Justia Securities Law Opinion Summaries

Articles Posted in California Courts of Appeal
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The value of shares of stock in Restoration Robotics, a Delaware corporation, dropped within months of the company’s 2017 initial public stock offering. Wong, having purchased the stock, sued Restoration in San Mateo County Superior Court, alleging that the company’s offering documents contained materially false and misleading statements in violation of the Securities Act of 1933 (15 U.S.C. 77). Although the 1933 Act generally allows a plaintiff to choose whether to file suit in state or federal court, and bars the removal to federal courts of a suit filed in state court, a “federal forum provision” (FFP) in Restoration’s certificate of incorporation states that 1933 Act claims must be brought in federal court unless Restoration consents to a different forum.The trial court declined jurisdiction on the basis of the FFP. The court of appeal affirmed, rejecting arguments that the FFP violates the 1933 Act, which states that both state and federal courts have jurisdiction over 1933 Act causes of action, that the Delaware statutory scheme permitting the FFP violates the Commerce Clause and the Supremacy Clause, and that the FFP is invalid and should not be enforced in any event because it is unfair and unreasonable. View "Wong v. Restoration Robotics, Inc." on Justia Law

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In June 2017, Google engineers alerted Intel’s management to security vulnerabilities affecting Intel’s microprocessors. Intel management formed a “Problem Response Team” but made no public disclosures. In January 2018, media reports described the security vulnerabilities. Intel acknowledged the vulnerabilities, and management’s prior knowledge of them. Intel’s stock price dropped. Tola filed a shareholder derivative complaint, alleging that certain Intel officers and directors breached fiduciary duties. After obtaining records from Intel, Tola filed a third amended complaint, alleging that certain officers “knowingly disregarded industry best practices, material risks to the Company’s reputation and customer base, and their fiduciary duties of care and loyalty … the Board of Directors willfully failed to exercise its fundamental authority and duty to govern Company management and establish standards and controls.”The trial court dismissed, concluding that Tola failed to allege, with the requisite particularity, that it was futile to make a pre-suit demand on Intel’s board of directors. The court of appeal affirmed. Tola does not support his conclusory allegations with sufficient particularized facts that support an inference of bad faith. At most, Tola alleged that two directors received a material personal benefit from alleged insider trading, which still leaves an impartial board majority to consider a demand. View "Tola v. Bryant" on Justia Law

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After a scandal that led to plaintiff's resignation from his positions at Banc of California, plaintiff filed suit against Banc, several individual directors and Banc executives, and Banc's lead auditor. Defendant filed anti-SLAPP (strategic lawsuits against public participation, Code Civ. Proc., 425.16) motions to strike various of the causes of action plaintiff alleged.In the published portion of the opinion, the Court of Appeal affirmed the Brown order granting Defendant Brown's motion in part. The court held that statements in an annual 10-K report filed with the SEC constitute statements "made in connection with an issue under consideration or review by [an] official proceeding" under section 425.16, subdivision (e)(2). View "Sugarman v. Brown" on Justia Law

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After a scandal that led to plaintiff's resignation from his positions at Banc of California, plaintiff filed suit against Banc, several individual directors and Banc executives, and Banc's lead auditor. Defendant filed anti-SLAPP (strategic lawsuits against public participation, Code Civ. Proc., 425.16) motions to strike various of the causes of action plaintiff alleged.In the published portion of the opinion, the Court of Appeal held that statements Banc made in its Forms 8-K and 10-Q filed with the SEC, as well as related investor presentations and conversations, are protected activity under section 425.16, subdivision (e)(2) as matters under review and consideration by the SEC. Furthermore, statements related to financial projections were also protected under section 425.16, subdivision (e)(4), as matters of public interest. View "Sugarman v. Benett" on Justia Law

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Natera's primary product is Panorama, a screening test for fetal chromosomal abnormalities, based on a blood draw, rather than amniocentesis. A class action under the Securities Act of 1933 (15 U.S.C. 77a), alleged that documents issued in connection with Natera’s initial public offering omitted material facts that were required by regulations or necessary to make the documents not misleading. It alleged that the documents, which became effective on July 1, 2015, improperly touted Natera as "rapidly growing," amid a quarterly revenue growth trend with year-over-year revenue increases, while omitting Natera’s “material negative financial results” for the second quarter of 2015, which had ended on June 30, 2015; second-quarter financial results were not yet public.The court of appeal affirmed the dismissal of the claims. In the context of the Registration Statement as a whole, there is nothing false or misleading about the statements that Natera is “rapidly growing” or that its “rapid growth of revenues” was based on the success of Panorama. The Statement clearly stated that revenues declined from 4Q 2014 to 1Q 2015 and attributed that decline to decreased average reimbursement for Panorama due to a new billing code and delayed revenue recognition. The Statement itself refutes any argument that defendants failed to disclose the negative trend of declining reimbursements and revenues with increasing costs and losses. View "City of Warren Police and Fire Retirement System v. Natera Inc." on Justia Law

