Justia Civil Procedure Opinion Summaries

Plaintiffs alleged pharmaceutical manufacturers stalled the release of clinical trial results for their blockbuster anti-cholesterol drugs, tried to change the study's endpoint to produce more favorable results, concealed their role in the change, and that the delay allowed one company to raise $4.08 billion through a public offering, which the company used to purchase another company to lessen its reliance on the drugs. Amid press reports and a congressional investigation, the companies released the clinical trial results, which allegedly caused their stock prices to plummet, amounting to about a $48 billion loss in market capitalization. Investors filed suit. The court denied defendants’ motions to dismiss under the Private Securities Litigation Reform Act’s heightened pleading standard, denied defendants’ motion for summary judgment, and granted class certification.Investors were provided with Rule 23(c)(2) notice of their right to opt-out: “you will not be bound by any judgment in this Action” and “will retain any right you have to individually pursue any legal rights.” After the opt-out period, the court approved settlements, offering opt-out investors 45 days to rejoin and share in the recovery, while stating that opt-outs “shall not be bound” to the settlement. Sixteen opt-out investors filed suits, tracking the class action claims, and adding a New Jersey common law fraud claim. After the Supreme Court held that American Pipe tolling does not extend to statutes of repose, plaintiffs were left with only their state-law claims. The court dismissed those as barred by the Securities Litigation Uniform Standards Act, 15 U.S.C. 10 78bb(f)(5)(B)(ii)(II). The Third Circuit reversed, finding that the class actions and the opt-out suits were not “joined, consolidated, or otherwise proceed[ing] as a single action for any purpose.” View "North Sound Capital LLC v. Merck & Co., Inc" on Justia Law

Blue Bell Creameries USA, Inc. suffered a listeria outbreak in early 2015, causing the company to recall all of its products, shut down production at all of its plants, and lay off over a third of its workforce. Three people died as a result of the listeria outbreak. Pertinent here, stockholders also suffered losses because, after the operational shutdown, Blue Bell suffered a liquidity crisis that forced it to accept a dilutive private equity investment. Based on these unfortunate events, a stockholder brought a derivative suit against two key executives and against Blue Bell’s directors claiming breaches of the defendants’ fiduciary duties. The complaint alleges that the executives breached their duties of care and loyalty by knowingly disregarding contamination risks and failing to oversee the safety of Blue Bell’s food-making operations, and that the directors breached their duty of loyalty. The defendants moved to dismiss the complaint for failure to plead demand futility. The Court of Chancery granted the motion as to both claims. The Delaware reversed: "the mundane reality that Blue Bell is in a highly regulated industry and complied with some of the applicable regulations does not foreclose any pleading-stage inference that the directors’ lack of attentiveness rose to the level of bad faith indifference required to state a 'Caremark' claim. ... The complaint pled facts supporting a fair inference that no board-level system of monitoring or reporting on food safety existed." View "Marchand v. Barnhill, et al." on Justia Law

In this shareholder-derivative action, Shareholders of The Western Union Company averred several of Western Union’s Officers and Directors breached their fiduciary duties to the company by willfully failing to implement and maintain an effective anti-money-laundering-compliance program (AML-compliance program), despite knowing of systemic deficiencies in the company’s AML compliance. The Shareholders didn’t make a pre-suit demand on Western Union’s Board of Directors to pursue this litigation, and the district court found no evidence that such demand would have been futile. The district court thus dismissed the case, reasoning that the Shareholders’ obligation to make a pre-suit demand on the Board was not excused. The Tenth Circuit concurred with the district court's decision to dismiss, and affirmed. View "City of Cambridge Retirement v. Ersek" on Justia Law

