Justia Securities Law Opinion Summaries

Mimi Investors, LLC (“Mimi Investors”) sued Paul Tufano, David Crocker, Dennis Cronin, and Neil Matheson (“ORCA Officers”), the directors and officers of ORCA Steel, LLC (“ORCA Steel”), a now-defunct data storage company, alleging that ORCA Officers made material misrepresentations of fact in violation of the Pennsylvania common law and Section 1- 401(b) of the Pennsylvania Securities Act ("PSA"). Mimi Investors described a meeting held in February of 2014 during which ORCA Officers allegedly represented to Mimi Investors that they had received 400 orders for computer data storage space (“CDS Orders”) for ORCA Steel’s new data storage facility. To secure financing for the purpose of servicing the CDS Orders, ORCA Officers sought promissory notes to increase capital. In October 2014, ORCA Steel ceased making interest payments on the loan. ORCA Steel did not respond to Mimi Investors’ demand letter, sent in August 2015, which sought to cure the default. Mimi Investors asserted that neither “construction financing nor the fulfillment of the new orders materialized.” It also averred that, on October 21, 2014, ORCA Officers told Mimi Investors that they “had known for months that the loan to fund new construction was not viable” because the CDS Orders were “not investment grade.” Mimi Investors claimed that “these misrepresentations regarding available construction financing and committed orders, as well as other statements by” ORCA Officers, “were material and untrue within the meaning of the” PSA, and that Mimi Investors “relied on these misrepresentations in deciding to make the [l]oan[.]” In a matter of first impression, the Pennsylvania Supreme Court addressed whether a plaintiff must plead and prove scienter as an element of 70 P.S. § 1-401(b) of the PSA. After careful review, the Court held that under the plain language of its text, Section 1-401(b) of the PSA did not contain a scienter element. However, the PSA provided a defense to civil liability under Section 1-401(b) if the defendant could show they “did not know and in the exercise of reasonable care could not have known of the untruth or omission[.]” View "Mimi Investors, LLC v. Tufano, P., et al." on Justia Law

At issue before the Delaware Supreme Court in this case was the 2016 all-stock acquisition of SolarCity Corporation (“SolarCity”) by Tesla, Inc. (“Tesla”). Tesla’s stockholders claimed CEO Elon Musk caused Tesla to overpay for SolarCity through his alleged domination and control of the Tesla board of directors. At trial, the foundational premise of their theory of liability was that SolarCity was insolvent at the time of the Acquisition. Because the Court of Chancery assumed, without deciding, that Musk was a controlling stockholder, it applied Delaware’s most stringent "entire fairness" standard of review, and the Court of Chancery found the Acquisition to be entirely fair. In this appeal, the two sides disputed various aspects of the trial court’s legal analysis, including, primarily, the degree of importance the trial court placed on market evidence in determining whether the price Tesla paid was fair. Appellants did not challenge any of the trial court’s factual findings. Rather, they raised only a legal challenge, focused solely on the application of the entire fairness test. After careful consideration, the Delaware Supreme Court was convinced that the trial court’s decision was supported by the evidence and that the court committed no reversible error in applying the entire fairness test. View "In Re Tesla Motors, Inc. Stockholder Litigation" on Justia Law

In 2009, Stanford International Bank was exposed as a Ponzi scheme and placed into receivership. Since then, the Receiver has been recovering Stanford’s assets and distributing them to victims of the scheme. To that end, the Receiver sued Defendant, a Stanford investor, to recover funds for the Receivership estate. The district court entered judgment against Defendant. Defendant sought to exercise setoff rights against that judgment. Because Defendant did not timely raise those setoff rights, they have been forfeited.   The Fifth Circuit affirmed. The court explained that here, Defendant initially raised a setoff defense in his answer to the Receiver’s complaint. The Receiver moved in limine to exclude any setoff defenses before trial, arguing that any reference to setoff would be “unfairly prejudicial” and “an attempt to sidestep the claims process.” In May 2021, when Defendant moved for a stay of the district court’s final judgment, he represented that, should the Supreme Court deny certiorari, he would “not oppose a motion by the Receiver to release” funds. Yet, when the Supreme Court denied certiorari, Defendant changed course and registered his opposition. Defendant later again changed course, pursuing this appeal to assert setoff rights and thereby reduce his obligations. Because Defendant failed to raise his setoff defense before the district court’s entry of final judgment, he has forfeited that defense. View "GMAG v. Janvey" on Justia Law

