Articles Posted in US Court of Appeals for the Second Circuit

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Plaintiffs filed a derivative action under Section 16(b) of the Securities Exchange Act of 1934 against Perceptive, seeking to require the company to disgorge profits from writing call options on shares of Repros that later expired. The Second Circuit affirmed the district court's grant of Perceptive's motion to dismiss the complaint, holding that, under the plain text of 17 C.F.R. 240.16b6(d) and the congressional purpose of Section 16(b), the statement that liability attaches "upon the cancellation or expiration of [the] option" to mean that there could be liability only if Perceptive owned more than 10 percent of Repros shares at the moment when the calls actually expired. In this case, because the puts were exercised—resulting in Perceptive's sale of most of its Repros shares—prior to the expiration of the calls, the expiration of the calls did not trigger liability. View "Olagues v. Perceptive Advisors LLC" on Justia Law

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Best execution claims alleging misrepresentations or omissions relating to: (1) a broker's receipt of "kickbacks" from trading venues; and (2) the execution of trades so as to take advantage of such arrangements, satisfy the third element of the Securities Litigation Uniform Standards Act of 1998 (SLUSA), by alleging securities claims based on fraudulent conduct.    The Second Circuit affirmed the district court's dismissal of plaintiff's action alleging that defendant violated its duty of best execution. The court held that the claims were precluded by the Securities Litigation Uniform Standards Act of 1998 (SLUSA). In this case, plaintiff filed a covered class action based on state law claims involving covered securities; the gravamen of plaintiff's complaint was that defendant made material misrepresentations and omissions that were designed to induce clients to execute non‐directed, standing limit orders with defendant even though it allegedly had no intention of fulfilling its purported fiduciary obligations; and defendant's alleged fraudulent conduct arose in connection with the purchase or sale of covered securities. View "Rayner v. E*TRADE Financial Corp." on Justia Law

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The Second Circuit vacated the district court's dismissal of a securities action based on lack of subject matter jurisdiction. In this case, the district court concluded that plaintiffs failed to sufficiently allege a "domestic transaction" under section 10(b) of the Securities Exchange Act of 1934. The court held, however, that plaintiffs plausibly alleged a domestic transaction cognizable under section 10(b) because the agreement at issue was entered into in New York and irrevocable liability was incurred in the United States. The court rejected the argument that the areement was so predominately foreign as to be impermissibly extraterritorial. Therefore, the court remanded for further proceedings. View "Giunta v. Dingman" on Justia Law

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Plaintiffs filed suit for damages resulting from defendants' manipulation of natural gas trading at four regional hubs in the western part of the United States. The Second Circuit held that plaintiffs had Article III standing, but they failed to plausibly allege injury under any of their claims. In this case, plaintiffs failed to state a claim under the Commodities Exchange Act (CEA) because it was not plausible on the record that they were injured by the manipulations West Desk perpetrated. For similar reasons, plaintiffs failed to establish antitrust standing. Accordingly, the court modified the order and judgment to remove the dismissal for lack of standing and affirmed the judgment as modified. View "Harry v. Total Gas & Power North America, Inc." on Justia Law

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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

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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

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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

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SPV, the assignee of Optimal Strategic, filed suit against UBS and its affiliated entities and individuals (collectively, Access), alleging that UBS and Access aided and abetted the Bernard L. Madoff Investment Securities LLC and Bernard L. Madoff by sponsoring and providing support for two European-based feeder funds. The district court subsequently denied SPV's motion to remand the matter to state court and then granted separate motions to dismiss the complaint. The Second Circuit held that it had jurisdiction over this appeal; this litigation was "related to" the Madoff/BLMIS bankruptcies; the USB defendants lacked sufficient contacts with the United States to allow the exercise of general jurisdiction; the connections between the USB Defendants, SPV's claims, and its chosen New York forum were too tenuous to support the exercise of specific jurisdiction; and the court rejected SPV's two different theories of proximate cause. View "SPV OSUS Ltd. v. UBS AG" on Justia Law

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After NASDAQ encountered a variety of technical difficulties in executing Facebook, Inc.'s initial public offering (IPO), retail investors filed suit against NASDAQ. After those claims were eventually settled, NASDAQ filed suit against insurance companies for coverage under both errors and omissions (E&O) and directors' and officers' (D&O) insurance policies. The district court granted ACE and Illinois National summary judgment. The Second Circuit held that federal securities law makes clear that retail investors in company stock are "customers" of NASDAQ within the meaning of the insurance policies at issue; the claims in the underlying complaint arose out of the provision of "professional services" as plaintiffs could not prevail without demonstrating that their losses flowed from NASDAQ's failure to properly process their trades; and thus the court affirmed the district court's grant of summary judgment on the issue of indemnification. View "Beazley Insurance Co. v. Ace American Insurance Co." on Justia Law

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After NASDAQ encountered a variety of technical difficulties in executing Facebook, Inc.'s initial public offering (IPO), retail investors filed suit against NASDAQ. After those claims were eventually settled, NASDAQ filed suit against insurance companies for coverage under both errors and omissions (E&O) and directors' and officers' (D&O) insurance policies. The district court granted ACE and Illinois National summary judgment. The Second Circuit held that federal securities law makes clear that retail investors in company stock are "customers" of NASDAQ within the meaning of the insurance policies at issue; the claims in the underlying complaint arose out of the provision of "professional services" as plaintiffs could not prevail without demonstrating that their losses flowed from NASDAQ's failure to properly process their trades; and thus the court affirmed the district court's grant of summary judgment on the issue of indemnification. View "Beazley Insurance Co. v. Ace American Insurance Co." on Justia Law