Federal Securities Law Class Action Defense Cases-In re Sterling Financial: Judicial Panel On Multidistrict Litigation (MDL) Grants Plaintiff Motion To Centralize Class Action Litigation In Eastern District of Pennsylvania

Judicial Panel Grants Plaintiffs’ Request for Pretrial Coordination of Class Action Lawsuits Pursuant to 28 U.S.C. § 1407 and Rejects Defense Attorney Request to Transfer Class Actions to Southern District of New York Seven class action lawsuits were filed against various defendants alleging violations of federal securities laws based on allegations that Sterling Financial “issued materially false and misleading statements relating to its wholly-owned subsidiary, EFI, which artificially inflated Sterling’s stock price.

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ICA Class Action Defense Cases-Alexander v. Allianz: Connecticut Federal Court Grants Defense Motion To Dismiss Class Action Complaint Alleging Violations Of Investment Company Act (ICA)

Class Action Claims Alleging Violations of Sections 34(b), 36(a) and 48(a) of Investment Company Act (ICA) Dismissed for Lack of Private Right of Action and Class Action’s ICA Section 36(b) Claim Fails to Allege Excessive Fees Connecticut Federal Court Holds Shareholders-plaintiffs filed a putative class action against various mutual funds, trustees and investment advisors in part for violations of the Investment Company Act (ICA) by alleging charging “excessive” fees within the meaning of the ICA.

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NYSE Class Action Defense Cases-In re NYSE Specialists: Second Circuit Upholds District Court Dismissal Of Class Action Against New York Stock Exchange Holding Absolute Immunity Applied To Its Quasi-Governmental Regulatory Role

NYSE Entitled to Absolute Immunity Against Class Action’s Regulatory Violations Claims but District Court Misinterpreted Rule 10b-5 Case Law Regarding Standing in Dismissing Balance of Class Action Complaint thus Necessitating Remand as to those Claims Second Circuit Holds

Plaintiffs filed a class action against the New York Stock Exchange (NYSE) seeking damages for its alleged failure to “regulate and provide a fair and orderly market” as required by federal law and for violations of Rule 10b-5. In re NYSE Specialists Securities Litig., 503 F. 3d 89, 90-91 (2d Cir. 2007). The class action alleged that the NYSE, a nonprofit corporation that oversees the world’s largest stock exchange and facilitates trades for more than 2800 companies through seven Specialist Firms, “which are charged with managing ‘the stocks assigned to them to create a fair, competitive, orderly and efficient market,’” allowed the Specialist Firms to manipulate the prices at which it traded stocks to their own financial benefit. Id., at 91-92. NYSE defense attorneys moved to dismiss the class action complaint’s Rule 10b-5 claim arguing that plaintiffs’ lacked standing; defense attorneys moved to dismiss the class action’s regulatory claims on the ground that the NYSE enjoyed absolute immunity. Id., at 91. Lawyers for lead-plaintiff California Public Employees’ Retirement System (CalPERS) and Empire Programs countered that the NYSE lost this immunity because it “abandoned its regulatory role to maintain a fair and orderly market” and acted contrary to its quasi-governmental powers “when it permitted and encouraged misconduct and fraud on its trading floor.” Id. The district court agreed with defense counsel and dismissed the class action claims against the NYSE, id. The Second Circuit affirmed the judgment with respect to the regulatory claims, agreeing with the district court that the NYSE enjoyed absolute immunity and that the fraud exception did not save the class action claims; the Circuit Court reversed, however, as to the Rule 10b-5 claim.

