Quote of note: "The varying results from these trial verdicts gives both plaintiffs and defendants reason to believe that they can, under the right circumstances, take their cases to trial and win. Given that increasingly aggressive settlement postures now being taken by plaintiffs are decreasing the defendants' relative risks of going to trial in many cases, defendants are less likely to settle when they believe they have a defensible case."
The Wall Street Journal reports (subscrip. req'd) that the state court judge presiding over the Oracle derivative case has temporarily declined to approve the proposed settlement. The CEO of Oracle agreed to pay $100 million to charity on behalf of the company, while the company will make a payment of $22.5 million in legal fees to plaintiffs' counsel. The terms of the settlement have come under criticism.
According to the article, the judge "seemed favorably disposed to the general outlines of the deal, but said he wanted more testimony about why Oracle shareholders should bear the cost of . . . legal fees." The next scheduled hearing is on November 15.
SLUSA preempts certain class actions based upon state law that allege a misrepresentation in connection with the purchase or sale of nationally traded securities. The issue before the Supreme Court is the application of the "in connection with" requirement. In particular, the court will resolve the circuit split between the Second and Seventh Circuits over whether SLUSA preemption applies to claims brought solely on behalf of persons who were induced to hold (but not purchase or sell) securities.
The 10b-5 Daily has posted frequently on this issue, including posts on the underlying Second Circuit opinion in the Dabit case finding that SLUSA only applies to purchaser/seller claims and the Seventh Circuit's opinion in the Putnam Funds II case reaching the opposite conclusion. For a cite to an article discussing the circuit split and its ramifications, see this post.
The editors of the Jackson Clarion-Ledger are not pleased with the WorldCom settlements. Of course, they also appear to believe that Citigroup and JPMorgan Chase will be receiving, rather than providing, most of the settlement funds.
Quote of note: "But the settlement is top heavy: $2.58 billion to Citigroup and $2 billion to JPMorgan Chase & Co. with the rest divided among about 830,000 people and institutions. That's small solace to the small investor, including those in Mississippi who trusted Ebbers."
The Rocky Mountain News has another article on the attorneys' fees challenge in the $50 million settlement of the shareholder class action related to the merger of Qwest Communications and U.S. West. Having suggested that the settlement stunk "like a three-day-old unrefrigerated dead fish" (see this post), it is perhaps not surprising that the Association of U.S. West Retirees is pursing an appeal of the denial of its fees challenge.
Mondaq's has published a law firm summary of the new securities class action legislation set to go into effect in the Canadian province of Ontario. (The 10b-5 Daily has recently posted about the legislation.)
Quote of note: "[T]he Ontario regime contains two measures to reduce the potential for strike suits (although it remains to be seen how successful these measures will be). First, a plaintiff is required to obtain leave of the court before bringing a lawsuit, and the court will grant leave only if it is satisfied that the suit is being brought in good faith and has a reasonable prospect of success at trial. Second, the court must approve any proposed settlement of a lawsuit (this is also true of an SEC Rule 10b-5 lawsuit that is brought as a class action)."
MarketWatch reports that U.S. District Judge Denise Cote (S.D.N.Y.) has given final approval to a series of settlements in the WorldCom case. The settlements were preliminarily agreed to earlier this year and total $3.6 billion.
Quote of note: "'Out of some 4 million potential class members, more than 830,000 of whom submitted proofs of claim, only seven filed timely formal objections to the 2005 settlements,' Judge Cote said in her opinion. 'The very low number of objections evidences the fairness of those settlements.'"
Addition: A New York Law Journal article (via law.com - free regist. req'd) discusses the related attorneys' fees award. In total (including earlier settlements), the two lead plaintiffs' firms will receive $335 million.
The New York Times and San Jose Mercury News have opinion columns today questioning the propriety of the Oracle derivative settlement announced earlier this week. The CEO of Oracle agreed to pay $100 million to charity on behalf of Oracle, with an additional payment of $22.5 million in legal fees to plaintiffs' counsel.
Quote of note (Times): "John C. Coffee Jr., a professor of securities law at Columbia University, is not persuaded justice was served. He suggested that it 'would be fairer if the plaintiffs' attorneys would take their fee in the form of a charitable contribution that Mr. Ellison would make in their name to charities of his choice.' Perhaps, he mused, Mr. Ellison would choose a charity that promotes tort reform."
Quote of note II (Mercury News): "There's certainly a long history of Silicon Valley tycoons giving less than full respect to the rights of shareholders. Whether this justifies such an unusual settlement is debatable. Either way, it's going to be a tough call for Judge Schwartz."
