15 U.S.C. § 77q–Fraudulent Interstate Transactions Under The Securities Act Of 1933

As a resource for the class action defense lawyer who defends against securities class actions, we provide the text of the Securities Act of 1933. In 15 U.S.C. § 77q, Congress addressed fraudulent interstate transactions as follows:

§ 77q. Fraudulent interstate transactions

(a) Use of interstate commerce for purpose of fraud or deceit

It shall be unlawful for any person in the offer or sale of any securities or any security-based swap agreement (as defined in section 206B of the Gramm-Leach-Bliley Act) by the use of any means or instruments of transportation or communication in interstate commerce or by use of the mails, directly or indirectly

(1) to employ any device, scheme, or artifice to defraud, or

(2) to obtain money or property by means of any untrue statement of a material fact or any omission to state a material fact necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading; or

(3) to engage in any transaction, practice, or course of business which operates or would operate as a fraud or deceit upon the purchaser.

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15 U.S.C. § 77p–Additional Remedies And Limitation On Remedies Under The Securities Act Of 1933

As a resource for the class action defense lawyer who defends against securities class actions, we provide the text of the Securities Act of 1933. We previously provided the statutory provisions of 15 U.S.C. § 77m – § 77o, which addressed limitations on actions under the Act and the liability of controlling persons under the Act, and provided that the statutes, rules and regulations concerning the Act may not be waived. As part of this comprehensive statutory scheme, Congress provided for additional remedies, and the limitations on those remedies, in 15 U.S.C. § 77p, which provides:

§ 77p. Additional remedies; limitation on remedies

(a) Remedies additional

Except as provided in subsection (b), the rights and remedies provided by this subchapter [15 U.S.C.A. § 77a et seq.] shall be in addition to any and all other rights and remedies that may exist at law or in equity.

(b) Class action limitations

No covered class action based upon the statutory or common law of any State or subdivision thereof may be maintained in any State or Federal court by any private party alleging–

(1) an untrue statement or omission of a material fact in connection with the purchase or sale of a covered security; or

(2) that the defendant used or employed any manipulative or deceptive device or contrivance in connection with the purchase or sale of a covered security.

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Miller v. Bank of America Class Action Defense Case: Billion Dollar Class Action Judgment Reversed As California Court Agrees With Defense That Banks May Apply Funds From Government Benefit Deposits To Cover Overdraft Fees Connected With The Same Account

California Court Holds that Kruger v. Wells Fargo Bank does not Apply to Offsets of Government Benefits Against Overdraft and Other Fees Incurred in Connection with the Same Deposit Account

Plaintiff filed a class action in California state court against Bank of America alleging inter alia violations of the state’s Consumer Legal Remedies Act (CLRA) and Unfair Competition Law (UCL) arising out of the bank’s use of Social Security disability benefits directly deposited into a Bank of America checking account to offset overdraft charges. Miller v. Bank of America, NT & SA, 144 Cal.App.4th 1301 (Cal.App. November 20, 2006) [Slip Opn., at 1-2]. Defense attorneys argued that banks may lawfully apply government benefit deposits against overdraft and other fees connected with the same account. The trial court, however, agreed with plaintiff’s lawyer that Kruger v. Wells Fargo Bank, 11 Cal.3d 352 (Cal. 1974), which held that banks may not use public benefit funds deposited in one bank account to offset “an account holder’s delinquent but separate credit card account,” bars banks from using government benefits to offset any funds owed the bank. Id. The California Court of Appeal framed the issue as follows: “Does a bank act illegally if when balancing customer accounts, it credits for Social Security benefits and other public benefit payments directly deposited to its customers’ checking accounts to cover debits for overdraft and overdraft fees?” Id. In reversing the trial court, the appellate court summarized its holding as follows: “In this case, the trial court applied Kruger to prohibit [the Bank] from collecting for overdrafts and fees by debiting directly deposited Social Security and other public benefit payments. This application of Kruger is an extension of its holding that is unwarranted in light of significant differences between the banker’s setoff addressed in Kruger and the facts of this case.” Id.

