Class Action Defense Cases–In re Apollo: Arizona Federal Court Vacates Jury Verdict In Securities Fraud Class Action And Enters Judgment In Favor Of Defendants Because No Proof Of Loss Causation

Defense Motion for Judgment as a Matter of Law Granted because Plaintiff’s Evidence Failed to Establish Loss Causation so Jury Verdict could not Stand Arizona Federal Court Holds

Plaintiffs filed a class action against Apollo Group and certain of its officers and directors the Bank and other defendants alleging violations of federal securities law; the class action complaint asserted that defendants made false or misleading statements concerning a Department of Education (DOE) program review at Apollo Group’s wholly-owned subsidiary, University of Phoenix (UOP). In re Apollo Group, Inc. Securities Litig., ___ F.R.D. ___ (D.Ariz. August 4, 2008) [Slip Opn., at 1]. The class action claims relied on two analyst reports, published in September 2004 (“the Flynn reports”) that allegedly disclosed the truth to the market, _id._ The Policemen’s Annuity and Benefit Fund of Chicago represented the class; the district court certified the litigation as a class action and the matter proceeded to a jury trial. _Id._ The jury ruled in favor of the plaintiff, and defense attorneys moved the court for judgment as a matter of law or, alternatively, for a new trial. _Id._ The district court granted the motion for judgment as a matter of law.

The district court set forth the entirety of the facts relevant to its determination in a single paragraph: “On February 5, 2004, as part of its ongoing program review at the UOP, the DOE sent Apollo a program review report that preliminarily found that the UOP had violated DOE regulations. Apollo was not required to immediately disclose the report, and it chose not to do so. But on six different occasions thereafter, between February 27, 2004 and September 7, 2004, Apollo misrepresented the actual state of affairs surrounding the program review by making public statements at odds with the existence and contents of the DOE report. On September 14 and 15, 2004, the contents of the DOE report were widely disseminated for the first time through various newspapers articles, including articles in The Wall Street Journal, The Arizona Republic, and the Chicago Tribune. The market did not react to the disclosure of this news in any significant way. Five days later, the Flynn reports were issued. These reports downgraded Apollo’s stock for various reasons, some of which PABF argued at trial were necessary to reveal the truth of Apollo’s prior misrepresentations. Apollo’s stock price fell significantly thereafter.” In re Apollo, at 2.

Class Action Court Decisions PSLRA/SLUSA Class Actions Uncategorized

SLUSA Class Action Defense Cases–Siepel v. Bank of America: Eighth Circuit Affirms Dismissal Of Class Action Holding SLUSA Preempts Class Action Securities Fraud Claims Against BofA

Class Action Claims Against Bank of America Preempted by SLUSA (Securities Litigation Uniform Standards Act of 1998) Eighth Circuit Holds

Plaintiffs, beneficiaries of trust accounts at Bank of America, filed a class action against the Bank and other defendants alleging violations of federal securities law; the class action complaint also asserted state-law claims for unjust enrichment and breach of fiduciary duty, asserting that federal court jurisdiction existed under the Class Action Fairness Act (CAFA). Siepel v. Bank of America, N.A., 526 F.3d 1122, 1124 (8th Cir. 2008). The allegations underlying the class action were that the Bank decided to “implement[] a plan to consolidate the trust management activities of other banks it had acquired” and led class members to believe that “their assets were being managed on an individualized basis, when in fact the assets were being invested in shares of the Nations Funds mutual fund, managed by an investment company substantially owned by the Bank.” Id. The class action alleged further that “higher-yielding and better-managed mutual funds were available in the marketplace,” but the Bank directed customers to Nations Funds for the Bank’s economic benefit and that the Bank accomplished this by sending “misleading letters” to trustees and beneficiaries that, in part, threatened “adverse tax consequences” if they went elsewhere. Id. Defense attorneys moved to dismiss the federal claims on the merits, and moved to dismiss the state-law claims as preempted by SLUSA (Securities Litigation Uniform Standards Act of 1998). Id. In part, the defense argued that the class action should be dismissed on the grounds of judge shopping because plaintiffs’ counsel “had already filed at least five class actions in various jurisdictions seeking redress for the same alleged injuries.” Id., at 1125. The district court granted the defense motion in its entirety, and denied plaintiffs’ request for leave to file an amended class action complaint. Id., at 1125. The Eighth Circuit affirmed.

