Justia Securities Law Opinion Summaries

Joy Global and Komatsu agreed to merge. Joy sent its investors disclosures required under the Securities Exchange Act, 15 U.S.C. 78n. Subsequent suits contended that Joy violated the Act by not disclosing some internal projections of Joy’s future growth that could have been used to negotiate a higher price, rendering the proxy statements fraudulent, and that Joy’s directors violated their state law duties by not maximizing the price for the shareholders. The suits settled for $21 million.The district court held that the $21 million loss is not covered by insurance. The policies do not require indemnification for “any amount of any judgment or settlement of any Inadequate Consideration Claim other than Defense Costs.” An “inadequate consideration claim” is that part of any Claim alleging that the price or consideration paid or proposed to be paid for the acquisition or completion of the acquisition of all or substantially all the ownership interest in or assets of an entity is inadequate.The Seventh Circuit affirmed. The suits assert the wrongful act of failing to disclose documents that could have been used to seek a higher price and are within the definition of “inadequate consideration claim.” The claims do not identify any false or deficient disclosures about anything other than the price. The only objection to this merger was that Joy should have held out for more money, and that revealing this would have induced the investors to vote “no.” View "Joy Global Inc. v. Columbia Casualty Co." on Justia Law

The board of directors of Finjan Holdings, Inc., struck a deal with Fortress Investment Group LLC for Fortress to purchase all Finjan shares. Finjan’s shareholders approved the deal. Shareholder Plaintiff then sued Finjan, its CEO, and members of its board of directors, alleging that revenue predictions and share-value estimations sent by Finjan management to shareholders before the sale had been false and in violation of Section 14(e) of the Securities Exchange Act of 1934. The district court dismissed Plaintiff’s claim.   The Ninth Circuit affirmed the district court’s dismissal. The panel held that to state a claim under Section 14(e), Plaintiff was required to plausibly allege that (1) Finjan management did not actually believe the revenue protections/share-value estimations they issued to the Finjan shareholders (“subjective falsity”), (2) the revenue protections/share value estimations did not reflect the company’s likely future performance (“objective falsity”), (3) shareholders foreseeably relied on the revenue-projections/share-value estimations in accepting the tender offer, and (4) shareholders suffered an economic loss as a result of the deal with Fortress. The district court ruled that the subjective falsity element of Grier’s claim required allegations of a conscious, fraudulent state-of-mind, also called “scienter.”   The panel, however, held that, for Plaintiff’s claim under Section 14(e), scienter was not required, and his allegations need to provide only enough factual material to create a “reasonable inference,” not a “strong inference,” of subjective falsity. The panel held that, nonetheless, Plaintiff’s allegations did not create even a “reasonable inference” of subjective falsity. View "IN RE: ROBERT GRIER, ET AL V. FINJAN HOLDINGS, INC., ET AL" on Justia Law

Plaintiff, Oklahoma Firefighters Pension and Retirement System (“Oklahoma Firefighters”) is a purchaser of Six Flags Entertainment Corporation common stock and brought suit against the company and two of its executive officers. Plaintiffs alleged that Six Flags executives made material misrepresentations and omissions regarding the development of several Six Flags theme parks in China, thereby violating federal securities laws. The district court dismissed the claims with prejudice for failure to state a claim. Plaintiff sought a reversal of the district court’s two primary rulings: the dismissal of the complaint and the refusal to allow post-judgment amendments to the complaint. As to the dismissal, Plaintiff argued it sufficiently pled (1) actionable misstatements, (2) scienter, and (3) control person liability. As to the failure to allow an amendment, Plaintiff alleged it timely and sufficiently corrected the claimed deficiencies in the complaint.   The Fifth Circuit reversed and remanded the district court’s ruling. The court held that the complaint adequately alleges that Six Flags improperly recognized revenue on the China parks in its Class Period financial statements due to Defendants’ misleading statements regarding the parks’ construction progress and the admission of $15 million in overstated revenue in 2018. However, the court remanded to consider whether the complaint adequately alleges a Section 20(a) claim. View "OK Firefighters Pension v. Six Flags Entmt" on Justia Law

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

Traders set up accounts with Trean, a Chicago Mercantile Exchange introducing broker, managing the customer side of the futures-trading business. Stone handled the trading side. The traders engaged in naked trading—speculating rather than hedging. Stone set a high margin accordingly. Stone was a principal in all trades and, with the clearing house bore, the immediate economic risk; Trean guaranteed Stone’s positions and shared in its commissions. The market did not cooperate. Trean learned that the traders had not met Stone’s margin call and were not cooperating with Stone. Trean told the traders that it would close their accounts but that they were free to deal directly with Stone. Stone thereafter prohibited any trades that would increase the holdings’ net risk. The traders liquidated. Of the $1,020,000 with which they began, they lost $548,000.The traders sued, contending that their contract with Trean did not allow it to cease dealing with them for the reason given and that Trean’s decision led Stone to impose unacceptable conditions. The Seventh Circuit affirmed summary judgment for Trean. Regardless of whether Trean was entitled to end its dealings with the traders, no reasonable jury could find that Trean injured them. Trean’s decision did not affect the value of their futures contracts; they did not have a greater loss than they would have by moving their accounts to a different introducing broker and retaining Stone. View "Daneshrad v. Trean Group, LLC" on Justia Law

