Justia Securities Law Opinion Summaries

The Court of Chancery of the State of Delaware has selected the Friedlander Team as lead counsel and the NYC/Oregon Funds as lead plaintiffs in a derivative lawsuit against Fox Corporation. After the 2020 presidential election, Fox News broadcasted statements accusing two voting machine companies of facilitating election fraud, leading to defamation lawsuits against the network. Fox Corporation paid $787.5 million to settle one lawsuit, with another still pending. As a result, various stockholders filed derivative complaints, seeking to shift the losses from the corporation to the directors and officers allegedly responsible for the harm. The court was required to choose between two competing teams of attorneys to lead the consolidated actions. After evaluating the teams according to recently amended Rule 23.1, which identifies factors for consideration when resolving leadership disputes, the court selected the Friedlander Team and the NYC/Oregon Funds. The court noted the deliberate, client-driven process through which these entities were chosen, their resources and expertise, and the legitimacy conferred by the involvement of public officials. View "In re Fox Corporation Derivative Litigation" on Justia Law

In this case, Robert Sproat was convicted on ten counts of securities fraud. On appeal, Sproat argued that the district court improperly coerced the jurors into reaching a unanimous guilty verdict by instructing them to return the next day after they had reported an impasse in their deliberations.The United States Court of Appeals for the Ninth Circuit affirmed the conviction, rejecting Sproat's argument. The court held that merely instructing a jury that reported an impasse to return the next day is not unconstitutionally coercive. The court found that the district court's instruction to return did not amount to an Allen charge, an instruction encouraging jurors to reach a unanimous verdict. The court explained that no such encouragement was explicit or implicit in the district court's instruction.The court also observed that the district court had not asked the jury to identify the nature of its impasse or the vote count before excusing them for the evening, and that any theoretical risk of coercion was cured by the partial Allen instruction the district court gave the following day, emphasizing the jurors' freedom to maintain their honest beliefs and their ability to be excused if they could not overcome their impasse. The court concluded that the district court's instruction to return the next day and the partial Allen instruction the following day did not coerce the jurors into reaching a unanimous guilty verdict. View "USA V. SPROAT" on Justia Law

In a putative securities-fraud class action, Union Asset Management Holding AG and Teamsters Local 710 Pension Fund (the “Investors”), co-lead plaintiffs, alleged that Philip Morris International Inc. (“PMI”) and several of its current and former executives (the “Defendants”) made false and misleading statements about PMI’s “IQOS” smoke-free tobacco products. The United States Court of Appeals for the Second Circuit affirmed the district court's dismissal of the Investors' complaints. The court found that PMI's statements about its scientific studies complied with a methodological standard and were properly analyzed as statements of opinion, rather than fact. The court also determined that the Defendants' interpretation of scientific data, which was ultimately endorsed by the Food and Drug Administration (FDA), was per se reasonable as a matter of law. Further, the court held that the Investors had either failed to plead material falsity or abandoned their challenges on appeal regarding PMI’s statements about its projections for IQOS’s performance in Japanese markets. Finally, the court concluded that the Investors' claim for control-person liability under section 20(a) of the Exchange Act also failed because they had not established a primary violation by the controlled person. View "In re Philip Morris Int'l Inc. Sec. Litig." on Justia Law

In this case, the Supreme Court of the State of Delaware reversed the decision of the Superior Court of the State of Delaware. The case centered around an insurance dispute involving Verizon Communications, Inc. and several of its insurers. The dispute arose after Verizon settled a lawsuit brought by a litigation trust, which was pursuing claims against Verizon arising out of a transaction Verizon had made with FairPoint Communications Inc. The litigation trust had alleged that Verizon made fraudulent transfers in the course of the transaction, which harmed FairPoint's creditors. After settling the lawsuit, Verizon sought coverage for the settlement payment and defense costs from its insurers.The insurers denied coverage, arguing that the litigation trust's claims did not qualify as a "Securities Claim" under the relevant insurance policies. The Superior Court disagreed, ruling that the litigation trust's claims were brought derivatively on behalf of FairPoint by a security holder of FairPoint, as required to qualify as a Securities Claim under the policies.The Supreme Court of Delaware reversed this decision, finding that the litigation trust's claims were direct, not derivative. The court reasoned that the trust's claims were brought on behalf of the creditors, not FairPoint or its subsidiary, and the relief sought would benefit the creditors, not the business entity. Therefore, the claims did not meet the definition of a Securities Claim under the insurance policies. Consequently, the Supreme Court held that the insurers were not obligated to cover Verizon's settlement payment and defense costs. View "In re Fairpoint Insurance Coverage Appeals" on Justia Law

