Among other things, Cornerstone Research’s mid-year 2011 analysis of securities class action lawsuit filings reported that during the year’s first half lawsuits were filed more quickly. The report said that in the first six months of 2011 “the median lag between the end of the class periods and the filing dates dropped to the lowest recorded semiannual level since 1997.” But while securities suits in general may be being filed with alacrity, there are still suits that are being filed only after considerable delay. At least one recent suit filing qualifies as belated, while yet another recent filing looks positively ancient.
First, on July 20, 2011, plaintiffs’ counsel filed a securities class action lawsuit in the Southern District of New York against Lockheed Martin and certain of its directors and officers. According to the plaintiffs’ lawyers’ July 20, 2011 press release (here), the complaint (which can be found here) purports to represent a class of Lockheed shareholders who purchased their shares between April 21, 2009 and July 21, 2009.
In other words, the plaintiffs appear to have filed their complaint in the Lockheed Martin action on the last day of the two year statute of limitations period applicable to most private securities lawsuits. Given the lag between the class period cutoff date and the date the complaint was filed, the Lockheed Martin lawsuit filing would seem to qualify at least as “belated.”
But the lag time in the Lockheed Martin case is nothing compared to the time gap in the case recently filed involving Fairfax Financial Holdings Limited.
As reflected in their press release (here), on July 25, 2011, plaintiffs’ counsel filed a securities class action lawsuit in the Southern District of New York against Fairfax Financial Holdings, its auditor, and certain of its affiliated entities and certain of its directors and officers. In their complaint, the plaintiffs purport to represent a class of Fairfax shareholders who purchased their shares between May 21, 2003 and March 22, 2006. In other words, the plaintiffs filed their complaint in this case more than five years after the end of the purported class period.
Doesn’t this apparently tardy filing violate the statute of limitation? The plaintiffs knew you were going to ask that question, and so in their complaint they expressly address the statute of limitations issue. As reflected in the complaint’s preamble, on page 2 of the complaint, it is going to be the plaintiffs’ position in the case that the statute of limitations was tolled on April 14, 2006, with the filing of a prior action – Parks v. Fairfax Financial Holdings, et al. (about which refer here) — in the Southern District of New York, against many of the same defendants and involving many of the same allegations.
In other words, as you might expect with an ancient set of circumstances, history is important. In particular, the history of the Parks case could be determinative of the statute of limitations issues in the recently filed action.
The Parks case, it turns out, was dismissed on March 29, 2010 on the grounds of lack of subject matter jurisdiction. Fairfax Financial Holdings is a Canadian company. In his March 2010 opinion, Southern District of New York Judge George B. Daniels, citing the Second Circuit’s opinion in Morrison v. National Australia Bank, held that the plaintiffs in the Parks case had not alleged sufficient “conduct and effects” in the United States in order to establish subject matter jurisdiction. The plaintiffs’ subsequent appeal to the Second Circuit was dismissed.
However, after that, in June 2010, the U.S. Supreme Court entered its opinion in the Morrison case, rejecting the “conduct and effects” text and substituting the “transaction” test. Moreover, the Supreme Court said that the questions of U.S. courts’ authority to hear securities cases involving foreign companies was not jurisdictional, but rather was simply a question of whether or not a claim was within the ambit of the securities laws.
The plaintiffs in the recently filed action involving Fairfax Financial Holdings, cognizant of the U.S. Supreme Court’s “transaction” test in the Morrison case, purport to represent only shareholders who purchased their company shares on U.S. exchanges. As a matter of pleading, the presentation of their claims in U.S. court should satisfy the Morrison standard, now that the “conduct and effects” test has been discarded.
While the plaintiffs in the recently filed case may avoid the jurisdictional problems that waylaid the prior plaintiffs in the Parks case, there are still those pesky statute of limitations issues. The most recent filing is not only well beyond the two-year statute of limitations, but it is even beyond the five year statute of repose. The question the parties will have to hammer out (and I expect they will) is whether or not the 2006 filing the Parks case not only tolled the statute of limitations but also stays the running of the statute of repose. There is a point where a claim or claims are not just old, but stale. The question is whether or not these claims are past their sell-by date. It will be interesting to see how these issues are resolved in this case.
An unrelated issue that comes to mind is whether or not the dismissal in the Parks case is determinative of the claims. That is, as lawyers would say, is the prior dismissal res judiciata? The question there will be whether a dismissal for lack of subject matter jurisdiction has a res judiciata effect, since it does not represent a determination of the merits of any of the claims asserted. Attorneys who have access to associates to research interesting question like that will know the answer to this question (or they will when their associates have completed their legal research).
But in the end, what is clear is that while securities lawsuits generally may be being filed more quickly, there are some of these older cases still kicking around out there. And they raise some potentially very interesting issues.
Summary Judgment Denied: Securities class action litigation observers know that very few securities suits actually go to trial. Most cases are either dismissed or settled. From time to time, a securities suit will make it all the way to the summary judgment stage. The securities suit pending against Motorola and certain of its directors and officers in the Northern District of Illinois is one of those cases where the case reached the summary judgment stage. In a July 25, 2011 order (here), Northern District of Ilinois Judge Amy St. Eve denied the defendants’ motion for summary judgment, holding inter alia that there are genuine issues of material fact on the issues of falsity, materiality and scienter. As a procedural matter, the case is now headed toward trial, depending on whether or not a settlement intervenes.