Justia Securities Law Opinion Summaries

Plaintiff-investors appealed the dismissal of their claims against the Vermont Agency of Commerce and Community Development (ACCD) and current and former state employees arising from the operation of a federally licensed regional center in the United States Customs and Immigration Services (USCIS) EB-5 program. USCIS designated ACCD as a regional center in 1997, and ACCD began operating the Vermont Regional Center (VRC). In 2006, the VRC partnered with a series of projects led by Ariel Quiros and William Stenger (referred to as the “Jay Peak Projects”). ACCD entered into a memorandum of understanding (MOU) with the Jay Peak Projects for each project. Employees of ACCD, including James Candido and Brent Raymond, both former executive directors of the VRC, and John Kessler, general counsel for ACCD, traveled with Jay Peak representatives to EB-5 tradeshows, at which they would share a table and jointly solicit investors and promote the Projects. ACCD employees represented to prospective investors, including plaintiffs, that the added protections of state approval and oversight made the Jay Peak Projects a particularly sound investment. However, unbeknownst to the investors, but known to VRC officials, no such state oversight by the VRC existed. In 2014, about twenty investors, including plaintiff Antony Sutton, sent complaints to Brent Raymond alleging that the Jay Peak Projects was misappropriating investor funds. In April 2016, the U.S. Securities and Exchange Commission filed a lawsuit alleging securities fraud, wire fraud, and mail fraud against the Jay Peak Projects developers, Ariel Quiros and William Stenger. The Vermont Department of Financial Regulation also filed suit against Quiros and Stenger, alleging similar claims. On the basis of these and other allegations, plaintiffs, all foreign nationals who invested in the Jay Peak Projects, filed a multi-count claim against ACCD and several individual defendants. The trial court granted plaintiffs’ motion to amend their complaint for a third time to a Fourth Amended Complaint, and then dismissed all thirteen counts on various grounds. Plaintiffs appealed. The Vermont Supreme Court reversed dismissal of plaintiffs’ claims of negligence and negligent misrepresentation against ACCD, gross negligence against defendants Brent Raymond and James Candido, and breach of contract and the implied covenant of good faith and fair dealing against ACCD. The Court affirmed dismissal of plaintiffs’ remaining claims. View "Sutton, et al. v. Vermont Regional Center, et al." on Justia Law

Plaintiffs appealed the district court's dismissal of their claims against Sequoia Fund, alleging that Sequoia Fund breached a contractual obligation not to concentrate its investments in a single industry. The Second Circuit agreed with the district court's alternative holding and affirmed the judgment. The court assumed, without deciding, that plaintiffs plausibly alleged the existence of a contract that included the Concentration Policy as an enforceable term that could not be changed without a shareholder vote. Even assuming the existence of a binding contract, however, the court held that plaintiffs failed to plausibly allege a breach. In this case, because the SEC's 1998 Guidance ‐‐ and by extension the Concentration Policy ‐‐ allows for the passive increases at issue, plaintiffs have failed to allege a violation of the Concentration Policy. View "Edwards v. Sequoia Fund, Inc." on Justia Law

In 2008, Invenergy Wind LLC, a wind energy developer, was raising money for a Series B investment round, and Leaf Clean Energy Company (“Leaf Parent”), an investment fund, expressed interest. After extensive negotiations, Leaf Parent invested $30 million in Invenergy Series B notes through a vehicle called Leaf Invenergy Company (“Leaf”). The agreement governing the Series B notes gave noteholders such as Leaf the right to convert to equity and incorporated an LLC agreement that the noteholders and Invenergy would execute upon conversion. The Series B Note Agreement and the Series B LLCA also included provisions that prohibited Invenergy from conducting a “Material Partial Sale” without Leaf’s consent unless Invenergy paid Leaf a premium called a “Target Multiple.” Although the parties renegotiated several aspects of their agreements with one another over the next few years, the consent provisions persisted in substantially similar form into a Third Amended and Restated LLC Agreement, which was the operative agreement in this dispute. Leaf filed suit after Invenergy closed a $1.8 billion asset sale - a transaction that Invenergy conceded was a Material Partial Sale - without first obtaining Leaf’s consent or redeeming Leaf’s interest for the Target Multiple. After a trial, the Court of Chancery concluded that, although Invenergy had breached the Material Partial Sale consent provisions, Leaf was not entitled to the Target Multiple. The court then awarded only nominal damages because, according to the court, Invenergy had engaged in an “efficient breach.” The Court of Chancery directed the parties to complete a buyout of Leaf’s interests pursuant to another LLC Agreement provision that Invenergy had invoked after Leaf had filed suit. The Delaware Supreme Court disagreed with the Court of Chancery’s interpretation of the consent provision and its award of nominal damages and therefore reversed. Because Invenergy conducted a Material Partial Sale without Leaf’s consent and without paying Leaf the Target Multiple, Leaf was entitled to the Target Multiple as contractual damages. The Court awarded Leaf the Target Multiple in damages on condition that it surrenderd its membership interests in Invenergy. View "Leaf Invenergy Co. v. Invenergy Renewables LLC" on Justia Law

