Justia Securities Law Opinion Summaries

During the 2008 financial crisis, Highland Capital Management, L.P., an investment manager, faced numerous redemption requests from investors of the Highland Crusader Fund. The Fund was placed in wind-down, and a dispute arose over the distribution of assets. This led to the adoption of a Joint Plan of Distribution and the appointment of a Redeemer Committee to oversee the wind-down. The Committee accused Highland Capital of breaching its fiduciary duty by purchasing redemption claims of former investors. An arbitration panel ruled in favor of the Committee, ordering Highland Capital to pay approximately $3 million and either transfer or cancel the redemption claims.Before the Committee could obtain a judgment for the award, Highland Capital filed for Chapter 11 bankruptcy. CLO HoldCo, a creditor, filed a claim for approximately $11 million, asserting it had purchased interests in the redemption claims. However, after a settlement agreement between Highland Capital and the Committee led to the cancellation of the redemption claims, CLO HoldCo amended its claim to zero dollars.After the bankruptcy court confirmed Highland Capital's reorganization plan, CLO HoldCo filed a second amended proof of claim, asserting a new theory of recovery. It argued that the cancellation of the redemption claims resulted in a credit for Highland Capital, which it owed to CLO HoldCo. The bankruptcy court denied the motion to ratify the second amended proof of claim, a decision affirmed by the district court.The United States Court of Appeals for the Fifth Circuit affirmed the lower courts' decisions. It held that post-confirmation amendments require a heightened showing of "compelling circumstances," which CLO HoldCo failed to provide. The court found that the bankruptcy court did not abuse its discretion in denying CLO HoldCo's motion to ratify the second amended proof of claim. View "CLO Holdco v. Kirschner" on Justia Law

The case involves Nano Dimension Ltd., an Israeli 3D printing and manufacturing company, and several defendants including Murchinson Ltd. and Anson Advisors Inc. Nano alleged that the defendants violated Section 13(d) of the Securities Exchange Act of 1934 by failing to disclose that they acted as a group when acquiring more than five percent of Nano’s American Depository Shares (ADSs). As a remedy, Nano sought an order directing the defendants to disclose their alleged group status on amended Schedule 13Ds and an injunction prohibiting them from acquiring additional ADSs or voting their existing ADSs pending completion of the amended filings.The United States District Court for the Southern District of New York dismissed Nano's claims as moot. The court found that the defendants had cured the alleged Section 13(d) violations by amending their Schedule 13D filings to disclose Nano’s allegations and their position that the allegations were without merit.The United States Court of Appeals for the Second Circuit affirmed the district court's decision. The appellate court agreed that the defendants' amended filings satisfied Section 13(d)’s disclosure requirements. The court also rejected Nano's argument that it was entitled to retroactive injunctive relief, noting that such relief is not available under Section 13(d) when corrective disclosures have been made and the vote in question did not effect a change in control over the issuer. View "Nano Dimension Ltd. v. Murchinson Ltd." on Justia Law

The case involves Gerald Forsythe, who filed a class action lawsuit against Teva Pharmaceuticals Industries Ltd. and several of its officers. Forsythe claimed that he and others who purchased or acquired Teva securities between October 29, 2015, and August 18, 2020, suffered damages due to misstatements and omissions by Teva and its officers related to Copaxone, a drug used to treat multiple sclerosis. Teva's shares are dual listed on the New York Stock Exchange and the Tel Aviv Stock Exchange.The District Court granted Forsythe's motion for class certification, rejecting Teva's assertion that the class definition should exclude purchasers of ordinary shares. The Court also rejected Teva's argument that Forsythe could not satisfy Rule 23(b)(3)’s predominance requirement.Teva sought permission to appeal the District Court’s Order granting class certification, arguing that interlocutory review is proper under Federal Rule of Civil Procedure 23(f). Teva contended that the Petition presents a novel legal issue and that the District Court erred in its predominance analysis with respect to Forsythe’s proposed class-wide damages methodology.The United States Court of Appeals for the Third Circuit denied Teva's petition for permission to appeal. The court found that the securities issue did not directly relate to the requirements for class certification, and agreed with the District Court’s predominance analysis. The court also clarified that permission to appeal should be granted where the certification decision itself under Rule 23(a) and (b) turns on a novel or unsettled question of law, not simply where the merits of a particular case may turn on such a question. View "Forsythe v. Teva Pharmaceutical Industries Ltd" on Justia Law

