legislature specifically provided for the Attorney General's role as an overseer of not-for-profit corporations, and requires that he prove an officer's fault to sustain these claims.
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Jerry N. Jones, et al. v. Harris Associates, L.P.
No. 07-1624,
U.S. Court of Appeals for the Seventh Circuit, 05/19/2008
Holding: The U.S. District Court for the Seventh Circuit affirmed a district court’s ruling that mutual fund adviser fees should not be determined by the judiciary. In refusing to put a limit on adviser’s fees, the Seventh Circuit declared that Section 36(b) of the Investment Company Act does not say that fees must be “reasonable” in relation to a judicially created standard. Federal securities laws, such as the Investment Company Act, work largely by requiring disclosure and then allowing price to be set by competition in which investors make their own choices. In this case, the fees were not hidden from investors—and the mutual fund's net return has attracted new investments rather than drive investors away. Section 36(b) does not make the federal judiciary a rate regulator, similar to that performed by the Federal Energy Regulatory Commission. Regulating advisory fees through litigation is unlikely to do more good than harm.
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See also related commentary by Joel B. Ginsberg, Esq..
See also related commentary by Joel B. Ginsberg, Esq..
Kittie Laperriere, et al. v. Vesta Insurance Group, Inc., et al.
No. 06-14524,
Court of Appeals for the Eleventh Circuit, 04/30/2008
Holding: In this appeal arising from a securities class action, the U.S. Court of Appeals for the Eleventh Circuit affirmed a district court’s denial of plaintiff-appellant investors’ motion to strike affirmative defenses. In its motion, plaintiffs-appellants argued that such defenses of parent company Torchmark Corporation sought to improperly apply the “proportionate liability” rule under the Private Securities Litigation Reform Act (PSLRA) of 1995 because as a parent company, Torchmark should be jointly and severally liable with and to the same extent as the principal violator. In rejecting this argument, the Eleventh Circuit held that under Section 21(D)(f), a controlling person, like a parent company, shall be jointly and severally liable for all the damages only if a court specifically determines that such controlling person knowingly committed the violation. In this regard, if the controlling person fails to affirmatively demonstrate good faith and lack of inducement under section 20(a) but the court is not able to find a knowing violation, the controlling person’s liability is only proportionate, not joint and several.
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See also related commentary by Joel B. Ginsberg, Esq..
Consolidated Management Group, LLC, et al. v. Department of Corporations
No. A117513, 2008 WL 1850310,
Court of Appeal, First Apellate District, Division One, California, 04/28/2008
Holding: The Court of Appeal of the 1st District of California affirmed the defendant-respondent California Department of Corporation’s ("DOC) desist and refrain order against petitioners relating to their offer and sale of interests in two partnerships. Petitioner Consolidated Management Group, LLC (“Consolidated”) had formed two general partnerships engaged in the purchase and lease of oil and gas exploration and drilling equipment. In response, the DOC issued the questioned order, which was upheld by the Superior Court of San Francisco County. According to the Court of Appeal, securities offerings must actually qualify for a valid federal securities registration exemption, rather than only being sold pursuant to a putative exemption, in order to enjoy preemption from state regulation under the National Securities Markets Improvement Act of 1996 (NSMIA) and state statute. Here, the Court of Appeal found that substantial evidence established that the venture interests were covered securities subject to registration. Specifically, the partnership agreements presented to potential investors did not confer management powers, and that investors were essentially dependent on the managerial ability of petitioners.
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See also related commentary by Joel B. Ginsberg, Esq..
Securities Law Commentaries
Following are Securities Law Commentaries elaborating on the significance of the most important of the Securities Law Summaries.