This appeal grew out of a battle between the majority and minority owners of units in an investment vehicle. The majority unitholder wanted to merge, but this would require the minority to sell their units or convert them to shares in a newly created entity. The minority unitholders balked because they wanted to retain their original units, but the majority unitholder approved the merger, terminating the minority’s units in the process. The termination of these units led the minority to sue. The issue presented for the Tenth Circuit’s review reduced to one of “classic” contract interpretation: did the contract empower the majority unitholder to approve a merger that eliminated and replaced the minority unitholders’ units without providing an opportunity for a class vote? The district court concluded “yes,” and the Tenth Circuit concurred. View "Stender v. Archstone-Smith" on Justia Law

Vanguard offers retail securities brokerage accounts. Its website stated that Vanguard offered a price of “$2 commissions for stock . . . trades” for customers who maintained a balance in Vanguard accounts of $500,000-$1,000,000. The Taksirs, whose holdings met that threshold, used Vanguard to purchase Nokia stock. Vanguard charged them a $7 commission for each of their respective purchases, stating that the Taksirs’ accounts “are not eligible for discounts for trading stocks and other brokerage securities because of IRS nondiscrimination rules” and that “[u]nfortunately, this information is not listed on the Vanguard Brokerage Commission and Fee Schedule.” Weeks later, Orit Taksir acquired additional Nokia stock in the same Vanguard account and was charged a $2 commission. The Taksirs filed a putative class action for fraud or deception under Pennsylvania’s Unfair Trade Practices and Consumer Protection Law and breach of contract. The district court dismissed the UTPCPL claim but denied Vanguard’s motion to dismiss the contract claim. On interlocutory appeal, the Third Circuit affirmed. The Securities Litigation Uniform Standards Act of 1998, 15 U.S.C. 78bb, does not bars investors’ claims that their broker overcharged them for the execution of securities transactions. The issue is whether the overcharges constitute “misrepresentation . . . in connection with the purchase or sale of a covered security.” The overcharges do not have a “connection that matters” to the securities transactions. View "Taksir v. Vanguard Group" on Justia Law

Carter, through broker Perkins, opened a commodities trading account to secure the prices his Wyoming ranch would receive for its cattle using financial instruments (hedging). After Perkins changed offices, those accounts were part of a “bulk transfer” to Straits. Carter did not sign new agreements. At Perkins’s request, Carter opened another Straits account to speculate in other categories. After Carter and Perkins split a $300,000 profit, Carter instructed Perkins to close the account. Perkins did not do so but continued speculating on Treasury Bond futures, losing $2 million over three months. Straits liquidated Carter’s livestock commodities holdings to satisfy most of the shortfall and sued for the deficiency. Carter established his right to the seized funds and an award of attorney fees but the court significantly reduced damages, finding that Carter failed to mitigate by not closely reading account statements and trading confirmations. The Seventh Circuit affirmed the interpretation of the contract but remanded for recalculation of damages. Finding Carte responsible for losses resulting from Perkins's fraud would apply a guarantee or ratification that was never given. Fraud victims are not responsible for their agent’s fraud before they learn of unauthorized activity. Under Illinois law, the injured party must have actual knowledge before it must act to mitigate its damages. The court affirmed the attorney fee award under the Illinois Consumer Fraud and Deceptive Business Practices Act. View "Straits Financial LLC v. Ten Sleep Cattle Co." on Justia Law

Reading, a Pennsylvania not-for-profit health system, issued auction rate securities (ARSs) to finance capital projects. J.P. Morgan was the underwriter and broker-dealer. Reading claims that J.P. Morgan and others artificially propped up the ARS market through undisclosed support bidding; when they stopped in 2008, the market collapsed. Reading filed state law claims and demanded arbitration with the Financial Industry Regulatory Authority (FINRA). The 2005 and 2007 broker-dealer agreements state “all actions and proceedings arising out of” the agreements or ARS transactions must be filed in the Southern District of New York. Reading filed a claim under FINRA Rule 12200, which requires a FINRA member (J.P. Morgan) to arbitrate any dispute at the customer’s request. J.P. Morgan refused, arguing that the forum-selection clauses in the 2005 and 2007 broker-dealer agreements constituted a waiver of Reading’s right to arbitrate under Rule 12200. The Third Circuit affirmed the Eastern District of Pennsylvania, which resolved the transfer dispute before the arbitrability dispute, declined to transfer the action, and required J.P. Morgan to submit to arbitration. Reading’s right to arbitrate is not contractual but arises out of a binding, regulatory rule, adopted by FINRA and approved by the SEC. Condoning an implicit waiver of Reading’s regulatory right to arbitrate would erode investors’ ability to use a cost-effective means of resolving allegations of misconduct and undermine FINRA’s ability to oversee and remedy such misconduct. View "Reading Health System v. Bear Stearns & Co., Inc." on Justia Law

