Justia Securities Law Opinion Summaries

Christopher Kjelgren appealed a district court judgment entered in favor of Cavare, Inc., and the subsequent order denying his motion for relief from the judgment. In 2017, Cavare, Inc. (also referred to as “Cavare USA”) commenced this action seeking a judgment declaring Cavare USA the rightful owner of a one-third interest in Petroleum Services Drilling Motors, Inc. (“PSDM”), and claiming breach of fiduciary duty, conversion, and unjust enrichment to recover $230,000 in shareholder distributions that PSDM had made to Kjelgren. Following a bench trial, the district court found Cavare USA was the owner of the disputed PSDM shares and $230,000 in shareholder distributions issued to Kjelgren belonged to Cavare USA. The North Dakota Supreme Court concluded the court’s finding that Cavare, Inc. was the rightful owner of disputed shares corresponding to a one-third interest in Petroleum Services Drilling Motors, Inc. was not clearly erroneous. Furthermore, the Supreme Court concluded the court did not abuse its discretion in denying his motion for relief from the judgment under N.D.R.Civ.P. 60. View "Cavare v. Kjelgren" on Justia Law

The Second Circuit vacated the district court's grant of Hain's motion to dismiss a class action alleging securities fraud for failure to state a claim. Plaintiffs alleged that Hain violated Section 10(b) and section 20(a) of the Securities Exchange Act of 1934 by asserting in public statements that Hain's favorable sales figures were attributable to strong consumer demand for its products while failing to disclose that demand for its products was declining and that a significant percentage of sales was in fact attributable to the practice of channel stuffing.The court held that the district court erred in granting Hain's motion because the district court relied on the erroneous assumption that plaintiffs' Rule 10b-5(b) claim was contingent on plaintiffs successfully pleading a fraudulent business scheme or practice in violation of Rules 10b-5(a) or (c). The court also concluded that the district court erred in failing to consider the cumulative weight of all of plaintiffs' scienter allegations. Accordingly, the court remanded for further proceedings. View "In re: The Hain Celestial Group, Inc. Securities Litigation" on Justia Law

The en banc court held that the Securities and Exchange Act of 1934 does not strip the federal district courts of subject-matter jurisdiction to hear structural constitutional claims. The en banc court stated that 15 U.S.C. 78y does not explicitly or implicitly strip the district court of jurisdiction over plaintiff's claim; the Supreme Court has already rejected the SEC's precise jurisdictional argument under section 78y; and the Thunder Basin factors do not warrant departing from the statutory text or deviating from the Supreme Court's interpretation of section 78y. In this case, plaintiff's removal power claim is wholly collateral to the Exchange Act's statutory-review scheme, is outside the SEC's expertise, and might never receive judicial review if district court jurisdiction were precluded. Therefore, the en banc court concluded that the Thunder Basin inquiry simply reaffirms that Free Enterprise Fund v. Public Co. Accounting Oversight Board, 561 U.S. 477, 489 (2010), controls this case and that plaintiff's removal power claim is within the district court's jurisdiction.The en banc court also held that plaintiff's removal power challenge is ripe where her claim is a pure issue of law that is fit for judicial decision without any additional factfinding. Furthermore, if plaintiff's claim is meritorious, then withholding judicial consideration would injure her by forcing her to litigate before an ALJ who is unconstitutionally insulated from presidential control. Accordingly, the en banc court affirmed in part, reversed in part, and remanded for further proceedings. View "Cochran v. Securities and Exchange Commission" on Justia Law