In 2009, Stanford International Bank was exposed as a Ponzi scheme and placed into receivership. Since then, the Receiver has been recovering Stanford’s assets and distributing them to victims of the scheme. To that end, the Receiver sued Defendant, a Stanford investor, to recover funds for the Receivership estate. The district court entered judgment against Defendant. Defendant sought to exercise setoff rights against that judgment. Because Defendant did not timely raise those setoff rights, they have been forfeited.   The Fifth Circuit affirmed. The court explained that here, Defendant initially raised a setoff defense in his answer to the Receiver’s complaint. The Receiver moved in limine to exclude any setoff defenses before trial, arguing that any reference to setoff would be “unfairly prejudicial” and “an attempt to sidestep the claims process.” In May 2021, when Defendant moved for a stay of the district court’s final judgment, he represented that, should the Supreme Court deny certiorari, he would “not oppose a motion by the Receiver to release” funds. Yet, when the Supreme Court denied certiorari, Defendant changed course and registered his opposition. Defendant later again changed course, pursuing this appeal to assert setoff rights and thereby reduce his obligations. Because Defendant failed to raise his setoff defense before the district court’s entry of final judgment, he has forfeited that defense. View "Janvey v. GMAG" on Justia Law

The plaintiffs filed suit asserting federal securities claims. The Third Circuit affirmed summary judgment in favor of the defendants The district court subsequently performed a Federal Rule 11 inquiry mandated by the Private Securities Litigation Reform Act of 1995 (PSLRA) and determined that the plaintiffs violated Rule 11 but did not award attorneys’ fees or impose any other sanctions.The Third Circuit held that the plaintiffs violated Rule 11 in bringing their federal securities claims by filing for an improper purpose. The plaintiffs expressly stated that their “strategy was to file these complaints to force a settlement.” In addition, their Unregistered Securities and Misrepresentation Claims lacked factual support in violation of Rule 11(b)(3). The plaintiffs had a reasonable basis for their Rule 10b-5 Securities Fraud Claim. The court vacated in part. The PSLRA creates a presumption in favor of awarding attorneys’ fees when a complaint constitutes a “substantial failure” to comply with Rule 11 but the district court did not err in finding that the Rule 11 violations were not substantial. Nonetheless, the PSLRA makes the imposition of sanctions mandatory after a court determines that a party violated Rule 11, so the court abused its discretion in declining to impose any form of sanctions. View "Scott v. Vantage Corp" on Justia Law

Plaintiff-appellant Tracey Weinberg (“Weinberg”) was the former Chief Marketing Officer of defendant-appellee Waystar, Inc.(“Waystar”). During her employment, the company granted her options to purchase stock in its co-defendant Derby TopCo, Inc.,(“Derby Inc.”), pursuant to a Derby TopCo 2019 Stock Incentive Plan (the “Plan”). Weinberg was awarded three option grants under the Plan pursuant to three option agreements executed between October 2019 and August 2020. By the time Weinberg was terminated in 2021, 107,318.96 of her options had vested. She timely exercised all of them in November 2021, and the options immediately converted to economically equivalent partnership units in co-defendant Derby TopCo Partnership LP, a Delaware limited partnership (“Derby LP”) (the “Converted Units”). Each Option Agreement contained an identical call right provision providing Appellees the right to repurchase Weinberg’s Converted Units (the “Call Right”), “during the six (6) month period following (x) the (i) [t]ermination of [Weinberg’s] employment with the Service Recipient for any reason . . . and (y) a Restrictive Covenant Breach.” This appeal turned on the meaning of the word “and” in the three option agreements. Specifically, the question presented for the Delaware Supreme Court was whether two separate events (separated by the word “and”) had to both occur in order for the company to exercise a call right, or whether the call right could be exercised if only one event has occurred. Although Weinberg had been terminated within the time frame specified by the Call Right Provision, a Restrictive Covenant Breach had not occurred. The parties disputed whether the Call Right was available in the absence of a Restrictive Covenant Breach. The Court of Chancery decided that it was, and the Delaware Supreme Court concurred, affirming the Court of Chancery. View "Weinberg v. Waystar, Inc." on Justia Law

Plaintiffs are participants in the physical and derivatives markets for platinum and palladium and seek monetary and injunctive relief for violations of the antitrust laws and the Commodities Exchange Act (“CEA”). According to Plaintiffs, Defendants—mostly foreign companies engaged in trading these metals—manipulated the benchmark prices for platinum and palladium by collusively trading on the futures market to depress the price of these metals and by abusing the process for setting the benchmark prices. Defendants allegedly benefited from this conduct via trading in the physical markets and holding short positions in the futures market. The district court held that it had personal jurisdiction over two of the foreign Defendants, but it dismissed Plaintiffs’ antitrust claims for lack of antitrust standing and the Plaintiffs’ CEA claims for being impermissibly extraterritorial. Plaintiffs appealed the dismissal of these claims.   The Second Circuit reversed in part, vacated in part, and affirmed in part. The court reversed the district court’s holding that the “Exchange Plaintiffs” lacked antitrust standing to sue for the manipulation of the New York Mercantile Exchange futures market in platinum and palladium. The court explained that as traders in that market, the Exchange Plaintiffs are the most efficient enforcers of the antitrust laws for that injury. But the court affirmed the district court’s conclusion that KPFF Investment, Inc. did not have antitrust standing. Additionally, the court vacated the district court’s dismissal of Plaintiffs’ CEA claims. View "In re Platinum and Palladium Antitrust Litigation" on Justia Law