PSS World Medical, Inc. (Nasdaq: PSSI), a Florida-based distributor of medical products, has announced the preliminary settlement of the securities class action pending against the company in the M.D. of Fla. The case was orginally filed in 1998 and arose out of PSS World's acquisition of Gulf South Medical Suppply. Trial was set to begin this November.
The settlement is for $16.5 million, with $13.2 million to be paid for by the company's insurers. PSS World also stated that "it expects to pursue all available legal remedies from Ernst & Young LLP, the auditor of Gulf South prior to the Company's acquisition of the entity, for damages associated with their audits of the Gulf South financial statements and public filings."
The derivative litigation surrounding alleged insider trading by Larry Ellison, the CEO of Oracle, has taken a surprising turn. (The 10b-5 Daily has previously discussed the contradictory judicial decisions over this trading in a post entitled "Is A Billion Dollars In Stock Sales Significant?") The New York Times reports that Mr. Ellison will pay $100 million to charity to resolve one of the two derivative cases pending in California state court. The attorneys for the derivative plaintiff will receive a separate payment of $22.5 million.
Quote of note: "'I've never heard of anything, structured from the beginning as a settlement this large, going to a charity,' said Michael A. Perino, a law professor at St. John's University School of Law. Typically, Mr. Perino said, a derivative action results in a payment to the company."
Securities class actions brought in U.S. courts by foreign investors? Lots of them. Securities class actions brought in U.S. courts against foreign companies? Commonplace. But how about a securities class action brought in a U.S. court against a foreign state? Now we're talking.
In Aguayo v. Republic of Italy, 05 CV 7717 (S.D.N.Y.), filed last week, the plaintiff has brought a suit against Italy and the underwriters of its debt securities issued in this country. The complaint alleges that the relevant registration statements "understated Italy's debt, so that Italy could report that it complied with the European Union requirement that debt be limited to 3% of gross domestic product."
Thanks to Pietro Adami for sending in the complaint, which can be found here.
As previously discussed in The 10b-5 Daily, the state of Ohio has pursued a strategy of supplementing pending securities class actions with its own individual suits. That strategy appears to have paid off, at least in the WorldCom case. Columbus Business First reports that Ohio, on behalf of its pension funds, has agreed to a $94 million settlement with individuals and banks it alleged participated in the WorldCom securities fraud.
Quote of note: "The litigation was initiated by former Ohio Attorney General Betty Montgomery, who split with several states involved in a federal class-action lawsuit against WorldCom and its executives in September 2002. At the time, Montgomery said she made the move because Ohio was unable to gain lead plaintiff status in the federal case."
On Friday, the Wall Street Journal had a front-page story (subscrip. req'd) on the increase in foreign investors acting as lead plaintiffs in U.S. securities class actions. (A related trend is the rise in suits filed against foreign companies listed on U.S. exchanges.)
Quote of note: "The tort bar's newfound interest in overseas clients -- in particular, those involved in securities litigation -- is driven by a broader phenomenon: the globalization of business and investing. In U.S. securities cases, judges are required to tap shareholders with the largest losses as the lead plaintiffs. Increasingly, these shareholders are based overseas, from pension funds to hedge funds and private-equity players."
Quote of note II: "One [foreign investor bringing a suit in the U.S.] is retired tire-company executive Markus Blechner. Last year, when DaimlerChrysler AG paid $300 million to settle allegations it mislead U.S. investors, the Swiss national received nothing because he had purchased his shares in the auto maker on a Swiss exchange. . . . 'I thought, 'That's not fair. Don't I deserve to get paid, too?' recalls Mr. Blechner. He and two Austrian investment funds are now suing the auto maker in U.S. federal court in Delaware. 'Why not? It doesn't cost me anything,' Mr. Blechner says."
As noted in The 10b-5 Daily late last year, the Canadian province of Ontario is set to implement new securities class action legislation. The most significant change is the creation of a broader private right of action for shareholders who purchased their shares in the secondary market. The Toronto Globe and Mail had an article in yesterday's edition discussing the legislation and the need for Canadian companies to implement new disclosure policies in response to the increased litigation risk.
Quote of note: "Until now, investors who bought shares on the secondary market were able to sue only by alleging outright fraud as opposed to mere negligence. They also had to prove they relied on the misrepresentation when they bought or sold shares, an argument challenging to prove in court. By contrast, the new legislation makes no such stipulation, automatically assuming the plaintiff relied on the information. It is mainly for these reasons that a coalition of companies, including Alcan Inc., had opposed the bill, which was in the works for years. Those objectors pointed to the United States where, by contrast, plaintiffs must demonstrate that a defendant knowingly made a misleading or false statement."