Justia Civil Procedure Opinion Summaries

Plaintiff brought an action against The Gap, Inc. and its directors “derivatively on behalf of Gap.” Plaintiff’s action alleged that Gap violated Section 14(a) of the Securities Exchange Act of 1934 (the Exchange Act) and Securities and Exchange Commission (SEC) Rule 14a-9 by making false or misleading statements to shareholders about its commitment to diversity. Gap’s bylaws contain a forum-selection clause stating that the Delaware Court of Chancery “shall be the sole and exclusive forum for . . . any derivative action or proceeding brought on behalf of the Corporation.” Lee nevertheless brought her putative derivative action in a California district court. The district court granted Gap’s motion to dismiss Lee’s complaint on forum nonconveniens ground.   The Ninth Circuit affirmed the district court’s judgment. The en banc court rejected Plaintiff’s argument that her right to bring a derivative Section 14(a) action is stymied by Gap’s forum-selection clause, which alone amounts to Gap “waiving compliance with a provision of [the Exchange Act] or of any rule or regulation thereunder.” The en banc court explained that the Supreme Court made clear in Shearson/American Express, Inc. v. McMahon, 482 U.S. 220 (1987), that Section 29(a) forbids only the waiver of substantive obligations imposed by the Exchange Act, not the waiver of a particular procedure for enforcing such duties. McMahon also disposes of Plaintiff’s argument that Gap’s forum-selection clause is void under Section 29(a) because it waives compliance with Section 27(a) of the Exchange Act, which gives federal courts exclusive jurisdiction over Section 14(a) claims. View "NOELLE LEE V. ROBERT FISHER, ET AL" on Justia Law

In 2009, Stanford International Bank was exposed as a Ponzi scheme and placed into receivership. Since then, the Receiver has been recovering Stanford’s assets and distributing them to victims of the scheme. To that end, the Receiver sued Defendant, a Stanford investor, to recover funds for the Receivership estate. The district court entered judgment against Defendant. Defendant sought to exercise setoff rights against that judgment. Because Defendant did not timely raise those setoff rights, they have been forfeited.   The Fifth Circuit affirmed. The court explained that here, Defendant initially raised a setoff defense in his answer to the Receiver’s complaint. The Receiver moved in limine to exclude any setoff defenses before trial, arguing that any reference to setoff would be “unfairly prejudicial” and “an attempt to sidestep the claims process.” In May 2021, when Defendant moved for a stay of the district court’s final judgment, he represented that, should the Supreme Court deny certiorari, he would “not oppose a motion by the Receiver to release” funds. Yet, when the Supreme Court denied certiorari, Defendant changed course and registered his opposition. Defendant later again changed course, pursuing this appeal to assert setoff rights and thereby reduce his obligations. Because Defendant failed to raise his setoff defense before the district court’s entry of final judgment, he has forfeited that defense. View "GMAG v. Janvey" on Justia Law

In 2009, Stanford International Bank was exposed as a Ponzi scheme and placed into receivership. Since then, the Receiver has been recovering Stanford’s assets and distributing them to victims of the scheme. To that end, the Receiver sued Defendant, a Stanford investor, to recover funds for the Receivership estate. The district court entered judgment against Defendant. Defendant sought to exercise setoff rights against that judgment. Because Defendant did not timely raise those setoff rights, they have been forfeited.   The Fifth Circuit affirmed. The court explained that here, Defendant initially raised a setoff defense in his answer to the Receiver’s complaint. The Receiver moved in limine to exclude any setoff defenses before trial, arguing that any reference to setoff would be “unfairly prejudicial” and “an attempt to sidestep the claims process.” In May 2021, when Defendant moved for a stay of the district court’s final judgment, he represented that, should the Supreme Court deny certiorari, he would “not oppose a motion by the Receiver to release” funds. Yet, when the Supreme Court denied certiorari, Defendant changed course and registered his opposition. Defendant later again changed course, pursuing this appeal to assert setoff rights and thereby reduce his obligations. Because Defendant failed to raise his setoff defense before the district court’s entry of final judgment, he has forfeited that defense. View "Janvey v. GMAG" on Justia Law

