The United States is a popular location for securities class actions, due in large part to its reputation as a generally plaintiff-friendly system. A key contributor to that reputation is the acceptance of the “fraud-on-the-market” presumption of reliance. However, in the wake of a recent decision by the Supreme Court of New South Wales, Australia is poised to become another popular location for “fraud on the market” actions. Continue Reading After Adopting the “Fraud-on-the-Market” Presumption of Reliance, Australia is Poised to Become a Plaintiff-Friendly Venue
There have been several recent and interesting updates to the In re Petrobras Securities Litigation, 14-cv-9662 (S.D.N.Y.) that we have discussed several times on this blog. First, the Second Circuit has decided to accept review of the class certification question. Second, Judge Jed Rakoff denied a motion to stay the underlying proceedings (including the impending trial) pending the Second Circuit appeal in a decision that called the class action “arguably secondary” to the numerous opt-out proceedings. Finally, several plaintiffs have voluntarily dismissed their claims with prejudice—but without explanation.
On June 29, 2016, the Dutch Court of East Brabant dismissed a foundation’s claims against Rabobank Group for alleged unlawful selling of interest rate swaps because it failed to meet the requirement of the Dutch Claim Code that a foundation sufficiently safeguard the interests of its members. While it is a lower court decision likely to be appealed, this dismissal depicts the increased scrutiny that foundations may face, particularly in the wake of the €1.2 billion settlement reached by the foundation in the Fortis case earlier this year. There will likely be an increase in the number of defense challenges to the ability of foundations to pursue litigation on behalf of members. Therefore, before joining a Dutch foundation, institutional investors should carefully scrutinize the foundation’s organizational documents and governance structure.
In January of 2016, this blog commented on the Supreme Court of Canada’s decision in the seminal case of Canadian Imperial Bank of Commerce v. Green. There, the Court held that a prospective plaintiff must move for leave to commence a class action for secondary market misrepresentation before the three-year statute of limitations passes; but if leave is not actually granted within that time period, the Court has jurisdiction to allow leave and backdate it to within the three year period. Recently, the Ontario Superior Court of Justice in London had its first opportunity to consider the test for leave in the aftermath of Green in Bradley v. Eastern Platinum Ltd. (“Bradley”). The court’s decision there shed further light on the evidence a plaintiff must proffer to “surpass the leave threshold.” Continue Reading Canadian Court Holds That Evidentiary Requirement For Leave To File Securities Class Action Is “Not A Low Bar”
Ever since the Supreme Court issued its opinion in Morrison v. National Australia Bank, Ltd., 561 U.S. 247 (2010), courts have been making their own interpretations of what Morrison means for whether certain transactions are “domestic” and thus amenable to class-action securities claims. Judge Dean Pregerson of the U.S. District Court for the Central District of California recently weighed in with a May 20, 2016 opinion (“Op.”) dismissing all claims with prejudice in the Stoyas et al. v. Toshiba Corporation class action, No. CV 15-04194, for failure to allege that the alleged fraud involved domestic transactions. Although the opinion considers certain Japanese-law claims, the key question the Court addresses is whether Morrison allows claims to be brought based on transactions in unsponsored American Depositary Shares for non-U.S. companies.
As securities litigation becomes increasingly globalized, the Mintz Levin Institutional Investor Class Action Recovery practice is constantly monitoring and participating in jurisprudential developments in a number of countries, both alone and through collaboration with foreign counsel. For example, in Australia, where the procedure to consolidate cases is not uniform, some securities class action cases may overlap, leaving issuers in the undesirable position of having to defend against claims of misrepresentation on two fronts. This scenario recently played out in New South Wales, where the Court found an interesting and workable solution to a problem with concurrent class actions in Smith v. Australian Executor Trustees Limited; and Creighton v. Australian Executor Trustees Limited.
We speculated in September that a decision to grant summary judgment against a class member in the long-running In re Vivendi Universal, S.A. Securities Litigation, 02 Civ. 5571 (SAS) (S.D.N.Y.) “could have implications for class members, but more likely for opt-outs.” Now Judge Shira Scheindlin, in what may be one of the well-known judge’s final decisions before stepping down from the bench, has granted summary judgment against another class member while relying heavily on her prior decision. The Court determined that, because the evidence established that the investment analyst had anticipated Vivendi’s liquidity issues (the subject of the fraud) and established that the class member continued to buy Vivendi shares after the end of the class period, Vivendi had successfully rebutted the presumption of reliance and established that the class member “was indifferent to the fraud.”
The deadline for parties to object to the settlement in the In re Credit Default Swaps Antitrust Litigation, Master Docket No. 13-MD-2476 (DLC) in the Southern District of New York recently passed on February 29, 2016. Unlike in most cases, where parties typically only object to settlements to the extent they allocate attorneys’ fees, several potential settlement class members to this litigation (“CDS Litigation”) have made specific, substantive objections to the potential distribution of settlement funds. In class plaintiffs’ (“Plaintiffs” or “Class Plaintiffs”) memo of law in support of approval of the settlement, Plaintiffs responded forcefully to these objections. Although Judge Denise Cote has yet to decide whether to approve the settlement, it is worth examining these new objections, which may suggest a trend in class-action settlement objections—at least in antitrust cases relating to securities transactions—moving forward. In addition, Plaintiffs’ heavy reliance on experts to create a settlement model may reflect another trend worth keeping an eye on.