This case revolves around a real estate Ponzi scheme run by Jerome and Shaun Cohen through their companies, EquityBuild, Inc. and EquityBuild Finance, LLC (EBF), from 2010 to 2018. The Cohens sold promissory notes to investors, each note representing a fractional interest in a specific real estate property. The properties were mostly located in underdeveloped areas of Chicago and were secured by mortgages. As the scheme became unsustainable, the Cohens began offering opportunities to invest in real estate funds. BC57, LLC, a private lender and investor, lent approximately $5.3 million to EquityBuild, allegedly in exchange for a first mortgage on five properties already owned by EquityBuild and subject to preexisting liens from individual investors.The Securities and Exchange Commission (SEC) filed suit against the Cohens, EquityBuild, and EBF after the scheme collapsed in 2018. A court-appointed receiver developed a plan for the recovery and liquidation of all remaining, recoverable receivership assets. The receiver sold the five properties and now holds the proceeds, over $3 million, pending the resolution of the claims process. The individual investors whose loans BC57’s investment purportedly paid off claim priority to those proceeds, arguing that they never received payment or released their interests, despite the releases signed by Shaun Cohen. BC57 disagrees and asserts that it has priority. The district court awarded priority to the individual investors, finding that the mortgage releases were facially defective and that EBF lacked the authority to execute them.The United States Court of Appeals for the Seventh Circuit affirmed the district court's decision. The court found that under the Illinois Mortgage Act, payment alone does not extinguish any pre-existing interest absent a valid release. The court also found that the releases purportedly executed by EBF were facially invalid. The court concluded that the individual investors maintain their interests in these five properties. View "SEC v. BC57, LLC" on Justia Law

A group of retirement and pension funds filed a consolidated putative securities class action against PG&E Corporation and Pacific Gas & Electric Co. (collectively, PG&E) and some of its current and former officers, directors, and bond underwriters (collectively, Individual Defendants). The plaintiffs alleged that all the defendants made false or misleading statements related to PG&E’s wildfire-safety policies and regulatory compliance. Shortly after the plaintiffs filed the operative complaint, PG&E filed for Chapter 11 bankruptcy, automatically staying this action as against PG&E but not the Individual Defendants. The district court then sua sponte stayed these proceedings as against the Individual Defendants, pending completion of PG&E’s bankruptcy case.The district court for the Northern District of California issued a stay of the securities fraud action against the Individual Defendants, pending the completion of PG&E's Chapter 11 bankruptcy case. The court reasoned that the stay would promote judicial efficiency and economy, as well as avoid the potential for inconsistent judgments. The plaintiffs appealed this decision, arguing that the district court abused its discretion by entering the stay.The United States Court of Appeals for the Ninth Circuit held that it had jurisdiction over this interlocutory appeal under the Moses H. Cone doctrine because the stay was both indefinite and likely to be lengthy. The appellate court found that the district court abused its discretion in ordering the stay as to the Individual Defendants. The court held that when deciding to issue a docket management stay, the district court must weigh three non-exclusive factors: the possible damage that may result from the granting of a stay, the hardship or inequity that a party may suffer in being required to go forward, and judicial efficiency. The appellate court vacated the stay and remanded for the district court to weigh all the relevant interests in determining whether a stay was appropriate. View "PUBLIC EMPLOYEES RETIREMENT ASS'N OF NEW MEXICO V. EARLEY" on Justia Law

The case involves a group of pension funds (plaintiffs) who filed a lawsuit against Inovalon Holdings, Inc., and its board of directors (defendants), challenging an acquisition of Inovalon by a private equity consortium led by Nordic Capital. The plaintiffs claimed that the defendants breached their fiduciary duties and unjustly enriched themselves through the transaction. They also alleged that the company's charter was violated because the transaction treated Class A and Class B stockholders unequally.In the lower court, the Court of Chancery of the State of Delaware, the defendants moved to dismiss the case. They argued that the transaction satisfied the elements of a legal framework known as MFW, which would subject the board's actions to business judgment review. The Court of Chancery granted the defendants' motions to dismiss in full.On appeal, the Supreme Court of the State of Delaware reversed the decision of the Court of Chancery. The Supreme Court found that the lower court erred in holding that the vote of the minority stockholders was adequately informed. The Supreme Court determined that the proxy statement issued to stockholders failed to adequately disclose certain conflicts of interest of the Special Committee’s advisors. Therefore, the Supreme Court concluded that the transaction did not comply with the MFW framework, and the case was remanded for further proceedings. View "City of Sarasota Firefighters' Pension Fund v. Inovalon Holdings, Inc." on Justia Law