Nicholas Olenik, a stockholder of nominal defendant Earthstone Energy, Inc., brought class and derivative claims against defendants challenging a business combination between Earthstone and Bold Energy III LLC. As alleged in the complaint, EnCap Investments L.P. controlled Earthstone and Bold and caused Earthstone stockholders to approve an unfair transaction based on a misleading proxy statement. Defendants moved to dismiss the complaint on several grounds, principal among them that the proxy statement disclosed fully and fairly all material facts about the transaction, and Earthstone conditioned its offer on the approval of a special committee and the vote of a majority of the minority stockholders. The Court of Chancery agreed with defendants and dismissed the case. Two grounds were central to the court’s ruling: (1) the proxy statement informed the stockholders of all material facts about the transaction; and (2) although the court recognized that EnCap, Earthstone, and Bold worked on the transaction for months before the Earthstone special committee extended an offer with the so-called MFW conditions, it found those lengthy interactions “never rose to the level of bargaining: they were entirely exploratory in nature.” Thus, in the court’s view, the MFW protections applied, and the transaction was subject to business judgment review resulting in dismissal. While this appeal was pending, the Delaware Supreme Court decided Flood v. Synutra International, Inc. Under Synutra, to invoke the MFW protections in a controller-led transaction, the controller must “self-disable before the start of substantive economic negotiations.” The controller and the board’s special committee must also “bargain under the pressures exerted on both of them by these protections.” The Court cautioned that the MFW protections will not result in dismissal when the “plaintiff has pled facts that support a reasonable inference that the two procedural protections were not put in place early and before substantive economic negotiations took place.” The Supreme Court determined the Court of Chancery held correctly that plaintiff failed to state a disclosure claim. But, the complaint should not have been dismissed in its entirety: applying Synutra and its guidance on the MFW timing issue, which the Court of Chancery did not have the benefit of at the time of its decision, plaintiff has pled facts supporting a reasonable inference that EnCap, Earthstone, and Bold engaged in substantive economic negotiations before the Earthstone special committee put in place the MFW conditions. The Supreme Court also found no merit to defendants’ alternative ground for affirmance based on EnCap’s supposed lack of control of Earthstone. The Court of Chancery’s decision was affirmed in part and reversed in part, and the case was remanded for further proceedings. View "Olenik v. Lodzinski, et al." on Justia Law

The Court of Appeals affirmed the order of the Appellate Division affirming Supreme Court’s dismissal of the complaint filed by the trustee (Trustee) of the ABSHE 2006 residential mortgage-backed securities (RMBS) trust, without prejudice to refiling, holding that N.Y. C.P.L.R. 205(a) applies to an RMBS trustee’s second action when its timely first action is dismissed for failure to comply with a contractual condition precedent.The Trustee first filed an action against Defendant, the sponsor and seller of the trust securitization, and the action was dismissed for failure to comply with a contractual condition precedent, without prejudice to refiling. The Trustee then filed this action against Defendant claiming violations of representations and warranties regarding the quality of the loans contained in the trust. On appeal, Defendant argued that the first action should have been dismissed with prejudice. The Court of Appeals disagreed, holding that the Trustee’s failure to comply with a contractual condition precedent did not foreclose refiling of its action for alleged breach of RMBS representations and warranties pursuant to N.Y. C.P.L.R. 205(a). View "U.S. Bank National Ass’n v DLJ Mortgage Capital, Inc." on Justia Law

The Court of Appeals affirmed the order of the Appellate Court affirming the judgment of Supreme Court dismissing this action filed by the trustee (Trustee) of three residential mortgage-backed securities (RMBS) alleging violations of representations and warranties regarding the quality of loans contained in the respective securitization trust instruments, holding that the Trustee’s untimely-filed complaint cannot relate back under N.Y. C.P.L.R. 203(f) to a certificate holder’s previously filed action.Defendant served as seller and sponsor of three RMBS securitization trusts, each governed by a separate pooling and servicing agreement. A certificate holder later filed a notice claiming violations of the representations and warranties for each of the trusts. After the limitations period elapsed, the Trustee filed this complaint. Supreme Court dismissed the action with prejudice. The Appellate Division affirmed, concluding that the complaint was time-barred and that the Trustee could not rely on the prior action because the certificate holder lacked standing to sues. The Court of Appeals affirmed, holding that the certificate holder’s action was subject to dismissal, and there was no valid pre-existing action to which a claim in a subsequent amended pleading may relate back. View "U.S. Bank National Ass’n v. DLJ Mortgage Capital, Inc." on Justia Law

JCB, an Indiana state-chartered bank, had an agreement with INVEST, a registered broker-dealer, to offer securities to JCB customers. In 2017, JCB assigned DuSablon to assist in identifying and establishing an investment business with a new third-party broker-dealer. DuSablon failed to do so and abruptly resigned. JCB learned that DuSablon had transferred customers’ accounts from INVEST into his own name and had started a competing business. JCB sought a preliminary injunction, asserting violations of the Indiana Uniform Trade Secrets Act, breach of contract, breach of fiduciary duty, tortious interference, unfair competition, civil conversion, and computer trespass. DuSablon moved to dismiss, arguing that JCB lacked standing and that Financial Industry Regulatory Authority (FINRA) rules barred the suit; he removed the case, asserting exclusive federal jurisdiction under 15 U.S.C. 78aa and the Securities and Exchange Act. Although JCB did not plead a federal claim, DuSablon contended that JCB’s response to his motion to dismiss “raises a federal question as all of [JCB’s] claims ... rest upon the legality of direct participation in the securities industry which is ... regulated by the [Securities] Act.” The district court remanded,, concluding that it lacked jurisdiction and that removal was untimely, ordering DuSablon to pay JCB costs and fees of $9,035.61 under 28 U.S.C. 1447(c). The Seventh Circuit dismissed an appeal. DuSablon lacked an objectively reasonable basis to remove the case to federal court. View "Jackson County Bank v. DuSablon" on Justia Law