The case arose from a bank error in posting an $1800 credit to plaintiff’s account. The bank discovered its error and reversed the credit, causing plaintiff’s account to be substantially overdrawn. After a Social Security payment was deposited directly into plaintiff’s checking account, “it was automatically balanced against the larger overdraft to reduce his negative balance.” Miller, at *1-*2. When plaintiff complained the bank reversed the debit. Future direct deposits from Social Security that the bank credited against the overdraft balance were also reversed when plaintiff complained. Id., at *2. Plaintiff filed his class action lawsuit against the bank alleging numerous causes of action including intentional and negligent misrepresentation, intentional infliction of emotional distress, unlawful levy of Social Security benefits, and violations of California’s CLRA, UCL and False Advertising Act (FAA). The trial court granted summary adjudication in favor of the defense on the intentional infliction of emotional distress and unlawful levy claims, but the remaining causes of action proceeded to trial. Id. It certified a class consisting of more than 1 million members defined as California residents with “a checking or savings deposit account with Bank of America into which payments of Social Security benefits or other public benefits are or have been directly deposited by the government or its agent.” Id., at *3.

Class Action Court Decisions Uncategorized

Class Action Defense Cases-In re InPhonic: Judicial Panel On Multidistrict Litigation (MDL) Grants Defense Motion To Centralize Class Action Litigation In The District of the District of Columbia

Judicial Panel Grants Unopposed Defense Request for Pretrial Coordination Pursuant to 28 U.S.C. § 1407 for Centralization of Class Action Lawsuits Four putative class action lawsuits were filed against InPhonic in the District of Columbia, Illinois and New Jersey (followed by several tag-along suits) alleging violations of various state consumer protection statutes and common law claims, and – in some cases – violations of the Federal Racketeering Influenced and Corrupt Organizations Act (RICO).

Class Action Court Decisions Multidistrict Litigation Uncategorized

Class Action Defense Cases-In re Int’l Air Transportation: Judicial Panel On Multidistrict Litigation (MDL) Grants Motion To Centralize Class Action Litigation In The Northern District of California

Judicial Panel Agrees with Plaintiffs and Defense that Putative Class Action Lawsuits Warrant Centralization Pursuant to 28 U.S.C. § 1407 and Selects Northern District of California as Transferee Court At least 15 separate putative class action lawsuits were filed in at least 6 different federal courts in various states – followed by numerous tag-along actions – seeking to recover damages for alleged violations of antitrust laws arising out a purported conspiracy to fix prices on international passenger air travel to or from the United States.

Class Action Court Decisions Multidistrict Litigation Uncategorized

Carton v. Choice Point-Class Action Defense Cases: New Jersey Federal Court Denies Defense Motion To Dismiss Class Action For Lack Of Standing Because “Lost Opportunity To Sell Stock” Is Sufficient Injury In Fact

Federal Court Denies Defense Motion To Dismiss Class Action For Lack Of Standing But Otherwise Grants In Part And Denies In Part Defense Motion To Dismiss Class Action Complaint Arising Out Of Unclaimed Property Claims

Plaintiffs filed a putative class action against Choice Point and its subsidiary for violations of the New Jersey Consumer Fraud Act and Uniform Unclaimed Property Act, and for common law claims of tortuous interference, fraud, breach of duty, wrongful exercise of dominion over property and interference with possession of property. Carton v. Choice Point, 450 F.Supp.2d 489, 495 (D. N.J. 2006). Defense attorneys moved to dismiss the class action complaint for lack of standing. The defense also moved to dismiss the class action complaint for failure to state a claim. The federal court held that plaintiffs had standing to pursue the class action, and then granted in part and denied in part the motion to dismiss.