The Federal Trade Commission (the “Commission”) alleges that Defendant and his six companies engaged in unfair or deceptive business practices in violation of Section 5(a) of the Federal Trade Commission Act and the Telemarketing Sales Rule. Relying on its authority under Section 13(b) of the FTC Act, the Commission obtained a preliminary injunction that included an asset freeze and the imposition of a receiver. Defendant argued that the preliminary injunction must be dissolved because a recent Supreme Court decision undermines the Commission’s Section 13(b) authority.
The Eleventh Circuit affirmed the order denying Defendant’s emergency motion to dissolve the preliminary injunction. The court explained that Defendant urged the court to read AMG Capital as a signal to interpret the FTC Act with a view to “reigning in the FTC’s power.” But, the court wrote, that AMG Capital teaches the court to read the FTC Act to “mean what it says.” 141 S. Ct. at 1349. In AMG Capital, that meant limiting Section 13(b)’s provision for a “permanent injunction” to injunctive relief. Here, that means recognizing the broad scope of relief available under Section 19. When the Commission enforces a rule, Section 19 grants the district court jurisdiction to offer relief “necessary to redress injury to consumers.” To preserve funds for consumers, the Commission sought to freeze Defendant’s assets and impose a receivership over his companies. Section 19 allows such relief. View "Federal Trade Commission v. Steven J. Dorfman" on Justia Law

Joy Global and Komatsu agreed to merge. Joy sent its investors disclosures required under the Securities Exchange Act, 15 U.S.C. 78n. Subsequent suits contended that Joy violated the Act by not disclosing some internal projections of Joy’s future growth that could have been used to negotiate a higher price, rendering the proxy statements fraudulent, and that Joy’s directors violated their state law duties by not maximizing the price for the shareholders. The suits settled for $21 million.The district court held that the $21 million loss is not covered by insurance. The policies do not require indemnification for “any amount of any judgment or settlement of any Inadequate Consideration Claim other than Defense Costs.” An “inadequate consideration claim” is that part of any Claim alleging that the price or consideration paid or proposed to be paid for the acquisition or completion of the acquisition of all or substantially all the ownership interest in or assets of an entity is inadequate.The Seventh Circuit affirmed. The suits assert the wrongful act of failing to disclose documents that could have been used to seek a higher price and are within the definition of “inadequate consideration claim.” The claims do not identify any false or deficient disclosures about anything other than the price. The only objection to this merger was that Joy should have held out for more money, and that revealing this would have induced the investors to vote “no.” View "Joy Global Inc. v. Columbia Casualty Co." on Justia Law

Stillwater Mining Company filed suit against its directors’ and officers’ liability insurers to recover the expenses it incurred defending a Delaware stockholder appraisal action. The superior court granted the insurers’ motions to dismiss after it found that Delaware law applied to the dispute and the Delaware Supreme Court’s decision in In re Solera Ins. Coverage Appeals (“Solera II”) precluded coverage for losses incurred in a stockholder appraisal action under a similar D&O policy. The primary issue on appeal was whether Delaware or Montana law applied to the claims in Stillwater’s amended complaint. Stillwater argued that the superior court should have applied Montana law because Montana had the most significant relationship to the dispute and the parties. If Montana law applied, according to Stillwater, it could recover its defense costs because Montana recognized coverage by estoppel, meaning the insurers were estopped to deny coverage when they failed to defend Stillwater in the appraisal action. Before the Delaware Supreme Court issued Solera II, the Solera I court held that D&O insureds could recover losses incurred in a stockholder appraisal action. Taking advantage of that favorable ruling, Stillwater argued in its complaint that Delaware law applied to the interpretation of the policies. Then when Solera II was issued, Stillwater reversed position and claimed that Montana law applied to the policies. Its amended complaint dropped all indemnity claims for covered losses in favor of three contractual claims for the duty to advance defense costs and a statutory claim under Montana law. In the Supreme Court's view, Stillwater’s amended claims raised the same Delaware interests that Stillwater identified in its original complaint – applying one consistent body of law to insurance policies that cover comprehensively the insured’s directors’, officers’, and corporate liability across many jurisdictions. It then held the superior court did not abuse its discretion when it denied Stillwater's motions. View "Stillwater Mining Company v. National Union Fire Insurance Company of Pittsburgh, PA" on Justia Law