Category Archives: All The News That’s Fit To Blog

A few items of interest from around the web.

(1) Securities Docket has a guest column on group litigation in the United Kingdom and how it contrasts to the U.S. system.

(2) The D&O Diary has an analysis of 2008 securities class actions against life sciences companies.

(3) The New York Law Journal has a column (subscrip. req’d) on the Second Circuit’s recent decision holding that an investment advisor does not have standing to bring a securities case in a representative capacity on behalf of its clients. The decision is W.R. Huff Asset Management Co. LLC v. Deloitte & Touche LLP, 549 F.3d 100 (2d Cir. 2008) and the author notes that its reasoning is applicable to the selection of lead plaintiffs in securities class actions.

The constant percentage method of calculating damages in a securities class action assumes that the fraud caused the stock to be valued at “x” percent more than it was really worth throughout the class period (with “x” percent equaling the percentage decline in the stock price after the fraud was revealed), even if the stock price varied widely during that time.

The New York Law Journal has an interesting column (Jan. 21 – subscrip. req’d) on whether the constant percentage method remains a valid method of calculating damages. The authors argue that the method has been called into question because of the requirement in Dura (the Supreme Court decision on loss causation) that the revelation of the “relevant truth” be the cause of any loss. Only one court, however, has specifically rejected the use of the constant percentage method.

Quote of note: “In excluding the damages and loss causation report of plaintiffs’ expert, the [In re Williams Securities Litigation – N.D. Ok.] court found that the constant percentage method was in direct conflict with Dura Pharmaceuticals Inc. v. Broudo, the controlling Supreme Court precedent on loss causation. Securities litigators and their experts should pay heed to Williams. To the extent that this well-reasoned decision starts a trend in the case law, use of the constant percentage method in securities fraud cases may become a thing of the past.”

Securities Docket will be hosting a “2008 Year in Review – Securities Litigation and Enforcement” webcast on Tuesday, January 6 at 2 p.m. ET. All of the details on the free program, which will include a number of prominent bloggers, can be found here.

SCAS Alert (RiskMetrics) has an article on what the coming year may bring for securities litigators. The main speculation is whether the Democratic majorities in Congress will seek to overturn the Supreme Court’s decisions in Central Bank (no aiding and abetting liability) and Stoneridge (limiting scope of “secondary actor” liability).

Quote of note: “Likewise, James Cox, a securities law professor at Duke University, told the SCAS Alert that he expects that Congress would address securities litigation reform after grappling with ‘the 800-pound gorilla in the room–the issue of regulatory reform.’ He said he had heard that prominent plaintiffs’ firms and Senate offices have been working on draft legislation to address Stoneridge.”

(1) Fee requests have been in the news. Last week it was the court’s decision to sharply reduce the requested fees and expenses in the Coca-Cola securities class action. This week it is the billing of temp attorneys at high hourly rates in the Xerox securities class action.
Quote of note (Forbes): “Stephen Vasil, a Yale Law School graduate, and Andrew Gilman, a New York University law grad, were hired through a temp agency to work on the Xerox case. Vasil says they often performed glorified secretarial work, including reviewing electronic documents to identify their author and destination. Vasil was paid $35 an hour, Gilman, $40. Yet the law firms in the case are asking for roughly $500 an hour for their services.”
(2) Securities Docket has a guest column by Professor Adam Pritchard on his proposal that corporations opt-out of the current securities class action system by limiting potential investor damages to the disgorgement of the defendants’ gains.
Quote of note: “Perhaps the best way of understanding the proposal is as a means of ex ante rebutting the presumption of reliance. The Basic Court took pains to stress that the presumption could be rebutted by �[a]ny showing that severs the link between the alleged misrepresentation and � his decision to trade at a fair market price, will be sufficient to rebut the presumption of reliance.� My proposal severs that link. By waiving the FOTM presumption of reliance in the articles of incorporation, shareholders will be putting future purchasers of the company�s stock on notice that they cannot rely on that presumption to collect out-of-pocket damages. If courts are to be faithful to Basic, they have to faithful not only to its presumption, but also the means that it provided for rebutting that presumption.”

