The PSLRA Nugget

The Nugget is Moving to a New Home

2010-02-03T17:04:00.002-05:00

Please update your bookmarks, as the PSLRA Nugget is moving to a new easier to remember website address. Also if you are getting this by email, and you would like to continue getting it that way, you just need to go to the new site and do a quick sign-up on the right side of the page. So, effective immediately, it's located at www.pslranugget.com and all of the old articles have been transferred there. Hope to see you there.

Yes Shorter is Better (at least in legal briefing)

2010-02-02T23:58:00.001-05:00

OK, you know who you are. The serial page extension requesters. But Judge, we have to have 100 pages to explain it. I know, I know, we've all done it. And yes I agree sometimes it's necessary. But District Judge Joy Flowers Conti has a very good reason to resist the temptation of going page limit crazy. What's that? Well, as she has observed:

Counsel and the parties should be aware of the court’s experience that shorter briefs are almost always more persuasive because they get to the point faster. They also contain less extraneous material that dilutes the parties’ main arguments, and frequently interferes with prompt resolution.

So there you have it. As Blaise Pascal ( a brilliant writer skilled at humor, mockery, and vicious satire) said, "I made this letter longer than usual because I lack the time to make it short." Can't say it better (or should I say shorter) than that. Bet you can't either.

You can read the order here.

Nugget (I know you've missed it): Counsel should be aware that the court discourages reply briefs as usually repetitive and therefore wasteful. Reply briefs therefore should promptly state the novel matter contained in the opposition brief that merits a reply, and not merely assert that opposing counsel has misstated the law.

Confidential Sources Still Alive & Kicking

2008-03-18T21:54:00.010-04:00

What's that? You thought Tellabs banned confidential witnesses? Well, let's not get carried away here, as there's certainly at least two ways to read that opinion. Of course, after the 7th Circuit decided Higginbotham v. Baxter, it was beginning to look like you might actually be right. But Senior Judge Samuel Conti (Nixon '70) (yes I said 1970) chose to reject the Seventh Circuit and go with the Fifth Circuit's view on the subject, which says that Tellabs does not "presumptively preclude confidential sources."

But wait a minute. The Fifth Circuit (in Central Laborers' Pension Fund v. Integrated Electrical Services Inc., 497 F.3d 546 (5th Cir. 2007)), never mentioned Tellabs in its CW analysis, so how can that be you ask? It's because "although the Fifth Circuit did not discuss Tellabs in its analysis of confidential sources, the court was clearly aware of the Tellabs decision as evidenced by numerous citations to Tellabs in its lengthy discussion of the PSLRA pleading standards. Thus, Central Laborers' Pension Fund suggests that, contrary to the Seventh Circuit's conclusion, Tellabs does not presumptively prohibit confidential sources."

So overall result: Defendants' Motions to dismiss denied in full.

You can read the whole opinion on Acquirelaw™ at ND CA Acquirelaw 242205801 In re Secure Computing II Sec. Litig. (March 4th, 2008) (just type the number in the citation in any Acquirelaw search box to quickly retrieve the Order).

Nugget: "The Ninth Circuit has not yet spoken to the issue of whether confidential sources, if described with the requisite particularity, may give rise to the cogent and compelling inference of scienter required by Tellabs. Without guidance stating otherwise, this Court is unwilling to abandon the binding Ninth Circuit precedent of Daou for the reasoning articulated by the Seventh Circuit in Higginbotham."

No Mondays Puh-leeze

2008-03-16T13:56:00.004-04:00

Attorneys who voluntarily set Monday deadlines are just simply no fun. I mean, you get to pick the days, so why kill a future weekend? You know all the work gets done at the last minute, so nix those Mondays the next time your curmudgeon opposing counsel tries to get you to agree to one.

Well, we've located one Judge who agrees. In the Sourcefire securities class action, Judge J. Frederick Motz (Reagan '85) asked the attorneys to "confer with one another to agree upon a briefing schedule in the event that defendants decide to file a motion to dismiss. In your discussions, please agree upon deadlines that will have the effect of moving this litigation along expeditiously but avoid (1) Monday deadlines, and (2) deadlines that would have an adverse effect upon the holiday schedule of counsel on either side."

What's that? A Judge who actually is professional enough to care about attorney's personal and family lives? This Judge needs to talk to some of his brethren, as he (unfortunately for our families) sure seems in the minority.

You can read the whole letter on Acquirelaw™ at DD MD Acquirelaw 24686286 In re Sourcefire Sec. Litig. (D. Md. Sept. 4th, 2007) (just type the number in the citation in any Acquirelaw search box to quickly retrieve the Order).