The class action argued that the Bank failed to disclose “conflicts of interest, higher expenses, and increased tax liability” that would result from using Nations Funds, and plaintiffs argued on appeal that SLUSA did not preempt their class action’s state-law claims that a trustee breaches its fiduciary duty “by failing to disclose conflicts of interest in its selection of nationally-traded investment securities.” Siepel, at 1124. SLUSA “expressly preempts all ‘covered’ state-law class actions that allege: (1) an untrue statement or omission of a material fact, or (2) use of a manipulative or deceptive device or contrivance, ‘in connection with the purchase or sale of a covered security.’” Id., at 1126 (citations omitted). The district court had held that SLUSA preempted the state law claims because the alleged misrepresentations were made “in connection with the purchase or sale of a covered security,” and that the alleged misrepresentations were “central to the Plaintiffs’ state-law claims.” Id., at 1125. The Eighth Circuit easily concluded that the class action was a “covered class action” within the meaning of SLUSA, and that the alleged misrepresentations concern a “covered security” within the meaning of SLUSA. Id., at 1126. The issue on appeal, then, was “whether the alleged misrepresentations and omissions were ‘in connection with’ the purchase or sale of securities.” Id.

Class Action Court Decisions Class Action Fairness Act (CAFA) PSLRA/SLUSA Class Actions Uncategorized

Securities Fraud Class Action Defense Cases–In re Savient Pharmaceuticals: Third Circuit Affirms Dismissal Of Securities Class Action Holding Class Action Complaint Failed To Allege Scienter With Requisite Specificity

District Court did not Err in Dismissing Securities Class Action Without Leave to Amend because Second Amended Class Action Complaint Failed to Adequately Plead Scienter Third Circuit Holds Plaintiff filed a putative class action against Bio-Technology General Corp. (now known as Savient Pharmaceuticals) and three of its officers and directors for violations of federal securities laws by allegedly “making false and misleading statements about the corporation’s financial performance in 1999, 2000, and 2001.

Class Action Court Decisions PSLRA/SLUSA Class Actions Uncategorized

PSLRA Class Action Defense Cases–In re 2007 Novastar Financial: Missouri Federal Court Grants Defense Motion To Dismiss Securities Class Action For Failure To Plead Fraud With Requisite Specificity

Securities Fraud Class Action Complaint, though Extremely Lengthy, Failed to Plead Fraud with Specificity Required by PSLRA (Private Securities Litigation Reform Act) Missouri Federal Court Holds

Plaintiff filed a class action complaint against Novastar Financial and three of its officers alleging securities fraud. In re 2007 Novastar Financial, Inc., Securities Litig., ___ F.Supp.2d ___ (W.D. Mo. June 4, 2008) [Slip Opn., at 1]. Defense attorneys moved to dismiss the class action for failure to comply with the heightened pleadings requirements of the Private Securities Litigation Reform Act (PSLRA), and requested that the district court take judicial notice of certain documents. _Id._, at 1-2. The district court granted the motion and dismissed the class action, beginning its analysis with an insightful observation and warning as to a court’s consideration of the alleged falsity of a defendants’ statements: “One might be tempted to think that a complaint spanning more than 100 pages and consisting of more than 200 paragraphs could not fail to be specific. The temptation is dangerous and must be resisted.” _Id._, at 3. Here, the class action merely paints a “broad picture” and consists of “generalities” – which is “precisely what the PSLRA counsels against.” _Id._ The federal court explained at page 3, “This has allowed Plaintiff to pick isolated threads and snippets from the Complaint to create an illusion of detail and insinuate the existence of fraud, which in turn has made it exceedingly difficult for the Court to conduct the analysis required by law. The Court does not intend to parse out each and every sentence contained in the Complaint because doing so ignores the real problem: what the Complaint does not say is as critical as what it actually says.”

