Priceline.com, Inc. (Nasdaq: PCLN), a Connecticut-based online travel service, has announced the preliminary settlement of the securities class action pending against the company in the D. of Conn. The case was originally filed in 2000 and alleges that the company misrepresented its financial condition. Discovery in the case was scheduled to have been completed by the end of this year. The settlement is for $80 million, with $30 million being paid by the company’s insurance carriers.
License Revoked
There are two prongs to the PSLRA’s safe harbor for forward-looking statements. First, a defendant shall not be liable with respect to any forward-looking statement if it is identified as forward-looking and is accompanied by “meaningful cautionary statements” that alert investors to the factors that could cause actual results to differ. Second, a defendant shall not be liable with respect to any forward-looking statement, even in the absence of meaningful cautionary statements, if the plaintiff cannot establish that the statement was made with “actual knowledge” that it was false or misleading.
Although the two prongs are written in the alternative, courts frequently have rebelled against the plain language of the statute because it appears to provide defendants with a “license to defraud” investors about a company’s future prospects so long as the statement is accompanied by meaningful cautionary language.
In a decision issued this week, In re Nash Finch Co. Sec. Litig., 2007 WL 1266658 (D.Minn. May 1, 2007), the court noted that the Eighth Circuit had not yet addressed the question of “whether allegations of actual knowledge defeat the safe harbor when cautionary language is present.” The defendants argued that their knowledge of the truth or falsity of the forward-looking statements was irrelevant under the first prong of the safe harbor. The court held, however, that “cautionary language can not be ‘meaningful’ when defendants know that the potential risks they have identified have in fact already occurred, and that the positive statements they are making are false.”
Filed under Motion To Dismiss Monitor
Doral Financial Settles
Doral Financial Corp. (NYSE: DRL), a Puerto Rico-based financial services company, has announced the preliminary settlement of the securities class action pending against the company in the S.D.N.Y. The case was filed in 2005 and alleges that Doral improperly accounted for its derivative portfolio of interest-only strips.
The settlement is for $130 million, consisting of payments from Doral ($95 million), its insurers ($34 million), and one or more individual defendants ($1 million). Doral also agreed to certain corporate governance changes. Because of Doral’s precarious financial situation, the settlement is contingent on the company’s ability to obtain outside funding for its business.
Filed under Settlement
Around The Web
(1) The New York Sun has an op-ed discussing whether the SEC should allow public companies to arbitrate securities claims. (See this post for earlier coverage of the reform proposal.)
Quote of note: “I’d wager that you wouldn’t see much of a share discount at all for companies that decided they’d rather arbitrate suits; you might even see a premium. Allowing an arbitration option would surely be a good market test of the efficacy of securities lawsuits.”
(2) The D&O Diary has an interesting post on outside director liability exposure. In particular, the post analyzes a recent settlement in which former outside directors of Just for Feet paid a total of $41.5 million to settle a bankruptcy trustee’s state court breach of fiduciary duty claim. The settlement came after the company’s D&O insurance was virtually exhausted in the settlement of a related securities class action.
Quote of note: “The Just for Feet settlement may provide the best example yet of the need for a separate Side A program dedicated solely to the outside directors’ protection — or better yet, for a separate Individual Director Liability (IDL) policy solely for the benefit of one individual or a group of outside directors. The existence of separate limits that cannot be depleted in resolution of others’ claims is the best protection against the possibility that individuals might be left to face their own liability exposure without insurance protection.”
Filed under All The News That's Fit To Blog
Wooing The SEC
The Washington Post had an interesting article over the weekend on attempts by the plaintiffs’ bar to convince the SEC to support their position in the Charter Communications case. The case will be heard by the U.S. Supreme Court next term and addresses the issue of scheme liability.
There is good reason for the plaintiffs’ bar to think that the SEC may be sympathetic. In 2004, the SEC filed an amicus brief in a 9th Circuit case urging the court to adopt a broad test for determining when a person’s conduct as part of a scheme to defraud constitutes a primary violation that can create securities fraud liability.
