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

(1) The National Law Journal (Sept. 22 edition) has an interesting column on the issue of securities class action damages. Professor Adam Pritchard (U. Mich.) argues that the fundamental flaw in the system is the failure to measure damages by the defendant’s gain, rather than the plaintiff’s loss.

Quote of note: “Measuring damages by the defendant’s gain would accomplish two things. First, it would scale back the stakes in securities class actions. . . . Second, measuring damages by the defendant’s benefit would focus deterrence on the executives who actually lied.”

(2) The New York Law Journal (Sept. 22 edition) has an article discussing whether the government’s role in the credit crisis will limit the scope of private litigation.

Quote of note: “AIG, for instance, was already facing a number of shareholder suits before the government stepped in. The government’s acquisition of an 80 percent interest in the insurer through its $85 billion loan then squeezed shareholders further. How a government-controlled AIG will deal with securities class actions remains uncertain.”

A few items of interest from around the web:

(1) Bruce Carton, a longtime securities law blogger, has launched Securities Docket a “global securities litigation and enforcement report.” The site provides one-stop shopping for the latest news, blog posts, filings, etc.

(2) The New York Law Journal has a column (subscrip. req’d) on recent Ninth Circuit loss causation decisions. In particular, the authors discuss the Apollo Group, Corinthian Colleges, and Gilead decisions and conclude that they have not made it more difficult to successfully plead loss causation.

(3) The WSJ Law Blog has coverage of a recent decision in the Oracle securities class action. The court found that the defendants engaged in discovery abuses, including failing to preserve audio recordings of an author’s interviews with Oracle’s CEO (even though the recordings were in the possession of the author).

A couple of columns on securities litigation topics:

(1) The New York Law Journal (Aug. 25 edition) has a column on the Eleventh Circuit’s recent decision regarding proportionate liability and control person claims.

Quote of note: “The LaPerriere decision provides the basis for an even further shift in favor of control person defendants. Under LaPerriere, control person defendants inevitably will avoid joint and several liability for the entirety of plaintiffs’ damages and may even be held responsible for a lesser amount of damages than that attributed by the fact finder to the persons they control.”

(2) Legal Times (Aug. 27 edition) has a column on the litigation surrounding auction rate securities. The authors conclude that the pending securities class actions may be rendered moot by regulatory settlements designed to fully compensate injured investors.

Quote of note: “The most interesting legal aspect of these settlements and buyback programs may be their debilitating impact on the numerous class actions and other private suits filed since the market seized up. Most problematic for any private suit, including putative class actions, is the inability to prove damages — a central element of any private action. If all auction dealers ultimately agree to implement their own buyback programs for customers, then all those potential plaintiffs will have no remaining damages.”

When and how plaintiffs must disclose the identities of their confidential witnesses as part of the discovery process continues to be fought over in the courts. In In re Marsh & McLennan Companies, Inc. Sec. Litig., 2008 WL 2941215 (S.D.N.Y. July 30, 2008), the plaintiffs argued that the identities of their confidential witnesses were protected by the work product doctrine and there was also a need to avoid any risk of retaliation by Marsh against its former employees.

The court held that confidential witness information enjoys limited, if any, work-product protection. Even assuming that the information was privileged, the Marsh defendants would have been forced to exhaust their depositions to ascertain the identities and, accordingly, had established a substantial justification for disclosure. Moreover, the threat of retaliation identified by the plaintiffs was more properly the basis for a protective order and required specific factual support.

Holding: Ordered disclosure of confidential witness information, including identities and any documents provided to the plaintiffs. The court also authorized limited discovery as to certain investigations pending against the proposed class representatives.

The New York Law Journal has a column (Aug. 13 – subscrip. req’d) on the “Extraterritorial Application of U.S. Securities Laws.” The authors focus on the recent Astrazeneca decision in the S.D.N.Y., where the court dismissed the action as to foreign purchasers on foreign exchanges based on a lack of subject matter jurisdiction.

Quote of note: “Determining U.S. subject matter jurisdiction over complex transnational securities fraud cases will always need to be governed by flexible and fact- specific analyses. However, for purposes of greater judicial uniformity as well as a greater degree of certainty in the international business community about the parameters of U.S. jurisdiction, the district courts should have better guidance than deciding cases ‘on very fine distinctions’ with the ultimate decision based upon a court’s ‘impression’ of whether subject matter jurisdiction exists.”