Following up on our December 15 post on the debate over the best strategy to recover foreign securities losses, a collection of Dutch Foundations (known as Stichtings) negotiated a substantial collective settlement with Ageas SA/NV, the successor-in-interest to Fortis Holdings. The settlement was publicly announced on March 14, 2016, and the total settlement will be €1.204 billion, or approximately $1.337 billion. Though pending approval by the Amsterdam Court of Appeal, the settlement would reportedly end all civil proceedings between Ageas and the claimants’ organizations. Ageas will not admit to any wrongdoing as part of the settlement. In February of 2010, even before the U.S. Supreme Court had decided the Morrison case, the United States District Court for the Southern District of New York dismissed the U.S. class action against Fortis, holding that the Court lacked subject matter jurisdiction over the case under the old “conduct” and “effects” tests developed by the Second Circuit pre-Morrison, and leaving the foreign action as the only vehicle for recovery. Details of the settlement are below. Continue Reading Dutch Foundations Negotiate €1.204 billion Settlement with Ageas, formerly Fortis.
Under the Ontario Securities Act (“OSA”), a statutory right of action exists for secondary market misrepresentation for any person who acquires or disposes of an issuer’s securities within the relevant time period. An action for secondary market misrepresentation requires leave of the court under s. 138.8. Such leave may only be granted where a plaintiff has met his burden of showing, to a reasonable possibility of success, both an alleged misrepresentation and a public correction of that misrepresentation. While the case law on the former prong is relatively clear, the latter has been largely undefined. The recent decision of Superior Court Justice Edward P. Belobaba in Swisscanto v. Blackberry sheds some light on what, exactly, a plaintiff must show to meet its burden of establishing the existence of a public correction.
In Swisscanto, the Plaintiff, a European investment fund that bought 1,700 BlackBerry shares during the proposed class period, sought leave to bring a class action suit for secondary market misrepresentation. The claim stemmed from the release of the BlackBerry 10 smartphone (“BB 10”), a product that BlackBerry hoped would revitalize its business. On launch, BlackBerry’s revenue recognition policy was of the “sell-in” variety, where BlackBerry booked the sale when the product was sold to its distributors, rather than waiting until the distributors actually sold the product (which would constitute “sell-through” accounting). This practice is permitted under GAAP only if the seller can make “reasonable estimates of the actual amount of adjustments that might be needed to help move the product from distributors to end-users.”
Between January 30, 2013 and June 1, 2013, sales of the BB 10 to end-users were extremely disappointing. Only about a quarter of the BB 10 phones shipped to distributors were actually purchased by end users, leading to several concessions by BlackBerry that failed to increase sales. To that end, on September 20, 2013, BlackBerry announced its results for 2Q14. The Release noted that BlackBerry would write off by way of inventory charge almost $1 billion in unsold BB 10 smartphones, eliminate 40 percent of its global work force, limiting its focus to corporate and professional customers, and pursuing a buyer. At the bottom of the first page, BlackBerry also noted that, going forward, it would change its revenue recognition practice from sell-in to sell-through. When the price of BlackBerry’s shares dropped by 15 percent, the instant suit was filed.
At issue was whether there was an alleged misrepresentation and, if so, whether there was a public correction. The court concluded that the plaintiff presented at least enough evidence to show a reasonable possibility of a misrepresentation. More interesting was the court’s discussion of whether a public correction occurred. The plaintiff argued that BlackBerry’s announcement of a change to sell-through recognition constituted a public disclosure. The defendant argued that it was merely a footnote, and one unconnected to the failure of the BB 10.
Justice Belobaba laid out very specific criteria to use in determining whether the public correction requirement of s. 138.3 of the OSA had been satisfied. He proposed that courts consider the following:
1. Whether the public correction was pleaded with sufficient precision to provide fair notice to the defendant, using specific words or figures that allegedly constitute the public correction of the alleged misrepresentation, along with its timing.
2. Whether there is some linkage or connection between the pleaded public correction and the alleged misrepresentation. The correction need not be a “mirror-image” of the misrepresentation, or a direct admission of a previous falsity, but it must at least share the same subject matter of, and relate back to, the misrepresentation.
3. Whether the public correction is reasonably capable of revealing to the market the existence of the misrepresentation. The correction need not be understood by the ordinary investor. It is sufficient that market participants with specialized knowledge and expertise can understand that the language of the release equates to a public correction of a misrepresentation.
4. The form taken by the public correction. Justice Belobaba took care to note that the correction may take “any number of forms” and need not come from the defendant corporation. The source of the correction can be third parties like media reports or internet postings.
Taking these factors into consideration, the court concluded that the public correction requirement was satisfied by the language in the September 20, 2013, statement. It essentially concluded that the statement could be fairly understood to inform sophisticated market participants that BlackBerry was correcting the sell-in method of revenue recognition that had been used during the class period.
This decision is relevant to investors because it lays out a very clear set of guidelines to be considered in determining whether the public correction requirement has bene met. It also clarifies that the public correction requirement is really a temporal marker for assessing damages. It essentially bookends the class period, which runs from the date of the misrepresentation to the date of the public correction of that misrepresentation. It is not a substantive hurdle to be cleared; it is simply the end date of the class period, and its importance thus pales in comparison to the requirement of showing an alleged misrepresentation.