Preliminarily, the Circuit Court recognized that “[t]he substantial powers of, and the near-total control exercised by, the Specialist Firms over any given stock on the NYSE create an opportunity to manipulate the market for self-gain.” In re NYSE, at 92. An SEC investigation precipitated this class action, as that SEC report reportedly found “that the NYSE had failed ‘to police its elite floor-trading firms’ and ‘ignor[ed] blatant violations’ of prohibitions on self-dealing,” and concluded “that the Exchange was ‘an in-house regulator either ill-quipped or too worried about increasing its workload to care’; and that the NYSE had ‘no meaningful surveillance, allowing inappropriate behavior to continue’ and causing ‘significant’ customer harm totaling in the hundreds of millions of dollars.” Id., at 93-94. According to the class action complaint, however, the NYSE repeatedly released statements to the public alleging that it provided oversight of the daily functions of the Specialist Firms, id., at 94, and that the members of the putative class action relied on those misrepresentations in choosing to trade stocks listed on the NYSE, id., at 95.

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Securities Class Action Defense Cases-Levine v. AtriCure: New York Federal Court Denies Defense Motion In Securities Fraud Class Action To Dismiss Claims Of Class Action Plaintiff On Ground That He Suffered No Loss

Determination of Loss Causation Inappropriate at Pleading Stage and Plaintiffs Satisfied PSLRA (Private Securities Litigation Reform Act of 1995) Standard for Lead Plaintiff New York Federal Court Holds

Plaintiffs filed a putative class action against AtriCure, Inc. alleging violations of the federal securities laws in connection with its initial public offering (IPO) for allegedly failing to disclose material facts in the company’s Registration Statement. Levine v. AtriCure, Inc., 508 F.Supp.2d 268, 270-71 (S.D.N.Y. 2007). Defense attorneys moved to dismiss plaintiff Levine’s claims in the class action complaint, and plaintiffs James Duncan and Jackie Byrd moved to be appointed lead plaintiffs; the district court denied the defense motion and granted the plaintiffs’ motion, id., at 270.

The only relevant facts for purposes of this article’s discussion are (1) Duncan purchased 200 shares of stock in October 2005 for an average of $12.85 and sold the stock in March 2006 when it was trading at $7.36; (2) Byrd purchased 100 shares of stock in August 2005 for $14.19 a share and sold most of her stock in May 2006 when the stock was $7.90, and the rest in December 2006 for $9.28 a share; and Levine purchased 250 shares of stock in August 2005 for $12 a share and sold them in November 2005 at $11.80 a share for a total loss of $50. Levine, at 271 and n.3. The defense motion to dismiss was based on the insignificant loss suffered by Levine and on the fact that he sold his shares prior to the publication of a Wall Street Journal article that purportedly misled class members into purchasing the company’s stock. Id., at 271.

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Class Action Defense Cases-Employers-Teamsters v. Anchor Capital: Ninth Circuit Dismisses Appeal By Non-Party That Sought Lead Plaintiff Status In Class Action Holding It Lacked Standing To Appeal

Party that Sought to Serve as Lead Plaintiff in Securities Class Action but was not Selected and did not File its own Lawsuit or Motion to Intervene Lacked Standing to Appeal District Court Order Denying it Lead Plaintiff Status or Granting Motion to Dismiss Uncertified Class Action Complaints with Prejudice Ninth Circuit Holds

In 2003, plaintiff Anchor Capital filed four putative class action lawsuits against Watson Pharmaceuticals alleging violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934; the district court consolidated the class actions and granted the motion of Anchor Capital to be appointed lead plaintiff in accordance with the PSLRA (Private Securities Litigation Reform Act), which governed the class action litigation. Employers-Teamsters Local Nos. 175 & 505 Pension Trust Fund v. Anchor Capital Advisors, 498 F.3d 920, 922 (9th Cir. 2007). Employers-Teamsters Local Nos. 175 & 505 Pension Trust Fund (“Appellants”) did not move to intervene in the class action, and did not file its own individual or class action complaint, id. Appellants did file a motion to serve as lead plaintiff, but the district court selected Anchor Capital instead. But after Anchor Capital moved and obtained court permission to dismiss the class action complaints with prejudice, Appellants filed an appeal to challenge that dismissal and contended that under the PSLRA it was the proper lead plaintiff to control the class action. Id. The Ninth Circuit dismissed the appeal on the ground that Appellant lacked standing.

