Justia Securities Law Opinion Summaries

After Uber’s founding in 2009, its valuation soared, with some investors assigning a valuation as high as $68 billion by mid-2016. Between June 2014 and May 2016, Kalanick, Uber’s founder, and Uber completed four preferred stock offerings, raising more than $10 billion in additional capital through limited partnerships and other entities. Irving Firemen’s Relief & Retirement Fund acquired Uber securities on February 16, 2016. In 2017, several alleged corporate scandals surfaced. By early 2018, investors estimated a nearly 30% decline in Uber’s valuation. Irving filed a putative class action against Uber and Kalanick alleging securities fraud under California Corporations Code sections 25400(d) and 25500. The Ninth Circuit affirmed the dismissal of the complaint, upholding the use of the federal standard for loss causation rather than the “less-rigid state law standard.” Irving did not state a claim because it did not adequately allege that Uber and Kalanick’s alleged fraudulent misstatements and omissions caused its alleged losses. Even assuming actionable misstatements by Uber and Kalanick and that news articles, a lawsuit, and government investigations revealed the truth to the market, Irving did not adequately and with particularity allege that these revelations caused the resulting drop in Uber’s valuation. View "Irving Firemen’s Relief & Retirement Fund v. Uber Technologies, Inc." on Justia Law

After a $3.3 billion “roll up” of minority-held units involving a merger between Enbridge, Inc. and Spectra Energy Partners L.P. (“SEP”), Paul Morris, a former SEP minority unitholder, lost standing to litigate an alleged $661 million derivative suit on behalf of SEP against its general partner, Spectra Energy Partners (DE) GP, LP (“SEP GP”). Morris repeated the derivative claim dismissal by filing a new class action complaint that alleged the Enbridge/SEP merger exchange ratio was unfair because SEP GP agreed to a merger that did not reflect the material value of his derivative claims. The Court of Chancery granted SEP GP’s motion to dismiss the new complaint for lack of standing. The court held that, to have standing to bring a post-merger claim, Morris had to allege a viable and material derivative claim that the buyer would not assert and provided no value for in the merger. Focusing on the materiality requirement, the court first discounted the $661 million recovery to $112 million to reflect the public unitholders’ beneficial interest in the derivative litigation recovery. The court then discounted the $112 million further to $28 million to reflect what the court estimated was a one in four chance of success in the litigation. After the discounting, the $28 million, less than 1% of the merger consideration, was immaterial to a $3.3 billion merger. On appeal, Morris argued the trial court should not have dismissed the plaintiff’s direct claims for lack of standing. After its review, the Delaware Supreme Court agreed with Morris finding that, on a motion to dismiss for lack of standing, he sufficiently pled a direct claim attacking the fairness of the merger itself for SEP GP’s failure to secure value for his pending derivative claims. The Court of Chancery’s judgment was reversed and the matter remanded for further proceedings. View "Morris v. Spectra Energy Partners" on Justia Law

Between 1983-2015, Heneghan was an associated person (AP) of 14 different National Futures Association (NFA)-member firms. Troyer invested hundreds of thousands of dollars in financial derivatives through NFA Members. The first interaction between Troyer and Heneghan was in 2008. After receiving an unsolicited phone call from Heneghan, Troyer invested more than $160,000. Despite changes in Heneghan’s entity affiliation, his working relationship with Troyer remained constant. At one point, Heneghan’s then-firm, Statewide, withdrew from the NFA following an investigation. Heneghan was the subject of a four-month NFA approval-hold in 2012. Troyer began sending money to Heneghan personally in 2013, allegedly to obtain trading firm employee discounts; these investments totaled $82,000. Troyer neither received nor asked for any investment documentation for this investment. In 2016-2015, NFA investigated Heneghan’s then-firm, PMI, Despite Troyer’s alleged substantial investment, no PMI accounts were listed for either Troyer or Heneghan. In 2015, Troyer directed Heneghan to cash out the fund; “all hell broke loose.” In 2016, the NFA permanently barred Heneghan from NFA membership. Troyer filed suit under the Commodities Exchange Act. 7 U.S.C. 25(b).The Seventh Circuit affirmed the summary judgment rejection of Troyer’s claim. NFA Bylaw 301(a)(ii)(D), which bars persons from becoming or remaining NFA Members if their conduct was the cause of NFA expulsion, is inapplicable. Statewide’s agreement not to reapply represented a distinct sanction from expulsion and did not trigger Bylaw 301(a)(ii)(D). View "Troyer v. National Futures Association" on Justia Law

