Institutional Investor Class Action Recovery

In 2017, courts across this country were split on whether plaintiffs could assert a class action alleging claims under the Securities Act of 1933 (which provides a private right of action against issuers and others for providing false or misleading statements in offering materials) in state court. While California state courts recognized such jurisdiction, in New York, similar suits were routinely removed to federal court. In the midst of this jurisdictional uncertainty and prior to launching their respective initial public offerings, Blue Apron Holdings, Roku Inc., and Stitch Fix, Inc. adopted charter-based Federal Forum Provisions, in an attempt to make federal district courts the exclusive forum for the resolution of any complaint asserting claims arising under the Securities Act.

In a recent ruling in In re: BP p.l.c. Securities Litigation the United States District Court for the Southern District of Texas dismissed claims asserted by opt-out plaintiffs as time barred by the Exchange Act’s statute of repose pursuant to the U.S. Supreme Court’s ruling in ANZ Securities. This decision underscores that institutional investors should closely monitor the statutes of limitation and repose applicable to securities fraud claims to ensure they are not later barred from recovery.

As we previously noted in this post, the United States District Court for the Northern District of California dismissed the Volkswagen Bondholder Plaintiff’s first amended complaint, with leave to amend, holding that it could not rely on the Affiliated Ute or Basic presumptions to plead reliance, and that it had not sufficiently pleaded direct reliance. On April 2, 2018, the Plaintiff filed a Second Amended Bondholder’s Class Action complaint (SAC), which added allegations: (1) of direct reliance, (2) that the bonds at issue were priced and traded on an efficient market, (3) that the defendants’ alleged fraud created the market, and (4) that Volkswagen committed fraud on the regulatory process. On September 7, 2018, the court denied the defendants motion to dismiss, and ruled that that the case may proceed to discovery, but also expressed concerns about the Plaintiffs’ ability to certify a class.

In Khoja v. Orexigen Therapeutics, Inc., the Ninth Circuit clarified the “rare circumstances” when a court may review documents extraneous to the pleadings in ruling on a motion to dismiss. Given that it has become routine for securities defendants to attach numerous documents to motions to dismiss, this decision has the potential make it easier for plaintiffs to survive a motion to dismiss. Over the next several months, it will be interesting to see whether this decision survives the defendants’ petition for en banc review, and if so, whether courts outside the Ninth Circuit follow this decision to curtail the use of extraneous documents in deciding motions to dismiss.

The Toshiba Securities Litigation stems from alleged violations of the Exchange Act, as well as the Financial Instruments and Exchange Act of Japan, against Toshiba Corp., in connection with its alleged accounting fraud and accompanying restatements of its financial reports.

Former U.S. District Judge Gerald Rosen, the Special Master appointed to investigate alleged improper billing by class plaintiffs’ firms in Arkansas Teacher Retirement System v. State Street Bank and Trust Company, recommended that the firms return up to $10.6 million of the $74.5 million in attorneys’ fees awarded to them after reaching a $300 million settlement in the underlying class action.

The U.S. Supreme Court granted certiorari in China Agritech Inc. v. Resh, to determine whether “[u]pon denial of class certification, may a putative class member, in lieu of promptly joining an existing suit or promptly filing an individual action, commence a class action anew beyond the time allowed by the applicable statute of limitations.” 

This case stems from alleged misstatement made by Volkswagen Group of America Finance (“VWGoAF”) in an Offering Memorandum governing the issuance of three sets of bonds. 

In LBP Holdings Ltd. v Hycroft Mining Corporation, the Ontario Superior Court of Justice denied the plaintiff’s motion to certify a class action in common law negligence and negligent misrepresentation against the underwriters involved in a Canadian public offering.

On Tuesday, February 6, 2018, United States District Judge Jed S. Rakoff denied class counsel’s request to file under seal three supplemental agreements to a $2.95 billion settlement in the Petrobras Securities Litigation, and made the side agreements part of the public record.

First there was Libor.  Next came credit default swaps and foreign exchange.  Now, highlighted by the over $2 billion settlement reached in the Foreign Exchange Antitrust Litigation, plaintiffs are pursuing a number of additional antitrust class actions against financial institutions alleging anti-competitive behavior in a number of markets affecting institutional investors.

Douglas Greene, one of the United States’ most well-known securities litigators – on either side of the bar – recently wrote a four-part treatise, titled Who is Winning the Securities Class Action War – Plaintiffs or Defendants?, in which he discussed the various ways in which the defense bar is losing the “securities class action war.” 

LendingClub is facing two parallel securities litigation cases stemming from alleged false statements it made in connection with its initial public offering ("IPO"). 

Recently, in Melbourne City Investments Pty Ltd v. Treasury Wine Estates Limited (“Treasury Wine”), the Full Court of the Federal Court of Australia considered a primary judge’s class closure order which broke new ground in group action practice in Australia. 

The U.S. Supreme Court's 2017 term begins October 2nd and we will be tracking at least three cases relevant to institutional investors.

In a June 13, 2017, ruling on a motion for partial summary judgment in the Ocwen Financial Corp. Securities Litigation (the “Ocwen Litigation”), the United States District Court for the Southern District of Florida determined Ocwen materially misrepresented in its securities filings and other public statements that its Executive Chairman would recuse himself from Ocwen’s transactions with companies in which the Executive Chairman also served as Chairman.

In a 5-4 decision, issued during the final week of the its term, the U.S. Supreme Court held that the filing of a class action does not toll the three-year period provided for in Section 13 of the Securities Act of 1933.

We have been following defendants’ motions to dismiss in the In re Lending Club Securities Litigation class action, No 3:16-cv-02627-WHA, in the United States District Court for the Northern District of California (“the Lending Club Litigation”).

On May 9, 2017, the U.S. Court of Appeals for the Federal Circuit (“Federal Circuit”) affirmed in part and reversed in part an earlier decision from the U.S. Court of Federal Claims, which had held that aspects of the Government’s bailout of AIG constituted an illegal exaction.

In an April 28, 2017 ruling on a motion to dismiss in the In re Valeant Pharmaceuticals International, Inc. Securities Litigation (the “Valeant Litigation”), the U.S. District Court for the District of New Jersey addressed an issue that has yet to be addressed by any Federal Circuit court and which has split the District Courts below.