Justia Securities Law Opinion Summaries

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

The question this case presented for the Colorado Supreme Court's review centered on whether the court of appeals misapplied federal case law when it concluded that respondent Oklahoma Police Pension and Retirement System (“Oklahoma”) stated a plausible claim for relief under sections 11, 12(a)(2), and 15 of the Securities Act of 1933 (“Securities Act”), 15 U.S.C. §§ 77k, 77l(a)(2), 77o, notwithstanding petitioners’ assertions that the alleged misrepresentations at issue constituted immaterial “puffery” and amounted to claims based on hindsight, which were not actionable under federal law. Jagged Peak Energy Inc. (“Jagged”) was a Denver-based company that specializes in the exploration, development, and production of crude oil and natural gas. In January 2017, Jagged conducted an initial public offering (“IPO”), during which it sold over 31 million shares at a price to the public of $15.00 per share. Oklahoma, a governmental pension system that provides pension and disability benefits for municipal police officers in the state of Oklahoma, purchased Jagged shares “pursuant to and/or traceable to the [IPO].” According to Oklahoma, within a short time after its investment, facts came to light indicating that Jagged, the individual defendants, and the underwriter defendants (collectively, “defendants”) had negligently overstated Jagged’s ability to increase its oil and gas production. As a result, the price of Jagged shares saw several notable declines, and except for a brief surge, Jagged’s stock has traded well below its IPO price. Oklahoma filed a class action lawsuit in Denver District Court, alleging that defendants had made materially untrue statements and omissions in their offering documents. The Colorado Supreme Court concluded the appellate court's conclusion was consistent with applicable federal precedent, and therefore affirmed that court's judgment. View "Jagged Peak Energy v. Oklahoma Police Pension" on Justia Law

International Flavors & Fragrances Inc. (“IFF”), a U.S.-based seller of flavoring and fragrance products, acquired Frutarom Industries Ltd. (“Frutarom”), an Israeli firm in the same industry. Leading up to the merger, Frutarom allegedly made material misstatements about its compliance with anti-bribery laws and the source of its business growth. Plaintiffs, who bought stock in IFF, sued Frutarom, alleging that those misstatements violated Section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”) and Rule 10b-5 thereunder.   The Second Circuit affirmed the district court’s dismissal of Plaintiffs’ complaint. The court concluded that Plaintiffs lack statutory standing to sue. Under the purchaser-seller rule, standing to bring a claim under Section 10(b) is limited to purchasers or sellers of securities issued by the company about which a misstatement was made. Plaintiffs here lack standing to sue based on alleged misstatements that Frutarom made about itself because they never bought or sold shares of Frutarom. View "Menora Mivtachim Ins. Ltd. v. Frutarom Indus. Ltd." on Justia Law

A corporate shareholder alleged the corporation violated his statutory right to inspect certain records and documents. The superior court found that the shareholder did not assert a proper purpose in his request. The shareholder appealed, arguing the superior court erred by finding his inspection request stated an improper purpose, sanctioning him for failing to appear for his deposition, and violating his rights to due process and equal protection by being biased against him. After review, the Alaska Supreme Court reversed the superior court’s order finding that the shareholder did not have a proper purpose when he requested the information at issue from the corporation, but it affirmed the superior court’s discovery sanctions. View "Pederson v. Arctic Slope Regional Corporation" on Justia Law

Plaintiffs suing individually and on behalf of others similarly situated, appealed from an August 2020 judgment of the United States District Court for the Southern District of New York, on the ground of forum non conveniens, their amended complaint against defendants E‐Commerce China Dangdang Inc. (ʺDangdangʺ), its controlling shareholders, and others, alleging negligent misrepresentation, breach of fiduciary duty, and violations of Sections 10(b), 13(e), and 20(a) of the Securities Exchange Act of 1934 (ʺExchange Actʺ) and rules promulgated thereunder, in connection with Dangdangʹs 2016 ʺgoing‐privateʺ merger and the purchase by its controlling shareholders of its outstanding publicly‐traded shares, listed as American Depositary Shares (or ʺADSsʺ) on the New York Stock Exchange (or ʺNYSEʺ).On appeal, plaintiffs argue principally that the district court erred in concluding that the forum selection clause was not applicable to all of the defendants and to all of plaintiffsʹ claims, and in according unwarranted weight to public‐interest factors pointing toward dismissal.The Second Circuit vacated and remanded the district court’s judgment concluding that the forum selection clause was not applicable to all of defendants and to all of plaintiffsʹ claims. The court held the district court principally misinterpreted the scope of the forum selection clause. View "Fasano v. Guoqing Li" on Justia Law

