Securities Litigation

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doleThe November 1, 2013 transaction in which David Murdock, Dole Food Company’s Chairman and CEO, acquired the Dole shares he did not already own has already been the subject of extensive litigation. Indeed, in 108-page August 27, 2015 post-trial opinion (here), Delaware Court of Chancery Vice Chancellor Travis Laster found that and Murdock and C. Michael Carter, Dole’s COO and General Counsel, had employed “fraud” to drive down the Dole’s share price to lower the amount Murdock paid in the deal. Laster entered a damages award against Murdock and Carter, jointly and severally, of $148.1 million, as discussed here.  On December 7, 2015, Murdock and Dole reached an agreement to pay the shareholders a total (including interest) of $113.5 million, with the remainder of the judgment amount to be paid to the plaintiffs in a separate appraisal action, as discussed here. As part of the settlement, the defendants gave up their right to appeal the Chancery Court rulings and judgment.

The recent settlement seemingly brought an end to the shareholder litigation over the November 2013 transaction. However, it now appears that there may be another round of litigation  yet to go.

On December 9, 2015, a plaintiff shareholder filed a securities class action lawsuit in the federal court in Delaware, against Dole, Murdock, and Carter. A copy of the plaintiff’s complaint can be found here. The lawsuit was filed on behalf of a class of Dole shareholders who sold their shares between January 2, 2013 and October 31, 2013. As might be expected, the complaint quotes extensively from Laster’s opinion. Notwithstanding the overlap between the Delaware Chancery suit and the new complaint, there are important differences between the cases. As discussed below, the securities class action complaint also presents a number of interesting issues and questions.
Continue Reading Dole Shareholders File Securities Suit Based on Executives’ Share Price Deflating Conduct Prior to Going Private Deal

ninthcircuitFor purposes of determining the scienter of a corporate entity defendant under the federal securities laws, a company’s executives’ knowledge generally is imputed to company. There is an exception to these general principles – the “adverse interest exception” – which provides that an executive’s knowledge will not be imputed to the company if the executive acted for his or her own purposes and contrary to the interests of the company. There is also an exception to the exception, which provides further that a rogue executive’s knowledge will nevertheless be imputed to the company when an innocent third-party has relied on the executive’s representations made with apparent authority.

In an October 23, 2015 opinion (here), the Ninth Circuit applied these principles to reverse the district court’s dismissal of the ChinaCast Education Corp. securities class action lawsuit, holding that the knowledge of the company’s CEO, who had embezzled funds and mislead investors through omissions and false statements, could be imputed to the company for purposes of innocent third-party investors’ claims.
Continue Reading Ninth Circuit: Embezzler Executive’s Knowledge Can Be Imputed to Company in Innocent Third Party-Filed Securities Suit

bofiIn the wake of the 9/11 terrorist attacks, Congress enacted or expanded a number of laws regarding the global financial system in order to combat money laundering and promote national security. As I have noted in prior post (most recently here), regulatory enforcement activity under these laws represents a potentially significant new area of potential D&O exposure. In addition, as a recently filed securities class action lawsuit shows, alleged violations of these financial controls not only can lead to regulatory action by federal regulators but may also lead to private civil litigation.
Continue Reading Money Laundering Allegations and Follow-On Securities Litigation

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Michael J. Biles

In the following guest post, Michael J. Biles of the King & Spalding law firm takes a look at the analysis of the materialization-of-the-risk issues in the Fifth Circuit’s September 8, 2015 decision in the BP Deepwater Horizon securities class action lawsuit. As Michael asserts below, the Fifth Circuit’s decision opinion essentially removes the risk of materialization-of-the-risk cases in the Fifth Circuit.

I would like to thank Mike for his willingness to publish his article on my site. I welcome guest post submissions from responsible authors on topics of interest to readers of this site. Please contact me directly if you are interested in submitting a guest post. Here is Michael’s guest post.

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Materialization-of-the-risk cases are a favorite of the securities class action plaintiffs’ bar.  The basic theory of fraud in these cases is that a company misrepresented or withheld information, causing the market to miscalculate the company’s exposure to a particular risk.  Every company is susceptible to risks, whether it be natural or man-made disasters, competition, labor disputes, technological obsolescence, currency fluctuations, supply-chain disruptions, etc. –the risks are endless.  When a company’s stock price declines following a disclosure that you-name-the-risk has materialized – as every company must do on occasion – plaintiffs’ lawyers will scour the company’s prior disclosures concerning the risk and allege (with the benefit of hindsight) that the company and its executives did not accurately explain the company’s exposure to the risk.  The damages in such cases are usually easy to calculate – plaintiffs say that the stock was inflated by the amount of the share price decline following the revelation of the risk.  And if the case is certified as a class action, the damages typically run in the hundreds of millions, if not billions.

