Justia Securities Law Opinion Summaries

The corporate charter of a bank holding company capped at 10% the stock that could be voted by a “person” in any stockholder vote. During a proxy contest for three seats of a staggered board, the CCSB board of directors instructed the inspector of elections not to count 37,175 shares voted in favor of a dissident slate of directors. According to the board, the 37,175 shares exceeded the 10% voting limitation because certain stockholders were acting in concert with each other. If the votes had been counted, the dissident slate of directors would have been elected. The CCSB corporate charter also provided that the board’s “acting in concert” determination, if made in good faith and on information reasonably available, “shall be conclusive and binding on the Corporation and its stockholders.” In a summary proceeding brought by the plaintiffs, the Court of Chancery found: (1) the “conclusive and binding” charter provision invalid under Delaware corporate law; (2) the board’s instruction to the inspector of elections invalid because the individuals identified by the board were not acting in concert; and (3) the board’s election interference did not withstand enhanced scrutiny review. The court also awarded the plaintiffs attorneys’ fees for having conferred a benefit on CCSB. CCSB argued the Court of Chancery erred when it invalidated the charter provision and reinstated the excluded votes. The Delaware Supreme Court affirmed the Court of Chancery: plaintiffs proved that the board breached its duty of loyalty by instructing the inspector of elections to disregard the 37,175 votes. "The charter provision cannot be used to exculpate the CCSB directors from a breach of the duty of loyalty. Further, the court’s legal conclusion and factual findings that the stockholders did not act in concert withstand appellate review." View "CCSB Financial Corp. v. Totta" on Justia Law

Mimi Investors, LLC (“Mimi Investors”) sued Paul Tufano, David Crocker, Dennis Cronin, and Neil Matheson (“ORCA Officers”), the directors and officers of ORCA Steel, LLC (“ORCA Steel”), a now-defunct data storage company, alleging that ORCA Officers made material misrepresentations of fact in violation of the Pennsylvania common law and Section 1- 401(b) of the Pennsylvania Securities Act ("PSA"). Mimi Investors described a meeting held in February of 2014 during which ORCA Officers allegedly represented to Mimi Investors that they had received 400 orders for computer data storage space (“CDS Orders”) for ORCA Steel’s new data storage facility. To secure financing for the purpose of servicing the CDS Orders, ORCA Officers sought promissory notes to increase capital. In October 2014, ORCA Steel ceased making interest payments on the loan. ORCA Steel did not respond to Mimi Investors’ demand letter, sent in August 2015, which sought to cure the default. Mimi Investors asserted that neither “construction financing nor the fulfillment of the new orders materialized.” It also averred that, on October 21, 2014, ORCA Officers told Mimi Investors that they “had known for months that the loan to fund new construction was not viable” because the CDS Orders were “not investment grade.” Mimi Investors claimed that “these misrepresentations regarding available construction financing and committed orders, as well as other statements by” ORCA Officers, “were material and untrue within the meaning of the” PSA, and that Mimi Investors “relied on these misrepresentations in deciding to make the [l]oan[.]” In a matter of first impression, the Pennsylvania Supreme Court addressed whether a plaintiff must plead and prove scienter as an element of 70 P.S. § 1-401(b) of the PSA. After careful review, the Court held that under the plain language of its text, Section 1-401(b) of the PSA did not contain a scienter element. However, the PSA provided a defense to civil liability under Section 1-401(b) if the defendant could show they “did not know and in the exercise of reasonable care could not have known of the untruth or omission[.]” View "Mimi Investors, LLC v. Tufano, P., et al." on Justia Law

Plaintiff Patrick Hogan brought a putative federal securities-fraud class action against poultry producer Pilgrim’s Pride Corp., Pilgrim’s former chief executive officer and president William Lovette, and Pilgrim’s then chief financial officer Fabio Sandri (collectively, Defendants). Plaintiff accused Defendants of violating § 10(b) of the Securities Exchange Act of 1934, and Securities and Exchange Commission Rule 10b–5, 17 C.F.R. § 240.10b–5. Plaintiff also accused Lovette and Sandri of violating § 20(a) of the Act, 15 U.S.C. § 78t(a). Plaintiff appealed four decisions by the district court: (1) the grant of Defendants’ motion to dismiss the first amended complaint (the FAC) for failure to adequately plead a claim; (2) the denial of Plaintiff’s motion to reconsider "Hogan I" (but granting leave to amend the complaint without setting a deadline); (3) the grant of Defendants’ motion to dismiss the second amended complaint (the SAC) as barred by the applicable statute of repose; and (4) the denial of Plaintiff’s motion to reconsider "Hogan III." After review, the Tenth Circuit Court of Appeals reversed the district court’s order in Hogan III, dismissed as moot Plaintiff’s challenges to the orders in Hogan I, Hogan II, and Hogan IV, and remanded for further proceedings at the district court. Because (1) the SAC did not raise new claims or add any defendants and (2) the district court did not enter a final order after Hogan I and Hogan II (so Defendants’ right to repose had not vested), the SAC was not barred by the statute of repose. Because the SAC superseded the FAC, the Court found the sufficiency of the FAC was a moot issue. And because the district court did not address the sufficiency of the SAC, the case was remanded for the district court to address this issue in the first instance. View "Hogan, et al. v. Pilgrim's Pride Corporation, et al." on Justia Law