Anchor Capital filed the securities fraud class action because its investors had lost $3.2 million; the district court granted its motion to serve as lead plaintiff because it had “the largest financial stake in the outcome of the litigation.” Anchor Capital, at 922. Defense attorneys moved to dismiss the class action against Watson Pharmaceuticals on the ground that it failed to plead fraud with the specificity required under the PSLRA; the district court granted the motion. Id. In the face of a district court order granting leave to amend but expressing considerable doubt that an amended class action complaint would survive a Rule 12(b)(6) motion, Anchor Capital told the court that it would not file an amended complaint and asked the court to dismiss with prejudice the uncertified class actions. Id., at 923. The district court granted the motion, id. “Appellants now challenge the lead plaintiff ruling.” Id.

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SLUSA Class Action Defense Cases-U.S. Mortgage v. Saxton: Ninth Circuit Affirms District Court Dismissal Of Class Action Finding Securities Fraud Class Action Complaint Fell Within Scope Of SLUSA

SLUSA Preemption does not Require Class Action Allegation of Purchase or Sale of Listed Security, and Securities Class Action was Properly Removed to Federal Court and District Court Properly Dismissed Class Action Complaint as Barred by SLUSA Ninth Circuit Holds

Plaintiffs-investors filed a securities fraud class action lawsuit against Nevada-based real estate development company Saxton and its Chairman, President and CEO, as well as against other defendants, alleging that they placed false financial information in Saxton’s public reports in violation of Arizona state laws. U.S. Mortgage, Inc. v. Saxton, 494 F.3d 833, 836 (9th Cir. 2007). Defense attorneys removed the class action complaint to federal court, arguing that it fell within the scope of the Securities Litigation Uniform Standards Act of 1998 (SLUSA), and the district court then granted a defense motion to dismiss the class action on the grounds that the class action complaint failed to “state a claim upon which relief can be granted in conformity with SLUSA.” Id. The Ninth Circuit affirmed both removal jurisdiction over the class action and dismissal of the class action complaint based on SLUSA preemption.

Saxton’s stock traded on the NASDAQ market. Saxton, at 836. The company was “engaged in several real estate development projects that it financed, in part, with loans from individuals, trusts, and commercial investors,” id. This putative class action was brought on behalf of hundreds of investors and “arise out of twelve separate loan investments that Saxton solicited from various members of the plaintiff class to finance several of its projects and activities,” id. The class action allegations common to each of twelve loan transactions is the lenders would not have done business with Saxton had they known its true financial condition. See id., at 836-39. In 2000, Saxton restated its financial results to “correct a miscalculation of certain interest expenses” that had “caused Saxton to overstate its earnings in several public filings and accompanying press releases in 1998 and 1999.” Id., at 839. As was to be expected, a securities fraud class action was filed in federal court against Saxton and others alleging that they misrepresented the company’s finances in order to artificially inflate the stock price, that class members purchased Saxton stock in reliance on the financial reports, and that Saxton “used its artificially-inflated shares as payment for its acquisition of several entities,” id. The federal court dismissed the class action complaint based on the Private Securities Litigation Reform Act of 1995 (PSLRA), and the Ninth Circuit affirmed. See id.

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Class Action Defense Cases-In re Mutual Fund Market-Timing: Seventh Circuit Holds That It Lacks Jurisdiction To Review District Court Order Remanding Class Action Lawsuits To State Court

Circuit Court Lacks Jurisdiction to Review Order Remanding Class Action Lawsuits to State Court under 28 U.S.C. § 1446(c) Seventh Circuit Holds This appeal resolving three class action lawsuits arose as follows: Plaintiffs (investors in various mutual funds) filed putative class action lawsuits in state court that defense attorneys removed to federal court. Following district court orders remanding the class actions to state court, the Seventh Circuit held that it had jurisdiction to review the remand orders and reversed.

