A recent decision by the U.S. Court of Appeals for the Second Circuit further complicated the issue of when an employee can be considered a whistleblower under the Dodd-Frank Act. In Berman v. Neo@Ogilvy, the Second Circuit reversed a district court decision that the plaintiff was not a whistleblower, concluding that the governing definition of “whistleblower” was not the one found in the language of Dodd-Frank, but was the broader one found in a subsequently adopted SEC rule. This interpretation runs counter to a 2013 decision from the Fifth Circuit, Asadi v. G.E. Energy, LLC, and sets up a circuit split that the Supreme Court may be asked to resolve. Continue reading
Attorney Thomas R. Fox, a prominent Foreign Corrupt Practices Act (FCPA) practitioner and author of a forthcoming WLF Legal Opinion Letter, “Is SEC Heading toward a Strict Liability Application of the Foreign Corrupt Practices Act?,” recently interviewed WLF Legal Studies Division Chief Counsel, Glenn Lammi, about WLF’s public interest work and our focus on the FCPA.
In the opinion issued on March 24 in Omnicare, Inc. v. Laborers District Council Construction Industry Pension Fund (“Omnicare”), the Supreme Court rejected the two extremes advocated by the parties regarding how the truth or falsity of statements of opinion should be considered under the securities laws. Instead, it adopted the middle path advocated in the amicus brief filed by Lane Powell on behalf of Washington Legal Foundation (“WLF”).
In doing so, the Court also laid out a blueprint for examining claims of falsity under the securities laws, which we believe will do for falsity analysis what Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308 (2007), did for scienter analysis. Hence, Omnicare will help defense counsel defeat claims that opinions were false or misleading in § 11 cases, as well as in cases brought under § 10(b) of the Securities Exchange Act. Continue reading
The Wall Street Journal Law Blog reported today that Philadelphia-based (but Delaware-incorporated) biotechnology company Hemispherx BioPharm Inc. has injected itself into the middle of a growing dispute over attorneys’ fees in shareholder class action lawsuits. (A hat-tip to the Institute for Legal Reform, whose must-read daily email referenced the WSJ Law Blog piece) Prompted by a May 14 Delaware Supreme Court decision, ATP Tour, Inc. v. Deutscher Tennis Bund, et al., Hemispherx earlier this month adopted a provision in its corporate bylaws that shareholder plaintiffs must pay the company’s legal fees if Hemispherx prevails in a shareholder-initiated lawsuit. The provision applies retroactively to pending suits, and lawyers for shareholders in a class action against Hemispherx have asked the Delaware Chancery Court to invalidate the bylaws.
A July 11 Washington Legal Foundation Legal Backgrounder, Is Delaware High Court Ruling an Ace for Merging Companies Served with Shareholder Suits?, discussed the ATP Tour decision and assessed how it could be applied to deter frivolous shareholder class actions. Authored by Snell & Wilmer LLP attorneys Greg Brower and Casey Perkins, the paper explains that ATP Tour involved not a public company, but a private membership corporation which included in its bylaws a fee-shifting provision. The Delaware Supreme Court, answering a question certified to it by the U.S. Court of Appeals for the Third Circuit, held that the fee-shifting provision was a matter of private contract, and nothing in the state’s corporate law prohibited its inclusion in ATP’s bylaws.
The authors went on to examine whether Delaware statutory or common law would permit public companies to include such a fee-shifting mechanism in their bylaws. They found that a recent Delaware Chancery Court case, Boilermakers Local 154 Retirement Fund, et al. v. Chevron Corporation, et al., strongly supported the legality of fee-shifting through bylaws. Brower and Perkins concluded:
Chevron and ATP Tour together make it clear that Delaware law is intended to give broad leeway to corporations, private and public, to adopt bylaws not otherwise prohibited by law, and that duly adopted bylaws are presumed to be part of the contract between the company and the member or shareholder. This means that publicly-traded companies and their shareholders ought to be able to freely contract for the details of their relationship, including details such as where disputes between them will be litigated, and whether the losing party in such litigation should have to pay the legal fees of the prevailing party. Such contracts are part of the fundamental structure of the corporate law of Delaware—or, it seems, of any other state for that matter.
Given the financial implications for the securities fraud class action bar and the promise such provisions hold for public companies, the Hemispherx case is likely just the first skirmish in what will be a drawn-out, intense battle over fee-shifting through corporate bylaws.
by Lyle Roberts, Cooley LLP
*Editor’s note: We are cross-posting this commentary from Mr. Roberts’s blog, The 10b-5 Daily, where it originally appeared. Mr. Roberts authored Washington Legal Foundation’s amicus brief in Halliburton.
