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In Loreley Fin. (Jersey) No. 3 Ltd. v. Wells Fargo Sec., LLC, 2015 U.S. App. LEXIS 12800 (2d Cir. July 24, 2015), the Second Circuit reversed the district court’s dismissal of state law fraud claims arising out of the sale of hybrid CDOs.  The court spent an extraordinary amount of time discussing the concept of loss causation, although to be honest, I’m not at all confident that the extended discussion actually clarifies matters, at least in those circuits that already follow Second Circuit law on the subject. 

(There is currently a circuit split on the definition of loss causation under the federal securities laws, and a newly-filed cert petition asking the Supreme Court to resolve it.  But I digress.)

What I actually was excited to see was the Second Circuit’s discussion of the conditions under which plaintiffs should be permitted to amend their pleadings.

As I previously posted, courts are all over the map about allowing amended pleadings in securities fraud cases.  Some courts are extremely permissive; others essentially grant plaintiffs only one bite at the apple (although that standard is usually more applicable to federal, rather than state, claims).  Many courts have held that if plaintiffs want the…

Harris Adams

Judge A. Harris Adams (Georgia Court of Appeals 2002-2012) died on Monday night at age 67. According to the Daily Report: “Visitation is planned for 5-7 p.m. Thursday at Mayes Ward-Dobbins Funeral Home, 180 Church St., Marietta. Funeral services are scheduled for 10:30 a.m. Friday at the Church of the Apostles in Atlanta.”

Until my family moved after my eighth grade year, I lived just a few blocks from Judge Adams, his wife (who was one of my mother’s dearest friends), and his three children in Marietta, GA. His oldest child, Lanier, attempted to teach me piano, and his youngest, Zach, was a childhood friend of mine.

Judge Adams had an infectious laugh. He was a talented storyteller. He was bright and well-respected, but stayed humble and never seemed to take himself too seriously. I have some vivid memories of him shooting baskets with Zach and me, in his dress clothes. He will be missed by many. My thoughts and prayers go out to his family.   

The Halliburton district court finally issued its decision on the plaintiffs’ renewed motion for class certification – and I’m afraid it’s exactly as incoherent as the most pessimistic predictions might have anticipated.  See Erica P. John Fund, Inc. v. Halliburton Co., 309 F.R.D. 251 (N.D. Tex. 2015).

The district court recognized that, after Halliburton I, it was prohibited from making loss causation determinations as part of the class certification inquiry.  However the district court did hold that if there is no price movement in response to an alleged disclosure (and there is also no price movement when the misstatement is first made), that fact establishes there was no artificial inflation originally. 

In other words, the court believed that the absence of affirmative evidence of price inflation is evidence of absence, and sufficient to carry the defendants’ burden to prove that any misstatements had no effect on prices.  (To be fair, from the opinion, it appears the plaintiffs themselves urged this position).

The court went on to find that the Halliburton defendants had shown there was no price movement on almost all of the alleged corrective disclosure dates – and so class certification would be denied as to those dates.  However, because there was price movement for one disclosure date – December 7, 2001, the last day of the proposed class period – class certification would be granted as to that date.

The problem is, the plaintiffs were seeking class certification for all persons who purchased Halliburton stock from the start of the fraud until the end of the fraud.  The court’s ultimate determination – that one disclosure date was sufficient and others were not – tells the reader nothing about what class can be certified, as though the court had forgotten the entire purpose of the exercise.  I suppose we’ll find out the class definition if an order follows, but for now, the opinion sheds almost no light on that subject.

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Caribbean Cruise Line recently won an interesting victory when Florida’s Fourth District Court of Appeal held that it could pursue an unfair trade practices claim against the Better Business Bureau for awarding it an “F” rating.  See Caribbean Cruise Line, Inc. v. Better Bus. Bureau of Palm Beach County, Inc., 2015 Fla. App. LEXIS 8497 (Fla. Dist. Ct. App. 4th Dist. June 3, 2015).

This was an unusual holding, because BBB ratings are usually treated as protected “opinion” speech under the First Amendment.  Caribbean Cruise Lines got around that, however, by claiming it was not attacking the rating itself, but BBB’s allegedly false representations regarding its methodology for generating the rating.  The court accepted that BBB’s statements about its methodology were factual and, if false, could be the subject of a lawsuit.

If that sounds familiar, it should – it’s exactly the argument that plaintiffs have used in litigation involving mortgage-backed securities.  Numerous plaintiffs have successfully argued that statements regarding appraisals and LTV ratios were false not because the appraisers’ opinions were false, but because the securitizers falsely described the methodology used to reach those opinions. 

Considering the complaints that have been lodged against the BBB, I suppose…

A few days ago, Vice Chancellor Laster issued an interesting opinion in In re Appraisal of Dell.  He held that Delaware’s “continuous holder” requirement for appraisal litigation applies at the record holder level – that is, the level of DTC.  Because in this case, due to a technical error, DTC transferred the ownership of the shares to the beneficial owners’ brokers’ names – the street names – the beneficial owners could not maintain their appraisal petition. 

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This week, the Third Circuit issued is long-awaited decision in Trinity Wall Street v. Wal-Mart Stores, Inc. (.pdf), detailing its reasons for its earlier holding that Trinity Wall Street’s shareholder proposal addressing gun sales was excludable from Wal-Mart’s proxy statement.  The decision is interesting in several respects, not the least of which is an apparent split among the panelists regarding the shareholder wealth maximization norm.

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