(1) Fee requests have been in the news. Last week it was the court's decision to sharply reduce the requested fees and expenses in the Coca-Cola securities class action. This week it is the billing of temp attorneys at high hourly rates in the Xerox securities class action.
Quote of note (Forbes): "Stephen Vasil, a Yale Law School graduate, and Andrew Gilman, a New York University law grad, were hired through a temp agency to work on the Xerox case. Vasil says they often performed glorified secretarial work, including reviewing electronic documents to identify their author and destination. Vasil was paid $35 an hour, Gilman, $40. Yet the law firms in the case are asking for roughly $500 an hour for their services."
(2) Securities Docket has a guest column by Professor Adam Pritchard on his proposal that corporations opt-out of the current securities class action system by limiting potential investor damages to the disgorgement of the defendants' gains.
Quote of note: "Perhaps the best way of understanding the proposal is as a means of ex ante rebutting the presumption of reliance. The Basic Court took pains to stress that the presumption could be rebutted by “[a]ny showing that severs the link between the alleged misrepresentation and … his decision to trade at a fair market price, will be sufficient to rebut the presumption of reliance.” My proposal severs that link. By waiving the FOTM presumption of reliance in the articles of incorporation, shareholders will be putting future purchasers of the company’s stock on notice that they cannot rely on that presumption to collect out-of-pocket damages. If courts are to be faithful to Basic, they have to faithful not only to its presumption, but also the means that it provided for rebutting that presumption."
The Fulton County Daily Report has an article on the court's decision to reduce the fee award from 26% to 21% of the common fund - about a $7 million difference - and reject $4 million in claimed expenses. Among other things, the court complained about the percentage of work done by high-billing attorneys, declined to reimburse on-line research costs, and criticized the per-day travel costs.
Quote of note (decision): "This Court is not troubled by the apparent fact that [the plaintiffs'] attorneys seek high comfort on their journeys, but neither should the class finance such a lifestyle. This Court finds that a client could reasonably expect to pay $300 per night for his attorney's food and lodging on domestic trips, and that is the level at which this Court will reimburse [the firm] for its travel."
As discussed in The 10b-5 Daily before, whether the Tellabs decision on pleading scienter (i.e., fraudulent intent) can best be described as a victory for plaintiffs or defendants has to be evaluated on a circuit-by-circuit basis. In the U.S. Court of Appeals for the Sixth Circuit, for example, the pleading standard has been lowered.
In Frank v. Dana Corp., 2008 WL 4923012 (6th Cir. Nov. 19, 2008), the lower court found that it was "required to accept plaintiff's inferences of scienter only if those inference are the most plausible of competing inferences." On appeal, the Sixth Circuit noted that although its earlier decisions applied a "most plausible" standard, that standard was no longer good law. Instead, under Tellabs, the plaintiffs only needed to demonstrate an inference of scienter that was "at least as compelling" as any opposing inference one could draw from the facts alleged.
Holding: Dismissal vacated and case remanded to district court for reconsideration.
When only some of the defendants settle a securities class action, the extent to which they can avoid related litigation with non-settling defendants through the imposition of a judicial bar order is limited. In In re Heritage Bond Litig., 2008 WL 4415172 (9th Cir. Oct. 1, 2008), the court, agreeing with Second Circuit precedent, held that a permissible bar order "may only bar claims for contribution and indemnity and claims where the injury is the non-settling defendant's liability to the plaintiff." Non-settling defendants should still be able to bring "genuinely independent" claims against settling defendants, even if the claims arise out of the same facts as those underlying the securities class action.
Holding: Vacated challenged bar orders and remanded to district court for modification.
A couple of items from around the web:
(1) The New York Law Journal has a column (Nov. 5 edition - subscrip. req'd) on loss causation and class certification. The authors argue that although the Oscar (5th Circuit) and Salomon (2nd Circuit) decisions appear to create a split over how burdensome it is for plaintiffs to demonstrate the existence of loss causation at the class certification stage of a case, the practical difference will not be significant. In both courts the parties "will be forced to address loss causation in detail."
(2) The D&O Diary has been attending conferences on the future of securities litigation and reporting back on the results. The blog has detailed notes from the recent PLUS International Conference and Forum for Institutional Investors. Short version: happy days may be here again for the plaintiffs' bar.
Accredo Health, Inc., a wholly-owned subsidiary of Medco Health Solutions, Inc. (NYSE: MHS), has reached a preliminary settlement of the securities class action pending against it in the W.D. of Tennessee. The case, originally filed in April 2003, stems from allegations that loss reserves relating to a business Accredo acquired were materially understated. The settlement is for $33 million.
Will the next U.S. Supreme Court securities case be about the statute of limitations? It is a strong possibility, given that the Court has asked the Solicitor General to weigh in on the cert petition filed in a Ninth Circuit case.
At issue in Betz v. Trainer Wortham & Co., Inc., 519 F.3d 863 (9th Cir. 2008) is when the two-year statute of limitations for a securities fraud begins to run. It is well-settled that if an investor has sufficient knowledge concerning the possibility or probability of fraud (courts have differed on the exact wording), he is deemed to have "inquiry notice" and must begin an investigation into the underlying facts. There is a conflict between the circuits, however, on whether the statute of limitations begins to run when the investor is put on inquiry notice, or later when a reasonably diligent investigation would have revealed the fraud.
The Ninth Circuit went even further then the existing case law and held that inquiry notice is triggered not by mere evidence of a misrepresentation (as in other circuits), but only by evidence of the defendant's fraudulent intent. It also adopted the more rigorous notice-plus-reasonable-diligence standard and found that even fairly mild reassurances from the defendant in response to a plaintiff's inquiries may require a jury determination as to whether a reasonably diligent investigation would have revealed the fraud. In a vigorous dissent from the denial of en banc review, Judge Kozinski described the court as being "out in left field again" and argued that "the panel effectively writes the statute of limitations off the books."
Stay tuned for whether the Court takes the case. In the interim, the amicus brief filed by the Organization for International Investment and the Chamber of Commerce of the United States of America in support of a cert grant can be found here. Thanks to LawyerLinks for noting the Court's invitation to the Solicitor General's office to express the government's views.