In 2017, the Delaware Court of Chancery held that Plaintiff Robert Lenois had pled with particularity that the controlling stockholder of Erin Energy Corporation (“Erin” or the “Company”) had acted in bad faith. It further held that Lenois had pled either “very serious claims of bad faith” or “a duty of care claim” against the remainder of Erin’s board in connection with two integrated transactions. In those transactions, the controller allegedly obtained an unfair windfall by selling certain Nigerian oil assets to Erin. The trial court dismissed the derivative claims on standing grounds (i.e., holding that demand was not excused). Lenois appealed that decision. During the pendency of the appeal, Erin voluntarily filed for bankruptcy. The Chapter 7 Trustee obtained the permission of the Bankruptcy Court to pursue, on a direct basis, the claims that had been asserted in the Lenois action in the Court of Chancery. As a result of the bankruptcy proceedings, which vested the Trustee with control over the claims, the Delaware Supreme Court determined that the sole issue on appeal was moot. The case was remanded to the Court of Chancery to resolve two pending motions — a Rule 60(b) motion and the Trustee’s motion pursuant to Rule 25(c) to be substituted for nominal defendant Erin and then realigned as plaintiff (the “Realignment Motion”). The Court of Chancery denied the Rule 60(b) motion and summarily denied the Rule 25(c) motion. Here, the Supreme Court reversed, holding the Court of Chancery should have granted the Trustee’s Substitution and Realignment Motion. View "Lenois v. Lukman" on Justia Law

DXC, a publicly-traded company formed in 2017 from a merger of Computer Science and Hewlett Packard, initially met its strategic financial goals by instituting costcutting measures. In February 2018, it issued a press release announcing its continued financial success. Soon, DXC had to revise its projected revenue guidance to shareholders downward by an estimated $800 million, which it announced in November 2018. DXC’s shareholders incurred losses when its stock price subsequently fell.Plaintiffs represent a class of shareholders who acquired DXC stock from February 8 through November 6, 2018, alleging violations of the Securities Exchange Act, 15 U.S.C. 78j(b), 78t(a), and Rule 10b-5. They claim that Defendants knew the cost-cutting measures implemented in 2018 undermined DXC’s ability to generate revenue and that this was contrary to information released to the public so that the Defendants fraudulently induced them to acquire DXC stock by making material misstatements and omissions regarding DXC's financial health and that they did so with the requisite scienter. The Fourth Circuit affirmed the dismissal of the suit. The statements issued by DXC were either forward-looking statements protected under the Private Securities Litigation Reform Act of 1995 (PSLRA), 15 U.S.C. 78u-5, safe-harbor provision, or non-actionable puffery and that the complaint, viewed as a whole, did not contain factual allegations sufficient to give rise to the “strong inference” of scienter required by the PSLRA. View "KBC Asset Management NV v. DXC Technology Co." on Justia Law

The Second Circuit vacated the district court's dismissal of a putative class action on behalf of investors who traded Qihoo 360 Technology securities between December 18, 2015, and July 15, 2016. The investors alleged that defendants violated the Exchange Act by, among other things, deceiving investors about the plan to relist the company. The court concluded that the allegations in the complaint were sufficient to survive a motion to dismiss on that ground. In this case, plaintiffs alleged, and provided supporting evidence, that defendants represented to shareholders that there were no plans to relist the company following a shareholder buyout, when in fact the company had such a plan at the time of the buyout. Therefore, plaintiffs adequately alleged a misstatement or omission of material fact. The court remanded for further proceedings. View "Altimeo Asset Mgmt. v. Qihoo 360 Technology Co. Ltd." on Justia Law

The Court of Appeals reversed the decision of the Appellate Division reversing Supreme Court's order granting summary judgment to Bear, Stearns & Co. Inc. and Bear Stearns Securities Corp. (collectively, Bear Stearns) in this action brought by Bear Stearns' successor companies alleging that its insurers (Insurers) had breached insurance contracts, holding that the $140 million disgorgement for which Bear Stearns sought coverage was not a "payment" within the meaning of the relevant policy.When the Securities and Exchange Commission (SEC) censured Bear Stearns for securities law violations, Bear Stearns agreed to a $160 million disgorgement payment and a $90 million payment for civil money penalties. Both payments were to be deposited in a fund to compensate mutual fund investors allegedly harmed by Bear Stearns' improper trading practices. Bear Stearns transferred the payments to the SEC. Plaintiffs then brought this action against Insurers seeking coverage under a "wrongful act" liability for the disgorged funds. Supreme Court granted summary judgment to Bear Stearns. The Appellate Division reversed, concluding that Bear Stearns was not entitled to coverage for the SEC disgorgement payment. The Court of Appeals reversed, holding that Insurers failed to establish that the $140 million disgorgement payment clearly and unambiguously fell within the policy exclusion for "penalties imposed by law." View "J.P. Morgan Securities Inc. v. Vigilant Insurance Co." on Justia Law