The fact the class action complaint contains more than 50 paragraphs spanning 35 pages does not serve as a talisman to create the requisite specificity. In re 2007 Novastar Financial, at 4. Neither the complaint nor plaintiff’s opposition to the motion to dismiss explained what was false about the challenged statements, id. Federal law does not require a company “to divulge every ‘fact’ known to everyone in a company”; indeed, “the PSLRA’s effort to combat claims of ‘fraud by hindsight’ demonstrates a reluctance to countenance claims that attach heightened importance to facts only when looking back at the aftermath of misfortune. “ Id. Based on the court’s analysis, the challenged statements failed to satisfy the PSLRA’s pleading requirements, id., at 5-6. In the end, the federal court found that the class action “fails to identify a single false entry in the Company’s financial statements, nor does he identify the ‘truth’ that should have been disclosed.” Id., at 6. In the court’s view, the class action complaint “reads more like a cautionary tale from a treatise on business management than a charge of knowing misstatements and concealments.” Id. At worst, the allegations may constitute negligence, breach of fiduciary duty or mismanagement, but not fraud. Id.

Class Action Court Decisions PSLRA/SLUSA Class Actions Uncategorized

PSLRA Class Action Defense Cases–Abrams v. Micrus Endovascular: Florida Federal Court Grants Defense Motion To Dismiss Securities Fraud Class Action Complaint For Failure To Plead Specificity Required By PSLRA

Securities Fraud Class Action Complaint Failed to Plead Fraud or Scienter with Specificity Required under the Private Securities Litigation Reform Act (PSLRA) thus Supporting Defense Motion to Dismiss Class Action Florida Federal Court Holds

Plaintiff filed a putative class action against Micrus Endovascular and two of its officers alleging violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the Exchange Act). The class action was consolidated with a second class action, and the parties filed a consolidated class action complaint. Abrams v. Micrus Endovascular Corp., ___ F.Supp.2d ___ (S.D. Fla. May 20, 2008) [Slip Opn., at 1]. In essence, the class action plaintiffs alleged that the defendants “overstated the Company’s future prospects and failed to disclose material facts about the Company’s financial condition in violation of Sections 10(b) and 20(a) of the Exchange Act, resulting in artificial inflation of the Company’s stock price.” _Id._, at 2. Defense attorneys moved to dismiss the class action on the grounds that it failed to plead facts with the specificity required by the Private Securities Litigation Reform Act (PSLRA), and that the challenged statements were “forward-looking” within the meaning of the PSLRA’s “safe harbor” provision. _Id._, at 4-5. The district court granted the motion.

With respect to the class action’s Section 10(b) claim, the federal court outlined the heightened pleading requirements under the PSLRA, see Abrams, at 5-6, and concluded that the class action complaint failed to meet those requirements. In the district court’s view, the statements challenged by the class action “represent the type of ‘corporate optimism’ or ‘mere puffing’ which is not covered by the Exchange Act.” Id., at 6. This is true because “‘no reasonable investor would make an investment decision based on [such] statement[s].’” Id. (citation omitted). In the court’s view, “none of the challenged statements in this case are material statements of verifiable fact,” id., at 7 n.3. And under the facts of the case, the court also rejected plaintiffs’ suggestion that defendants were under an affirmative duty to disclose the internal challenges the Company was facing, id., at 7.

Class Action Court Decisions PSLRA/SLUSA Class Actions Uncategorized

Class Action Defense Cases–Berson v. Applied Signal Technology: Ninth Circuit Reverses Dismissal Of Securities Class Action Holding Class Action Complaint Satisfied Pleading Requirements

Securities Class Action Erroneously Dismissed because Company’s Characterization of “Stop-Work” Orders as “Backlog” could have Misled Investors as to Company’s True Financial Condition Ninth Circuit Holds

Plaintiffs filed a putative class action against Applied Signal Technology (AST) and two of its officers for violations of federal securities laws; specifically, the class action complaint alleged that the company’s “backlog” reports misled investors as to its financial condition. Berson v. Applied Signal Technology, Inc., 527 F.3d 982 (9th Cir. June 5, 2008) [Slip Opn., at 6391-92]. The Ninth Circuit explained that AST’s customers were predominantly government agencies that may, at any time and for any reason, issue “stop-work” orders; once issued, AST immediately stops earning money on those projects, “[a]nd, because stopped work often is eventually cancelled altogether, a stop-work order signals a heightened risk that the company never will earn the money.” Id., at 6391-92. However, AST “continued to count the stopped work as part of its ‘backlog’ – a term the company defines as the dollar value of the work it has contracted to do but hasn’t yet performed.” Id., at 6392. The class action alleged that plaintiffs were misled into believing that it was “likely” the stop-work projects would be completed when “in reality” it was “likely to be lost forever.” Id. Defense attorneys moved to dismiss the class action; the district court granted the motion and plaintiffs appealed. The Ninth Circuit reversed.