As it turns out, the defense is on a winning streak in securities class action trials. Although the jury verdicts in the recent JDS Uniphase (for defendants) and Apollo Group (for plaintiffs) trials were split, the Apollo Group defendants achieved a post-trial victory yesterday when the court ruled that the plaintiffs had failed to prove loss causation.

The Apollo Group case was based on the company’s failure to disclose the existence of a government report finding that its wholly-owned subsidiary, the University of Phoenix, had violated Department of Education regulations. In its decision overturning the jury verdict, the court found that the two analyst reports relied upon by the plaintiffs as “corrective disclosures” that led to a stock price decline “did not provide any new, fraud-revealing analysis.” The analyst reports merely repeated information about the government report already known to the market or provided information about the University of Phoenix that was factually wrong (and therefore could not have been corrective).

The plaintiffs plan to appeal the decision, which could lead to an interesting 9th Circuit opinion on loss causation. The WSJ Law Blog and Reuters have additional coverage.

The U.S. Chamber Institute for Legal Reform has issued a paper entitled Securities Class Action Litigation: The Problem, Its Impact, and the Path To Reform. The paper expands upon some of the concerns and recommendations raised by recent capital market studies and offers a series of proposed reforms. The proposed reforms include: more disclosure surrounding possible conflicts of interest between plaintiffs and their counsel, permitting cost-shifting for certain discovery, providing equal access to interlocutory appeals, and having Congress clarify the pleading standards for scienter and loss causation.

The author of The 10b-5 Daily, Lyle Roberts (Dewey & LeBoeuf), is participating in a Washington Legal Foundation webcast on the SEC and securities class actions. The webcast will take place on Tuesday, July 29 at 10 a.m. ET. Click here (PDF) for the details.

Addition: An archive of the webcast can be found here.

Two columns from the New York Law Journal on securities litigation.

(1) In ‘Oscar’: Misinterpretation of Fraud-on-the-Market Theory (July 17 edition – subscrip. req’d), the author discusses a Fifth Circuit decision on class certification. Notably, the court held that loss causation must be established at the class certification stage of a case by a preponderance of all admissible evidence before the plaintiffs can receive the benefit of the fraud-on-the-market presumption. The author argues that the decision, handed down last year, creates an impermissibly high barrier to class certification that other circuit courts have declined to adopt.

(2) In Whither ‘Stoneridge v. Scientific-Atlanta’? Early Results (July 8 edition – subscrip. req’d), the author surveys lower court decisions that have applied the U.S. Supreme Court’s holding on scheme liability. The author argues that the Pugh (7th Cir.) and DVI (E.D.Pa.) decisions suggest courts are inclined to interpret Stoneridge “broadly and dismiss claims against any third parties, regardless of their affiliation with an issuer, who are not alleged to have participated in preparing or disseminating false financial statements or other public statements.”

While a proposed class representative does not have to possess “expert knowledge” of the case, there are some limits on how clueless it can be. In the Monster Worldwide, Inc. securities class action before the S.D.N.Y., the court has rejected a proposed class representative (a pension fund) that put forward a witness (the co-chairman of the fund) who “did not know the name of the stock at issue in this case, did not know the name of either individual defendant, did not know whether [the pension fund] ever owned Monster stock, did not know if an amended complaint had been filed, did not know whether he had ever seen any complaint in the action, did not know that [a defendant] had moved to dismiss the complaint, and did not know that [the pension fund] had moved for pre-discovery summary judgment.” Following this testimony, the pension fund put forward a second witness who “admitted that he had mostly learned about the substance of the litigation only in the week before his deposition.”

The court rejected the pension fund as a class representative, but approved the appointment of the other lead plaintiff to that role. Despite its concerns that the counsel for the pension fund “may not have fulfilled their professional responsibilities in proposing [the pension fund] as a class representative,” the court nevertheless appointed the firm as class counsel. The New York Law Journal has an article on the decision.

Quote of note (opinion): “The Court will not be a party to this sham. The foregoing events establish beyond a doubt that [the pension fund] has no interest in, genuine knowledge of, and/or meaningful involvement in this case and is simply the willing pawn of counsel.”