Stockholder-plaintiff KT4 Partners LLC appealed the Court of Chancery’s post-trial order granting in part and denying in part KT4’s request to inspect various books and records of appellee Palantir Technologies Inc., a privately held technology company. The Court of Chancery found that KT4 had shown a proper purpose of investigating suspected wrongdoing in three areas: (1) “Palantir’s serial failures to hold annual stockholder meetings”; (2) Palantir’s amendments of its Investors’ Rights Agreement in a way that “eviscerated KT4’s (and other similarly situated stockholders’) contractual information rights after KT4 sought to exercise those rights”; and (3) Palantir’s potential violation of two stockholder agreements by failing to give stockholders notice and the opportunity to exercise their rights of first refusal, co-sale rights, and rights of first offer as to certain stock transactions. The Court ordered Palantir to produce the company’s stock ledger, its list of stockholders, information about the company’s directors and officers, year-end audited financial statements, books and records relating to annual stockholder meetings, books and records relating to any cofounder's sales of Palantir stock. The Court otherwise denied KT4's requests, including a request to inspect emails related to Investors' Rights Agreement amendments. Both sides appealed, but the Delaware Supreme Court was satisfied the Court of Chancery did not abuse its discretion with respect to all but two issues: (1) denying wholesale requests to inspect email relating to the Investors' Rights Agreement; (2) and requests to temper the jurisdictional use restriction imposed by the court. "Given that the court found a credible basis to investigate potential wrongdoing related to the violation of contracts executed in California, governed by California law, and among parties living or based in California, the basis for limiting KT4’s use in litigation of the inspection materials to Delaware and specifically the Court of Chancery was tenuous in the first place, and the court lacked reasonable grounds for denying the limited modifications that KT4 requested." View "KT4 Partners LLC v. Palantir Technologies, Inc." on Justia Law

This case involved an alleged worldwide Ponzi scheme and the antifraud provisions of the federal Securities Act of 1933 and the Securities Exchange Act of 1934. Defendant Charles Scoville operated an internet traffic exchange business through his Utah company, Defendant Traffic Monsoon, LLC. The Securities and Exchange Commission (“SEC”) initiated this civil enforcement action, alleging Defendants were instead operating an unlawful online Ponzi scheme involving the fraudulent sale of securities. In this interlocutory appeal, Scoville challenged several preliminary orders the district court issued at the outset, including orders freezing Defendants’ assets, appointing a receiver, and preliminarily enjoining Defendants from continuing to operate their business. The Tenth Circuit upheld those preliminary rulings, finding the SEC asserted sufficient evidence to make it likely that the SEC would be able to prove that Defendants were operating a Ponzi scheme. View "SEC v. Traffic Monsoon" on Justia Law

Kathryn Honea purported to appeal a judgment in favor of Raymond James Financial Services, Inc. ("Raymond James"), and Bernard Michaud, an employee of Raymond James (collectively, "RJFS"), in the underlying action seeking to vacate an arbitration award. In 1997, Honea opened several investment accounts with Raymond James. In March 2006, Honea sued RJFS alleging that her accounts had been mismanaged. She sought damages for breach of contract, breach of fiduciary duty, negligence, wantonness, fraud, and violations of the Alabama Securities Act. The case went to arbitration. An arbitration panel entered an award in favor of RJFS, and on January 14, 2008, Honea filed in the trial court a motion to vacate that arbitration award. In this case's fourth trip before the Alabama Supreme Court, Honea's 2017 motion to vacate interjected issues and sought relief beyond the scope of the remand action ordered in "Raymond James III," which directed a Rule 59(g) hearing. "The trial court would have no jurisdiction to rule on it, and any ruling, whether express or a denial by operation of law, would be void." Accordingly, the Court dismissed this appeal. View "Honea v. Raymond James Financial Services, Inc." on Justia Law