Askew formed Vantage to trade securities. He recruited investors, including the plaintiffs. Vantage filed a Securities and Exchange Commission (SEC) Form D to sell unregistered securities in a 2016 SEC Rule 506(b) stock offering. The plaintiffs became concerned because Askew was not providing sufficient information but they had no right, based on their stock agreements, to rescind those investments. They decided to threaten litigation and to report Vantage to the SEC to pressure Askew and Vantage to return their investments. Before filing suit, the plaintiffs engaged an independent accountant who reviewed some of Vantage’s financial documents and concluded that he could not say “whether anything nefarious is going" on but that the “‘smell factor’ is definitely present.”The Third Circuit affirmed summary judgment for the defendants in subsequent litigation. The district court then conducted an inquiry mandated by the Private Securities Litigation Reform Act (PSLRA) and determined that the plaintiffs violated FRCP 11 but chose not to impose any sanctions. The Third Circuit affirmed that the plaintiffs violated Rule 11 in bringing their federal securities claims for an improper purpose (to force a settlement). The plaintiffs’ Unregistered Securities and Misrepresentation Claims lacked factual support. Askew was not entitled to attorney’s fees because the violations were not substantial. The PSLRA, however, mandates the imposition of some form of sanctions when parties violate Rule 11 so the court remanded for the imposition of “some form of Rule 11 sanctions.” View "Scott v. Vantage Corp" on Justia Law

Plaintiffs – issuers of collateralized debt obligations secured by certificates in residential-mortgage-backed securities trusts – appealed from three separate judgments dismissing actions brought against The Bank of New York Mellon, Deutsche Bank National Trust Company, and Deutsche Bank Trust Company Americas. In each case, the district courts assumed that Plaintiffs had Article III standing but found that Plaintiffs were precluded from relitigating the issue of prudential standing due to a prior case Plaintiffs had brought against U.S. Bank National Association.   The Second Circuit affirmed the district court’s orders. The court explained that it joined the Ninth Circuit in concluding that the district courts permissibly bypassed the question of Article III standing to address issue preclusion, which offered a threshold, non-merits basis for dismissal. The court also concluded that the district courts’ application of issue preclusion was correct. The court wrote that it fully agreed with the district courts that Plaintiffs were not entitled to a second bite at the prudential-standing apple after the U.S. Bank Action. The district courts, therefore, did not err in taking this straightforward, if not “textbook,” path to dismissal. View "Phx. Light SF Ltd. v. Bank of N.Y. Mellon; Phx. Light SF DAC v. Bank of N." on Justia Law

Lead plaintiff Maryland Electrical Industry Pension Fund alleged that HP and individual Defendants made fraudulent statements about HP’s printing supplies business. The district court concluded that the complaint, filed in 2020, was barred by the two-year statute of limitations, 28 U.S.C. Section 1658(b)(1), because the public statements, loss in profits, and reductions in channel inventory at the heart of Maryland Electrical’s claims had all taken place by 2016.   The Ninth Circuit reversed the district court’s dismissal. The panel held that under the discovery rule discussed in Merck & Co., Inc. v. Reynolds, 559 U.S. 633 (2010), a reasonably diligent plaintiff has not “discovered” one of the facts constituting a securities fraud violation until he can plead that fact with sufficient detail and particularity to survive a motion to dismiss for failure to state a claim. The panel held that a defendant establishes that a complaint is time-barred under Section 1658(b)(1) if it conclusively shows that either (1) the plaintiff could have pleaded an adequate complaint based on facts discovered prior to the critical date two years before the complaint was filed and failed to do so, or (2) the complaint does not include any facts necessary to plead an adequate complaint that was discovered following the critical date.   The panel held that Defendants’ allegedly fraudulent statements, on their own, were insufficient to start the clock on the statute of limitations. Instead, Maryland Electrical could not have discovered the facts necessary to plead its claims, including the “fact” of scienter, until after the publication of a Securities and Exchange Commission order in 2020. View "YORK COUNTY, ET AL V. HP, INC., ET AL" on Justia Law

Following a 29% drop in Federal Home Loan Mortgage Corporation (Freddie Mac) stock prices in 2007, OPERS, a state pension fund, filed a securities fraud case against Freddie Mac. The district court dismissed, concluding that OPERS failed to adequately plead loss causation because the theory OPERS pursued (materialization of the risk) had not been adopted in the circuit. The Sixth Circuit reversed, “join[ing] our fellow circuits in recognizing the viability of alternative theories of loss causation and apply[ing] materialization of the risk.” On remand, the district court denied OPERS’ motion for class certification, granted Freddie Mac’s motion to exclude OPERS’ expert, and denied OPERS’ motion to exclude Freddie Mac’s experts.The Sixth Circuit denied OPERS’s petition for leave to appeal. OPERS asked the district court to enter “sua sponte” summary judgment for Freddie Mac, arguing that the class certification decision prevented OPERS’ case from proceeding, as it doomed OPERS’ ability to prove loss causation. The district court summarily agreed and entered summary judgment for Freddie Mac. The Sixth Circuit reversed and remanded, citing its lack of jurisdiction. The summary judgment decision was manufactured by OPERS in an apparent attempt to circumvent the requirements of Federal Rule 23(f). The decision was not final. View "Ohio Public Employees Retirement System v. Federal Home Loan Mortgage Corp." on Justia Law