MiMedx is a Florida corporation headquartered in Marietta, Georgia. Carpenters Pension Fund of Illinois is the lead plaintiff in this consolidated securities class action. Carpenters purchased 41,080 shares of MiMedx common stock in three separate transactions between August 2017 and October 2017 and later sold those shares in December 2017. The district court dismissed Carpenters’s action, finding that none of the complaint’s allegations occurring before the date Carpenters sold its MiMedx stock constituted a partial corrective disclosure sufficient to demonstrate loss causation. Carpenters contend that the district court erred in its loss causation analysis. Carpenters further argued that the district court erred in denying its post-judgment motion for relief from judgment, as well as its post-judgment request for leave to amend its complaint.   The Eleventh Circuit concluded that the district court erred in finding that Carpenters lacked standing to bring its Exchange Act claims against Defendants and vacated that portion of the district court’s order. The court affirmed the district court’s order dismissing Carpenters’ second amended complaint for failure to plead loss causation. The court explained that as to Rule 59(e), the district court did not abuse its discretion in determining that Carpenters sought to relitigate arguments it had already raised before the entry of judgment. As to Rule 60(b)(1) the court found no mistake in the district court’s application of the law in this case that would change the outcome of this case. And, as to Rule 60(b)(6), the district court found that Carpenters’ motion primarily focused on the court’s purported “mistakes in the application of the law,” which fall squarely under Rule 60(b)(1). View "Carpenters Pension Fund of Illinois v. MiMedx Group, Inc., et al." on Justia Law

A municipal retirement system that had purchased the company’s common stock before the announcement now alleges that the company knew beforehand of problems with its reserves and misled investors about those issues. The retirement system filed a putative class action against the company and three of its corporate executives, alleging securities fraud under Section 10(b) and Section 20(a) of the Securities Exchange Act of 1934. The insurance company and the executives moved to dismiss for failure to state a claim for relief. They argued that, under the heightened pleading standard for securities-fraud claims, the retirement system’s complaint failed to plausibly allege three necessary elements of its claims: false or misleading statements; loss causation, and scienter. The district court granted that motion and dismissed the complaint with prejudice.   The Third Circuit partially vacated the district court’s judgment. It remanded the case to the district court to consider, in the first instance, the adequacy of the amended complaint’s allegations of loss causation and scienter concerning the CFO’s statement. The court explained that based on information from a confidential former employee, who qualifies as credible at the pleading stage, the complaint alleged that the insurance company was already contemplating a significant increase in reserves due to negative mortality experience at the time of the CFO’s statements. And the magnitude of the company’s reserve charge and its temporal proximity to the CFO’s statements further undercut the CFO’s assertion that recent mortality experience was within a normal range. Those particularized allegations satisfy the heightened standard for pleading falsity, and they plausibly allege the falsity of the CFO’s statement. View "City of Warren Police and Fire v. Prudential Financial Inc" on Justia Law

Defendant and his attorney created publicly-traded shell corporations and sold them to privately-held companies. The Securities and Exchange Commission (SEC) filed suit against Defendants for violations of the Securities Act of 1933 (Securities Act), the Securities Exchange Act of 1934 (Exchange Act), and SEC Rule 10b5. On cross-motions for summary judgment, the district court held that Defendant had violated the securities laws and imposed equitable statutory remedies, including a civil penalty of $1,757,000. The district court found that, as a matter of undisputed fact, Defendant had received $1,757,000 in gross pecuniary gain from his violations and used that amount for the civil penalty. On appeal, Defendant challenged the amount of that penalty.   The Ninth Circuit reversed the district court’s imposition of the civil penalty. The panel held that Defendant’s declaration that legal fees of $287,500 were paid from the proceeds from the sale of five shell companies established a genuine issue of material fact whether such proceeds should be attributed to his—rather than his attorney’s—gross pecuniary gain. Because Defendant established a genuine issue of material fact whether he received or controlled the entire amount of the proceeds, the district court erred in finding on summary judgment that his gross pecuniary gain was $1,757,000. The panel further held that Defendant identified genuine issues of material fact on two additional factors that the district court considered in imposing the civil penalty: the degree of Defendant’s scienter and his recognition of the wrongful nature of his conduct. View "USSEC V. IMRAN HUSAIN, ET AL" on Justia Law