In 2021, the Securities and Exchange Commission (SEC) sued Luis Jimenez Carrillo for securities violations he allegedly committed well after his divorce from Yolanda Sanchez-Diaz. Sanchez-Diaz was named as a relief defendant in the suit and the SEC sought to recover from her the value of a car she received four years earlier, claiming Carrillo paid for it with illicit funds. The SEC did not accuse Sanchez-Diaz of any wrongdoing but argued she had no legitimate claim to the car because she had not provided any consideration for it. The district court agreed and ordered her to pay almost $170,000, including interest.On appeal, the United States Court of Appeals for the First Circuit held that a relief defendant in an SEC enforcement action has a legitimate claim to funds if they have provided something of value in exchange and the value they provided is more than nominal in relation to the money received. In this case, the court concluded that through a 2016 child support agreement, Sanchez-Diaz provided more than nominal value in exchange for Carrillo's promise to purchase the car. The court found that the district court erred in its finding that Sanchez-Diaz provided no value at all. Accordingly, the Appeals Court reversed the district court's disgorgement order. View "SEC v. Sanchez Diaz Monge" on Justia Law

In this case, the plaintiffs, who are shareholders of Facebook, Inc., brought a securities fraud action against the company and its executives, alleging that they made materially misleading statements and omissions about the risk of improper access to Facebook users' data, Facebook's internal investigation into the actions of Cambridge Analytica, and the control Facebook users have over their data. The United States Court of Appeals for the Ninth Circuit affirmed in part and reversed in part the decision of the District Court for the Northern District of California.The Circuit Court held that the shareholders adequately pleaded falsity as to the challenged risk statements in Facebook's 2016 Form 10-K. The court held that these statements were materially misleading because Facebook knew at the time of filing that the risk of improper third-party misuse of Facebook users' data was not hypothetical, but had already occurred.As to the statements regarding Facebook's investigation into Cambridge Analytica, the court affirmed the district court's decision, holding that the shareholders failed to plead scienter, or intent to defraud.Lastly, the court held that the shareholders adequately pleaded loss causation as to the statements assuring users that they controlled their data on the platform. The court found that the shareholders had adequately pleaded that the March 2018 revelation about Cambridge Analytica and the June 2018 revelation about Facebook's whitelisting policy were the first times Facebook investors were alerted that Facebook users did not have complete control over their own data, causing significant stock price drops.The case was remanded to the district court for further proceedings. View "AMALGAMATED BANK V. FACEBOOK, INC." on Justia Law

Plaintiff filed a putative shareholder class action complaint in New York State Supreme Court, alleging Maryland state law claims on behalf of himself and all similarly situated preferred stockholders of Cedar Realty Trust, Inc. (“Cedar”), a New York-based corporation incorporated in Maryland, following its August 2022 merger with Wheeler Real Estate Investment Trusts, Inc. (“Wheeler”) (collectively, “Defendants”). The complaint alleged Cedar and its leadership breached fiduciary duties owed to, and a contract with, shareholders such as Plaintiff and that Wheeler both aided and abetted the breach and tortiously interfered with the relevant contract. The Defendants collectively removed the case, invoking federal jurisdiction under the Class Action Fairness Act (CAFA), but the district court remanded the case to state court after Krasner argued that an exception to CAFA jurisdiction applied to his claims.   The Second Circuit dismissed Defendants’ appeal and concluded that the “securities-related” exception applies. The court explained that here, the securities created a relationship between Cedar and Plaintiff that gave rise to fiduciary duties on the part of Cedar and the potential for additional claims against those parties who aid and abet Cedar’s breach of those duties. Thus, the aiding and abetting claim—and by the same logic, the tortious interference with contract claim—“seek enforcement of a right that arises from an appropriate instrument.” As such, the securities-related exception applies, and the district court properly remanded the case to state court. View "Krasner v. Cedar Realty Trust, Inc." on Justia Law

