A few days ago, the Eighth Circuit became the first appellate court to interpret Halliburton Co. v. Erica P. John Fund, Inc., 134 S. Ct. 2398 (2014) (Halliburton II), relying on that case to reverse a district court’s class certification order in IBEW Local 98 Pension Fund v. Best Buy Co.

The case is interesting because it has an unusually clean fact pattern for analyzing some basic dilemmas in the law governing Section 10(b) actions.

The facts are these:

On the morning of September 14, 2010, before the market opened, Best Buy issued a press release that increased its full-year earnings guidance.  By the time of the opening, its stock price was up 7.5% from the prior day’s close.  Two hours after the press release issued, Best Buy held a conference call with market analysts, during which the CFO stated that the company was “on track to deliver and exceed” its EPS guidance. 

On December 14, 2010, Best Buy issued a press release announcing a decline in sales and reduction in EPS guidance, causing a stock price decline.

The plaintiffs alleged that both the September 14 press release, and the subsequent conference call, were fraudulent.  The district court held that the press release was immunized as a forward-looking statement, accompanied by sufficient cautionary language, under the PSLRA’s safe harbor.  However, the court held that the “on track” representation was not forward looking, and claims based on that statement could proceed.

The problem, however, as the plaintiffs’ own expert eventually opined, was that Best Buy’s stock price increased after the immunized press release, and did not appear to react to the earnings conference call.  The plaintiffs’ expert also opined that the conference call conveyed information that was “virtually the same” as the information in the press release. 

The plaintiffs offered two theories to explain how the conference call may have impacted Best Buy’s stock price.  First, they claimed that the conference call caused an upward earnings drift over the next several weeks.  And second, they claimed that the “on track” confirmatory statements served to maintain Best Buy’s stock price, already boosted by the press release.  Accepting this evidence, the district court certified the class.

On appeal, the Eighth Circuit reversed.  It concluded that, in accordance with Halliburton II, the defendants had rebutted the presumption that the conference call impacted Best Buy’s price.  In the Eighth Circuit’s view, because the plaintiffs’ own expert agreed that the stock price had only increased in response to the immunized press release, and agreed the conference call conveyed no new information, the conference call could not have had an effect.  The court rejected the “earnings drift” theory as contrary to the efficient market hypothesis, but did not – in explicit terms – weigh in on the plaintiffs’ price maintenance theory, except to say that this was unlike situations where a third-party confirms an earlier corporate statement.

Judge Murphy, in dissent, faulted the majority for failing to directly confront the plaintiffs’ price maintenance theory – which, she believed, had not been rebutted.

There are several interesting things to comment on here.

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Institutional investors – often in response to some protest – occasionally choose to divest themselves of investment in industries that they believe are doing some social harm.

That move is a controversial one; many believe it is unlikely to have any impact on the industry, and thus the investors are only harming themselves by depriving themselves of potential profits.

And Marcia here at BLPB has argued that investors (like consumers) are rarely sufficiently committed to these causes – she doubts that “name and shame” policies, which are intended in part to encourage such moves, will have much of an effect in light of investors’ greater desire for return.

Well, here’s one new datapoint:  Calpers is revisiting its policy of refusing to invest in tobacco stocks.  Apparently, its moral commitments can’t quite hold up in the face of the industry’s rising share prices.  Calpers’s official position is apparently that it can do more good by “engaging” rather than by walking away, although when it comes to tobacco – a product that many criticize merely for its existence – it’s hard to see exactly how that happens.

A while back, I posted about a new split between the Second and Ninth Circuits regarding the ability of plaintiffs to bring a Section 10(b) action based on a failure to disclose required information, even in the absence of allegations that the omitted information rendered the remaining statements misleading.  The Second Circuit is for; the Ninth is against.

At the time, the split was not well-developed; the Second Circuit allowed for the possibility of such claims, but also held that the case before it failed to allege scienter.  And the last time the Second Circuit had allowed similar claims to go forward was in In re Scholastic Corp. Sec. Litig., 252 F.3d 63 (2d Cir. 2001). 