The Circuit Court began its analysis by rejecting the defense argument under Rule 9(b) that plaintiffs failed to plead fraud with particularity; we do not discuss that portion of the opinion. See Whiting, at 6392-94. Rather, we begin with the defense argument that the statements regarding the company’s backlog were not misleading. First, AST argued that because its SEC filings clearly revealed that the backlog consisted of “uncompleted portions of existing contracts,” investors would know that this work included stop-work orders. Id., at 6394-95. The Ninth Circuit found this to be a “conceivable interpretation” of the SEC disclosure, but not the “most plausible” one, id., at 6395. In the end, the Court concluded, “we cannot find, as a matter of law, that defendants disclosed that backlog included a significant amount of work that had been halted by the company’s customers.” Id., at 6396. The Ninth Circuit noted that AST was not required to release its backlog report, but once it “chose to tout” the backlog, it was obligated to do so “in a manner that wouldn’t mislead investors as to what that backlog consisted of.” Id., at 6397. The Circuit Court held further that plaintiffs had “state[d] with particularity facts giving rise to a strong inference” of defendants’ intent to deceive by alleging that defendants “were aware that stop-work orders had halted significant amounts of work, yet counted the stopped work as backlog anyway.” Id.

Class Action Court Decisions PSLRA/SLUSA Class Actions Uncategorized

PSLRA Class Action Defense Cases–In re 2007 NovaStar Financial: Missouri Federal Court Grants Defense Motion To Dismiss Class Action Complaint Concluding Class Action Failed To Satisfy PSLRA’s Heightened Pleading Requirements

Class Action Complaint Failed to Plead Securities Fraud with Specificity Required by Private Securities Litigation Reform Act (PSLRA) thus Subjecting Class Action to Motion to Dismiss without Leave to Amend Missouri Federal Court Holds

Plaintiff filed a class action complaint against NovaStar Financial and three of its directors alleging securities fraud violations. In re 2007 NovaStar Financial, Inc., Securities Litig., ___ F.Supp.2d ___ (W.D. Mo. June 4, 2008) [Slip Opn., at 1]. Defense attorneys moved to dismiss the class action, _id._; the class action complaint failed to meet the heightened pleading requirements under the Private Securities Litigation Reform Act (PSLRA), which “is intended to eliminate abusive securities litigation and put an end to the practice of pleading ‘fraud by hindsight,’” _id._, at 2 (citation omitted). The district court granted the defense motion, holding that the class action “has not – and cannot – satisfy the PSLRA’s pleading requirements.” _Id._, at 3. The language of the district court’s opinion should prove useful to class action defense attorneys, so we quote it at length.

The federal court began its analysis with a cogent observation, noting at page 3: “One might be tempted to think that a complaint spanning more than 100 pages and consisting of more than 200 paragraphs could not fail to be specific. The temptation is dangerous and must be resisted.” Under the district court’s careful analysis, it found that the class action complaint “has not specified the allegedly misleading statements, nor has he specified why the statements he has referred to are misleading.” Id. Instead, the class action “presents a very broad picture, and Plaintiff discusses his claims in generalities – precisely what the PSLRA counsels against.” Id. In the court’s words, “This has allowed Plaintiff to pick isolated threads and snippets from the Complaint to create an illusion of detail and insinuate the existence of fraud, which in turn has made it exceedingly difficult for the Court to conduct the analysis required by law.” Id. Relying on the Eighth Circuit’s opinion in In re Cerner Corp. Sec. Litig., 425 F.3d 1079 (8th Cir. 2005), the district court held that the class action failed to plead falsity with the required specificity. See id., at 3-6. At bottom, the class action “has not stated a claim because companies…are not expected to be clairvoyant, and bad decisions do not constitute securities fraud.” Id., at 6.