The Eighth Circuit affirmed the district court's dismissal of the Pension Fund's amended complaint in this securities fraud class action. The Pension Fund, as lead plaintiff, alleged securities fraud under section 10(b) of the Securities Exchange Act, as well as controlling-person liability under section 20(a) of the Securities Exchange Act.The court concluded that, 137 of the 138 statements listed in the amended complaint were clearly either (1) statements identified as forward looking and accompanied by meaningful cautionary statements, (2) corporate puffery, or (3) forward-looking statements that the complaint's allegations do not imply by strong inference were made with actual knowledge of their falsity. Furthermore, although the remaining statement comes closer than the other 137 to giving the Pension Fund a section 10(b) claim, it too falls short. The court explained that, even assuming arguendo the statement was false, the confidential former employee's allegation does not give rise to a strong inference of severe recklessness. Therefore, the complaint fails to satisfy the heightened pleading standards with respect to the misrepresentation and mental-state requirements of section 10(b) liability. Consequently, the section 20(b) claims were also properly dismissed. Finally, reviewing the issue of futility de novo, the court concluded that the district court properly denied leave to amend. View "City of Plantation Police Officers Pension Fund v. Meredith Corp." on Justia Law

In 2008, Blackburn founded Treaty an oil and gas company whose shares were traded over the counter as “penny stocks.” Blackburn received around 400 million shares, giving him an 86.4% interest in Treaty. Though Blackburn was never a board member or an officer of Treaty, he maintained significant control. He communicated with a foreign government on behalf of Treaty, paid the company’s bills with his stock proceeds, and appointed Treaty’s officers and directors. Treaty had previously worked at a gravel company that went bankrupt. Blackburn paid over $1 million to settle the trustee’s claim that he had misappropriated company funds. Blackburn had also been convicted of four federal tax felonies. Blackburn recruited others, with clean records, to serve in public positions; they failed to disclose in public filings Blackburn’s involvement with Treaty.In 2014, the SEC asserted claims against Treaty, Blackburn, and others under the Securities Act. 15 U.S.C. 77e(a), 77q(a). The company and one defendant settled. The district court found the others liable for selling unregistered securities and misleading investors about the company’s production of oil and Blackburn’s involvement. It ordered disgorgement of the defendants’ fraud proceeds. The Fifth Circuit affirmed. Summary judgment was warranted in the SEC’s favor and the disgorgement award was “for the benefit of investors” as required by the Supreme Court’s 2020 “Liu” decision. View "Securities and Exchange Commission v. Blackburn" on Justia Law

A global settlement was approved in 2002 in securities law class actions concerning the merger of companies to form Bank of America, which included an award of approximately $58 million in fees to the attorneys appointed to represent the NationsBank Class. Two decades later, one of the lead plaintiffs for the class filed a motion to reconsider the fee award and to order disgorgement of some $38 million in fees previously paid to NationsBank Class Counsel based on their poor performance, mismanagement of the settlement fund, and abandonment of the class.The Eighth Circuit affirmed the district court's denial of plaintiff's motion for redetermination, concluding that disgorgement of attorneys' fees was barred by the equitable doctrine of laches. The court concluded that the delay in asserting plaintiff's claim is manifestly unreasonable and inexcusable, prejudicing the other parties; the court and/or the district court previously rejected plaintiff's challenges; the challenged actions, from the inclusion of an exculpatory clause in the settlement checks to opposing cy pres distribution, occurred seven to fifteen years before plaintiff sought total disgorgement in his motion for redetermination; and plaintiff's failure to seek disgorgement in the proper manner and before the proper court was inexcusable delay. Finally, the court concluded that the district court has not failed to honor its ongoing fiduciary duty to the class in overseeing a complex settlement fund distribution made more complex and dilatory by the contentious actions of its participants, and the court has not allowed the class to be abandoned by those responsible for distributing the settlement fund. View "Oetting v. Sosne" on Justia Law