Justia Securities Law Opinion Summaries

Plaintiff, a variable annuity policy holder, filed a putative class action in state court alleging breach of contract by an insurance company when it introduced a volatility management strategy to the policies without full compliance with state law. The case was removed to district court and then dismissed. The Second Circuit reversed and remanded, holding that a holder's passive retention of a security following a misrepresentation of which the holder is unaware lacks the "in connection with" requirement for preclusion under the Securities Litigation Uniform Standards Act (SLUSA). In this case, the alleged misrepresentation was not made in connection with the purchase or sale of a SLUSA-covered security. There was no plausible allegation in the complaint that any decision to hold a security occurred that was related in any way to AXA's disclosures to the DFS. The court remanded with instructions to remand the case to state court. View "O'Donnell v. AXA Equitable Life Ins. Co." on Justia Law

Plaintiffs, five Korean citizens, filed suit alleging that Tower Research Capital, a New York based high‐frequency trading firm, and its founder injured them and others by engaging in manipulative "spoofing" transactions on the Korea Exchange (KRX) night market in violation of the Commodity Exchange Act (CEA), 7 U.S.C. 1 et seq., and New York law. The Second Circuit vacated the district court's dismissal of the action, holding that plaintiffs' allegations make it plausible that the trades at issue were "domestic transactions" under the court's precedent, and thus the court did not agree that application of the CEA to defendants' alleged conduct would be an impermissible extraterritorial application of the Act. Furthermore, the court held that plaintiffs have brought a claim for unjust enrichment where New York unjust enrichment claims did not require a direct relationship between the plaintiff and defendant. Accordingly, the court remanded for further proceedings. View "Choi v. Tower Research Capital LLC" on Justia Law

Plaintiffs, five Korean citizens, filed suit alleging that Tower Research Capital, a New York based high‐frequency trading firm, and its founder injured them and others by engaging in manipulative "spoofing" transactions on the Korea Exchange (KRX) night market in violation of the Commodity Exchange Act (CEA), 7 U.S.C. 1 et seq., and New York law. The Second Circuit vacated the district court's dismissal of the action, holding that plaintiffs' allegations make it plausible that the trades at issue were "domestic transactions" under the court's precedent, and thus the court did not agree that application of the CEA to defendants' alleged conduct would be an impermissible extraterritorial application of the Act. Furthermore, the court held that plaintiffs have brought a claim for unjust enrichment where New York unjust enrichment claims did not require a direct relationship between the plaintiff and defendant. Accordingly, the court remanded for further proceedings. View "Choi v. Tower Research Capital LLC" on Justia Law

Employee-shareholders Steven Nichols, Deborah Deavours, Terry Akers, Thomas Dryden, and Gary Evans appealed a circuit court’s dismissal of their action against HealthSouth Corporation ("HealthSouth"). The employee shareholders at one time were all HealthSouth employees and holders of HealthSouth stock. In 2003, the employee shareholders sued HealthSouth, Richard Scrushy, Weston Smith, William Owens, and the accounting firm Ernst & Young, alleging fraud and negligence. The action was delayed for 11 years for a variety of reasons, including a stay imposed until related criminal prosecutions were completed and a stay imposed pending the resolution of federal and state class actions. In their original complaint (and in several subsequent amended complaints) the employee shareholders alleged that HealthSouth and several of its executive officers mislead investors by filing false financial statements of HealthSouth from 1987 forward. When the employee shareholders filed their action, the Alabama Supreme Court's precedent held: (1) that "[n]either Rule 23.1[, Ala. R. Civ. P.,] nor any other provision of Alabama law required stockholders' causes of action that involve the conduct of officers, directors, agents, and employees be brought only in a derivative action," and (2) that claims by shareholders against a corporation alleging "fraud, intentional misrepresentations and omissions of material facts, suppression, conspiracy to defraud, and breach of fiduciary duty" "do not seek compensation for injury to the [corporation] as a result of negligence or mismanagement," and therefore "are not derivative in nature." In the present case, the Alabama Supreme Court concluded the employee shareholders' claims were direct rather than derivative and that, the trial court erred in dismissing the employee shareholders' claims for failure to comply with Rule 23.1, Ala. R. Civ. P. Furthermore, the Court found employee shareholders' eighth amended complaint related back to their original complaint and thus the claims asserted therein were not barred by the statute of limitations. Accordingly, the judgment of the trial court was reversed and the cause remanded for further proceedings. View "Nichols v. HealthSouth Corporation" on Justia Law

Employee-shareholders Steven Nichols, Deborah Deavours, Terry Akers, Thomas Dryden, and Gary Evans appealed a circuit court’s dismissal of their action against HealthSouth Corporation ("HealthSouth"). The employee shareholders at one time were all HealthSouth employees and holders of HealthSouth stock. In 2003, the employee shareholders sued HealthSouth, Richard Scrushy, Weston Smith, William Owens, and the accounting firm Ernst & Young, alleging fraud and negligence. The action was delayed for 11 years for a variety of reasons, including a stay imposed until related criminal prosecutions were completed and a stay imposed pending the resolution of federal and state class actions. In their original complaint (and in several subsequent amended complaints) the employee shareholders alleged that HealthSouth and several of its executive officers mislead investors by filing false financial statements of HealthSouth from 1987 forward. When the employee shareholders filed their action, the Alabama Supreme Court's precedent held: (1) that "[n]either Rule 23.1[, Ala. R. Civ. P.,] nor any other provision of Alabama law required stockholders' causes of action that involve the conduct of officers, directors, agents, and employees be brought only in a derivative action," and (2) that claims by shareholders against a corporation alleging "fraud, intentional misrepresentations and omissions of material facts, suppression, conspiracy to defraud, and breach of fiduciary duty" "do not seek compensation for injury to the [corporation] as a result of negligence or mismanagement," and therefore "are not derivative in nature." In the present case, the Alabama Supreme Court concluded the employee shareholders' claims were direct rather than derivative and that, the trial court erred in dismissing the employee shareholders' claims for failure to comply with Rule 23.1, Ala. R. Civ. P. Furthermore, the Court found employee shareholders' eighth amended complaint related back to their original complaint and thus the claims asserted therein were not barred by the statute of limitations. Accordingly, the judgment of the trial court was reversed and the cause remanded for further proceedings. View "Nichols v. HealthSouth Corporation" on Justia Law