The Delaware Court of Chancery entered judgment in favor of appellee Sharon Hawkins on her request for a declaration that the irrevocable proxy which provided appellant W. Bradley Daniel (“Daniel”) with voting power over all 100 shares of N.D. Management, Inc. (“Danco GP”) (the “Irrevocable Proxy”), did not bind a subsequent owner of such Danco GP shares. The Court of Chancery also held that an addendum to the Irrevocable Proxy did not obligate the current owner of the Danco GP shares, MedApproach, L.P. (the “Partnership”), to demand that the buyer in a sale to an unaffiliated third party bind itself to the Irrevocable Proxy. Daniel appealed the Court of Chancery’s judgment that the Irrevocable Proxy did not run with the Majority Shares, arguing the court erred by: (1) rather than interpreting and applying the plain language of the Irrevocable Proxy as written, the court relied on the Restatement (Third) of Agency, which was not adopted until nearly a decade after the parties entered into the Irrevocable Proxy; (2) reading additional language into the Irrevocable Proxy in order to support its finding that the broad “catch-all” language that the parties included to prevent termination of the Irrevocable Proxy did not encompass a sale of the shares; and (3) not giving effect to all of the terms of the Irrevocable Proxy and improperly limiting the assignment clause of the Irrevocable Proxy so as not to bind assigns of the stockholder. Finding no reversible error, the Delaware Supreme Court affirmed the Court of Chancery. View "Daniel v. Hawkins" on Justia Law

The Supreme Court reversed the decision of the court of appeals reversing Defendant's conviction for felony fleeing or attempting to elude a police officer, holding that the court of appeals misapplied the standard required to determine when an instructional error necessitates reversal and that that the district court's failure to give a lesser included offense instruction for the misdemeanor offense was not clearly erroneous.The court of appeals found that the district court erred by failing to give an unrequested jury instruction on a lesser included misdemeanor offense and that reversal was required because the jury could have reasonably reached a different verdict on the felony charge. The Supreme Court reversed, holding (1) the court of appeals erred by using a lower standard of doubt about the outcome to declare the unpreserved error reversible; and (2) the unpreserved error in the jury instructions was not clearly erroneous. View "State v. Berkstresser " on Justia Law

The First Circuit affirmed the judgment of the district court entering judgment upon the jury verdict finding Defendant liable for three undue statements of a material fact in violation of Section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. 78j(b), and SEC Rule 10b-5, 17 C.F.R. 240.10b-5, holding that Defendant was not entitled to relief on his claims of error.The U.S. Securities and Exchange Commission (SEC) brought a civil enforcement action against Defendant. Defendant was found liable by a jury for three untrue statements of a material fact, and the district court judge ordered him to pay a civil penalty and enjoined him from violating Section 10(b) and Rule 10b-5 for five years. The First Circuit affirmed, holding (1) the SEC presented sufficient evidence to support the jury's determination that the statements were of fact rather than opinion, material, and made with scienter; and (2) the district court did not abuse its discretion or commit an error of law in entering the injunction. View "US Securities & Exchange Comm'n v. Lemelson" on Justia Law

Plaintiff was employed through various foreign subsidiaries of Morgan Stanely between 2006 and 2016. Plaintiff claims that, between 2014 and 2016, he raised concerns about U.S. securities violations, which occurred overseas but affected U.S. markets. After receiving a pay cut and a recommendation that he find employment elsewhere. In January 2016, Plaintiff resigned. Plaintiff then hired counsel. However, counsel withdrew after Morgan Stanley threatened to pursue an action against counsel for violations of his professional obligations.The Department of Labor Administrative Review Board dismissed Plaintiff's claim under Section 806 of the Corporate and Criminal Fraud Accountability Act of 2002, Title VIII of the Sarbanes–Oxley Act, finding that Section 806 did not apply because he was not an "employee" at the time of any alleged retaliation. The D.C. Circuit affirmed, finding that Plaintiff did not meet the definition of "employee" at any time during the alleged retaliation. View "Christopher Garvey v. Administrative Review Board" on Justia Law

Plaintiff brought claims under Section 12(a)(2) of the Securities Act against all Defendants, and a claim pursuant to Section 15 of the Securities Act against Cardone and Cardone Capital. At issue was whether Cardone and Cardone Capital count as persons who “offer or sell” securities under Section 12(a) based on their social media communications to prospective investors. The district court concluded that Cardone and Cardone Capital did not qualify as statutory sellers.   The Ninth Circuit affirmed in part and reversed in part the district court’s dismissal pursuant to Federal Rule of Civil Procedure 12(b)(6). The panel concluded that Section 12 contains no requirement that a solicitation be directed or targeted to a particular plaintiff, and accordingly, held that a person can solicit a purchase, within the meaning of the Securities Act, by promoting the sale of a security in mass communication. Because the First Amended Complaint sufficiently alleges that Cardone and Cardone Capital were engaged in solicitation of investments in Funds V and VI, the district court erred in dismissing Plaintiff’s claim against Cardone and Cardone Capital under Section 12(a)(2), and also erred in dismissing his Section 15 claim for lack of a primary violation of the Securities Act. View "LUIS PINO V. CARDONE CAPITAL, LLC, ET AL" on Justia Law