Donna Taylor appealed a district court’s judgment regarding her Series A Preferred Shares in AIA Services Corporation (AIA). In 1987, Donna received 200,000 Series A Preferred Shares in AIA as part of a divorce settlement. Between 1987 and 1996, Donna, AIA, and other relevant parties entered into various stock redemption agreements with differing terms and interest rates. One such agreement was challenged in Taylor v. AIA Servs. Corp., 261 P.3d 829 (2011). While the Taylor case was being litigated, AIA stopped paying Donna for the redemption of her shares, prompting her to file suit. Donna alleged several causes of action against AIA, with the primary issue being whether Donna was entitled to have her shares redeemed at the prime lending rate plus one-quarter percent. AIA contended any agreement providing that interest rate was unenforceable, and instead Donna’s redemption was governed by AIA’s amended articles of incorporation, which provided the interest rate as the prime lending rate minus one-half percent. The district court determined Donna’s share redemption was governed by AIA’s amended articles of incorporation, and as such, all but 7,110 of Donna’s shares had been redeemed. After review, the Idaho Supreme Court reversed the district court’s dismissal of Donna’s breach of contract claim as it related to a 1995 Letter Agreement, and remanded for further proceedings. The Supreme Court also reverse the district court’s dismissal of Donna’s fraud claims. The Court affirmed the district court’s dismissal of Donna’s unjust enrichment claim, and the dismissal of AIA’s counterclaim against Donna. View "Taylor v. Taylor" on Justia Law

In case no. 1130590, Kathryn L. Honea appealed the denial of her motion to vacate an arbitration award entered in favor of Raymond James Financial Services, Inc. ("Raymond James"), and Bernard Michaud, an employee of Raymond James (collectively, "RJFS"). In case no. 1130655, RJFS appealed the trial court's denial of its motion to dismiss for lack of jurisdiction; that appeal was dismissed. Honea opened several investment accounts with Raymond James. Honea and Raymond James executed a "client agreement" that included an arbitration provision. Honea filed a complaint in the Jefferson Circuit Court asserting that she had opened four accounts with Raymond James and that Michaud had acted as her financial advisor as to those accounts. She alleged that RJFS engaged in "abusive brokerage practices" in that her investments were not diversified, "were far too risky," and "were of poor quality." The arbitration panel dismissed Honea's breach-of-fiduciary-duty, negligence, wantonness, fraud, and Alabama Securities Act claims and proceeded to hear the breach-of-contract claims. An arbitration panel entered an award in favor of RJFS. The arbitration panel found that "Michaud did not sufficiently know his client nor make sufficient inquiry to attempt to know his client, her holdings, and/or her investment experience. These failures contributed to losses in [Honea's] account." However, the arbitration panel "denied" Honea's breach-of-contract claims, stating that they were "barred by the applicable statutes of limitations." Although the Alabama Supreme Court found one contract appeared to govern this case and that RJFS breached its duties by failing to properly understand Honea's investment knowledge before March 2000, Honea contended that allegedly improper transactions--the excessive use of margin and overly aggressive, high-risk trading occurring after March 2000--represented independent breaches of the FINRA rules. Those claims accrued within the six-year limitations period before her complaint was filed. Further, any knowledge by Honea of her losses did not mean that the trading activity was proper. Thus, to the extent that any transactions after March 2000 would be considered separate breaches of contract unrelated to the failure to properly know Honea, her holdings, or her investment experience, or setting up an "unsuitable" account, the Court found Honea demonstrated probable merit--for purposes of a Rule 59(g) hearing--that those claims would not be barred by the statute of limitations. Honea demonstrated that, in relation to the certain breach-of-contract claims, she was entitled to a Rule 59(g) hearing on her motion to vacate the arbitration award. View "Honea v. Raymond James Financial Services, Inc." on Justia Law

Girdwood Mining Company transferred stock and mineral royalty interests to Comsult LLC pursuant to a contract between the parties. Girdwood Mining later refused to perform its obligations with respect to the stock and royalty interests, arguing that the contract transferring the stock and royalty interests was illegal. The superior court ruled that because the contract was illegal, it would not grant relief to either party. Comsult appealed seeking enforcement of its stock and royalty interests. the Alaska Supreme Court held that Comsult’s stock and royalty interests and its rights to enforce them remained valid, and therefore reversed the superior court’s decision. View "Comsult LLC v. Girdwood Mining Company" on Justia Law