Defendant Pluralsight was a software company offering a cloud-based technology skills platform. Defendant Aaron Skonnard was Pluralsight’s Chief Executive Officer; defendant James Budge was the Chief Financial Officer. Plaintiffs purchased Pluralsight stock between January 16, 2019, and July 31, 2019. Beginning on January 16, 2019, Skonnard and Budge allegedly made materially false and misleading statements about the size and productivity of Pluralsight’s sales force, which Plaintiffs claim artificially inflated Pluralsight’s stock price, including during a secondary public offering (“SPO”) in March 2019. Pluralsight announced disappointing second-quarter earnings on July 31, 2019. Defendants attributed the low earnings to a shortage of sales representatives earlier in the year—but this explanation contradicted representations Pluralsight made in the first quarter of 2019 about the size of its sales force. Lead Plaintiffs Indiana Public Retirement System (“INPRS”) and Public School Teachers’ Pension and Retirement Fund of Chicago (“CTPF”) brought claims on behalf of a putative class of Pluralsight stock holders under the Securities Exchange Act of 1934 (“Exchange Act”), and the Securities Act of 1933 (“Securities Act”) in federal district court in Utah. Defendants moved to dismiss under Federal Rule of Civil Procedure 12(b)(6), contending Plaintiffs failed to adequately allege: (1) any materially false or misleading statements or omissions; and (2) that Defendants acted with the requisite scienter. The district court found one statement (of eighteen alleged) was materially false or misleading but dismissed Plaintiffs’ Exchange Act claims because the complaint failed to allege a strong inference of scienter. The district court dismissed Plaintiffs’ Securities Act claims because none of the statements in Pluralsight’s SPO documents were materially false or misleading. The Tenth Circuit concluded the district court erred in dismissing Plaintffs’ Exhcange Act claims. “Although the district court correctly determined that Plaintiffs sufficiently alleged only one materially false or misleading statement, the district court’s scienter determination was erroneous.” The Court also concluded the district court relied on erroneous reasoning to dismiss the alleged violation of Item 303 of SEC Regulation S–K, so the case was remanded for further consideration. The judgment was affirmed in all other respects. View "Indiana Public Retirement, et al. v. Pluralsight, et al." on Justia Law

An objector appealed a Delaware Court of Chancery decision approving a litigation settlement for claims alleging excessive non-employee director compensation. Initially, the parties agreed to a preliminary settlement and presented it to the Court of Chancery for approval. The Court of Chancery sided with the objector and refused to approve a non-monetary settlement of the derivative claims. The court also awarded the objector fees. After the court denied a motion to dismiss, the parties came up with a new settlement that included a financial benefit to the corporation. The objector renewed his objection, this time arguing that the new settlement improperly released future claims challenging compensation awards and that the plaintiff was not an adequate representative for the corporation’s interests. The Court of Chancery approved the new settlement and refused to award the objector additional attorneys’ fees. On appeal to the Delaware Supreme Court, the objector argued the court erred by: (1) approving an overbroad release; (2) approving the settlement without finding that the plaintiff was an adequate representative of the corporation’s interests; and (3) reducing the objector’s fee because the court believed it would have rejected the original settlement agreement without the objection. Though the Supreme Court acknowledged the Court of Chancery and the parties worked diligently to bring this dispute to a close, it reversed the judgment because the settlement agreement released future claims arising out of, or contemplated by, the settlement itself instead of releasing liability for the claims brought in the litigation. View "Griffith v. Stein" on Justia Law

