Justia Securities Law Opinion Summaries

Noteholders succeeded in securing warrants that the issuer of the notes had promised as a result of the resolution of a previous event of default. When addressing the merits, the Court of Chancery held that the promise of warrants had become a right of the noteholders under the notes, as amended after the default. On that ground, the Court of Chancery awarded the noteholders the warrants they sought. The noteholders then sought to recover their attorneys’ fees based on a fee-shifting provision in the notes which entitled the noteholders to attorneys’ fees if: (1)”any indebtedness” evidenced by the notes was collected in a court proceeding; or (2) the notes were placed in the hands of attorneys for collection after default. But, the Court of Chancery denied this request and the noteholders appealed. After review, the Delaware Supreme Court found that because the warrants were a form of indebtedness that the noteholders had to collect through an action in the Court of Chancery, the noteholders were entitled to attorneys’ fees. The noteholders were also entitled to attorneys’ fees because they had to seek the assistance of counsel to collect the warrants after default. View "Washington v. Preferred Communication Systems, Inc." on Justia Law

JPMorgan offers to manage clients’ securities portfolios. Its affiliates sponsor mutual funds in which the funds can be placed. Plaintiffs in a putative class action under the Class Action Fairness Act, 28 U.S.C. 1332(d)(2), alleged that customers invested in these mutual funds believing that, when recommending them as suitable vehicles, JPMorgan acts in clients’ best interests (as its website proclaims), while JPMorgan actually gives employees incentives to place clients’ money in its own mutual funds, even when those funds have higher fees or lower returns than third-party funds. The Seventh Circuit affirmed dismissal under the Securities Litigation Uniform Standards Act, 15 U.S.C. 78bb(f), which requires the district court to dismiss any “covered class action” in which the plaintiff alleges “a misrepresentation or omission of a material fact in connection with the purchase or sale of a covered security.” Under SLUSA, securities claims that depend on the nondisclosure of material facts must proceed under the federal securities laws exclusively. The claims were framed entirely under state contract and fiduciary principles, but necessarily rest on the “omission of a material fact,” the assertion that JPMorgan concealed the incentives it gave its employees. View "Holtz v. J.P. Morgan Chase Bank, N.A." on Justia Law

If a LaSalle Bank custodial account had a cash balance at the end of a day, the cash would be invested in (swept into) a mutual fund chosen by the client. The Trust had a custodial account with a sweeps feature. After LaSalle was acquired by Bank of America, clients were notified that a particular fee was being eliminated. The trustee, who had not known about the fee, brought a putative class action in state court, claiming breach of the contract (which did not mention this fee) and violation of fiduciary duties. The bank removed the suit to federal court, relying on the Securities Litigation Uniform Standards Act, 15 U.S.C. 78bb(f), which authorizes removal of any “covered class action” in which the plaintiff alleges “a misrepresentation or omission of a material fact in connection with the purchase or sale of a covered security.” The statute requires that such state‑law claims be dismissed. The district court held that the suit fit the standards for removal and dismissal. The Seventh Circuit affirmed. The complaint alleged a material omission in connection with sweeps to mutual funds that are covered securities; no more is needed. The Trust may have had a good claim under federal securities law, but chose not to pursue it; the Act prohibits use of a state-law theory. View "Goldberg v. Bank of America, N.A." on Justia Law

Plaintiff filed suit against Archon, alleging breach of contract stemming from Archon's issuance of a Notice of Redemption to holders of outstanding shares of preferred stock. The court concluded that the district court properly held that it lacked federal question subject matter jurisdiction under 28 U.S.C. 1331 because plaintiff did not assert a federal claim, and the Securities Litigation Uniform Standards Act, 15 U.S.C. 77p(d)(1)(A), does not provide an independent basis for federal question jurisdiction over plaintiff's state-law claim. The court also concluded that it lacked diversity jurisdiction over the class action suit under section 1332(d)(2) because of the exception provided in section 1332(d)(9)(C). Finally, the court concluded that the district court properly held that it lacked diversity jurisdiction over plaintiff's individual claim under section 1332(a) and therefore could not exercise section 1367 supplemental jurisdiction over the class members’ claims. Accordingly, the court affirmed the district court's dismissal of the complaint. View "Rainero v. Archon Corp." on Justia Law

In February 2014, appellant-plaintiff Glynn Hotz purchased 16,000 shares of appellee-defendant Galectin Therapeutics, Inc. (“Galectin”), a small biopharmaceutical company headquartered in Norcross, Georgia. The price for Galectin common stock was $17.90 per share. In July 2014, news outlets began to report that Galectin had paid promotional firms to write flattering articles about Galectin and to “tout” Galectin’s stock price. Days later, Galectin’s stock price crashed, losing over half its value, falling from a price of $15.91 per share to $7.10 per share in one day. After suffering stock losses, Hotz filed a consolidated class action complaint against Galectin in May 2015. Hotz appealed the district court’s Rule 12(b)(6) dismissal of his complaint for failure to state a claim. Hotz argued: (1) that Galectin made material misstatements and omissions of fact by not disclosing that it had paid the promotional firms to tout Galectin stock; and (2) that certain Galectin officers and directors were liable for the company’s actions in their personal capacity as “controlling persons” of Galectin under section 20(a) of the Exchange Act. After thorough review, and with the benefit of oral argument, the Eleventh Circuit found no reversible error and affirmed. View "Hotz v. Galectin Therapeutics, Inc." on Justia Law