Nugget: "Despite the informal nature of this ruling, it shall constitute an Order of Court, and the Clerk is directed to docket it accordingly.”

Reimbursement Denied

2007-11-13T21:09:00.001-05:00

Now this is entertainment (at least to me it is). And if you're a securities class action lawyer that's a word that might not enter your daily routine all that often. In the Motorola securities class action, Dr. Antonio Pagnamenta (Professor of Physics, emeritus at UIC), wrote a letter to the court which says (along with my annotations in Nugget green italics below of course):

Your Honorable Wise, and Most Hopefully Generous Judge Pallmeyer:

[A]s a member of the Class, I have carefully considered the entire situation so please don't waste your time repeating my extensive work, and then agreed to be a witness out of conviction that this was the right thing to do. I never expected any award for this as I am only concerned about others.

Only now, can you believe it, I have heard that you have awarded some money to the Class member witnesses for their efforts and, well, it's a lot so....

I am pleasantly surprised to say the least, but now please allow me to draw your attention, pardon the legalese, to my special situation:

I was travelling by CTA, because these professor salaries stink let me tell you, to my first interview at Fay Clayton's law office. I passed out and had a Fall so big that I capitalized it on the CTA station which I readily admit is the only part of this story that readers should feel compassion about.

In this I suffered considerable injuries to the right side of my face. Specifically, three teeth on my right side needed to get root canal work, in the amount of approx. $6000 and I knew I should have listened to mother and became an endodontist.

Medicare essentially covered my emergency and medical cost which is fortunate in light of my ridiculously low professor salary and pension. However, my dental work was referred to my dental insurance, which only covered $2000. These are approx, numbers, the exact amounts will be documented.

As I suffered these injuries because of my willingness to testify, I would not have had the accident if I had not gone to the law office which I am sure you will agree is a classic but-for situation. The doctors found no basic reason for this sudden fainting spell. I would appreciate it very much if the court could consider to reimburse me for my own out-of-pocket expenses of approx $4000, which are clearly the fault of the defendants in this class action.

The accident, the injuries, the expenses, all can be documented as soon as I am back in Chicago, within 10 days and if I pass out and hit my head while on the flight I would appreciate being reimbursed for that too, since if I hadn't agreed to testify I wouldn't have wrote this letter, and therefore wouldn't have left for the airport at the same time (see, e.g., A Sound of Thunder), and therefore it is also the direct fault of the defendants.

Respectfully submitted,
Antonio Pagnamenta
Professor of Physics, emeritus, and Professor of Confusing Cause and Effect

So I bet you're wondering, what did Judge Pallmeyer say? Well, she wrote back that "I am sorry to hear about your accident. Unfortunately, the court has no funds available to reimburse you for the expenses resulting from that accident."

You can read the letters, both dated August 10, 2007, on Acquirelaw™ at In re Motorola Sec. Litig., ND IL Acquirelaw 2022814382 (N.D. Ill. August 10th, 2007) (just type the number in the citation in any Acquirelaw search box to quickly retrieve the Order).

Nugget: The only other sentence in the Judge's response letter, and we at the Nugget, despite our jesting, wholeheartedly agree: “Best wishes for your complete recovery.”

The Look is Back

2007-11-12T23:14:00.001-05:00

I promise an article tomorrow, so in the meantime let me tell you that although the voting isn't closed yet it looks like the Acquirelaw™ Nugget will be be returning to its original color scheme. Even my long-time good friend and Super-Nugget fan (he is a top-notch securities class action investigator by the way if you are looking for one) Wolf at Worms & Hirsch told me straight up that the dark color scheme is one of the worst designs he has ever seen. (O.K, I guess I am paraphrasing, but that's not that far off). Adding insult to injury, my own spouse was one of those who voted it down, and both my Labradors started howling when they saw the screen. So enough already, you know what, forget the end of the vote, I'm putting it back the way it was now. Ah, now that's better, isn't it?

The Nugget Lives

2007-11-07T21:57:00.000-05:00

Hey, remember the Nugget? Yes, I’ve been gone for a while, but I’m back now. And you might notice I’ve got a shiny new name. It’s the Acquirelaw™ Nugget now instead of the PSLRA Nugget, but nothing else is going to change so don’t get yourself all upset. Well, more on that later, (and yes, my wife and I own Acquirelaw™) let’s try to get back in the swing of things here.