The securities class action filed against BP plc following the 2010 Deepwater Horizon explosion and oil spill is a classic materialization-of-the-risk  case.  Before the spill, according to plaintiffs, BP touted the company’s safety plans and procedures as being more advanced on paper than they were in practice.  These pre-spill statements lulled the market into believing that BP was a safer company than it actually was.  According to plaintiffs, BP thus understated the risk of the Deepwater Horizon catastrophe, and when that risk materialized, investors were damaged by the full value of the decline in BP stock caused by the materialization of the risk of the spill.  The Fifth Circuit recently affirmed the district court’s order denying class certification of plaintiffs’ materialization-of-the-risk claims.[1]  Ludlow v. BP, PLC, — F.3d —, 2015 WL 5235010 (5th Cir. Sept. 8, 2015).  This opinion essentially removes the risk of materialization-of-the-risk cases in the Fifth Circuit.
Continue Reading Guest Post: The Fifth Circuit Takes the Risk Out of Materialization-Of-The-Risk Cases

wywoSeptember is here. Labor Day has come and gone. That can mean only one thing – time to put away the surf boards, bungee cords, fencing foils, pogo sticks, nunchuks, hula hoops, light sabers, and unicycles, and get back to work. Yes, it is time to answer all those emails and return all of those phone messages. And most important of all, it is time to catch up on what has been happening in the world of directors’ and officers’ liability and insurance. Here is what happened while you were out.
Continue Reading While You Were Out

cyberspaceMany observers, including even this blog, have speculated whether the rising wave of data breaches and cyber security attacks will result in litigation against the directors and officers of the affected companies. Indeed, in 2014, there were two sets of lawsuits filed against the boards of companies that had experienced high-profile data breaches, Target Corp. (refer here) and Wyndham Worldwide (refer here). But the Wyndham lawsuit was dismissed in late 2014, and since that time there really have been no additional significant cyber security related D&O lawsuits filed, even though there have been a number of high profile data breaches in interim (including, for example, Home Depot, Anthem and Sony Entertainment). However, as discussed below, there have been  a couple of recent developments suggesting that the plaintiffs’ lawyers are working along the edges of this issue, and, at a minimum, looking for ways to develop D&O claims out of data breach incidents.
Continue Reading When Data Hacks Lead to D&O Lawsuits, Actual and Threatened

PrintThe recent annual trend toward declining numbers of corporate and securities lawsuit filings continued in the first half and second quarter of 2015, although second quarter activity did increase slightly compared to the prior quarter, according to a report from the insurance industry information firm, Advisen. If the increase in the second quarter numbers compared to the first were to continue for the remainder of the year, the number of new corporate and securities lawsuits during the year could see an annual increase for the first time in four years. The July 15, 2015 Advisen report, entitled “D&O Claims Trends: Q2 2015” can be found here.
Continue Reading Advisen Report: Declining Corporate and Securities Litigation Filings Continued in Second Quarter, But Most Recent Quarterly Trend May be Upward

brazilIn an earlier post, I noted that a significant factor driving securities litigation filings so far this year has been the rising number of U.S. securities lawsuits involving non-U.S. companies. A number of different factors are contributing to the filing of these suits, but among the factors is the increasing numbers of U.S.-listed non-U.S. companies that have been caught up in corruption investigations in their home countries.

The highest profile company among the firms involved in corruption probes is the Brazilian petroleum company, Petrobras, which has been the target of growing Operação Lava Jato (Operation Car Wash) corruption investigation in Brazil. Petrobras, whose ADSs trade on the NYSE, was hit with a class action securities lawsuit in the U.S. in December 2014 (as discussed here).

The continuing Petrobras investigation has spread to a number of other Brazilian companies. Among other things, the investigation has led to the recent arrests of two high profile executives in the construction industry in Brazil, as discussed here. The leaders of the nation’s two largest engineering and construction companies, Marcelo Odebrecht, head of Odebrecht SA, and Otavio Marques Azevedo, head of Andrade Gutierrez, were taken into custody in raids linked to the Petrobras scandal.

The investigation has now led to yet another U.S. securities class action lawsuit against yet another Brazilian company. On July 1, 2015, a plaintiff shareholder filed a securities class action lawsuit in the Southern District of New York against Braskem, S.A. and certain of its directors and officers. Braskem, which is based in Brazil, is Latin America’s largest petrochemical company.
Continue Reading Another U.S. Securities Suit Arising from Overseas Corruption Investigation

globus2Historically, non-U.S. companies listed on U.S. exchanges were sued in securities class action lawsuits less frequently than were listed U.S. companies. For several years now, according to NERA, non-U.S. firms have represented about 16% of all companies listed on the U.S. exchanges, but according to Cornerstone, for the period 1997-2013, the average percentage…