The Janus decision holds that for purposes of primary securities fraud liability under Section 10(b) and Rule 10b-5, the "maker" of a statement is the person or entity with "ultimate authority" over the statement. Practicioners have begun to debate over the significance of that holding, including in two recent New York Law Journal columns.
(1) In "Janus Capital and Underwriter Liability Under Section 10(b) and Rule 10b-5" (July 12 - subscrip. req'd), the authors note that pre-Janus there were conflicting lower court decisions over whether underwriters could have primary liability for misstatements in offering documents. The Janus decision, however, "undercut[s] any private right of action as against underwriters" because "the ultimate decision as to whether an offering will proceed, whether to disseminate an offering document, and what the offering document will say rest with the issuer."
(2) In "U.S. Supreme Court and Securities Litigation" (July 21 - regist. req'd), Professor John Coffee argues that the "ultimate authority" standard may not be as sweeping as it seems. The Janus decision also notes that "in the ordinary case, attribution within a statement or implicit from surrounding circumstances is strong evidence that a statement is made by, and only by, the party to whom it is attributed." According to Coffee, this language suggests that "implicit attribution" is sufficient to find someone has primary liability for a false statement. Relying on this part of Janus creates another conundrum, however, because it "suggest[s] that the attributed statement creates liability 'only' for the person quoted and not the issuer that may knowingly incorporate his false statement."
In the wake of the Morrison decision, U.S. courts have proven reluctant to endorse any securities fraud claims by foreign purchasers. And no bonus points for cleverness. In In re Toyota Motor Corp. Securities Litig., 2011 WL 2675395 (C.D. Cal. July 7, 2011), plaintiffs argued that they should be able to bring (a) U.S. securities fraud claims on behalf of ADS purchasers and domestic purchasers of Toyota common stock, and (b) Japanese securities fraud claims on behalf of all purchasers (foreign and domestic) of Toyota common stock. The plaintiffs posited two possible bases for jurisdiction over the Japanese law claims: original jurisdiction under the Class Action Fairness Act (CAFA) and supplemental jurisdiction.
The court disagreed with both. As to CAFA, the court found that Toyota's common shares are "listed" on the NYSE and, as a result, are "covered securities." Claims related to "covered securities" are expressly excluded from CAFA. The court also declined to exercise supplemental jurisdiction over the Japanese securities fraud claims for two reasons. First, the Japanese law claims would "substantially predominate over the American law claims" due to the much larger proposed class. Second, the "exceptional circumstance of comity to the Japanese courts." The National Law Journal and Thomson Reuters have articles on the decision.
Holding: Motion to dismiss granted as to Japanese law claims and certain other claims.
Quote of note: The "respect for foreign law would be completely subverted if foreign claims were allowed to be piggybacked into virtually every American securities fraud case, imposing American procedures, requirements, and interpretations likely never contemplated by the drafters of the foreign law. While there may be instances where it is appropriate to exercise supplemental jurisdiction over foreign securities fraud claims, any reasonable reading of Morrison suggests that those instances will be rare."
A couple of interesting recent decisions:
(1) Tolling - Courts are split on the issue of whether the commencement of a class action suspends the applicable statute of repose (as opposed to statute of limitations) as to all asserted members of the class who would have been parties had the suit been permitted to continue as a class action. In the recent Footbridge decision from the S.D.N.Y., the court concluded that the statute of repose cannot be extended by the commencement of a class action. (A fuller explanation of the decision and its ramifications can be found here.) That position is proving popular in the S.D.N.Y.
The court in In re IndyMac Mortgage-Backed Sec. Litig., 2011 WL 2462999 (S.D.N.Y. June 21, 2011) considered whether a class member who had filed one of the original complaints could intervene in the consolidated class action. The class member wanted to bring claims related to an offering in which the lead plaintiff had not participated. The court denied the motion. Once the class member had allowed his original complaint to be consolidated he was no longer a plaintiff and, under the Footbridge analysis, the claims were now barred by the relevant statute of repose.
(2) Duty to Disclose - What triggers a corporation's duty to disclose? In Minneapolis Firefighters' Relief Association v. MEMC Electronic Materials, Inc., 2011 WL 2417073 (8th Cir. June 17, 2011), MEMC did not disclose production problems at two of its plants for over a month, even though it had a history of providing investors with timely updates about production disruptions. Plaintiffs argued that MEMC had a duty to disclose the problems when they occured based on its prior "pattern" of disclosures. The Eighth Circuit disagreed, noting that it was "unable to find any legal authority directly supporting [plaintiffs'] pattern theory" and adopting the theory "could encourage companies to disclose as little as possible."
Washington Mutual, Inc., the former owner of the biggest U.S. bank to fail during the credit crisis, has entered into a preliminary settlement of the securities class action pending against the company and related defendants in the W.D. of Washington. The suit alleges that Washington Mutual mislead investors about the nature and riskiness of its loan portfolio. The company filed for bankruptcy in September 2008 after its banking unit was taken over by federal regulators and sold to JPMorgan Chase.
The settlement is for $208.5 million ($105 million from the company's insurers, $85 million from the company's underwriters, and $18.5 million from the company's outside auditor). According to press reports, however, if all eligible common shareholders participate in the settlement they will only receive 5 cents per damaged share. The Seattle Times has a lengthy article on the settlement.