Justia Securities Law Opinion Summaries

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

Traders set up accounts with Trean, a Chicago Mercantile Exchange introducing broker, managing the customer side of the futures-trading business. Stone handled the trading side. The traders engaged in naked trading—speculating rather than hedging. Stone set a high margin accordingly. Stone was a principal in all trades and, with the clearing house bore, the immediate economic risk; Trean guaranteed Stone’s positions and shared in its commissions. The market did not cooperate. Trean learned that the traders had not met Stone’s margin call and were not cooperating with Stone. Trean told the traders that it would close their accounts but that they were free to deal directly with Stone. Stone thereafter prohibited any trades that would increase the holdings’ net risk. The traders liquidated. Of the $1,020,000 with which they began, they lost $548,000.The traders sued, contending that their contract with Trean did not allow it to cease dealing with them for the reason given and that Trean’s decision led Stone to impose unacceptable conditions. The Seventh Circuit affirmed summary judgment for Trean. Regardless of whether Trean was entitled to end its dealings with the traders, no reasonable jury could find that Trean injured them. Trean’s decision did not affect the value of their futures contracts; they did not have a greater loss than they would have by moving their accounts to a different introducing broker and retaining Stone. View "Daneshrad v. Trean Group, LLC" on Justia Law

The Delaware Court of Chancery entered judgment in favor of appellee Sharon Hawkins on her request for a declaration that the irrevocable proxy which provided appellant W. Bradley Daniel (“Daniel”) with voting power over all 100 shares of N.D. Management, Inc. (“Danco GP”) (the “Irrevocable Proxy”), did not bind a subsequent owner of such Danco GP shares. The Court of Chancery also held that an addendum to the Irrevocable Proxy did not obligate the current owner of the Danco GP shares, MedApproach, L.P. (the “Partnership”), to demand that the buyer in a sale to an unaffiliated third party bind itself to the Irrevocable Proxy. Daniel appealed the Court of Chancery’s judgment that the Irrevocable Proxy did not run with the Majority Shares, arguing the court erred by: (1) rather than interpreting and applying the plain language of the Irrevocable Proxy as written, the court relied on the Restatement (Third) of Agency, which was not adopted until nearly a decade after the parties entered into the Irrevocable Proxy; (2) reading additional language into the Irrevocable Proxy in order to support its finding that the broad “catch-all” language that the parties included to prevent termination of the Irrevocable Proxy did not encompass a sale of the shares; and (3) not giving effect to all of the terms of the Irrevocable Proxy and improperly limiting the assignment clause of the Irrevocable Proxy so as not to bind assigns of the stockholder. Finding no reversible error, the Delaware Supreme Court affirmed the Court of Chancery. View "Daniel v. Hawkins" on Justia Law

Plaintiff brought claims under Section 12(a)(2) of the Securities Act against all Defendants, and a claim pursuant to Section 15 of the Securities Act against Cardone and Cardone Capital. At issue was whether Cardone and Cardone Capital count as persons who “offer or sell” securities under Section 12(a) based on their social media communications to prospective investors. The district court concluded that Cardone and Cardone Capital did not qualify as statutory sellers.   The Ninth Circuit affirmed in part and reversed in part the district court’s dismissal pursuant to Federal Rule of Civil Procedure 12(b)(6). The panel concluded that Section 12 contains no requirement that a solicitation be directed or targeted to a particular plaintiff, and accordingly, held that a person can solicit a purchase, within the meaning of the Securities Act, by promoting the sale of a security in mass communication. Because the First Amended Complaint sufficiently alleges that Cardone and Cardone Capital were engaged in solicitation of investments in Funds V and VI, the district court erred in dismissing Plaintiff’s claim against Cardone and Cardone Capital under Section 12(a)(2), and also erred in dismissing his Section 15 claim for lack of a primary violation of the Securities Act. View "LUIS PINO V. CARDONE CAPITAL, LLC, ET AL" on Justia Law

Walworth, a former stockholder, sued Mu Sigma, a privately held data analytics company, and Rajaram, the company’s founder, CEO, and board chairman, alleging that after reaping the benefits of Walworth’s $1.5 million investment and reputational capital, the defendants embarked on a fraudulent scheme to oust Walworth of its substantial ownership interest in the company.The Cook County circuit court dismissed the complaint, citing the stock repurchase agreement (SRA), which included anti-reliance and general release provisions. The appellate court reversed, holding that the anti-reliance language was ambiguous. The Illinois Supreme Court reinstated the dismissal, stating that “the broad and comprehensive release agreed to by [Walworth], a sophisticated party represented by experienced counsel, unambiguously encompasses” the unjust enrichment and breach of contract claims. The bargained-for anti-reliance provisions reflected the understanding that there may be undisclosed information but that Walworth was satisfied by the information provided. Walworth had direct access to Rajaram to negotiate the arm’s-length transaction at issue and Rajaram was not acting as a fiduciary for Walworth. A corporation owes no fiduciary duty to its shareholder and Delaware law does not impose “an affirmative fiduciary duty of disclosure for individual transactions.” View "Walworth Investments-LG, LLC v. Mu Sigma, Inc." on Justia Law