As I have noted on this site (most recently here), many of the SPAC-related securities class action lawsuits filed in 2021 arose after the target company’s share price declined following a short-seller report. In the following guest post, Nessim Mezrahi, Stephen Sigrist, and Carolina Doherty review the extent to which plaintiffs’ lawyers generally are relying on short-seller research to try to substantiate fraud-on-the-market claims. Mezrahi is cofounder and CEO, Sigrist is VP of data science, and Doherty is VP of business development at SAR. A version of this article previously was published on Law360. I would like to thank the authors for allowing me to publish their article as a guest post on this site. I welcome guest post submissions from responsible authors on topics of interest to this blog’s readers. Please contact me directly if you would like to submit a guest post. Here is the authors’ article.
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COVID-19-Related Securities Suit Filed Against Pharma Company
In the latest COVID-related securities class action lawsuit, a shareholder plaintiff has filed a securities suit against a clinical-stage pharmaceutical company whose application for emergency use authorization (EUA) for a COVID-19-related treatment therapy was rejected by the FDA. Among other things, this latest filing shows that the wave of coronavirus-related securities lawsuit filings, like the coronavirus itself, show few signs of abatement. A copy of complaint filed on January 18, 2022 against NRx Pharmaceuticals can be found here.
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SPAC-Related Securities Suit Dismissal Motion Substantially Denied
As I noted in my recent year-end wrap up, one of the top D&O stories of 2021 was the surge of SPAC-related securities litigation during the year. Most of these SPAC-related lawsuits have only just been filed, and it remains to be seen how they will fare. However, in a development that may represent an early sign concerning the prospects for these cases, on January 14, 2022, a federal district court substantially denied the motion to dismiss in the securities class action lawsuit filed last year against electric vehicle battery developer and manufacturer, QuantumScape. As discussed below, the court’s dismissal motion ruling has several noteworthy features. Northern District of California Judge William H. Orrick’s January 14, 2022 in the QuantumScape case can be found here.
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U.S. Securities Law Claims Based on Unsponsored Level I ADRs Cannot Proceed as Class Action
One of the enduring questions following in the wake of the U.S. Supreme Court’s 2010 decision in Morrison v. National Australia Bank is whether transactions in a non-U.S. company’s unsponsored Level I American Depository Receipts (ADRs) can be the subject of a damages action under the U.S. Securities laws. As I noted in a blog post at the time (here), a prior federal district court decision in the long-running Toshiba securities class action lawsuit established that a non-U.S. company whose Level I ADRs trade in the U.S. can be the subject of a U.S. securities suit – even if the ADRs are unsponsored. However, a recent decision at the class certification stage in the same Toshiba case suggests that while claimants may well be able to plead a claim based on trading in unsponsored Level I ADRs, the claimants may or may not be able to sustain the claim as a class action – or, at a minimum, the question of whether the claim can go forward as a class action can depend on minute details about how the named plaintiffs’ ADR transactions actually took place.
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Guest Post: Scrutiny Over Share Repurchase Programs; Can The Board Ever Get It Right?
Corporate share repurchases hit record levels in 2021. But as discussed in the following guest post by Sarah Abrams and Bret Hilgart, share repurchases can sometimes result in litigation and share repurchases could have important implications for directors and officers’ liability. Sarah is Head of Professional Liability at Bowhead Specialty Underwriters and Bret is Head of Commercial D&O at Bowhead Specialty Underwriters. I would like to thank Sarah and Bret for allowing me to publish their article as a guest post on this site. I welcome guest posts from responsible authors on topics of interest to this blog’s readers. Please contact me directly if you would like to submit a guest post. Here is Sarah and Bret’s article.
Continue Reading Guest Post: Scrutiny Over Share Repurchase Programs; Can The Board Ever Get It Right?
First SPAC-Related Securities Suit of the New Year Filed
As I noted in my recent round-up of the Top Ten D&O Stories of 2021, one of last year’s important securities litigation stories was the onslaught during the year of SPAC-related securities class action lawsuit filings. I also added in the year-end round-up my projection that SPAC-related securities suits could be an even bigger factor in 2022. Though we are only in the opening days of 2022, the filing of SPAC-related securities suits in the New Year has already begun. On January 7, 2022, a shareholder plaintiff filed the first SPAC-related securities suit of 2022 against the post-merger company and certain of its officers, as well as against former officers and directors of the SPAC itself and its Sponsor. A copy of the complaint filed against Talkspace, Inc. can be found here.