Page 1 of 4 of Securities Law Commentaries 1 2 3 > Last »
Guyden v. Aetna
Posted: 12/31/2008
Commentary: In Guyden v. Aetna, 544 F.3d 376 (2nd Cir. 2008) – a case of first impression in the federal circuit courts -- the Second Circuit confirmed that arbitration provisions are enforceable against an employee who claims that her termination violated the whistleblower protections of the Sarbanes-Oxley Act. The opinion confirms the federal court’s strong support of arbitration provisions, and provides some guidance for employers seeking to implement arbitration agreements.
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Related summary: Whistleblower Claims Arbitrable under Sarbanes-Oxley Act, Second Circuit Says
In re: Salomon Analyst Metromedia Litigation
Posted: 12/12/2008
Commentary: In Douglas Millowitz v. Citigroup Global Markets et al (“In Re Salomon Analyst Metromedia Litigation”), 544 F.3d 474 (2nd Cir. 2008), the Second Circuit extended the fraud-on-the-market presumption of reliance, first set forth in Basic v. Levinson, 485 U.S. 224 (1988), to analyst reports. The Court also stated that defendants should be afforded the opportunity to rebut that presumption at the class certification stage in an effort to prevent certification. The opinion may make it harder to pursue class actions in some securities fraud cases.
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Related summary: Second Circuit Remands Metromedia Case, Rules that Liability Presumption Now Applies to Stock Analysts as Well
In re Merck & Co., Inc. Securities, Derivative & “ERISA” Litigation
Posted: 11/17/2008
Commentary: In In re Merck & Co., Inc. Securities, Derivative & “ERISA” Litig., ___ F.3d ___, 2008 WL 4138476 (3rd Cir. 2008), a federal circuit court revived a securities fraud class action suit against Merck that accuses the pharmaceutical company of hiding the truth about Vioxx and its link to cardiac problems. The district court had dismissed the class action as time barred, claiming that the plaintiffs were on inquiry notice more than two years before filing the suit. In a split decision on appeal, the Circuit Court disagreed, finding that reassuring messages from Merck and the market prevented plaintiffs from being on inquiry notice until much later.
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Related summary: Third Circuit Reinstates Vioxx Class Action Suit Against Merck
Enterprise Fund v. PCAOB
Posted: 10/23/2008
Commentary: In its long-awaited opinion in Free Enterprise Fund v. PCAOB, 537 F.3d 667 (D.C. Cir. 2008), the Circuit Court for the D.C. Circuit upheld the Sarbanes-Oxley Act of 2002 – specifically that Act’s establishment of the Public Company Accounting Oversight Board (“PCAOB”) – against constitutional challenges. The plaintiffs argued that Act violates both the Appointments Clause of the Constitution as well as separation-of-powers principles by creating the PCAOB as a virtually independent, autonomous agency over which the President has minimal practical control and authority. The Court disagreed, finding that the Securities and Exchange Commission, over which the President has an appropriate amount of control, has sufficient legal authority over the PCAOB to support a finding that the Act is constitutional. But this case is far from over – appeals are expected, including to the U.S. Supreme Court, meaning that the future of Sarbanes-Oxley is still in question.
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Related summary: DC Circuit Upholds Constitutionality of SEC Audit Panel
Teamsters Local 445 Freight Div. Pension Fund v. Dynex Capital Inc.
Posted: 09/19/2008
Commentary: In its highly anticipated opinion in Teamsters Local 445 Freight Div. Pension Fund v. Dynex Capital Inc., 531 F.3d 190 (2nd Cir. 2008), the Second Circuit affirmed that a securities fraud plaintiff can plead corporate scienter without specifically identifying the culpable corporate officer or director whose individual scienter could be imputed to the corporation. The plaintiff need only plead facts sufficient to establish a “strong inference” that someone in the corporation whose acts could be imputed to the corporation acted with the requisite scienter. However, the court warns that the standard for making such a pleading is very high, requiring heightened specificity.
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Related summary: Second Circuit: Securities Class Suit Failed to Plead Corporate Scienter Against Dynex and Merit
Page 1 of 4 of Securities Law Commentaries 1 2 3 > Last »