Choice Point is a company that charges a fee to locate and secure the return of unclaimed property. Mellon Investor Services asked Choice Point, with whom it had contract, to track down plaintiffs’ father, James Carton Jr., because he held 1600 shares of stock worth $150,000. Carton had died in January 2000, and Choice Point sent a letter to his surviving sons informing them “that a ‘stock account’ with a ‘current value in excess of $15,000’ was ‘still outstanding with our client.'” Carton, at 493. In response to subsequent inquiries, Choice Point stated only that the value of the asset exceed $15,000. Id., at 494. Choice Point sent plaintiffs a contract in which it “agreed to locate the unspecified ‘asset’ in exchange for a finder’s fee of 35% of the asset’s gross value”; plaintiffs signed the contract, but reduced the fee to one-third of the net recovery. Id. Choice Point notified Mellon that it had a signed contract to recover the Carton account and asked that a “stop” be placed on the account. Mellon complied. Choice Point also sent plaintiffs additional documentation, but plaintiffs refused to sign the Letter of Authorization and Irrevocable Stock Power required by Choice Point to complete the transaction. Instead, plaintiffs sought to recover the stock from Mellon directly, but Mellon refused to turn over the stock certificates because of the stop placed on the account. However, for reasons which are unclear, Mellon sent the stock certificates to Choice Point. Choice Point maintained possession of the stock for three years. Carton, at 494.

Class Action Court Decisions Uncategorized

Class Action Defense Cases-In re New York Bancorp: New York Federal Court Grants Defense Motion To Dismiss Securities Class Action And Rejects Plaintiffs’ Meritorious Remand Motion As Untimely

Court Holds Allegations in Securities Class Action Fail to Meet Heightened Pleadings Requirements Mandated by FRCP Rule 9(b) and the PSLRA (Private Securities Litigation Reform Act of 1995), and Denies Plaintiffs Request To Rule on its Year-Old Remand Motion as Untimely

Plaintiff investors filed separate putative class actions against New York Community Bancorp (NYCB) and several of its officers alleging violations of federal securities laws by making materially false and misleading statements to investors. In re New York Community Bancorp, Inc., Securities Litig., 448 F.Supp.2d 466, 469 (E.D.N.Y. 2006). The federal court eventually consolidated 11 such class action lawsuits, and appointed lead plaintiff and lead counsel. Following the filing of a Consolidated and Amended Class Action Complaint, defense attorneys filed a motion to dismiss and certain plaintiffs filed a motion for reconsideration of the consolidation order. Id. The district court denied the motion for reconsideration and granted the defense motion to dismiss.

The amended class action complaint alleged violations of the Securities and Exchange Act of 1934 (“Exchange Act”) and the Securities Act of 1933 (“Securities Act”) on behalf of NYCB shareholders. In re New York Comm. Bancorp, at 469. NYCB went through a period of substantial earnings growth and acquired several financial institutions, building “a unique and profitable core lending business comprised of multi-family mortgage loans.” Id., at 470. Over time, however, market conditions changed and NYCB expanded into a ” risky, but common, leveraging strategy involving mortgage-backed securities known as the ‘carry trade.'” Id. The complaint alleged that NYCB diverted increasingly large sums away from conservative investments and to carry trade investments, but continually held itself out as a risk-adverse, conservative community bank. Id., at 471. The court summarized the material allegations of the complaint as follows: “In particular, the Plaintiffs allege that the Defendants: (1) falsely represented that NYCB was uniquely able to thrive in an environment of rising interest rates and that its business prospects remained strong; (2) highlighted a false strategy of deleveraging following the acquisition of Roslyn; and (3) failed to adequately disclose the extent of the risks of the carry trade activity.” Id.