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Rare D&O Insurer Win in Delaware Court, But Should D&O Insurers Celebrate?
Readers of this blog will be interested to know that in a recent D&O insurance coverage dispute, the Delaware Superior Court actually handed the D&O insurers a win — a rare development indeed in Delaware’s courts. However, the D&O insurers won by successfully arguing that Delaware law governed the insurance dispute; the ultimate outcome may have been due in part to the fact that the losing policyholder was in the uncomfortable position of trying to argue that another jurisdiction’s law controlled after all after having first argued that Delaware law applied. There are a lot of twists and turns to this case, but, as discussed below, the outcome of this case arguably is far from reassuring to D&O insurers, even though the insurers prevailed in this case.
Continue Reading Rare D&O Insurer Win in Delaware Court, But Should D&O Insurers Celebrate?
First Coronavirus-Related Securities Suits of 2022 Filed
As I have noted on this site, even though it has now been nearly 22 months since the initial coronavirus outbreak in the U.S., coronavirus D&O lawsuits have continued to be filed continuously since the initial outbreak. Coronavirus-related securities suits were in fact a significant securities litigation phenomenon in 2021 as well as in 2020. In an early sign that the coronavirus related litigation could remain a significant securities litigation factor in 2022, late last week plaintiffs’ lawyers filed two new securities lawsuits against a health insurance and services company and against a diagnostic testing company. Both companies had completed IPOs earlier in 2021. A copy of the new securities lawsuit against Bright Health Group can be found here and a copy of the new securities suit against Talis Biomedical Corporation can be found here.
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Do Derivative Suit Dismissals Signal End of Non-U.S. Companies’ U.S. Liability Threat?
In my round-up of top D&O stories from 2021, I cited the recent rise of U.S. derivative lawsuit filings against the boards of non-U.S. companies as one of the year’s most important D&O liability and insurance stories. I was not alone in identifying this trend as a key development. Allianz identified the threat of these kinds of U.S. derivative suits against non-U.S. companies’ boards as one of the “five D&O mega trends companies should watch for and guard against in 2022.” However, recent developments could be interpreted to suggest that the threat from these kinds of lawsuits may turn out to be something less than feared.
As Alison Frankel noted in a January 4, 2022 post on her On the Case blog (here), “last week, two Manhattan state-court judges called off the revolution.” In the final week of 2021, two New York state judges granted motions to dismiss in separate derivative lawsuits filed in N.Y. courts against the boards of two non-U.S. companies. As discussed below, these two rulings potentially could spell the end for these kinds of lawsuits; at a minimum, it could mean that the threat may turn out to be significantly less than was feared – although as also noted below, there could yet be more of this story to be told.
Continue Reading Do Derivative Suit Dismissals Signal End of Non-U.S. Companies’ U.S. Liability Threat?
Del. Court Dismissal Denial Has Important SPAC-Related Litigation Implications
In my review of SPAC-related litigation on this site, I have mostly focused on SPAC-related securities litigation. However, there have been other types of SPAC-related lawsuits filed, including SPAC-related breach of fiduciary duty direct actions filed in Delaware courts (as discussed for example here). On January 3, 2022, Delaware Vice Chancellor Lori W. Will entered an opinion in one of these direct action breach of fiduciary duty cases – the closely-watched MultiPlan action – denying the defendants’ motion to dismiss and holding that though Delaware courts “have not previously had an opportunity to consider the application of our law in the SPAC context,” well-established Delaware legal principles led the court “despite the novel issues presented” to conclude that the plaintiffs have pleaded “viable, non-exculpated claims against the SPAC’s controlling stockholder and directors.”
As discussed below, the court’s ruling is a landmark ruling addressing governance concerns relating to potential conflicts of interest between a SPAC’s sponsors and directors and officers and its public shareholders. A copy of the January 3, 2022 opinion can be found here.
Continue Reading Del. Court Dismissal Denial Has Important SPAC-Related Litigation Implications