I’ve personally never seen this happen, but the Plaintiffs in In re Eli Lilly & Co. Sec. Litig. filed their “extensive” amended complaint under seal. Seems Judge Jack B. Weinstein (E.D.N.Y.) wasn’t too keen on that idea, as he quickly ordered “the parties to show cause why [it] should not be unsealed.” Plaintiffs said they didn’t mind unsealing it, but Defendants wanted redactions.

Judge Weinstein said that the complaint had to be unsealed, but since certain “documents cited within the complaint may contain trade secrets or confidential commercial information properly protected under subsection (c)(7) of Federal Rule of Civil Procedure 26,” he would allow the complaint to be “redacted” and “Special Master Woodin shall unseal such redacted documents as need no longer be sealed and they shall thereafter be filed with the complaint.”

You can read the Order, dated August 17th, 2007, on Acquirelaw™ at In re Eli Lilly & Co. Sec. Litig., ED NY Acquirelaw 242606290 (E.D.N.Y. August 17th, 2007) (just type the number in the citation in any Acquirelaw search box to quickly retrieve the Order).

Note re Judge Weinstein: He took the bench in 1967. In addtion, according to Wikipedia, "Judge Weinstein is also well-known for his personal, informal courtroom style (Weinstein conducts most hearings seated at a table in the middle of the courtroom with counsel, rather than from the bench, and often chooses to wear an ordinary business suit with no judicial robe)." Can any readers confirm whether this is true? Please let us know in the comment area below.

Nugget: “Access to judicial proceedings and documents is necessary for federal courts to have a measure of accountability and for the public to have confidence in the administration of justice.”

New Service for Securities Class Action Researchers

2007-02-21T23:04:00.000-05:00

Pssst… here’s a tip for you Nugget subscribers who just happen to be securities class action researchers. If your dream is to be able to word-search thousands of unpublished (and published) securities class action orders, opinions, and even minute entries check out the new service Acquirelaw™ at www.acquirelaw.com. I’m betting you won’t be sorry you did.

As for the Nugget, please be patient, I’ll get back in the swing of things soon. At least for this blogger, it’s a personal endeavor, so it’s something I do in my limited spare time, which lately has been very limited. Thank you for the many kind words from those of you who miss the Nugget’s ramblings – you make it all worthwhile, especially my favorite frequent commenters “Gary,” and “The Defense Bar,” whoever you are.

The Case that Just Won’t Die

2007-02-08T20:17:00.000-05:00

So let’s see, back in 1999, the Judge approved the settlement of the In re Paracelus securities class action, and entered final judgment. So why in the world are we reading a Memorandum Opinion issued in the case eight years later, you might ask? Well, it seems the settlement distribution process “took years,” with “lost checks,” and trying to “find claimants who were no longer at the addresses that had been provided.” So finally, “at the end of this process,” and after “approximately 1,400 claimants had received and cashed settlement funds,” a whopping $30,547.06 remained unclaimed.

So no big deal, right? Well, Lead Counsel proposed that the money be distributed to two designated charities, the Methodist Hospital Foundation and the Houston Volunteer Lawyers Program, invoking cy pres. Oh, but it’s not going to be that easy. The Judge said that “neither of the two designated charities was related to the class or its members,” and to make matters worse, “one charity was connected to the district judge, who promptly recused.” After reassignment, and a whole new round of briefing, along with a hearing, Judge Lee H. Rosenthal (S.D. Tex.) finally ordered that the money go to the “Institute of Law and Economic Policy, which will spend the money in a way that may indirectly and prospectively benefit the class members in the aggregate.”

Sheesh.

You can read In re Paracelus, issued February 6, 2006 at 2007 U.S. Dist. LEXIS 8316.

Nugget: “In the class action context the reason for appealing to cy pres is to prevent the defendant from walking away from the litigation scot-free because of the infeasibility of distributing the proceeds of the settlement (or the judgment, in the rare case in which a class action goes to trial) to the class members.”

Top Brass

2006-11-13T15:28:00.000-05:00

Plaintiffs can declare victory on the motion to dismiss the St. Paul Travelers securities class action, with Judge John R. Tunheim (D. Minn.) holding that “the facts alleged in the complaint, when taken as a whole, strongly suggest that the company's senior executives were aware that the financial statements issued during the class period were false or misleading when made.”

That’s because “the complaint alleges that the senior executives were aware that the financial statements neither accurately accounted for nor made sufficient disclosures regarding defendants' alleged participation in bid-rigging or misuse of finite reinsur-ance, and that “the alleged kickback scheme was so pervasive that the company named it the 'Top Brass' program, underwriters made false or 'B' bids on a regular basis to rig the insurance market, underwriters violated the company's underwriting policies to obtain large group insurance policies through the kickback program, senior executives had access to the Minnesota Department of Commerce Report that opined that the company had repeatedly violated its own underwriting policies, and the alleged misconduct accelerated after Jay Fishman became the CEO of the company.”