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Investors purchased shares of BlackRock iShares Exchange-Traded Funds (ETFs) and suffered financial losses when their shares were sold pursuant to “market orders” or “stop-loss orders” during a “flash crash” in August 2015, when ETF trading prices fell dramatically. The investors claim that BlackRock’s registration statements, prospectuses, and amendments thereto issued or filed between 2012 and 2015, were false or misleading in that they failed to sufficiently disclose the risks associated with flash crashes. The investors sued, alleging violations of disclosure requirements under the Securities Act of 1933. 15 U.S.C. 77k.The court of appeal affirmed that the investors lacked standing. Liability under sections 11 and 12(a)(2) of the 1933 Act applies only to initial offerings; the investors purchased their ETF shares on the secondary market. The court rejected claims citing section 11, under which a plaintiff has standing if shares purchased in the secondary market can be traced back to an offering made under a misleading registration statement. Given the greater availability of information about potential investments to secondary market investors, limiting the stricter liability imposed by the 1933 Act to primary market transactions is not necessarily unreasonable. In contrast to the “catchall” provisions of the Exchange Act, 15 U.S.C. 77j(b)[ 22]—sections 11 and 12(a)(2) of the Securities Act “apply more narrowly but give rise to liability more readily.” View "Jensen v. iShares Trust" on Justia Law

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Guadalupe Ontiveros, as minority shareholder in Omega Electric, Inc. (Omega), sued majority shareholder Kent Constable, his wife Karen, and Omega, asserting direct and derivative claims arising from a dispute over management of Omega and its assets. In response to Ontiveros's claim of involuntary dissolution of Omega, Appellants filed a motion to stay proceedings and appoint appraisers to fix the value of Ontiveros's stock. The superior court granted the motion, staying the action. Ontiveros then tried to dismiss his claim for involuntary dissolution without prejudice, but the court clerk would not accept his filing because the matter had been stayed. Ontiveros thus filed a motion, asking the court to revoke its order granting Appellants' motion, or in the alternative, to reconsider and then vacate the order. The court treated that motion as a motion for leave to file a dismissal with prejudice under Code of Civil Procedure section 581 (e), granted the motion, and allowed Ontiveros to dismiss his cause of action for involuntary dissolution of Omega. Without the existence of that claim, the court found no basis on which to stay the action and order an appraisal of the stock. As such, the court lifted the stay, terminating the procedure. Appellants appealed, contending the court abused its discretion in granting Ontiveros's motion. In addition, Appellants argued the trial court improperly interpreted section 2000 in granting the motion. Ontiveros countered by arguing the trial court's order was not appealable. The Court of Appeal determined Appellants presented an appealable issue, and was persuaded the trial court abused its discretion here: the superior court relied upon that code section as a mechanism to lift the stay and terminate the section 2000 special proceeding, misapplying the law. Consequently, the trial court's order was reversed. View "Ontiveros v. Constable" on Justia Law

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Plaintiff Antoinette Rossetta appealed the dismissal of her second amended complaint after the trial court sustained a demurrer by defendants CitiMortgage, Inc. (CitiMortgage) and U.S. Bank National Association as Trustee for Citicorp Residential Trust Series 2006-1 (2006-1 Trust). The complaint asserted multiple causes of action sounding in tort, and unlawful business practices in violation of the Unfair Competition Law arising from loan modification negotiations spanning more than two years. Rossetta also appealed the trial court’s dismissal of a cause of action for conversion that appeared in an earlier iteration of the complaint to which CitiMortgage and the 2006-1 Trust (collectively, CitiMortgage, unless otherwise indicated) also successfully demurred. After review, the Court of Appeal concluded: (1) the trial court erred in sustaining the demurrer to the causes of action for negligence and violations of the Unfair Competition Law; (2) the trial court properly sustained the demurrer to the causes of action for intentional misrepresentation and promissory estoppel, but should have granted leave to amend to give Rossetta an opportunity to state a viable cause of action based on an alleged oral promise to provide her with a Trial Period Plan (TPP) under the Home Affordable Mortgage Program (HAMP) in April 2012; and (3) the trial court properly sustained the demurrer to the causes of action for negligent misrepresentation, breach of contract, intentional infliction of emotional distress and conversion without leave to amend. View "Rossetta v. CitiMortgage, Inc." on Justia Law

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Between 2000 and 2001, plaintiff-appellant Troy Flowers's application for a securities sales license was rejected by Ohio state officials because they found that he was "not of 'good business repute.'" In addition, Flowers was subjected to discipline by securities regulators with respect to his violation of securities laws and regulations and his failure to cooperate in a securities investigation. Flowers filed a complaint against the Financial Industry Regulatory Authority, Inc. (FINRA), seeking an order that FINRA expunge his disciplinary history from its records. The trial court sustained without leave to amend FINRA's demurrer to Flowers's complaint. Because federal securities laws and regulations provided Flowers with a process by which he may challenge FINRA's publication of his disciplinary history, and Flowers has not pursued that process, the Court of Appeal concluded he may not now, by way of a civil action, seek that relief from the trial court. Accordingly, the Court affirmed the trial court's order sustaining the demurrer and its judgment in favor of FINRA. View "Flowers v. Financial Industry Regulatory Authority, Inc." on Justia Law