In recent years, one of the most important developments in litigation in the U.S. has been the rise of the litigation funding industry. Indeed, the industry’s rise has more recently been fueled by increasing investor interest, even as the industry itself has diversified into lawsuit portfolio investing (as opposed to individual-case investing). The industry’s rise and increasing importance already had attracted scrutiny and criticism, but nothing compared to the deluge of attention that has followed revelations that Hulk Hogan’s privacy litigation against Internet scandal site Gawker was funded by Silicon Valley mogul Peter Thiel. The news about Thiel’s financial involvement has produced a cascade of commentary about litigation funding, which in turn has arguably put the litigation industry on the defensive. The news has also fueled a debate about whether there should be more transparency about litigation funding, and even whether there should be other litigation funding industry regulation, as discussed below. Continue Reading After the Hulk Hogan Lawsuit Funding Flap, Is it Time for a Look at Litigation Financing Regulation?
Professional Services Exclusion Not Triggered Where Allegations Did Not Involve Specialized Knowledge
Regular readers know that one of my hobby-horse issues is the way that some D&O insurers try to deny coverage for claims in reliance on an overbroad assertion of the professional services exclusion typically found in most private company D&O insurance policies. A D&O insurer’s sweeping assertion of exclusion’s preclusive affect can be a particular challenging for companies in services industries, because just about everything a services company does involves its services. When applied this way, the professional services exclusion exerts a preclusive reach that potentially could operate to swallow up the coverage available under the policy.
A recent decision from the Northern District of Georgia addressed these issues in a coverage dispute in which a private company D&O insurer had relied on the professional services exclusion to deny coverage for an underlying claim against a real estate listing Service Company. The Court concluded in its opinion granting the policyholder’s motion for summary judgment that because the underlying claim did not claims relate to the real estate listing service company’s “specialized knowledge,” the professional services exclusion did not apply. A copy of the March 22, 2016 opinion in the case can be found here. A May 26, 2016 memo from the Phelps Dunbar law firm about the decision can be found here. Continue Reading Professional Services Exclusion Not Triggered Where Allegations Did Not Involve Specialized Knowledge
Sixth Circuit, in Agreement with Second Circuit, Holds American Pipe Tolling Doesn’t Apply to Statutes of Repose
Among the important legal issues that arise in connection with securities class action litigation is the question of impact of the filing of a complaint on the running of the statutes of limitation and the statutes of repose. In analyzing statute of limitations issues, one of the tools that the courts have used is the so-called American Pipe tolling doctrine, named after the U.S. Supreme Court’s 1974 decision in American Pipe and Construction Co. v. Utah. A recurring question has been whether or not American Pipe Tolling applies to statutes of repose. In the following guest post, attorneys from the Paul Weiss law firm take a look a recent Sixth Circuit decision holding that American Pipe tolling doctrine does not apply to the federal securities laws’ statutes of repose. Continue Reading Sixth Circuit, in Agreement with Second Circuit, Holds American Pipe Tolling Doesn’t Apply to Statutes of Repose
U.S. Supreme Court Review of Concurrent State Court Jurisdiction for IPO-Related Securities Class Suits Sought
As a consequence of increased IPO activity during the period 2013-15, IPO-related securities class action litigation has picked up as well, as I noted in my year-end review of 2015 securities class action litigation. An interesting aspect of this IPO-related litigation has been that much of it has been filed in state court, particularly in California state court, as detailed in a recent guest post on this site. Defendants in these suits can attempt to remove the state court lawsuits to federal court, but because of ongoing questions about whether or not SLUSA eliminated state court jurisdiction for class action lawsuits under the ’33 Act, some federal courts have remanded the federal actions back to state court. Because remand rulings are not appealable, defendants may find themselves consigned to litigating the plaintiffs’ federal securities class action lawsuit in state court, a jurisdiction in which plaintiffs potentially enjoy a number of advantages.
As the numbers of these state court class action lawsuits under federal law has mounted in recent months, defendants (particularly those sued in California state court) have continued to try to extricate themselves from the state court forum and transfer their cases to federal court. In some instances, defendants find themselves obliged to defend these state court lawsuits while also defending parallel or even identical federal court lawsuits raising essentially the same allegations.
A recent petition for writ of certiorari filed with the U.S. Supreme Court by Cyan,Inc. seeks to have the Court address these recurring questions and to specifically address the question of whether or not the Securities Litigation Uniform Standards Act of 1998 (SLUSA) eliminated concurrent state court jurisdiction for class action lawsuits filed under the ’33 Act. While it remains to be seen whether or not the Supreme Court will take up the case, Cyan’s petition at least potentially offers the prospect for a resolution that could eliminate the continuing phenomenon of state court class action lawsuits alleging claims under the ’33 Act. A copy of Cyan’s May 25, 2016 petition for writ of certiorari can be found here. Continue Reading U.S. Supreme Court Review of Concurrent State Court Jurisdiction for IPO-Related Securities Class Suits Sought
Will the Yates Memo’s Emphasis on Individual Prosecution Have A Counterproductive Impact?