The Coca-Cola securities class action continues to make news. After the “sale of stolen company documents” controversy, the case was settled earlier this year for $137.5 million.

The Fulton County Daily Report has an article on the court’s decision to reduce the fee award from 26% to 21% of the common fund – about a $7 million difference – and reject $4 million in claimed expenses. Among other things, the court complained about the percentage of work done by high-billing attorneys, declined to reimburse on-line research costs, and criticized the per-day travel costs.

Quote of note (decision): “This Court is not troubled by the apparent fact that [the plaintiffs’] attorneys seek high comfort on their journeys, but neither should the class finance such a lifestyle. This Court finds that a client could reasonably expect to pay $300 per night for his attorney’s food and lodging on domestic trips, and that is the level at which this Court will reimburse [the firm] for its travel.”

A couple of items from around the web:

(1) The New York Law Journal has a column (Nov. 5 edition – subscrip. req’d) on loss causation and class certification. The authors argue that although the Oscar (5th Circuit) and Salomon (2nd Circuit) decisions appear to create a split over how burdensome it is for plaintiffs to demonstrate the existence of loss causation at the class certification stage of a case, the practical difference will not be significant. In both courts the parties “will be forced to address loss causation in detail.”

(2) The D&O Diary has been attending conferences on the future of securities litigation and reporting back on the results. The blog has detailed notes from the recent PLUS International Conference and Forum for Institutional Investors. Short version: happy days may be here again for the plaintiffs’ bar.

Securities Docket has an interview with Professor Adam Pritchard (U. Mich. Law) on his proposal that corporations opt-out of the current securities class action system by limiting potential investor damages to the disgorgement of the defendants’ gains. The post also includes links to Pritchard’s expanded Cato Supreme Court Review article on the subject and his model shareholder proposal.

Quote of note: “My guess is that no company will buy on to it unless it gets past the SEC first, in response to a no-action letter attempting to exclude the proposal as inconsistent with federal law. I’ll concede that the chances of ultimate success are probably less than 50%, but I don’t see a big downside from trying.”

As a general matter, claims under the Securities Act of 1933 (“’33 Act”) may be brought in federal or state court. Some federal courts, however, have held that the Securities Litigation Uniform Standards Act of 1998 (“SLUSA”) creates a removal exception for ’33 Act securities class actions involving “covered securities” (i.e., securities sold on a national exchange) that are brought in state court. But, you might ask, what about ’33 Act securities class actions that do not involve covered securities?

Ask and you shall receive an answer. In New Jersey Carpenters Vacation Fund v. Harborview Mortgage Loan Trust, 2008 WL 4369840 (S.D.N.Y. Sept. 24, 2008), the court considered whether the removal provision of the Class Action Fairness Act of 2005 (“CAFA”) applied to a ’33 Act securities class action involving large, mortgage-related bond offerings. The plaintiffs alleged that there were misrepresentations in the offering documents. The court concluded that (a) CAFA applies to all securities class actions except those specifically excluded by the statute; and (b) the exceptions in CAFA for class actions relating to covered securities, corporate governance, and security-related rights and duties were intended to ensure that CAFA did not encroach upon SLUSA and were inapplicable in the instant case. Accordingly, the court held that “[s]ince CAFA’s main provision trumps [the ’33 Act’s jurisdiction provision], and no exception applies, remand of the case must be denied.”

Holding: Plaintiff’s motion to remand denied. (Note that the Ninth Circuit reached the opposite conclusion in Luther v. Countrywide Home Loans Servicing LP, 533 F.3d 1031 (9th Cir. 2008) earlier this year.)

One of the most convoluted securities class actions ever may finally have come to an end (barring a successful appeal). The court has declined to certify the class in the case pending against Halliburton in the N.D. of Texas since 2002. According to a Law360 article (subscrip. req’d), the basis for the court’s decision was the failure of the plaintiffs to establish loss causation.

Over the years, the Halliburton case has seen four amended complaints, two changes in lead counsel, the recusal of the original judge, and the judicial rejection of a proposed settlement. That’s a long way to go to get to a denial of class certification.