The jury verdict entered in favor of the plaintiffs in the BankAtlantic subprime-related securities suit has been set aside by the court in a post-trial ruling. On April 25, 2011, Southern District of Florida Judge Ursula Ungaro, in a 112-page opinion (here), granted the defendants’ motion for judgment as a matter of law and indicated that she will enter judgment in defendants’ favor following remaining procedural issues.
BankAtlantic’s shareholders had first sued the company and five of its directors and officers in October 2007. The plaintiffs essentially alleged that the defendants had violated the securities laws through misrepresentations and omissions about the poor or deteriorating credit-quality of BankAtlantic’s land loan portfolio; misrepresentations or omissions of its poor underwriting practices; and misrepresentations and omissions about the adequacy of its loan loss reserves and the accuracy of its financial statements. The claims were divided into two separate alleged damages periods corresponding with declines in the company’s share price on April 26, 2007 and October 26, 2007.
Judge Ungaro had initially granted the defendants’ motion to dismiss but she denied their renewed dismissal motion after the plaintiffs amended their pleadings (refer here), and the case went to trial. On November 18, 2010, the jury returned its verdict, as discussed here.
As Judge Ungaro summarized the verdict in her April 25 opinion, “the Jury returned a verdict mainly in Defendants’ favor.” The jury found no liability as to any defendant with respect to the first alleged damages period. However, with respect to five alleged misstatements in the second period, the Jury concluded with respect to four alleged misstatements that the company it s former Chairman and CEO had violated the securities laws. The jury also concluded that the company, the Chairman and the company’s CFO violated the securities laws with respect to a fifth alleged misrepresentation.
The jury made a specific finding that one the alleged misrepresentations had caused damages of $2.41. At the time of the verdict there were statements in the press suggesting that this damages measure implied total damages of as much as $42 million.
The defendants moved to have the verdict set aside on a number of grounds. However, in granting the defendants’ motion, Judge Ungaro focused on one specific issue, whether the plaintiffs had presented sufficient evidence of loss causation and damages. Specifically, she addressed the question whether or not the plaintiffs had presented sufficient evidence that the plaintiffs alleged damages were caused by the concealment of risks about the bank’s real estate loan portfolio.
Judge Ungaro granted the defendants’ motion because she found that the plaintiffs’ damages expert had failed to “disaggregate” the effect on the company’s share price decline of the other negative information that was revealed at the same time the supposedly fraudulent information was revealed.
Judge Ungaro found that the Bank announced a “bundle” of negative information including negative information regarding the bank’s “builder land bank” (BLB) loan portfolio and non-BLB loan portfolio. Because the plaintiffs’ damages expert did not provide testimony providing this disaggregation, Judge Ungaro concluded that the plaintiffs’ had failed to produce sufficient evidence at trial of the loss caused by the disclosure of defendants’ misrepresentations and of the damages attributable to the misrepresentations.
Although Judge Ungaro’s conclusion may be stated simply, her April 25 opinion is complex and multilayered, largely as a result of problems arising out of the jury verdict form. The jury verdict from was, according to Judge Ungaro, “lengthy and complex – it was 75 pages long and contained over 150 questions.” As Judge Ungaro noted in her April 25 opinion, the form’s complexity was a result of “the intricate demands of the Reform Act as they applied to this case — a numerous statement, varying-defendant, Rule 10b-5 class action involving two separate damages periods atop which was layered a varying-defendant Section 20(a) class action.”
It appears that, perhaps as a result of the form’s length and complexity, the jury had problems with the form. As discussed at length in Judge Ungaro’s April 25 opinion, the jury’s specific findings with respect to one of the alleged misstatements on which liability was based were inconsistent. And with respect to other misstatements on which liability had been based, there were no specific damages findings. As a result, the jury’s verdict makes for somewhat messy post-verdict analysis – hence the length and sprawling scope of Judge Ungaro’s opinion ruling on the post trial motions.
I suspect strongly that there will be further proceedings in this case, at a minimum including an appeal to the Eleventh Circuit. The plaintiffs undoubtedly will recall that in the Apollo Group securities lawsuit , in which the court had granted the defendants’ post-trial motion and set aside the jury verdict, the plaintiffs succeeded on appeal in having the post-trial ruling overturned and having the plaintiffs’ verdict reinstated. (The U.S. Supreme Court recently turned down the defendants’ petition for writ of certiorari in the Apollo Group case.)
But in any event, as a result of Judge Ungaro’s ruling, the post-Reform Act securities lawsuit trial scoreboard needs to be revised. Based on information compiled by Adam Savett of the Claims Compensation Bureau, there have been a total of only eleven securities post-Reform Act lawsuits involving post-Reform Act conduct that have gone to trial. With the adjustments to reflect Judge Ungaro’s April 25 ruling, the scoreboard now stands at Plaintiffs 6, Defendants 5. (A tip of the hat to Savett for having already updated his scoreboard when I went and looked at it this morning.)
Special thanks to the loyal readers who alerted me to Judge Ungaro’s ruling.