As discussed in this space before, Australia is quickly becoming a key venue for securities class action litigation. With the release of its decision in Money Max Int. Pty. Ltd. (Trustee) v. QBE Insurance Group Limited, the Federal Court of Australia took another step toward making Australia a class-friendly location. One issue with the current Australian “open-class” collective action scheme is that it permits some investors a free ride while others agree to reimburse a litigation funder out of any proceeds recovered as a result of the suit. Yet, without this second group of investors agreeing to the litigation funding arrangement, the suit would likely never be initiated. As a result, many class actions in Australia proceed as “closed-class” collective actions where only plaintiffs who agree to the funding arrangement are named in the suit and able to recover. In Money Max, the Federal Court of Australia – for the first time – approved a common fund application sought by the applicant. The Court ruled that, in the event the case settles or the plaintiffs obtain a favorable judgment, all class members, regardless of whether they agreed to a litigation funding arrangement, would reimburse the litigation funder out of their recovery. While the long-term implications of this decision remain to be seen, whether or not the common fund class action model catches on in Australia bears watching. Continue Reading Federal Court of Australia Approves a Common Fund Class Action Model for the First Time – No Opt-In Required
As we have previously noted (here and here), Dutch Foundations (or Stichtings) have been considered a useful tool in seeking recovery for losses on foreign securities. After the Morrison decision closed U.S. courts to claims for purchases of shares of foreign issuers on non-U.S. exchanges, investor advocates sought to use Dutch Foundation effectuate a recovery. Under the Dutch Civil Code, Foundations may negotiate global settlements of investor claims and/or bring suit in the Netherlands to recover for alleged securities fraud. Last year, for example, a foundation negotiated a €1.2 billion settlement with Ageas, the successor-in-interest to Fortis Holdings, over claims that Fortis misled investors. Prior to that, a Dutch Foundation had also forged $58.4 million settlement with Converium covering claims that Converium misstated its financial condition, and a $340 million settlement with Royal Dutch Shell covering transactions on non-U.S. exchanges. Currently, an investor Foundation has asserted claims in the Dutch courts against Volkswagen relating to the Dieselgate scandal.
Recent developments, however, have put the continued viability of Dutch Foundation actions into question. As we wrote here, in June of 2016, a Dutch court dismissed a foundation’s claims because, in the court’s view, the foundation failed to sufficiently safeguard the interests of its members from the foundation president’s potential conflict of interest. Then, the Court of Justice of the European Union (“CJEU”) issued a decision in Universal Music International Holding BV v Schilling that limited the jurisdiction of courts in EU countries, such as the Netherlands. The Universal Music decision addressed Regulation 44/2001, under which defendants must be sued in courts of the member state where they are headquartered, or, for tort-based claims, the place where the harmful event occurred. The CJEU concluded that pure financial damage to a bank account cannot by itself give rise to jurisdiction in the member state where the bank account sits. The CJEU thus held ““It is only where the other circumstances specific to the case also contribute to attributing jurisdiction to the courts for the place where a purely financial damage occurred, that such damage could, justifiably, entitle the applicant to bring the proceedings before the courts for that place” (par. 39).
More recently, the Dutch court has applied the Universal Music case to limit the ability of a foundation to bring suit against BP p.l.c. in the Dutch courts. After settlement negotiations apparently failed, a Foundation representing the interests of BP retail shareholders filed an action against BP in Amsterdam, relating to BP’s alleged misstatement concerning its safety protocols leading up to the Deepwater Horizon oil spill and its alleged misstatement concerning the spill flow-rate. The Foundation sought recovery for investors who had invested in BP shares through a Dutch financial intermediary or account.