In a September 9, 2015 memo from Deputy Attorney General Sally Yates, the U.S. Department of Justice described a new policy focused on individual accountability for corporate wrongdoing. The keystone of the policy embodied in the Yates memo is that for companies to receive any cooperation credit, they must completely disclosure “all relevant facts about individual misconduct.” According to an interesting May 26, 2016 memo from the U.S. Chamber of Commerce’s Institute for Legal Reform entitled “DOJ’s New Threshold for Cooperation” (here), the agency’s new threshold for cooperation credit is “likely to have a number of unintended consequences.” Among other things, the report notes, the new policy risks alienating personnel whose cooperation is essential to the investigation, and indeed may motivate individuals to seek individual counsel. These and other potential unintended consequences may mean that the agency’s new policy may have a counterproductive impact on corporate cooperation. Continue Reading Will the Yates Memo’s Emphasis on Individual Prosecution Have A Counterproductive Impact?
Divided Loyalties? Defense Counsel in M&A Litigation
What is the role of defense counsel in deal litigation? What impact does the involvement of “top” deal litigation firms have on lawsuit outcomes? And what will the impact on deal litigation be from the advent of forum selection by-laws and the recent court crackdown on disclosure-only settlements? These are the questions addressed in an interesting May 2, 2016 paper entitled “Divided Loyalties? The Role of Defense Litigation Counsel in Shareholder M&A Litigation” (here), by C.N.V. Krishnan of Case Western Reserve University; Steven Davidoff Solomon of University of California Berkeley Law School; and Randall Thomas of Vanderbilt Law School. A summary of their paper appears in a May 23, 2016 post on the Harvard Law School Forum on Corporate Governance and Financial Regulation (here). Continue Reading Divided Loyalties? Defense Counsel in M&A Litigation
Under Morrison, U.S. Securities Laws Don’t Apply to Toshiba’s Unsponsored ADRs Purchased OTC in the U.S.
It has been nearly six years since the U.S. Supreme Court’s landmark 2010 decision in Morrison v. National Australia Bank, in which the Court restricted the ability of shareholders of non-U.S. companies who purchased their shares outside the U.S. to file securities fraud lawsuit in U.S. courts under the U.S. securities laws. In the intervening years, many of the issues questions that the Morrison decision presented have been resolved by the lower courts. However, one issue that has continued to percolate is the question of whether under Morrison the U.S. securities laws apply to transactions involving foreign companies’ unsponsored ADRs traded over-the-counter (OTC) in the U.S.
These issues were presented in the class action lawsuit filed in June 2015 in the Central District of California against Toshiba Corporation. The consolidated lawsuit purported to be filed on behalf of a class of investors who purchased unsponsored Toshiba American Depositary Shares (ADS) over-the-counter in the U.S., as well as on behalf of investors who purchased Toshiba shares on the Tokyo stock exchange. In an interesting May 20, 2016 opinion (here), Central District of California Judge Dean Pregerson held under Morrison that the U.S. securities laws do not apply to unsponsored OTC transactions in Toshiba’s ADSs. Judge Pregerson also granted the defendants’ motion to dismiss the claims of the investors who purchased Toshiba shares on the Tokyo stock exchange. Continue Reading Under Morrison, U.S. Securities Laws Don’t Apply to Toshiba’s Unsponsored ADRs Purchased OTC in the U.S.
Two Cities in Canada
The D&O Diary was on assignment in Canada last week for meetings and to attend a PLUS Canadian Chapter event in Montréal. It was a short sunlit visit to our Northern neighbor, but it was just long enough for a bit of foreign adventure without even leaving the Eastern Time zone. Continue Reading Two Cities in Canada
Guest Post: The SEC’s Renewed Focus on Financial Reporting and Financial Fraud
While financial fraud has always been an important enforcement target for the SEC, the agency recently has shown increased attention to financial reporting cases. In the following guest post, Robert F. Carangelo, Paul A. Ferrillo and Andrew Cauchi of the Weil Gotshal law firm take a look at the SEC’s recent focus on financial reporting and the particular issues that have drawn the agency’s scrutiny. I would like to thank Rob, Paul and Andrew for their willingness to publish their article on this site. I welcome guest post submissions from responsible authors on topics of interest to this site’s readers. Please contact me directly if you would like to submit a guest post. Here is the authors’ guest post. Continue Reading Guest Post: The SEC’s Renewed Focus on Financial Reporting and Financial Fraud
Guest Post: Supreme Court Rejects Federal Jurisdiction over State Law Claims that Do Not Necessarily Raise Exchange Act Issues
Among the decisions that the Supreme Court issued this past Monday was its unanimous ruling in Merrill Lynch, Pierce, Fenner & Smith Inc. v. Manning (here), in which the Court held that the ’34 Act’s exclusive federal jurisdiction provisions do not preclude a claimant from pursuing state law securities claims in state court. In the following guest post, attorneys from the Paul Weiss law firm take a look at the Court’s decision in the case and discuss its implications. I would like to thank the Paul Weiss attorneys 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 Paul Weiss attorneys’ guest post.
Continue Reading Guest Post: Supreme Court Rejects Federal Jurisdiction over State Law Claims that Do Not Necessarily Raise Exchange Act Issues