Class Action Court Decisions PSLRA/SLUSA Class Actions Uncategorized

Class Action Defense Cases–Borochoff v. GlaxoSmithKline: New York Federal Court Grants Defense Motion To Dismiss Class Action Alleging Securities Law Violations Finding Complaint Failed To Satisfy PSLRA Pleading Requirements

Class Action Failed to Adequately Allege Securities Law Violations because Pharmaceutical Company’s Meta-Analyses were Inconclusive and because Class Action Failed to Adequately Plead Scienter New York Federal Court Holds

Plaintiffs filed a putative class action against pharmaceutical company GlaxoSmithKline (GSK) and certain individual officers and directors of GSK for violations of federal securities laws; specifically, the class action complaint alleged violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and of Rule 10b-5 on the grounds that defendants failed to disclose the truth about its meta-analysis in connection with its diabetes drug, Avandia. Borochoff v. GlaxoSmithKline PLC, ___ F.Supp.2d ___ (S.D.N.Y. May 9, 2008) [Slip Opn., at 1-2]. Plaintiffs filed an amended class action complaint 5 months later, and defense attorneys moved to dismiss the class action under Rule 12(b)(6), _id._, at 9-10. The district court granted the motion and dismissed the class action.

The class action complaint alleged that in September 2005, GSK finalized a meta-analysis that “showed an estimate of…an increased risk of heart attack, associated with the use of Avandia.” Borochoff, at 2. Nonetheless, its October 2005 press release attributed GSK’s “excellent pharmaceutical sales growth” in part to Avandia’s “tremendous success” and “emphasize[d] that we do not expect the growth rate to slow down over the next couple of years.” Id., at 2-3. GSK’s February 2006 press release also referred to Avandia as a “significant growth driver[],” id., at 3. GSK did not disclose the results of its first mea-analysis, which were duplicated by its second meta-analysis, finalized in March 2006. Id. On the contrary, GSK’s 2005 Annual Report, filed on March 3, 2006, stated that “strong growth” from Avandia was expected to continue in 2006. Id., at 4. The class action alleged that GSK’s statements were “materially false and misleading” because it knew, based on its meta-analyses, that use of Avandia carried with it an increased risk of heart attack, id. The class action also cited two additional press releases, from April and July 2006, that called Avandia a “key growth driver[]” and stressed a “32% increase in sales of Avandia.” Id., at 4-5.

Class Action Court Decisions PSLRA/SLUSA Class Actions Uncategorized

WaMu Class Action Defense Cases—In re Washington Mutual: Judicial Panel On Multidistrict Litigation (MDL) Grants Defense Motion To Centralize Class Action Litigation In Western District Of Washington

Judicial Panel Grants Defense Request for Pretrial Coordination of Class Action Lawsuits Pursuant to 28 U.S.C. § 1407 and Transfers Actions to Western District of Washington Seven (7) class action lawsuits (5 in Washington and 2 in New York) were filed against various defendants, including Washington Mutual, “arising from alleged misrepresentations or omissions concerning WaMu’s financial condition with respect to its subprime home loan portfolio.” In re Washington Mutual, Inc., Securities, Derivative & “ERISA” Litig.

Class Action Court Decisions Multidistrict Litigation PSLRA/SLUSA Class Actions Uncategorized

PSLRA Class Action Defense Cases–Cornelia I. Crowell GST Trust v. Possis Medical: Eighth Circuit Affirms Dismissal Of Securities Fraud Class Action Holding Allegations In Class Action Complaint Failed To Meet PSLRA’s Heightened Pleading Requirements

District Court Properly Dismissed Securities Fraud Class Action Without Leave to Amend because Class Action Complaint Failed to Satisfy Private Securities Litigation Reform Act (PSLRA) Pleading Requirements Eighth Circuit Holds Plaintiff filed a class action complaint against Possis Medical and two individuals alleging securities fraud violations. The class action alleged that after Possis Medical decided in 2001 to study whether its non-surgical catheter system, designed to remove blood clots, could be used for other medical procedures, it “made several public statements regarding the study’s potentially favorable impact on company revenues”; however, in August 2004, Possis Medical released the results of its study “which did not support expanded…usage.

Class Action Court Decisions PSLRA/SLUSA Class Actions Uncategorized