The court first addressed the motion for reconsideration, which additionally sought to reinstate a motion that the plaintiffs had filed more than a year earlier to remand to state court one of the class action lawsuits. In re New York Comm. Bancorp, at 474. Plaintiffs had filed their class action in state court, and the defense removed the lawsuit to federal court. Plaintiffs filed a motion to remand arguing that the Securities Litigation Uniform Standards Act of 1998 (SLUSA) prohibits removal of cases based exclusively on the Securities Act. When the federal court consolidated the 11 securities class actions, it did not specifically address the remand motion but the practical effect of the court’s ruling was to deny the motion. Id., at 475. In evaluating the plaintiffs’ motion, the district court concluded that even though claim of improper removal appears to have merit, id., the fact remained that plaintiffs’ motion was too late, id., at 475-76.

Class Action Court Decisions PSLRA/SLUSA Class Actions Removal & Remand Uncategorized

Employment Class Action Filings Again Top List But Defense Attorneys Also Gear Up For New Public Accommodation/ADA Class Action Lawsuits Which Ran A Close Second In Weekly Class Action Filings In California

Class action defense attorneys in California will continue to confront more labor law class action cases than any other category, but public accommodation/ADA (Americans with Disabilities Act) cases made a strong showing this past week. In an effort to assist class action defense attorneys in anticipating the claims against which they may have to defend, we provide weekly, unofficial summaries of the legal categories for new class actions filed in California state and federal courts in the Los Angeles, San Francisco, San Jose, Sacramento, San Diego, San Mateo, Oakland/Alameda and Orange County areas.

Class Actions In The News Uncategorized

15 U.S.C. § 77m-77o–Limitation Of Actions, Contrary Stipulations And Liability Of Controlling Persons Under The Securities Act Of 1933

As a resource for the class action defense lawyer who defends against securities class actions, we provide the text of the Securities Act of 1933. In three separate and brief sections, Congress set forth the statutory provisions concerning limitations on actions under the Securities Act of 1933, 15 U.S.C. § 77m, and the liability of controlling persons under the Act, 15 U.S.C. § 77o, and provided that the statutory provisions of the Act – as well as the rules and regulations of the Commission in furtherance of the Act – may not be waived, 15 U.S.C. § 77n. These three sections state in full:

§ 77m. Limitation of actions

No action shall be maintained to enforce any liability created under section 77k or 77l(a)(2) of this title unless brought within one year after the discovery of the untrue statement or the omission, or after such discovery should have been made by the exercise of reasonable diligence, or, if the action is to enforce a liability created under section 77l(a)(1) of this title, unless brought within one year after the violation upon which it is based. In no event shall any such action be brought to enforce a liability created under section 77k or 77l(a)(1) of this title more than three years after the security was bona fide offered to the public, or under section 77l(a)(2) of this title more than three years after the sale.

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15 U.S.C. § 77l–Civil Liabilities Arising In Connection With Prospectuses And Communications Under The Securities Act Of 1933

As a resource for the class action defense lawyer who defends against securities class actions, we provide the text of the Securities Act of 1933. Congress provided for civil liability in connection with prospectuses and communications in 15 U.S.C. § 77l, which provides:

§ 77l. Civil liabilities arising in connection with prospectuses and communications

(a) In general

Any person who–

(1) offers or sells a security in violation of section 77e of this title, or

(2) offers or sells a security (whether or not exempted by the provisions of section 77c of this title, other than paragraphs (2) and (14) of subsection (a) of said section), by the use of any means or instruments of transportation or communication in interstate commerce or of the mails, by means of a prospectus or oral communication, which includes an untrue statement of a material fact or omits to state a material fact necessary in order to make the statements, in the light of the circumstances under which they were made, not misleading (the purchaser not knowing of such untruth or omission), and who shall not sustain the burden of proof that he did not know, and in the exercise of reasonable care could not have known, of such untruth or omission,

shall be liable, subject to subsection (b) of this section, to the person purchasing such security from him, who may sue either at law or in equity in any court of competent jurisdiction, to recover the consideration paid for such security with interest thereon, less the amount of any income received thereon, upon the tender of such security, or for damages if he no longer owns the security.

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