The complaint and referenced documents show that Quiznos fast-food franchise had borrowed heavily before its business sharply declined. From 2007 to 2011, Quiznos lost roughly 3,000 franchise restaurants and profitability plunged. With this plunge, Quiznos could no longer satisfy its loan covenants. As a result, Avenue Capital Management II, L.P., “Fortress” (a collective of investment entities) and others could foreclose on collateral, call in debt, or accelerate payments. To avoid a calamity, Quiznos restructured its debt. This securities-fraud matter arose out of the attempt to restructure that debt. Multiple investment funds purchased equity in Quiznos, and despite efforts, Avenue and Fortress sued former Quiznos managers and officers, claiming they had fraudulently misrepresented Quiznos’ financial condition. The district court dismissed the causes of action based on securities fraud based on a failure to state a valid claim. Finding no reversible error in that dismissal, the Tenth Circuit affirmed the district court’s decision. View "Avenue Capital Management II, v. Schaden" on Justia Law

The Goldmans, proceeding before an arbitration panel operating under the auspices of the Financial Industry Regulatory Authority (FINRA), alleged that their financial advisor and Citigroup had violated federal securities law in their management of the Goldmans’ brokerage accounts. The district court dismissed their motion to vacate an adverse award for lack of subject-matter jurisdiction, stating the Goldmans’ motion failed to raise a substantial federal question. The Third Circuit affirmed. Nothing about the Goldmans’ case is likely to affect the securities markets broadly. That the allegedly-misbehaving arbitration panel happened to be affiliated with a self-regulatory organization does not meaningfully distinguish this case from any other suit alleging arbitrator partiality in a securities dispute. The court noted “the flood of cases that would enter federal courts if the involvement of a self-regulatory organization were itself sufficient to support jurisdiction.” View "Goldman v. Citigroup Global Mkts., Inc" on Justia Law

Spirit AeroSystems, Inc. agreed to supply parts for three types of aircraft manufactured by Gulfstream Aerospace Corporation and The Boeing Company. For these aircraft, Spirit managed production of the parts through three projects. Each project encountered production delays and cost overruns, and Spirit periodically reported to the public about the projects’ progress. In these reports, Spirit acknowledged risks but expressed confidence about its ability to meet production deadlines and ultimately break even on the projects. Eventually, however, Spirit announced that it expected to lose hundreds of millions of dollars on the three projects. Spirit’s stock price fell roughly 30 percent following the announcement. The plaintiffs brought this action on behalf of a class of individuals and organizations that had owned or obtained Spirit stock between November 3, 2011, and October 24, 2012. The named defendants were Spirit and four of its executives, whom plaintiffs alleged misrepresented and failed to disclose the projects' cost overruns and production delays, violated section 10(b) of the Securities Exchange Act of 1934, and the Securities and Exchange Commission's Rule 10b-5. The trial court granted defendants' motion to dismiss, concluding in part that plaintiffs failed to allege facts showing scienter. Finding no reversible error in the trial court's order, the Tenth Circuit affirmed. View "Anderson v. Spirit AeroSystems Holdings" on Justia Law

Respondent Steve Taylor invested $3 million in several investment companies operated by Sean Mueller. Unbeknownst to Taylor, the companies were part of a multi-million dollar Ponzi scheme. The "Mueller Funds" received approximately $150 million in investments, and paid out a little less than $90 million to investors before collapsing. Taylor happened to receive approximately $3.4 million (a return of his invested principal plus net profit) prior to the collapse. Other investors were not as fortunate, losing a sum total of approximately $72 million. In 2010, Mueller ultimately pled guilty to securities fraud, and was sentenced to a total of 40 years in prison. In addition, he was ordered to pay over $64 million in restitution. Petitioner C. Randel Lewis was appointed as Receiver for the Mueller Funds, tasked with collecting Mueller's assets to his creditors and defrauded investors. The Receiver and Taylor signed a tolling agreement that extended the time period within which the Receiver could bring suit against Taylor in an attempt to recover assets. The eventual complaint sought to recover the net profit Taylor received. Taylor received his last payout in April 2007, and moved for summary judgment claiming the Receiver's claim was time barred due to the applicable statute of limitations. The trial court considered the tolling agreement and ruled in the Receiver's favor. Taylor appealed, and the court of appeals reversed, interpreting the term "extinguished," as used in 38-8-110(1), C.R.S. (2015), imposed a jurisdictional time limit on filing a claim, and that the parties could not toll that limit by agreement. The Supreme Court concluded that 38-8-110(1)'s time limitation could indeed be tolled by express agreement. The Court reversed the appellate court and remanded the case for further proceedings. View "Lewis v. Taylor" on Justia Law

The Commodity Futures Trading Commission regulates contracts concerning commodities for future delivery when offered on margin or another form of leverage, 7 U.S.C. 2(c)(2)(D), with an exception for contracts that “results in actual delivery within 28 days or such other longer period as the Commission may determine by rule or regulation based upon the typical commercial practice in cash or spot markets for the commodity involved”. The CFTC began investigating whether Monex's precious-metals business was within this exception. Monex refused to comply with a subpoena, arguing that since 1987, when it adopted its current business model, the CFTC has deemed its business to be in compliance with all federal rules and that, because it satisfies the exception, the Commission lacked authority even to investigate. The district court enforced the subpoena. Monex turned over the documents. Monex appealed, seeking their return and an injunction to prevent the CFTC from using them in any enforcement proceeding. The Seventh Circuit affirmed, stating that Monex was impermissibly using its opposition to the subpoena to get a judicial decision on the merits of its statutory argument, before the CFTC makes a substantive decision. The propriety of an agency’s action is reviewed after the final administrative decision. Contesting the agency’s jurisdiction does not change the rules for determining when a subpoena must be enforced. View "Commodities Futures Trading Comm'n v. Monex Deposit Co." on Justia Law