Recently, the Supreme Court of Canada had the opportunity to decide a specific issue with potentially large ramifications. In Endean v. British Columbia (Endean), the Court considered whether judges of the Canadian Superior Courts have jurisdiction to hear motions in a different province. While the decision was limited to a fairly specific circumstance, the Court’s answer in the affirmative confirms the Canadian court system’s dedication to ensuring efficiency and easy access to justice in class action proceedings. Continue Reading Away Game: Canadian Supreme Court Allows Superior Court Judges to Determine Settlement Motions Outside of their Home Provinces
On November 4, 2016, Judge Keith Ellison of the United States District Court for the Southern District of Texas granted preliminary approval of a $175 million settlement in the federal securities class action In re: BP p.l.c. Securities Litigation between BP and Lead Plaintiffs for the “post-explosion” class. While the settlement is still subject to final approval, it resolves allegations that BP misrepresented the seriousness of the Deepwater Horizon explosion and its aftermath—covering investors who purchased BP shares between the date of the first alleged misrepresentation about the amount of oil being released as a result of the explosion (April 26, 2010) and the date on which it was revealed that BP initially misrepresented the spill’s severity (May 28, 2010). In granting preliminary approval of the settlement, Judge Ellison also: (1) rejected 135 institutional investors’ request for exemption from opt-out procedures; and (2) allowed some plaintiffs who timely requested exclusion from the class to withdraw their requests and opt back into the settlement. Continue Reading Court in the BP p.l.c. Securities Litigation Upholds Opt-Out Procedures But Then Allows Individual Action Plaintiffs to Opt Back Into $175 Million Settlement
Angela DiIenno contributed to this article.
Recently, the United States District Court for the Northern District of California (the “Court”) dismissed claims against Yahoo, Inc., holding that a 16-year old exemption granted to Yahoo by the Securities and Exchange Commission (“SEC”) barred the plaintiff’s claims alleging that Yahoo was operating as an unregistered investment company in violation of the Investment Company Act of 1940 (“ICA”). UFCW Local 1500 Pension Fund v. Mayer, et al., No. 16-cv-00478 (N.D. Cal. Oct. 19, 2016).
This litigation relates to a 2000 SEC order granting Yahoo an exemption from registering as an investment company. The SEC granted the exemption because it found that Yahoo was “primarily engaged in a business other than that of investing, reinvesting, owning, holding, or trading securities . . . .” The exemption was predicated on two conditions: “1. Yahoo! [would] continue to allocate and utilize its accumulated cash and Cash Management Investments for bona fide business purpose; and 2. Yahoo! [would] refrain from investing or trading in securities for short-term speculative purposes.”
According to the plaintiff’s complaint, Yahoo’s business has changed substantially since the exemption was issued. The complaint alleges that “in 2000 approximately 57 percent of Yahoo’s income came from its operating business, while approximately 44 percent came from investments.” According to the plaintiff, however, by 2014 operations were responsible for only 1.2 percent of Yahoo’s income, and in 2015, “all of its net income was attributable to its investments.” Additionally, the complaint asserts that “[i]n 2013, Yahoo began considering spinning-off its Alibaba holdings” and registering the spin-off company itself as an investment company.
Due to these “fundamental changes to Yahoo’s business” the plaintiff, UFCW Local 1500 Pension Fund (“UFCW”), filed derivative and direct claims against Yahoo and its directors and officers for the alleged failure to register Yahoo as an investment company in violation of the ICA. UFCW argued that Yahoo had lost the protection of its registration exemption such that Yahoo was required to register as an investment company under the ICA. It further argued that because Yahoo had never so registered, “it had been operating illegally as an unregistered investment company.” Continue Reading Court Dismisses Claims Alleging that Yahoo Is Illegally Acting as an Unregistered Investment Company
We posted earlier about the surprising decision of Judge William Alsup of the Northern District of California not to appoint lead counsel in the LendingClub class action cases at the same time he appointed a lead plaintiff. Instead, the judge ordered that candidates for lead counsel must submit applications to the newly appointed lead plaintiff, who would then move the court—via their current counsel, who was allowed to apply but not to receive special treatment—to approve the lead plaintiff’s choice.