Amyris is a publicly traded biotechnology company that operates out of California. John Doerr is a member of the Amyris board of directors. Doerr and his wife, Ann Doerr, are also trustees of Vallejo Ventures Trust (Vallejo), which is a member of Foris Ventures, LLC (Foris). Doerr indirectly owns all membership interests in Foris. Foris and Amyris entered into several transactions involving Amyris stock, warrants, and debt between April 2019 and January 2020. The Amyris board of directors approved each of those transactions. The following year, Andrew Roth, an Amyris shareholder, filed a derivative lawsuit on behalf of Amyris against the Doerrs, Foris, and Vallejo, alleging that those transactions violated Section 16(b) and seeking disgorgement of profits. Defendants moved to dismiss. The district court denied the motion. The district court subsequently granted a certificate of interlocutory appealability on the sole issue of whether Rule 16b-3 requires a board of directors to explicitly approve transactions for the purpose of exempting them under the Rule.   The NInth Circuit affirmed in part and reversed in part the district court’s order denying defendants’ motion to dismiss. The panel held that the district court erred by imposing a purpose-specific approval requirement. However, the district court did not err in finding that the Amyris board was aware that defendant John Doerr had an indirect pecuniary interest in the challenged transactions when it approved them. The panel left it for the district court on remand to address whether defendant Foris Ventures, LLC, a beneficial owner of Amyris, was a director by deputation and thus eligible for the Rule 16b-3(d)(1) exemption. View "ANDREW ROTH V. FORIS VENTURES, LLC, ET AL" on Justia Law

Johnson, a Wisconsin company, merged with Tyco, an Irish company. The combined entity, Johnson International, is domiciled in Ireland. The merger's terms were disclosed in a joint proxy statement/prospectus filed with the SEC, along with the opinions of financial advisors that the merger was overall “fair.” The statement stated that the market price of the shares would fluctuate. Each share of Johnson’s common stock would be, at the election of the shareholder, either converted into an ordinary share of International or cashed out; either would be a taxable transaction. Johnson shareholders were expected to own approximately 56% of International to prevent triggering 26 U.S.C. 7874: when a domestic corporation is acquired by a foreign entity, but its former shareholders retain at least 60% of the stock, the expatriated entity must pay “inversion gain” taxes. The Treasury Department had announced proposed regulations that affected how Johnson’s equity would be calculated, eliminating the tax benefits of the “reverse merger.” The proxy statement warned that if those regulations were finalized, the tax benefits would not be realized. Johnson shareholders voted in favor of the merger.The Seventh Circuit affirmed the dismissal of a putative class action, alleging that the defendants breached their fiduciary duties and wrongfully structured the merger as taxable for Johnson’s former shareholders. “Although plaintiffs allege that they are not challenging the business and financial merits of the merger, their arguments boil down to a demand for a better deal;” they failed to allege any materially misleading statements or omissions. View "Smykla v. Molinaroli" on Justia Law

The Securities and Exchange Commission (“SEC”) adopted a rule requiring issuers to report day-to-day share repurchase data once a quarter and to disclose the reason why the issuer repurchased shares of its own stock. Despite Petitioners’ comments, however, the SEC maintained that many of the effects of the daily disclosure requirement could not be quantified. Petitioners filed a petition for review of the final rule.   The Fifth Circuit granted the petition for review and remanded with direction to the SEC to correct the defects in the rule within 30 days of this opinion. The court found that the e SEC’s notice and comment period satisfies the APA’s requirements. However, the court held that the SEC acted arbitrarily and capriciously, in violation of the APA, when it failed to respond to Petitioners’ comments and failed to conduct a proper cost-benefit analysis. The court explained that almost every part of the SEC’s justification and explanation of the rule reflects the agency’s concern about opportunistic or improperly motivated buybacks. That error permeates—and therefore infects—the entire rule. The court explained that short of vacating the rule, it affords the agency limited time to remedy the deficiencies in the rule. View "Chamber of Com of the USA v. SEC" on Justia Law