At issue before the Delaware Supreme Court in this case was the 2016 all-stock acquisition of SolarCity Corporation (“SolarCity”) by Tesla, Inc. (“Tesla”). Tesla’s stockholders claimed CEO Elon Musk caused Tesla to overpay for SolarCity through his alleged domination and control of the Tesla board of directors. At trial, the foundational premise of their theory of liability was that SolarCity was insolvent at the time of the Acquisition. Because the Court of Chancery assumed, without deciding, that Musk was a controlling stockholder, it applied Delaware’s most stringent "entire fairness" standard of review, and the Court of Chancery found the Acquisition to be entirely fair. In this appeal, the two sides disputed various aspects of the trial court’s legal analysis, including, primarily, the degree of importance the trial court placed on market evidence in determining whether the price Tesla paid was fair. Appellants did not challenge any of the trial court’s factual findings. Rather, they raised only a legal challenge, focused solely on the application of the entire fairness test. After careful consideration, the Delaware Supreme Court was convinced that the trial court’s decision was supported by the evidence and that the court committed no reversible error in applying the entire fairness test. View "In Re Tesla Motors, Inc. Stockholder Litigation" on Justia Law

Plaintiff contends that First Connecticut Bancorp, Inc. and its directors violated the securities laws by misleading shareholders like him about the true value of their shares ahead of a stock-for-stock merger. To comply with Section 14(a) of the Securities Exchange Act of 1934, Plaintiff claims, First Connecticut needed to disclose specific cashflow projections—and particularly an earlier, rosier set of projections—in the proxy statement, it circulated to investors. The district court granted First Connecticut’s motion for summary judgment, holding that Plaintiff hadn’t shown that (1) the cash-flow projections were material; (2) their omission caused him any economic loss, or (3) the directors acted negligently in approving the proxy statement.   The Fourth Circuit affirmed. The court explained that Plaintiff’s evidence doesn’t establish that he or any other shareholder suffered an economic loss because the cash-flow projections weren’t in the proxy statement. So the district court correctly granted summary judgment on this basis as well. Further, the court reasoned that Section 20(a) of the Exchange Act provides that “controlling persons” can be vicariously liable for violations of the securities laws. But a claim “under Section 20(a) must be based upon a primary violation of the securities laws,” and the court agreed that Plaintiff has established no such violation here. View "Selwyn Karp v. First Connecticut Bancorp, Inc." on Justia Law

Plaintiff brought an action against The Gap, Inc. and its directors “derivatively on behalf of Gap.” Plaintiff’s action alleged that Gap violated Section 14(a) of the Securities Exchange Act of 1934 (the Exchange Act) and Securities and Exchange Commission (SEC) Rule 14a-9 by making false or misleading statements to shareholders about its commitment to diversity. Gap’s bylaws contain a forum-selection clause stating that the Delaware Court of Chancery “shall be the sole and exclusive forum for . . . any derivative action or proceeding brought on behalf of the Corporation.” Lee nevertheless brought her putative derivative action in a California district court. The district court granted Gap’s motion to dismiss Lee’s complaint on forum nonconveniens ground.   The Ninth Circuit affirmed the district court’s judgment. The en banc court rejected Plaintiff’s argument that her right to bring a derivative Section 14(a) action is stymied by Gap’s forum-selection clause, which alone amounts to Gap “waiving compliance with a provision of [the Exchange Act] or of any rule or regulation thereunder.” The en banc court explained that the Supreme Court made clear in Shearson/American Express, Inc. v. McMahon, 482 U.S. 220 (1987), that Section 29(a) forbids only the waiver of substantive obligations imposed by the Exchange Act, not the waiver of a particular procedure for enforcing such duties. McMahon also disposes of Plaintiff’s argument that Gap’s forum-selection clause is void under Section 29(a) because it waives compliance with Section 27(a) of the Exchange Act, which gives federal courts exclusive jurisdiction over Section 14(a) claims. View "NOELLE LEE V. ROBERT FISHER, ET AL" on Justia Law

In 2009, Stanford International Bank was exposed as a Ponzi scheme and placed into receivership. Since then, the Receiver has been recovering Stanford’s assets and distributing them to victims of the scheme. To that end, the Receiver sued Defendant, a Stanford investor, to recover funds for the Receivership estate. The district court entered judgment against Defendant. Defendant sought to exercise setoff rights against that judgment. Because Defendant did not timely raise those setoff rights, they have been forfeited.   The Fifth Circuit affirmed. The court explained that here, Defendant initially raised a setoff defense in his answer to the Receiver’s complaint. The Receiver moved in limine to exclude any setoff defenses before trial, arguing that any reference to setoff would be “unfairly prejudicial” and “an attempt to sidestep the claims process.” In May 2021, when Defendant moved for a stay of the district court’s final judgment, he represented that, should the Supreme Court deny certiorari, he would “not oppose a motion by the Receiver to release” funds. Yet, when the Supreme Court denied certiorari, Defendant changed course and registered his opposition. Defendant later again changed course, pursuing this appeal to assert setoff rights and thereby reduce his obligations. Because Defendant failed to raise his setoff defense before the district court’s entry of final judgment, he has forfeited that defense. View "GMAG v. Janvey" on Justia Law