That process has now concluded, and in a short order dated October 28, 2016 (“Op.”), Judge Alsup held that lead plaintiff’s current counsel, Robbins Geller, was an appropriate selection as class counsel. Specifically, “the Court [was] persuaded that the selection of Robbins Geller was within the scope of several reasonable choices and was not influenced by any pay-to-play considerations.” (Op. at 1.)
Angela DiIenno contributed to this article.
On September 27, 2016, the Second Circuit ruled against a value investor in an opt-out action brought in the continuing Vivendi litigation. The recently issued opinion, however, does have positive implications for institutional investor class participants. First, the opinion confirms the availability of the fraud-on-the-market theory of reliance for institutional investors. Second, the opinion restricts the situations in which defendants may successfully rebut the presumption of reliance. Notably, however, institutions that have significant after-class purchases should be aware that such purchases could undercut their ability to rely on the fraud-on-the-market theory of reliance.
In GAMCO Investors Inc. v. Vivendi, S.A., GAMCO brought an individual action asserting Section 10(b) and Rule 10b-5 claims against Vivendi, alleging Vivendi made material misrepresentations regarding its liquidity. First, the U.S. District Court for the Southern District of New York held that Vivendi was estopped from denying any elements of GAMCO’s Section 10(b) claim other than reliance. After a bench trial on the reliance issue, the Court entered judgment for Vivendi, holding that Vivendi had successfully rebutted the fraud-on-the-market presumption of reliance. Continue Reading In GAMCO v. Vivendi, the Second Circuit Affirms that Value Investors Can Rely on the Fraud-on-the-Market Presumption Unless Specific Facts Establish Non-Reliance
As detailed repeatedly in this space, the Canadian court system has issued a number of decisions which have altered the practice of bringing – or defending against – a securities class action for secondary market misrepresentation. In its recent decision in Mask v. Silvercorp Metals, Inc. (“Mask”), the Court of Appeals for Ontario further clarified the evidentiary standard to be applied on a motion for leave and certification of a proposed class action. Its decidedly defendant-friendly decision is relevant to any entity which finds itself defending against such a claim in Ontario. Continue Reading Canadian Appellate Court Confirms That Judges Must Consider Evidence From Both Parties when Deciding a Motion for Leave to Bring a Class Action
In a recent decision in the now-consolidated LendingClub class action cases, Judge William Alsup of the Northern District of California appointed a lead plaintiff but unexpectedly declined to appoint lead counsel at the same time. Instead, the judge ordered that candidates for lead counsel must submit applications to the newly appointed lead plaintiff, who will then move the court—via their current counsel, who is allowed to apply but not to receive special treatment—to approve the lead plaintiff’s choice.
Although this blog is focused typically on opportunities for institutional investors to recover losses as class members or plaintiffs, we think this decision in Youngers v. Virtus Investment Partners, Inc., may also be of interest. In that case, the plaintiffs brought, on behalf of a putative class of purchasers of various mutual funds issued by Virtus Opportunities Trust (the “Virtus Trust”), claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, Rule 10b-5 promulgated thereunder, and Sections 11, 12(a)(2) and 15 of the Securities Act of 1933, as well as derivative state law claims. The case stems from alleged misstatements made by the Virtus Trust’s investment advisor, Virtus Investment Partners (“Virtus Partners”), regarding the performance history of its AlphaSector Index trading strategy. Specifically, the complaint alleges that certain Virtus Trust registration statements were misleading because they stated that “the Index inception date is April 1, 2001,” and did not disclose that the AlphaSector strategy was not used to manage real assets prior to October 2008 and that the represented results prior to October 2008 were back-tested. Judge Pauley of the U.S. District Court for the Southern District of New York denied the motion to dismiss filed by Virtus Partners, holding, among other things, that the plaintiff had sufficiently pleaded loss causation with respect to his Section 10(b) claims.