The third panel of the day is Private Securities Litigation. The panel features Simpson Thacher’s Bruce Angiolillo, Brad Karp of Paul Weiss, Lewis Liman of Cleary Gottlieb, Cravath’s Julie North, Robbins Geller’s Sam Rudman and Morgan Stanley’s Scott Tucker. Here are the highlights:
Financial Crisis Litigation:
- Scott Tucker takes us through some of these cases. The key theme he says is uncertainty. He thinks the cases demonstrate how many different ways the plaintiffs’ bar can file suit relating to the same transactions or wrongdoing.
- The threshold requirement of standing was taken up by the Second Circuit in NECA-IBEW v. Goldman Sachs where the Court held that a particular plaintiff could represent a class of investors who purchased securities that raises the same set of concerns. The Court did not explain what they meant by “same set of concerns” which leads to a great amount of uncertainty.
- Tucker says this makes the battle for class certification more important and courts are going to have to sort this issue out.
- Rudman says the plaintiffs’ bar was happy with the decision but it may be a bit late as there are only a handful of RMBS cases left that haven’t settled already.
- Karp thinks this decision will give District Courts a great amount of leeway to apply this standard to a broad array of securities cases which would be very harmful to the defense bar and they are hoping the Supreme Court grants certiorari.
- Tucker says the plaintiffs’ bar has been creative and persistent in crafting complaints that can survive a motion to dismiss and successful complaints are copied and reappear repeatedly.
- Karp says we are only in the third inning of what could be an extra innings game. There have been waves and waves of cases stemming from the financial crisis. There are difficult cases brought in unfriendly jurisdictions. Add to that, regulators who are tripping over each other in their investigations and prosecutions. The biggest strategic issue for defendants is when to cut losses and get out. It is difficult to figure out who to settle with though with so many parties involved.
- Rudman says plaintiffs are in an interesting spot. The litigation environment has never been more difficult. The costs of investigating have tripled and the chances of getting a class certified or surviving a motion to dismiss have dimmed. He thinks the reason cases are still swinging the plaintiffs’ way is that there was such abundant fraud in the market and fraud among the top companies in the world. When you bring a good case to court, they find a way to let it survive.
- Karp thinks judges have grown more skeptical of corporate defendants which has changed dramatically from years past. Despite the Supreme Court handing down a number of defendant friendly decisions, lower courts are still finding a way.
- Janus: The Court created a bright-line rule that 10b-5 liability will attach only to defendants who have “ultimate authority over the statement.” The case left open questions of whether liability would exist under Section 20(b) for statements passed through an “innocent intermediary.” The case has had little impact so far but the panel expects it will still play a role.
- Matrixx: The Court reconfirmed that a company generally has no “affirmative duty to disclose any and all material information.” Rudman says he likes the case because the quotes that were included in footnotes were “puffery” that is usually discarded (“the company will do great!” “everything is fine!”. He expects plaintiffs to use this.
- Merck: The holding made statute of limitations a much less powerful defense tool and the panel expects it will continue to come into play in financial crisis cases.
- Morrison: Court held 10b applies only to transactions in securities listed on domestic exchanges and domestic transactions in other securities. The Court reject conduct and effects test. In the vast majority of cases since Morrison involving transactions in securities that are not listed on a domestic exchange, District Courts have held that there were no domestic transactions which are subject to U.S. securities regulations.
- It is critically important to evaluate realistically the strengths and weaknesses of a case at the outset and to re-evaluate at each litigation inflexion point. Keep an eye towards the client’s overall strategy and take into account the broad context in which a litigation sits (parallel regulatory proceedings, litigation trends, etc.).
- Application of the recent “black & white” Supreme Court decisions by the lower courts reveal shades of gray.
- Careful attention to the facts is necessary to determine if an off-exchange transaction is subject to Morrison.