In the long-running Halliburton securities litigation, a dispute has arisen between two rival class proponents. While readers of this blog are no doubt familiar with The Erica P. John Fund, Inc. v. Halliburton Co. case and its two trips to the Supreme Court, there is also a companion case, Magruder v. Halliburton Co. Both cases were filed in the United States District Court for the Northern District of Texas, and both cases deal with various misrepresentations allegedly made by Halliburton and its CEO, which allegedly harmed the value of stock owned by the class members. The alleged class period in the Magruder case runs from December 10, 2001 through July 24, 2002, while the Erica P. John Fund case covers an earlier period, July 22, 2009 to December 7, 2001. Disputes between the two classes have led the proponent of the Magruder class to bring several motions attempting to consolidate the cases and scuttle a potential settlement between Halliburton and the class led by the Erica P. John Fund (the “Fund”). After the Fund revised the definition of “Released Claims,” the court has preliminary approved the settlement despite the objection.
On February 27, 2017, the California Public Employees’ Retirement System (“CalPERS”) filed its brief with the Supreme Court, requesting that the Court reverse the decision of the Second Circuit and abrogate the Second Circuit’s ruling in Police and Fire Retirement System of the City of Detroit v. IndyMac MBC, Inc., as inconsistent with the Supreme Court’s holding in American Pipe & Construction Co. v. Utah. Specifically, CalPERS argues that the timely filing of a valid class action satisfies or tolls the three-year filing period set by Section 13 of the Securities Act with respect to subsequently filed opt-out suits.
In 2008, a retirement fund filed a class action (the “Class Action”) in the Southern District of New York, asserting claims pursuant to Section 11 of the Securities Act related to debt offerings underwritten by the Respondents in the instant case. The Class Action was filed on behalf of all persons and entities that purchased the securities in question. In 2011, CalPERS brought individual suit asserting the same claims and relying on the same facts presented in the Class Action.
Subsequently, the District Court issued a notice of settlement to the class and granted each class member the right to opt-out of the settlement. CalPERS did so. The District Court then dismissed CalPERS’s claims as untimely pursuant to Section 13, because by 2011, when CalPERS filed its individual complaint, more than three years had passed since the securities in question were offered to the public. The Second Circuit affirmed the District Court’s ruling, relying on its decision in IndyMac.
In the brief filed in part by Tom Goldstein, who will presumably argue the case for CalPERS, the pension fund argues that the Second Circuit’s ruling in IndyMac and in the instant case conflict with the Court’s holding in American Pipe, and thus must be overturned. In American Pipe, the Supreme Court held that Rule 23 of the Federal Rules of Civil Procedure provides that the filing of a class action commences the action for all class members, named or unnamed, and tolls the limitations period for the cause of action if the class action fails. CalPERS argues that pursuant to American Pipe, as a putative member of the Class Action, it cannot be time-barred by Section 13 from asserting the claims it filed in 2011.
CalPERS argues that the Court can rule consistent with American Pipe by either: 1) holding that CalPERS’s action was timely regardless of tolling because it was a member of the timely filed Class Action; or 2) holding that the time for CalPERS to file its complaint was tolled by the filing of the Class Action. In addition to its arguments regarding the language of Section 13 and American Pipe, CalPERS relies on two other arguments concerning efficiency and due process. Continue Reading Briefs Filed in CalPERS v. ANZ Securities
We have been keeping up with the In re LendingClub Securities Litigation class action, No. 3:16-cv-02627-WHA in the Northern District of California (“LendingClub”), in regard to Judge William Alsup’s unusual decision to require additional briefing from the class plaintiff before agreeing to the class plaintiff’s choice of class counsel. Now, as the LendingClub Plaintiffs oppose the Defendants’ motions to dismiss, Plaintiffs’ counsel is highlighting a recurring trend in motion to dismiss practice: defendants arguing facts at the motion to dismiss stage, particularly in complex cases.
Recently introduced legislation pending before the U.S. House of Representatives attempts to make wide-sweeping reforms to the procedural rules governing class actions and, if implemented, could permanently alter the class action landscape and render class actions a “shadow of what we know today,” according to Reuters.
Rep. Bob Goodlatte (R-VA), Chairman of the U.S. House of Representative’s Judiciary Committee, along with co-sponsors Reps. Pete Sessions (R-TX) and Glenn Grothman (R-WI), recently introduced the “Fairness in Class Action Litigation Act of 2017” in the Committee. The bill circumvents the traditional rulemaking process under the Rules Enabling Act, judicial interpretation of Federal Rule of Civil Procedure 23, and the Advisory Committee on Civil Rules’ amendment process.
The bill’s stated purpose is to “diminish abuses in class action and mass tort litigation that are undermining the integrity of the U.S. legal system.” Should the bill pass the House and the Senate in its current form and be signed by President Trump, plaintiffs’ ability to bring and certify class actions as currently understood could be severely hampered.
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.)