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Securities Fraud Class Action Defense Cases-In re JDS Uniphase: California Federal Court Holds Certain Claims In Securities Fraud Class Action May Proceed To Trial But Grants Defense Summary Judgment Motion As To Most Claims

Defense Motion for Summary Judgment in Securities Fraud Class Action Warranted as to 28 Statements Challenged by Class Action Complaint but Triable Issues Existed as to Remaining Class Action Claims California Federal Court Holds

Plaintiffs filed a securities fraud class action in California federal court against JDS Uniphase and certain officers alleging violations of Sections 11 and 15 of the federal Securities Act of 1933, and Sections 10(b), 14, 20(a) and 20A of the Securities Exchange Act of 1934 and Rules 10b-5 and 14a-9 promulgated under the Exchange Act. In re JDS Uniphase Corp. Sec. Litig., Slip Opn., at 1-2 and 6-7 (N.D. Cal. August 24, 2007). JDS Uniphase manufactures and supplies components of fiber-optic networks. Id., at 2. The class action alleges that the company and its officers falsely represented the company’s financial condition in order to artificially inflate the stock price, in part so JDS could purchase other companies “for less than their worth.” Id., at 3. After the court certified the litigation as a class action, defense and plaintiff attorneys filed cross-motions for summary judgment, id., at 1-2. The district court granted the defense motions in part and deferred ruling on plaintiffs’ motion; in so ruling, the federal court held that certain disputes could be resolved only at trial.

At the time the defense filed its summary judgment motion, plaintiffs were challenging 56 separate statements. JDS, at 10. The defense argued that it was entitled to judgment as to 24 of these statements either because plaintiffs failed to include them in the class action complaint or because plaintiffs abandoned them, id., at 9-10. The district court concluded: (1) plaintiffs did not abandon any claims raised in the class action complaint, id., at 10; (2) despite the holding in Kaplan v. Rose, 49 F.3d 1363 (9th Cir. 1994), plaintiffs were entitled to leave to amend to add 16 of the challenged statements to the class action complaint, id., at 10-12; and (3) plaintiffs failed to properly place at issue three of the statements challenged by the defense, and so the motion for summary judgment was granted as to those statements, id., at 13.

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SLUSA Class Action Defense Cases-Disher v. Citigroup: Illinois Federal Court Holds Securities Class Action Must Remanded To State Court But Holds Further That SLUSA Bars Prosecution Of Class Action Claims

While Defense Failed to Timely Remove Class Action to Federal Court Thereby Necessitating Remand of the Class Action Complaint to State Court, the Class Action Claims are Precluded by SLUSA (Securities Litigation Uniform Standards Act) thus Entitling Defense to Judgment in State Court Illinois District Court Holds

Plaintiff filed a putative class action in Illinois state court against securities brokerage firm Citigroup, as successor in interest to Salomon Smith Barney, seeking damages because it allegedly “disseminated misleading research concerning the value of shares in certain Internet and telecommunications companies, thereby inducing Smith Barney customers like [plaintiff] to hold the shares.” Disher v. Citigroup Global Markets, Inc., 487 F.Supp.2d 1009, 1012 (S.D. Ill. 2007). Defense attorneys removed the class action federal court under the Securities Litigation Uniform Standards Act (SLUSA), but the district court remanded the matter to state court, id. On appeal, the Seventh Circuit reversed, holding that SLUSA applied and required dismissal of the class action complaint, id., at 1012-13 (see Disher v. Citigroup Global Markets, Inc., 419 F.3d 649 (7th Cir. 2005)). The Supreme Court granted certiorari and reversed, holding that district court remand orders of class actions removed under SLUSA are not reviewable on appeal, see Disher v. Citigroup Global Markets, Inc., ___ U.S. ___, 126 S.Ct. 2964 (2006), causing the class action to wind its way back to state court, _id._, at 1013. Once there, defense attorneys again removed the class action to federal court, and the plaintiff again sought remand, _id._ The district court granted the motion finding “procedural defects in removal,” _id._, at 1012, but essentially hands defense victory on the merits by holding that the class action claims are barred by SLUSA and declaring that holding to be law of the case.