So it wasn’t clear whether the split would have much practical effect. 

Well, the Second Circuit now found a case where scienter was properly alleged – and it reversed a district court’s dismissal of the complaint.  The opinion is a veritable goldmine of interesting nuggets.

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Lately I’ve been thinking about CLE programs.  I no longer am required to take them (thank goodness) but they were a regular feature in my life when I was practicing.  I’m only familiar with New York’s requirement, but I assume other states’ programs are not terribly dissimilar.  I’m sorry to say that I generally found CLE requirements to be a thundering waste of my time – not to mention the fees for classes that functioned as a waste of my firm’s money.  I realize there’s been a decades-long debate about this issue, but I’ll throw my hat in and speculate whether there’s anything that could be done to improve them. 

My first problem with CLE – and this I gather has always been the complaint – is that the classes were generally of no use to me in my practice.  I was a specialist; almost all of my time was spent on securities litigation, with the occasional sprinkling of corporate.  That meant I lived the latest case law and proposed legislation/rulemaking on a day to day basis.  The majority of CLE programs in the area were simply pitched at a level that was far too introductory for me – if…

On Thursday and Friday, I attended Tulane’s 28^th Annual Corporate Law Institute. I’d never had the chance to go before, but now that I’m a member of the faculty, it’s a fabulous perk of the job. It was marvelous to get expert, practical analysis of the most pressing issues in corporate governance and M&A practice. I was also delighted to see a couple of my students in attendance – during one of the breaks, they told me how the speakers helped bring together the reality behind the theories they learned in their business courses (and, having never heard Chief Justice Leo Strine speak before, they were predictably … ahem … amazed by his comments).

I’ve compiled a (very) incomplete list of the particular remarks that struck me as interesting or enlightening – with a heavy disclaimer that I wasn’t able to take notes on everything, so this should not be viewed as representative of the conference as a whole. It’s more like, Things From Some Panels Ann Lipton Was Able to Jot Down Quickly. (And also it’s possible I misheard some comments – if so, I apologize!).

I’ll note that the orientation of the speakers was almost all defense-side practice – defending from lawsuits, and defending from activist investors – which made it all the more valuable and interesting when someone spoke up from the other side of the table, or even from a more centrist point of view (the SEC, ISS, M&A journalists, Strine, and Chancellor Andre Bouchard).

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I’ve become interested in the proposal to require auditing firms to disclose the names of engagement partners, and other firms, involved in an audit of a public company. Though I can’t pretend to have waded through all the comments that have been submitted on this issue, I gather one of the concerns is that disclosure will increase potential liability under Section 10(b). I actually think that it will and it won’t, and as someone who feels that auditors should be held to more stringent standards than the law currently allows, I have mixed feelings about the proposal.

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The Wall Street Journal reports on a growing phenomenon – in the wake of cases like RBC Capital Mkts., LLC v. Jervis, 2015 Del. LEXIS 629 (Del. Nov. 30, 2015), corporate boards considering M&A deals are rooting out investment banking conflicts by turning to smaller boutique firms to advise them.

My off the cuff reactions –

First, I find this notable if only because board directors are shielded from personal liability both by exculpatory clauses in corporate charters, and by D&O insurance. Scholars frequently argue that the lack of personal liability blunts the potential deterrent effects of shareholder lawsuits; I am fascinated to see a real-world demonstration that the lawsuit threat remains potent. It’s particularly striking in this instance because ultimately it is the conflicted banks – not the directors – who risk liability, and yet the directors are the ones who are exhibiting concern. This is a salutary result: the directors, of course, are the ones who have a fiduciary duty to protect shareholders. (But cf. Andrew F. Tuch, Banker Loyalty in Mergers and Acquisitions) But it’s not necessarily what one would have expected given the liability regime. The WSJ piece suggests that boards’ concerns…