The plaintiffs filed suit asserting federal securities claims. The Third Circuit affirmed summary judgment in favor of the defendants The district court subsequently performed a Federal Rule 11 inquiry mandated by the Private Securities Litigation Reform Act of 1995 (PSLRA) and determined that the plaintiffs violated Rule 11 but did not award attorneys’ fees or impose any other sanctions.The Third Circuit held that the plaintiffs violated Rule 11 in bringing their federal securities claims by filing for an improper purpose. The plaintiffs expressly stated that their “strategy was to file these complaints to force a settlement.” In addition, their Unregistered Securities and Misrepresentation Claims lacked factual support in violation of Rule 11(b)(3). The plaintiffs had a reasonable basis for their Rule 10b-5 Securities Fraud Claim. The court vacated in part. The PSLRA creates a presumption in favor of awarding attorneys’ fees when a complaint constitutes a “substantial failure” to comply with Rule 11 but the district court did not err in finding that the Rule 11 violations were not substantial. Nonetheless, the PSLRA makes the imposition of sanctions mandatory after a court determines that a party violated Rule 11, so the court abused its discretion in declining to impose any form of sanctions. View "Scott v. Vantage Corp" on Justia Law

Plaintiff-appellant Tracey Weinberg (“Weinberg”) was the former Chief Marketing Officer of defendant-appellee Waystar, Inc.(“Waystar”). During her employment, the company granted her options to purchase stock in its co-defendant Derby TopCo, Inc.,(“Derby Inc.”), pursuant to a Derby TopCo 2019 Stock Incentive Plan (the “Plan”). Weinberg was awarded three option grants under the Plan pursuant to three option agreements executed between October 2019 and August 2020. By the time Weinberg was terminated in 2021, 107,318.96 of her options had vested. She timely exercised all of them in November 2021, and the options immediately converted to economically equivalent partnership units in co-defendant Derby TopCo Partnership LP, a Delaware limited partnership (“Derby LP”) (the “Converted Units”). Each Option Agreement contained an identical call right provision providing Appellees the right to repurchase Weinberg’s Converted Units (the “Call Right”), “during the six (6) month period following (x) the (i) [t]ermination of [Weinberg’s] employment with the Service Recipient for any reason . . . and (y) a Restrictive Covenant Breach.” This appeal turned on the meaning of the word “and” in the three option agreements. Specifically, the question presented for the Delaware Supreme Court was whether two separate events (separated by the word “and”) had to both occur in order for the company to exercise a call right, or whether the call right could be exercised if only one event has occurred. Although Weinberg had been terminated within the time frame specified by the Call Right Provision, a Restrictive Covenant Breach had not occurred. The parties disputed whether the Call Right was available in the absence of a Restrictive Covenant Breach. The Court of Chancery decided that it was, and the Delaware Supreme Court concurred, affirming the Court of Chancery. View "Weinberg v. Waystar, Inc." on Justia Law

The Employees’ Retirement System of the City of Baton Rouge and Parish of East Baton Rouge represents the class of persons and entities who acquired shares of common stock in MacroGenics, Inc. (“MacroGenics”) between February 6, 2019, and June 4, 2019 (the “Class Period”). Plaintiffs initiated an action against MacroGenics, its president and CEO, and its senior vice president and CFO (collectively “Defendants”) for alleged violations of sections 10(b) and 20(a) of the Securities Exchange Act of 1934, Securities and Exchange Commission (“SEC”) Rule 10b–5, and sections 11, 12(a), and 15 of the Securities Act of 1933. In their Amended Complaint, Plaintiffs alleged that after purchasing MacroGenics’ stock, they experienced economic harm proximately caused by Defendants’ material misrepresentations, misleading statements, or omissions concerning MacroGenics’ clinical trial drug, Margetuximab. The district court granted Defendants’ motion to dismiss after concluding that Plaintiffs had failed to sufficiently allege any actionable misrepresentations or omissions that would give rise to Defendants’ duty to disclose and that most of Defendants’ statements were also immunized from suit.   The Fourth Circuit affirmed. The court explained that Plaintiffs have failed to demonstrate any materially false, misleading representations or omissions in Defendants’ statements. Because Plaintiffs’ Sections 11 and 12(a)(2) claims are inextricably intertwined with the alleged misstatements and omissions raised under their Exchange Act claims, their Securities Act claims cannot prevail. Further, because Plaintiffs have failed to plead a primary violation of the Securities Act, they have consequently failed to plead a Section 15 violation View "Employees' Retirement System of the City of Baton v. Macrogenics, Inc." on Justia Law