The district court granted summary judgment for plaintiff in a derivative suit on behalf of 1-800-Flowers.com against Master Fund, ruling that Master Fund was the beneficial owner of more than ten percent of the shares of 1-800-Flowers, Inc., which were bought and sold within a period of six months, and requiring Master Fund to disgorge $4,909,393 in short-swing profits for violating section 16(b) of the Securities Exchange Act of 1934. Master Fund appealed and plaintiff cross-appealed.The Second Circuit concluded that factual questions remain on the issue of Master Fund's beneficial ownership and therefore remanded. In this case, RCM is a registered investment advisor; Master Fund, Offshore, and QP are customers of RCM; and William C. Martin holds positions in RCM, Master Fund, and Offshore, and indirectly has a role in QP. The relationship among RCM, Master Fund, Offshore, and QP is governed by an Investment Management Agreement (IMA), which was signed by Martin on behalf of all four parties to the agreement.The court concluded that it would be inconsistent with principles concerning section 16(b) of the Securities Exchange Act of 1934 to accept the district court's first reason for rejecting Master Fund's delegation of voting and investing authority to RCM. The court explained that, although Rule 13d-3(a) includes within the definition of a beneficial owner "any person who, directly or indirectly, through any contract, arrangement, understanding, relationship, or otherwise has" voting or investment authority, 17 C.F.R. 240.13d-3(a), using generalized wording such as "intertwined" or "not unaffiliated" to bring a person within the coverage of Rule 13d-3(a) would extend the reach of section 16(b) beyond the text of both the statute and the rule. The court also concluded that making an investment advisor a customer's agent for the specified purpose of carrying out the advisor's traditional functions for a customer does not make the advisor an agent for all purposes. Finally, the court concluded that there remains to be determined as a factual matter whether, under all the relevant circumstances, Martin is in control of Master Fund and the feeder funds with authority to commit these entities to altering or terminating the IMA. View "Packer v. Raging Capital Management, LLC" on Justia Law

Insurance providers asked the Delaware Supreme Court whether certain costs incurred in connection with an appraisal action under 8 Del. C. 262 were precluded from coverage under the primary and excess directors’ and officers’ insurance policies (the “D&O Policies”) issued to Solera Holdings, Inc. (“Solera”). An affiliate of Vista Equity acquired Solera in 2016. That transaction gave rise to litigation, including an appraisal action. Solera requested coverage under the D&O Policies for the Appraisal Action. The insurers denied the request. Solera then filed suit against the insurers for breach of contract and declaratory judgment, seeking coverage for pre-judgment interest and defense expenses incurred in connection with the Appraisal Action. However, Solera did not seek coverage for the underlying fair value amount paid to the dissenting stockholders, upon which the pre-judgment interest was based. The issuer of the primary policy settled, and the excess policy insurers moved for summary judgment. The superior court denied the motion, interpreting the policy to hold that: (1) a “Securities Claim” under the policy was not limited to a claim alleging wrongdoing, and the Appraisal Action was for a “violation” under the Securities Claim definition; (2) because the “Loss” definition was not limited by any other language, the policy covered pre-judgment interest on a non-covered loss; and (3) as to defense expenses, Delaware law implied a prejudice requirement in insurance contract consent clauses, and Solera’s breach of the consent clause did not bar coverage for defense expenses absent a showing of prejudice. The Insurers appealed, contending that the superior court erred in holding that the Appraisal Action could be covered under the D&O Policies for a violation of a “Securities Claim.” The Supreme Court disagreed with the superior court's determination the Appraisal Action was for a “violation,” concluding the Appraisal Action did not fall within the definition of a “Securities Claim.” Because the Appraisal Action was not a Securities Claim, the remaining issues were moot. View "In Re Solera Insurance Coverage Appeals" on Justia Law

In this litigation in which Altaba, Inc. (the Company) sought dissolution under the framework established by Sections 280 and 281(a) of the Delaware General Corporation Law the Court of Chancery held that the Company may make an interim distribution using its proposed amounts of security on the condition that it reserve funds for lawsuits pending in Canada resulting from data breaches that the Company disclosed in 2016 (the Canadian Actions Claim).As to all but two claims, in which the Company agreed to hold back the full amount of security requested by respective claimants, the Court of Chancery held that there was no obstacle to an interim distribution based on the amounts of security. For two claims, however, the Company sought to hold back less than the full amount of security requested by the claimants. The Court of Chancery held (1) as to the Canadian Actions Claim, if the Company wished to make an interim distribution to its stockholders it must reserve $1.05 billion Canadian; and (2) as to the second claim, the Company made a convincing showing that the amount it proposed to reserve was likely to be sufficient to provide compensation for claims that had not been made known to the Company or that had not yet arisen. View "In re Altaba, Inc." on Justia Law

In 2017, Sibanye Gold Ltd. (“Sibanye”) acquired Stillwater Mining Co. (“Stillwater”) through a reverse triangular merger. Under the terms of the merger agreement, each Stillwater share at closing was converted into the right to receive $18 of merger consideration. Between the signing and the closing of the merger, the commodity price for palladium (which Stillwater mined) increased by nine percent, improving Stillwater’s value. Certain former Stillwater stockholders dissented to the merger, perfected their statutory appraisal rights, and pursued this litigation. During the appraisal trial, petitioners argued the flawed deal process made the deal price an unreliable indicator of fair value and that increased commodity prices raised Stillwater’s fair value substantially between the signing and closing of the merger. In 2019, the Delaware Court of Chancery issued an opinion, holding that the $18 per share deal price was the most persuasive indicator of Stillwater’s fair value at the time of the merger. The court did not award an upward adjustment for the increased commodity prices. Petitioners appealed the Court of Chancery’s decision, arguing that the court abused its discretion when it ignored the flawed sale process and petitioners’ argument for an upward adjustment to the merger consideration. After review of the parties’ briefs and the record on appeal, and after oral argument, the Delaware Supreme Court found no reversible error and affirmed the Court of Chancery. View "Brigade Leveraged Capital Structures Fund Ltd v. Stillwater Mining Co." on Justia Law