In a final judgment, the Delaware Court of Chancery ordered NVIDIA Corporation (“NVIDIA” or the “Company”) to produce books and records to certain NVIDIA stockholders under Section 220 of the Delaware General Corporation Law. In the underlying action, the stockholders alleged certain NVIDIA executives knowingly made false or misleading statements during Company earnings calls that artificially inflated NVIDIA’s stock price, and then those same executives sold their stock at inflated prices. As such, the stockholders sought to inspect books and records to investigate possible wrongdoing and mismanagement at the Company, to assess the ability of the board to consider a demand for action, to determine whether the Company’s board members were fit to serve on the board, and to take the appropriate action in response to the investigation. In resisting the request, NVIDIA argued the stockholders were not entitled to the relief they sought because: (1) the scope of the original demands failed to satisfy the form and manner requirements; (2) the documents sought at the trial were not requested in the original demands; (3) the stockholders failed to show a proper purpose; (4) the stockholders failed to show a credible basis to infer wrongdoing; and (5) the requests were overbroad and not tailored to the stockholders’ stated purpose. The Court of Chancery rejected these arguments and ordered the production of two sets of documents—certain communications with the CEO and certain specific sets of emails. The Delaware Supreme Court held: (1) the stockholders’ original demands did not violate Section 220’s form and manner requirements; (2) the stockholders did not expand their requests throughout litigation; (3) the Court of Chancery did not err in holding that sufficiently reliable hearsay evidence may be used to show proper purpose in a Section 220 litigation, but did err in allowing the stockholders in this case to rely on hearsay evidence because the stockholders’ actions deprived NVIDIA of the opportunity to test the stockholders’ stated purpose; (4) the Court of Chancery did not err in holding that the stockholders proved a credible basis to infer wrongdoing; and (5) the documents ordered to be produced by the Court of Chancery were essential and sufficient to the stockholders’ stated purpose. Thus, the judgment of the Court of Chancery is affirmed in part, reversed in part, and remanded for further proceedings. View "NVIDIA Corporation v. City of Westland Police & Fire Retirement System" on Justia Law

Kevin Diep, a stockholder of El Pollo Loco Holdings, Inc. (“EPL”), filed derivative claims against some members of EPL’s board of directors and management, as well as a private investment firm. The suit focused on two acts of alleged wrongdoing: concealing the negative impact of price increases during an earnings call and selling EPL stock while in possession of material non-public financial information. After the Delaware Court of Chancery denied the defendants’ motion to dismiss, the EPL board of directors designated a special litigation committee of the board (“SLC”) with exclusive authority to investigate the derivative claims and to take whatever action was in EPL’s best interests. After a lengthy investigation and extensive report, the SLC moved to terminate the derivative claims. All defendants but the private investment firm settled with Diep while the dismissal motion was pending. The Court of Chancery granted the SLC’s motion after applying the two-step review under Zapata Corp. v. Maldonado, 430 A.2d 779 (Del. 1981). Diep appealed, but after its review of the record, including the SLC’s report, and the Court of Chancery’s decision, the Delaware Supreme Court found that the court properly evaluated the SLC’s independence, investigation, and conclusions, and affirm the judgment of dismissal. View "Diep v. Trimaran Pollo Partners, L.L.C." on Justia Law

Between 2004 and 2008, respondents HEI Resources, Inc. (“HEI”), and the Heartland Development Corporation (“HEDC”), both corporations whose principal place of business is Colorado, formed, capitalized, and operated eight separate joint ventures related to the exploration and drilling of oil and gas wells. They solicited investors for what they called Los Ojuelos Joint Ventures by cold calling thousands of individuals from all over the country. Those who joined the ventures became parties to an agreement organized as a general partnership under the Texas Revised Partnership Act. In 2009, the Securities Commissioner for the State of Colorado (“the Commissioner”) initiated this enforcement action, alleging that respondents had violated the Colorado Securities Act (CSA) by, among other things, offering and selling unregistered securities to investors nationwide through the use of unlicensed sales representatives and in the guise of general partnerships. The Commissioner alleged that HEDC and HEI used the general partnership form deliberately in order to avoid regulation. Each of the Commissioner’s claims required that the Commissioner prove that the general partnerships were securities, so the trial was bifurcated to permit resolution of that threshold question. THe Colorado Supreme Court granted review in this matter to determine how courts should evaluate whether an interest in a “general partnership” is an “investment contract” under the CSA. The Court concluded that when faced with an assertion that an interest in a general partnership is an investment contract and thus within the CSA’s definition of a “security,” the plaintiff bears the burden of proving this claim by a preponderance of the evidence. No presumption beyond that burden applies. Accordingly, the Court reversed the court of appeals’ judgment on the question of whether courts should apply a “strong presumption,” and the Court remanded the case to the trial court for further findings. View "Chan v. HEI Resources, Inc." on Justia Law