After the Board charged petitioner and found that he violated the Board's rules and auditing standards, he petitioned to vacate the orders and sanctions against him. The D.C. Circuit held that the Board infringed plaintiff's right to counsel by unreasonably barring an accounting expert from assisting his counsel at the Board interview. Therefore, the court granted the petition for review, vacated the order of the SEC, and remanded with directions that the Commission vacate the Board's underlying orders and sanctions. View "Laccetti v. SEC" on Justia Law

After the Board charged petitioner and found that he violated the Board's rules and auditing standards, he petitioned to vacate the orders and sanctions against him. The D.C. Circuit held that the Board infringed plaintiff's right to counsel by unreasonably barring an accounting expert from assisting his counsel at the Board interview. Therefore, the court granted the petition for review, vacated the order of the SEC, and remanded with directions that the Commission vacate the Board's underlying orders and sanctions. View "Laccetti v. SEC" on Justia Law

The Securities Act of 1933 creates private rights of action pertaining to securities offerings, grants both federal and state courts jurisdiction over those suits, and bars their removal from state to federal court. The 1995 Private Securities Litigation Reform Act includes substantive reforms, applicable in all courts, and procedural reforms, applicable only in federal court. To avoid the new obstacles, plaintiffs began filing securities class actions under state law. The 1998 Securities Litigation Uniform Standards Act (SLUSA), 15 U.S.C. 77p, disallows, in state and federal courts, “covered class actions,” in which damages are sought under state law on behalf of more than 50 persons,” alleging dishonest practices in the purchase or sale of a "covered security,” listed on a national stock exchange. Section 77v(a) (the “except clause”) now provides that state and federal courts shall have concurrent jurisdiction over 1933 Act cases, “except as provided in section 77p . . . with respect to covered class actions.” Investors brought a class action in state court, alleging 1933 Act violations. A unanimous Supreme Court affirmed the denial of a motion to dismiss, rejecting arguments that SLUSA’s “except clause” stripped state courts of jurisdiction over 1933 Act claims in “covered class actions.” The “except clause” ensures that in any case in which sections 77v(a) and 77p conflict, 77p controls. Section 77p bars certain state law securities class actions but does not deprive state courts of jurisdiction over federal law class actions. The alternative construction would prevent state courts from deciding any 1933 Act large class suits, even suits raising no particular national interest, which would be inconsistent with SLUSA’s "purpose to preclude certain vexing state-law class actions.” Wherever 1933 Act class suits proceed, the substantive protections necessarily apply. SLUSA does not permit defendants to remove class actions alleging only 1933 Act claims from state to federal court. View "Cyan, Inc. v. Beaver County Employees Retirement Fund" on Justia Law

The Ninth Circuit affirmed the dismissal of a securities fraud action brought on behalf of a class of plaintiffs who bought SolarCity shares. Plaintiffs alleged that defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 when they changed the company's accounting formula prior to the initial public offering in order to misrepresent SolarCity's profitability. The panel held that plaintiff's third amended complaint failed to adequately plead facts giving rise to a strong inference of scienter, as required by the Private Securities Litigation Reform Act. In this case, the facts did not give rise to an inference of scienter that was at least as compelling as the inference of an honest mistake. View "Webb v. SolarCity Corp." on Justia Law

Biel REO, LLC (“Biel REO”), filed a breach of contract and guaranty action. Note 1 was secured by property in Okaloosa County, Florida. While the Mississippi case remained pending, Biel REO foreclosed on the Florida collateral and obtained a deficiency judgment against Lee Freyer Kennedy Crestview, LLC (“LFK Crestview”). Biel REO appealed a circuit court finding that because Biel REO had obtained a judgment pursuant to Note 1 in Florida solely against LFK Crestview and because Biel REO’s pleadings requested relief based on Note 1 itself, Note 1 no longer existed. Thus, the Continuing Guaranty signed by Lee Freyer Kennedy (“Kennedy”) individually had nothing left to guarantee as to Note 1. Therefore, Kennedy was not personally liable on any obligations relating to Note 1. The Kennedy Defendants cross-appealed the circuit court finding that LFK Crestview was liable under Note 2 and that the Guaranty Agreement unambiguously encompassed Note 2. The Kennedy Defendants also appealed the trial court’s decision to award Biel REO attorneys’ fees and pre- and post-judgment interest in the amount of Note 2’s stated default rate of eighteen percent. With respect to Note 1, the Mississippi Supreme Court held that the Florida judgments were sufficient evidence of an obligation of LFK Crestview to Biel REO, and the trial court erred in its determination that Biel REO was required to amend its pleadings to include the Florida judgments. With respect to Note 2, the Supreme Court affirmed the trial court's finding that the Kennedy Defendants failed to submit sufficient evidence to prove the assignments were not effective. In addition, the Supreme Court held the trial court correctly found Kennedy to be personally liable for the indebtedness of LFK Crestview pursuant to Note 2. Lastly, the trial court’s award of pre- and post-judgment interest and its award of attorneys’ fees was affirmed. View "Biel Reo, LLC v. Lee Freyer Kennedy Crestview, LLC" on Justia Law