Plaintiff-investors appealed the dismissal of their claims against the Vermont Agency of Commerce and Community Development (ACCD) and current and former state employees arising from the operation of a federally licensed regional center in the United States Customs and Immigration Services (USCIS) EB-5 program. USCIS designated ACCD as a regional center in 1997, and ACCD began operating the Vermont Regional Center (VRC). It was not the only state-affiliated regional center, but it was the only one that represented itself as a “state-run agency.” The VRC billed itself as an attractive option for development and foreign investment due to its superlative “oversight powers,” the overwhelming investor confidence that came from its “stamp of approval,” and the State of Vermont’s backing that would result in a “faster path to approval.” ACCD employees represented to prospective investors, including plaintiffs, that the added protections of state approval and oversight made the "Jay Peak Projects" a particularly sound investment. They told prospective investors that the VRC conducted quarterly reviews to ensure that projects complied with all applicable laws and regulations and “engag[ed] in the financial monitoring and auditing of projects to ensure legitimacy,” and they represented that MOUs imposed “strict covenants and obligations on the project to ensure compliance with all applicable laws and regulations.” Unbeknownst to the investors, but known to the VRC officials, no such state oversight by the VRC existed. The VRC never issued any of the quarterly reports contemplated in the MOUs. In April 2016, the U.S. Securities and Exchange Commission filed a lawsuit alleging securities fraud, wire fraud, and mail fraud against the Jay Peak Projects developers. On the basis of these and other allegations, plaintiffs, all foreign nationals who invested in the Jay Peak Projects, filed a multi-count claim against ACCD and several individual defendants. The trial court granted plaintiffs’ motion to amend their complaint for a third time to a Fourth Amended Complaint, and then dismissed all thirteen counts on various grounds. Plaintiffs appealed. After review, the Vermont Supreme Court reversed the dismissal of plaintiffs’ claims of negligence against ACCD, gross negligence against defendants Brent Raymond and James Candido, and breach of contract and the implied covenant of good faith and fair dealing against ACCD. The Court affirmed the dismissal of plaintiffs' remaining claims. View "Sutton et al. v. Vermont Regional Center et al." on Justia Law

Martin Franklin, the Chief Executive Officer and co-founder of Jarden Corporation, negotiated the corporation’s sale to Newell Brands for $59.21 per share in cash and stock. Several large Jarden stockholders refused to accept the sale price and petitioned for appraisal in the Court of Chancery. The Court of Chancery found that, of all the valuation methods presented by the parties’ experts, only the $48.31 unaffected market price of Jarden stock could be used reliably to determine the fair value. The court placed little or no weight on other valuation metrics because the CEO dominated the sales process, there were no comparable companies to assess, and the parties’ experts presented such wildly divergent discounted cash flow models that, in the end, the models were unhelpful to the court. On appeal, the petitioners argued the Court of Chancery erred as a matter of law when it adopted Jarden’s unaffected market price as fair value because it ignored what petitioners claim is a “long-recognized principle of Delaware law” that a corporation’s stock price does not equal its fair value. They also claimed the court abused its discretion by refusing to give greater weight to a discounted cash flow analysis populated with data selected by petitioners, ignoring market-based evidence of a higher value, and refusing to use the deal price as a “floor” for fair value. Finding no abuse of discretion or other reversible error, the Delaware Supreme Court affirmed the Court of Chancery. View "Fir Tree Value Master Fund v. Jarden Corp" on Justia Law

The First Circuit affirmed the judgment of the district court ruling against Paraflon Investments, Ltd. on its state-law misrepresentation claims against Fullbridge, Inc. and its principals, Peter Olson and Candice Olson, holding that there was no clear error in the district court's determinations.Fullbridge sought investments from Paraflon regarding a project involving the production of online training courses. After its investment deteriorated, Paraflon brought suit against Fullbridge and the Olsons in federal district court, alleging federal securities fraud claims and common law claims for, inter alia, negligent misrepresentation,and fraudulent misrepresentation. After the case was transferred to the District of Massachusetts the court ruled against Paraflon, finding that Fullbridge did not knowingly or intentionally make a false statement. Paraflon appealed, challenging the district court's disposition of the state-law misrepresentation claims. The First Circuit affirmed, holding (1) there was no clear error in the district court's determination that Fullbridge had a good faith belief that it had received a lucrative award from a third party related to the project; and (2) there was no clear error in the court's determination that Fullbridge's good-faith belief was objectively reasonable based on its experience with the third-party and what it knew at the time of Paraflon's investment. View "Paraflon Investments, Ltd. v. Fullbridge, Inc." on Justia Law