Quote of note: “The approach that state and federal regulators advance in friend-of-the-court briefs may be particularly influential, and both sides are courting the regulators. SEC officials have not yet tipped their hand. But plaintiffs’ lawyers and former agency officials expressed concern about a court brief in another securities dispute the agency submitted this year.”
Filed under All The News That's Fit To Blog
Motorola Settles
Motorola, Inc. (NYSE: MOT), an Illinois-based wireless and broadband communications company, has announced the preliminary settlement of the securities class action pending against the company in the N.D. of Ill. The case was filed in 2002 and alleges that Motorola failed to disclose vendor financing to a Turkish wireless telephone company in connection with the sale of telecommunications equipment. The Turkish company eventually defaulted on its loans owed to Motorola. The trial had been scheduled to begin this week.
The settlement is for $190 million, with $75 million coming from insurance proceeds. The Newark Star-Ledger has an article on the settlement.
Filed under Settlement
Avoiding Court
At least one of the litigation reform proposals by the Committee on Capital Markets Regulation (aka the Paulson Committee) appears to be getting some traction. A front page story (subscrip. req’d) in today’s Wall Street Journal states that the SEC is exploring whether it should allow public companies to contract with their investors to provide for alternative dispute resolutions for securities claims.
Quote of note: “[A]ny move toward arbitration could realign the balance of power between shareholders and corporate managements at a time when that balance has tipped increasingly toward shareholders. It could also limit shareholders’ ability to recover money damages or other compensation from corporations. The idea of giving companies the option of arbitrating shareholder disputes is likely to spark fierce opposition from both investor-rights groups and trial lawyers. As a result, there’s a good chance that it could fall flat.”
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Royal Dutch Shell Settles With Non-U.S. Investors
Royal Dutch Shell p.l.c. (NYSE: RDS/A) has announced a landmark settlement with non-U.S. shareholders resolving claims related to the company’s recategorizations of certain proved oil and gas reserves. Under the settlement, which was executed pursuant to a new Dutch statute allowing the Amsterdam Court of Appeals to declare binding a collective resolution of a commercial dispute, Shell will pay $352.6 million plus administrative costs to shareholders who bought on non-U.S. exchanges and were resident or domiciled outside the U.S. from April 1999 to March 2004. The parties have also requested that the $120 million Shell paid to the SEC in a related settlement be distributed in a non-discriminatory manner among certain U.S. and non-U.S. shareholders.
Shell also announced that it plans to extend the same proportional settlement offer to shareholders who bought in the U.S. or were resident or domiciled in the U.S. during the same period. According to the press, it is the second-largest settlement of a securities fraud dispute by a European-based company, behind Royal Ahold’s $1.1 billion settlement in late 2005. Media coverage can be found in the Wall Street Journal (subscrip. req’d), Bloomberg, and the New York Times.
Filed under Settlement
It’s All Class Certs Nowadays
While The 10b-5 Daily was on break last week, there were interesting developments in two of the biggest ongoing securities litigations.
(1) On Friday, the U.S. Court of Appeals declined to reconsider its class certification decision in the IPO allocation cases.
Quote of note (ruling): “The Petitioners, having sought a broad class, are essentially complaining that we failed to narrow their class definition to an extent that might have satisfied Rule 23 requirements. Whatever authority we might have had to undertake that task, we did not think it appropriate to provide legal advice to experienced class-action litigators.”
(2) Meanwhile, the plaintiffs in the Enron securities class action are attempting to appeal the denial of class certification by the U.S. Court of Appeals for the Fifth Circuit related to their claims against Enron’s banks. A cert petition (via WSJ) was filed with the U.S. Supreme Court on Thursday. Among other things, the petition argues that the case is a “suitable companion” to the Charter Communications case the Court will hear next term. The media coverage includes articles by the Associated Press and Houston Chronicle.
Quote of note (cert petition): “This case is especially significant because it involves the alleged misconduct of banks – major actors in our nation’s financial markets and the banks that Central Bank identified as secondary actors who nonetheless ‘may be potentially liable as primary violators under Rule 10b-5 in any complex securities fraud [where] there are likely to be multiple violators.'”
Break In The Action
There will be no new posts on The 10b-5 Daily until next week (April 9).
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