Morgan Lewis is pleased to present our second annual review of
selected decisions from the United States Courts of Appeal
addressing private actions under the federal securities laws. We summarize below key decisions analyzing claims by private
litigants under Sections 10(b), 14(a), 16, 20(a), and 20(A) of the
Securities Exchange Act of 1934 and Sections 11, 12, and 15 of the
Securities Act of 1933.1 Our review includes 64
opinions, organized by topic and, within each topic, by circuit in
chronological order, allowing you to quickly identify the most
recent authority on particular issues in any
jurisdiction.2 A copy of the full review can be found at
http://www.morganlewis.com/pubs/LIT_2009SECLITDvlpmntsWP_Jan2010.pdf
(http://tinyurl.com/yfkct9j ). We have focused on the following topics, which are often
dispositive in high-stakes private securities litigation: scienter,
loss causation, SLUSA, class certification; Stoneridge
Investment Partners, LLC v. Scientific-Atlanta, Inc., 552 U.S.
148, 128 S. Ct. 761, 169 L. Ed. 2d 627 (Jan. 15, 2008); statutes of
limitations; materiality; falsity; and several other miscellaneous
topics. We have spotted the following trends. First, as in 2008, scienter was this year's hottest topic.
We have identified at least 20 appellate decisions addressing
scienter, including nine decisions by the Second Circuit. These
cases reflect the following: On loss causation, the most defense-friendly decision was
Fener v. Operating Engineers Construction Industry and
Miscellaneous Pension Fund (Local 66), 579 F.3d 401 (5th Cir.
Aug. 12, 2009), where the Fifth Circuit affirmed a denial of a
motion for class certification based on a failure adequately to
establish loss causation. The press release where the
"truth" emerged was coupled with other negative news
unrelated to the alleged fraud. In such circumstances,
"plaintiffs must prove that the fraudulent disclosure caused a
significant amount of the decline." Id. at 409. SLUSA continues to be a useful tool for defendants to attack
state law claims. In Segal v. Fifth Third Bank, N.A., 581
F.3d 305 (6th Cir. Sept. 17, 2009), the Sixth Circuit made clear
that SLUSA is triggered where the complaint alleges a
misrepresentation or omission, and does not require that the
misrepresentation be an element of plaintiff's state law cause
of action: "The Act does not ask whether the complaint makes
'material' or 'dependent' allegations of
misrepresentation in connection with buying or selling securities.
It asks whether the complaint includes these types of allegations,
pure and simple." Id. at 311. However, the SLUSA decisions were not all positive. In In re
Lord Abbett Mut. Funds Fee Litig., 553 F.3d 248 (3d Cir. Jan.
20, 2009), the Third Circuit rejected the District Court's
conclusion that SLUSA precludes an entire action, notwithstanding
the fact that a part of the claim may not fall within SLUSA's
scope. "Allowing those claims that do not fall within
SLUSA's preemptive scope to proceed, while dismissing those
that do, is consistent with the goals of preventing abusive
securities litigation while promoting national legal standards for
nationally traded securities." Id. at 257. On statutes of limitations, the Supreme Court held argument this
year in Merck & Co. v. Reynolds, 543 F.3d 150 (3d Cir.
2008), cert. granted, 129 S. Ct. 2432 (May 26, 2009). We
anticipate that the Court will soon provide clarity as to the type
of "storm warnings" necessary to begin the statute of
limitations clock. Id. at 161. Also, last year we included in our review a discussion of
Morrison v. Nat'l Australia Bank Ltd., 547 F.3d 167
(2d Cir. Oct. 23, 2008), one of several recent "Foreign
Cubed" cases analyzing whether U.S. courts have jurisdiction
over securities actions involving foreign plaintiffs suing foreign
issuers concerning securities transactions in foreign countries.
The Second Circuit applied a "conduct test" and
determined that the District Court lacked subject matter
jurisdiction. On November 30, 2009, the Supreme Court granted
certiorari, and oral argument is scheduled for March 29, 2010. The biggest winners this year may have been accounting firms.
The Circuit Courts rejected attempts to bring actions against
accountants/auditors for the following reasons: the complaints
failed to adequately plead scienter (see W. Va. Inv. Mgmt. Bd.
v. Doral Fin. Corp., No. 08-3867, 2009 WL 2779119 (2d Cir.
Sept. 3, 2009); Public Employees' Retirement Assoc. of
Colo. v. Deloitte & Touche LLP, 551 F.3d 305 (4th Cir.
Jan. 5, 2009)); the claims failed under Stoneridge
(see In re Peregrine Systems, Inc. Securities Litigation,
310 Fed. Appx. 149 (9th Cir. Nov. 6, 2009)); the plaintiffs failed
adequately to allege loss causation (see McAdams v.
McCord, 584 F.3d 1111 (8th Cir. Oct. 20, 2009)); and the claim
was barred under the "law of the case" doctrine (see
Public Employees' Retirement Association of New Mexico v.
PricewaterhouseCoopers LLP, 305 Fed. Appx. 742 (2d Cir. Jan.
6, 2009)). Finally, we are beginning to see appellate decisions concerning
alleged stock options backdating, and these initial decisions are
favorable to defendants. See Rosenberg v. Gould, 554 F.3d
962 (11th Cir. Jan. 9, 2009) (affirming dismissal based on a
failure to adequately plead scienter); Roth v. Reyes, 567
F.3d 1077 (9th Cir. June 5, 2009) (affirming dismissal of §
16(b) claims based on statute of limitations). In the coming year, cases arising out of the Madoff scandal and
the financial crisis will likely begin to percolate through the
Circuit Courts. We anticipate vigorous arguments over loss
causation and scienter, and we will provide updates to you
throughout the year on significant cases and trends. As always, we
welcome your feedback, and look forward to working with you this
year.3 Footnotes 1. We have not included certain decisions where securities
law issues are neither central to the case nor analyzed in a
substantive manner. For a review of enforcement actions, please see
Morgan Lewis's 2009 Year in Review: SEC and SRO Selected
Enforcement Cases and Developments Regarding Broker-Dealers. A
copy of the full review can be found at http://www.morganlewis.com/pubs/LIT_SECandSROYearlyReviewWP_Jan2010.pdf
(http://tinyurl.com/y85n9sv ). 2. Cases containing significant discussions of more than
one of the topics highlighted in this outline have duplicative
listings under each relevant topic heading. 3. This review was prepared by Morgan Lewis partners Brian
Herman, John Vassos, and Elizabeth Frohlich, and of counsel Karen
Pieslak Pohlmann, and associates Gayle Gowen and Ruby Marenco, with
substantial assistance from associates Michelle Ferreri, Mark
Hitchcock, Sheila Jambekar, Kate McMahon, and Robert Scannell, and
senior paralegal Jan McGovern. This review is current as of
December 31, 2009. Copyright 2010. Morgan, Lewis & Bockius LLP. All Rights
Reserved. This article is provided as a general informational service
and it should not be construed as imparting legal advice on any
specific matter.
ARTICLE
11 February 2010
2009 Year In Review: Selected Federal Securities Litigation Developments
Morgan Lewis is pleased to present our second annual review of selected decisions from the United States Courts of Appeal addressing private actions under the federal securities laws.