After discussing the general rules governing removal, including the burden placed on the party seeking removal to establish federal jurisdiction and the general rule that removal must be sought within 30 days of service of the initial pleading, see Disher, at 1014-15, the district court turned to whether an amended pleading created a basis to support defense removal of the class action, id., at 1015. Defense attorneys “point[ed] to numerous purported orders or other papers supposedly authorizing removal of the claims” in the class action complaint, id., but the district court found each pleading insufficient to support the delayed filing of the notice of removal including (1) that the motions and orders filed in state court authorized removal, see id., at 1015-17; (2) that plaintiff’s amended class action complaint did not trigger a right of removal because even though “the claims alleged in both [plaintiff’s] original complaint and his amended complaint are precluded by SLUSA,” id., at 1018, the fact remained that the defense failed to timely file its notice of removal and the amended class action complaint did not revive the right to remove because it did not alter the basic nature of the allegations, id., at 1019-22; and (3) that the appellate proceedings did not authorize removal of the action to federal court, id., at 1022. Accordingly, the federal court remanded the putative class action to state court, id., at 1023-24.

But while the district court denied the defense effort to maintain the class action federal court, it nonetheless handed the defense a victory on the merits. The federal court concluded at pages 1022 and 1023,

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PSLRA Class Action Defense Cases-Central Laborers’ v. Integrated Electrical: Fifth Circuit Holds Class Action Complaint Failed To Adequately Plead Scienter Under PSLRA And Leave To Amend Class Action Complaint Properly Denied

District Court Properly Concluded that Securities Fraud Allegations in Class Action Complaint did not Satisfy Heightened Pleading Requirements of the Private Securities Litigation Reform Act (PSLRA) and that Amendment of Class Action Complaint would have been Futile Fifth Circuit Holds

Plaintiff, a pension fund, filed a putative class action against Integrated Electrical and certain officers alleging violations of Sections 10(b) and 20(a) of the Securities Exchange Act, 15 U.S.C. §§ 78j(b) & 78t(a), and Rule 10b-5 based on “a number of false or misleading statements by IES regarding the company’s financial condition caused an artificial inflation in the market price of IES’s securities during the class period.” Central Laborers’ Pension Fund v. Integrated Electrical Services Inc., 497 F.3d 546, 2007 WL 2367776, *1 (5th Cir. 2007). Defense attorneys moved to dismiss the class action on the ground that it failed to plead scienter with the requisite specificity under the Private Securities Litigation Reform Act (PSLRA), id. The district court agreed that the complaint failed to meet the PSLRA’s heightened pleading standards and dismissed the class action; in so ruling, the court implicitly denied plaintiff’s request for leave to file an amended class action complaint. Id. The Fifth Circuit affirmed, holding that the PSLRA compelled dismissal of the class action complaint and that the district did not abuse its discretion in concluding that further amendment of the class action complaint would have been futile.

Integrated Electrical is a publicly-traded company that provides electrical contracting services throughout the country. Central Laborers’, at *1. Beginning in April 2003, the company “expressed confidence” in its financial status, but in August 2004 it “publicly disclosed that it could not release its quarterly earnings numbers on time due to an ongoing evaluation of certain projects.” Id. Ultimately, the company restated its financial statements for fiscal years 2002 through the first half of 2004, id. In the Fifth Circuit, “‘[t]o state a claim under § 10(b) and Rule 10b-5, a plaintiff must allege, in connection with the purchase or sale of securities[:] (1) a misstatement or an omission (2) of material fact (3) made with scienter (4) on which plaintiff relied (5) that proximately [injured him].’” Id., at *2 (quoting Fin. Acquisition Partners LP v. Blackwell, 440 F.3d 278, 286 (5th Cir. 2006)). The PSLRA requires that securities fraud must be pleaded with particularity, and alleged violations of Section 10(b) and Rule 10b-5 require proof that the defendant acted either with intent or with “severe recklessness.” Id., at *2. And appellate review of a district court order refusing leave to amend is governed by an abuse of discretion standard, id., at *3.

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