This case involves Commerzbank AG, a German bank, and U.S. Bank, N.A., an American bank. Commerzbank sued U.S. Bank, alleging that it had failed to fulfill its duties as a trustee for residential mortgage-backed securities (RMBS) that Commerzbank had purchased. The case revolved around three main issues: whether Commerzbank could bring claims related to trusts with "No Action Clauses"; whether Commerzbank's claims related to certificates held through German entities were timely; and whether Commerzbank could bring claims related to certificates it had sold to third parties.The district court had previously dismissed Commerzbank's claims related to trusts with No Action Clauses, granted judgment in favor of U.S. Bank on the timeliness of Commerzbank's claims related to the German certificates, and denied Commerzbank's claims related to the sold certificates. Commerzbank appealed these decisions.The United States Court of Appeals for the Second Circuit affirmed the district court's decisions on the timeliness of the German certificate claims and the denial of the sold certificate claims. However, it vacated the district court's dismissal of Commerzbank's claims related to trusts with No Action Clauses and remanded the case for further proceedings. The court found that Commerzbank's failure to make pre-suit demands on parties other than trustees could be excused in certain circumstances where these parties are sufficiently conflicted. View "Commerzbank AG v. U.S. Bank, N.A." on Justia Law

The case involves a technology company, Root Inc., which sought to disrupt the traditional car insurance market. The plaintiff, Plumber’s Local 290 Pension Trust Fund, invested in Root around the time of its initial public offering (IPO). The plaintiff alleged that Root made misleading statements about its customer acquisition cost (CAC), a key performance metric. Root's CAC was lower than traditional car insurance companies, giving it a competitive advantage. However, the plaintiff claimed that Root's CAC increased after its IPO, ending its competitive advantage. The plaintiff argued that Root had a duty to update investors about its CAC because it was higher than its historical average at the time of the IPO.The case was initially heard in the United States District Court for the Southern District of Ohio, which dismissed all of the plaintiff's claims for failure to state a claim for relief. The court found that the statements made by Root were not actionable because they were based on past performance or historical data, and were not false or misleading.On appeal, the United States Court of Appeals for the Sixth Circuit affirmed the lower court's decision. The appellate court held that the plaintiff's claims sounded in fraud and thus were subject to the heightened pleading standard of Rule 9(b). The court also found that Root's statements about its CAC were not misleading. Two of the statements were protected as statements of past or historical performance, and the third was protected by the "Bespeaks Caution" doctrine, which shields companies from liability when they make forward-looking statements accompanied by meaningful cautionary language. The court concluded that Root had no duty to update its CAC because the statements were about past performance and did not predict the future. View "Kolominsky v. Root, Inc." on Justia Law

A class of stock purchasers alleged that Anadarko Petroleum Corporation fraudulently misrepresented the potential value of its Shenandoah oil field project in the Gulf of Mexico, violating federal securities law. The plaintiffs claimed that a decline in Anadarko’s stock price resulted from the company's disclosure that the Shenandoah project was dry and that Anadarko was taking a significant write-off for the project. The plaintiffs invoked the Basic presumption, a legal principle that allows courts to presume an investor's reliance on any public material misrepresentations if certain requirements are met.The District Court for the Southern District of Texas certified the class, relying on new evidence presented by the plaintiffs in their reply brief. Anadarko argued that it was not given a fair opportunity to respond to this new evidence and appealed the decision.The United States Court of Appeals for the Fifth Circuit agreed with Anadarko, stating that the district court should have allowed a sur-reply when the plaintiffs presented new evidence in their reply brief. The court held that when a party raises new arguments or evidence for the first time in a reply, the district court must either give the other party an opportunity to respond or decline to rely on the new arguments and evidence. The court also agreed that the district court failed to perform a full Daubert analysis, a standard for admitting expert scientific testimony. The court vacated the class certification order and remanded the case for further proceedings. View "Georgia Firefighters' Pension Fund v. Anadarko Petroleum Corp." on Justia Law

The case involves Jonathan Espy, a shareholder of J2 Global, Inc., who alleged that the company and its individual defendants committed securities fraud. Espy claimed that J2 made materially misleading statements by omitting key facts about a 2015 acquisition and a 2017 investment, and concealed underperforming acquisitions through consolidated accounting practices. He also alleged that investors learned of J2’s corporate mismanagement and deception not from J2’s disclosures, but from two short-seller reports.The district court dismissed Espy's complaint twice, stating that he failed to sufficiently plead scienter, which is the intent to deceive or act with deliberate recklessness. The court found that Espy's allegations, including statements from two confidential former employees, did not establish reliability or personal knowledge, or demonstrate that J2 acted with the intent to deceive or with deliberate recklessness.The United States Court of Appeals for the Ninth Circuit affirmed the district court's decision. The appellate court held that Espy failed to sufficiently plead scienter because he did not state with particularity facts giving rise to a strong inference that J2 acted with the intent to deceive or with deliberate recklessness. The court also held that Espy failed to sufficiently plead loss causation by showing that J2’s misstatement, as opposed to some other fact, foreseeably caused Espy’s loss. The court concluded that the two short-sellers’ reports did not qualify as corrective disclosures because one did not relate back to the alleged misrepresentations in Espy’s complaint, and the other’s analysis was based entirely on public information and required no expertise or specialized skills beyond what a typical market participant would possess. View "Espy v. J2 Global, Inc." on Justia Law