The U.S. Supreme Court has issued a decision in the Halliburton v. Erica P. John Fund case holding that defendants can rebut the fraud-on-the-market presumption of reliance at the class certification stage with evidence of a lack of stock price impact. It is a 9-0 decision authored by Chief Justice Roberts, although Justice Thomas (joined by Justices Alito and Scalia) concurred only in the judgment. As discussed in a February 2010 post on this blog, Halliburton has a long history that now includes two Supreme Court decisions on class certification issues. A summary of the earlier Supreme Court decision can be found here.
Under the fraud-on-the-market presumption, reliance by investors on a misrepresentation is presumed if the misrepresentation is material and the company’s shares were traded on an efficient market that would have incorporated the information into the stock price. The fraud-on-the-market presumption is crucial to pursuing a securities fraud case as a class action—without it, the proposed class of investors would have to provide actual proof of its common reliance on the alleged misrepresentation, a daunting task for classes that can include thousands of investors.
The fraud-on-the-market presumption, however, is not part of the federal securities laws. It was judicially created by the Supreme Court in a 1988 decision (Basic v. Levinson). In Halliburton, the Court agreed to revisit that decision, but ultimately decided that there was an insufficient “special justification” for overturning its own precedent. Continue reading
by Gary S. Matsko, Davis Malm & D’Agostine P.C.
It is curious how an appellate court can resolve cases before it in a manner and spirit that are vastly at odds with the driving philosophy behind the lower court’s decision. The U.S. Court of Appeals for the Second Circuit’s decision in United States Securities and Exchange Commission v. CitiGroup Global Markets, Inc.is such a case. Judge Jed Rakoff’s decision below, S.E.C. v. CitiGroup Global Markets, Inc., 827 F. Supp. 2d 328 (S.D.N.Y. 2011), in which he declined to enter a consent decree that resulted from settlement negotiations, was driven by the judge’s intense displeasure that the settlement presented to him failed to include an admission of guilty. The decision emboldened advocates who believed that the SEC should require admissions, and likely played a role in the agency announcing that it would so require them in certain matters.
The counsel appointed to represent Judge Rakoff’s view in the Second Circuit did not forcefully argue that a trial court could require admission as a predicate to approving settlement. The Second Circuit thus curtly brushed that perspective aside. Instead, the appellate court clipped the wings of trial judges who embrace an expansive substantive role for courts in reviewing consent decrees, underscoring the deference owed to a prosecuting agency. Despite that distinct conclusion, CitiGroup Global Markets did not offer clear guidance on the trial court’s role in assessing facts, and, surprisingly, invited the SEC to turn to its administrative forum if it is unhappy with the remaining limited intervention reserved to the trial judge. Continue reading
by Chip English, Davis Wright Tremaine LLP
Americans are naturally curious and interested about the food we eat and the products we buy—e.g., non-GMO labeling, country of origin labeling (“COOL”) and “conflicts minerals.” The question I explore here is whether and how far the government may constitutionally compel commercial interests to disclose information about their products when such compelled speech goes beyond preventing consumer confusion or deception.
These First Amendment issues are now front and center before the United States Court of Appeals for the District of Columbia Circuit (often referred to as the second highest court in the United States). While commercial speech is not as protected under the Supreme Court’s First Amendment jurisprudence, it is still subject to heightened scrutiny. But the question now before the D.C. Circuit is whether the general four part test formulated in Central Hudson Gas & Electric Corp. v. Public Ser. Comm’n, 447 U.S. 557, 566 (1980) applies to compelled speech, or whether the decision in Zauderer v. Office of Disciplinary Counsel, 471 U.S. 626, 651 (1985) carves out a special rule for all compelled speech as opposed to compelled speech designed to prevent confusion or deception.
On Monday, May 19, the entire D.C. Circuit, sitting en banc, will hear arguments regarding the constitutionality of USDA’s COOL requirements for meat and poultry labels. COOL requires all USDA regulated food labels to disclose the country or countries where the product was grown or produced. A panel of three judges upheld the constitutionality of COOL on March 28, 2014, concluding that Zauderer establishes essentially an exception to the more rigorous (if amorphous) Central Hudson heightened scrutiny test when the government seeks to compel commercial speech. American Meat Institute v. USDA, 1:13-cv-01033 (Mar. 28, 2014). The American Meat Institute (“AMI”) panel concluded that in addition to preventing deception, there may be multiple government interests in mandating a disclosure such as COOL that “are reasonably related to the state’s interests.” Id. at 11. The panel strained to define COOL as being supported by more than consumer curiosity—e.g., consumers may conclude that food produced in a particular country is not as safe as food produced in the U.S. (even though FDA and USDA are charged with appropriate food safety). Continue reading