You can read In re St. Paul Travelers, issued September 25, 2006, at 2006 U.S. Dist. LEXIS 70261.

Nugget: “Investors need the complete picture to ensure that optimistic statements about a company's financial condition do not mislead investors."

Cut and Paste Nightmare

2006-11-09T18:30:00.000-05:00

You know it’s not going to turn out well for Plaintiffs when the Court says “at this juncture, the Court notes with great concern that Plaintiff includes the following as footnote 46 in its Opposition to Defendants' Motion to Dismiss.” What was the footnote, you ask? Well, here it is, and it seems fine, right?

“Defendant Warren signed the Form 10-Qs filed during the Class Period. (Complaint PP 149, 151, 153, 167, 169, 172, 184). The form 10-Ks were signed by defendants Hickey and Van Riper in 1999 (Compl. P143), by defendants Hickey, Van Riper and Warren in 2000 (Compl. P159), and by defendants Hickey, Kelsey and Warren in 2001.”

Oh, but I assure you, it’s not fine. Judge Harold A. Ackerman (D. N.J.) continued, lamenting that “this footnote caused the Court considerable confusion because, as noted above, the SAC makes mention only of Defendants Fass, Sternlicht and Bond.” So, “after a not inconsiderable expenditure of judicial resources, the Court discovered that footnote 46 was also, and more properly, included by Plaintiff's counsel as footnote 26 in its opposition brief to a motion to dismiss filed in Senn v. Hickey, No. 03-4372 (D.N.J. filed April 25, 2005), a case completely unrelated to the present action, with Plaintiff's counsel as the only common de-nominator.” Uh-oh.

You see, “in Senn v. Hickey, there were in fact defendants named Warren, Hickey, Van Riper and Kelsey; there are no such defendants in the instant action. This Court recognizes that the inherent nature of modern litigation and word processing lends itself to some ‘cut-and-pasting’ of boilerplate from one case to the next; this example of duplication, however, is not easily overlooked. The Court urges counsel to exercise greater diligence in its future filings.”

Result? Nothing to do with the footnote (I hope), dismissed with prejudice.

You can read In re Bio-Technology General, issued October 26, 2006, at 2006 U.S. Dist. LEXIS 81268.

Nugget: "The chasm this Court must traverse to reach Plaintiff's conclusion is simply too great."

Dura No Help to Sears

2006-11-08T17:36:00.000-05:00

The Sears securities class action was filed in 2003, but we’re still dealing with motions to dismiss. The third round of them actually. This time, it’s all about (our old friend) loss causation, with Judge Rebecca R. Pallmeyer (N.D. Ill.) taking on the Defendants’ Dura arguments -- and pretty much shooting them all down. As she put it, “to the extent Defendants suggest that Dura imposed stricter fact-pleading requirements for the economic loss and causation elements of an action under § 10(b), Defendants are mistaken.”

Judge Pallmeyer also commented that “Defendants' arguments are inconsistent,” and “more importantly, however, the kind of specificity the Defendants seek is simply not required at the pleading stage.”

You can read Ong v. Sears, issued October 18, 2006 at U.S. Dist. LEXIS 80294.

Nugget: “Dura has not abrogated Caremark or changed the law in the Seventh Circuit."

Picture This

2006-11-07T19:11:00.000-05:00

Well, there goes the Eastman Kodak securities class action, and yes I mean with prejudice. Why? Because Judge Michael A. Telesca (W.D.N.Y.) says “that Kodak's warnings not only alerted investors of potential problems with changes in Kodak's products, but also informed investors that the company was then currently facing the very problems identified in the Complaint.”

So “because the ‘total mix’ of information available to potential investors clearly informed investors that Kodak's plans were subject to risks, and clearly informed investors of the nature of those risks, the allegedly false and misleading statements made by the defendants during the class period are not material, in that based on a totality of the information, the risks that plaintiffs claim were concealed were disclosed, and no reasonable investor would have been misled.”

You can read In re Eastman Kodak, issued November 1, 2006, at 2006 U.S. Dist. LEXIS 79879.

Nugget: "Therefore, the court, while bound to accept plaintiffs' factual allegations as true, is not required to accept the plaintiffs' conclusions or inferences based on those facts."

Try and Try Again -- and You Still Won't Succeed

2006-11-02T22:16:00.000-05:00

You may remember the article I wrote back in March about the Invision Technologies securities class action. That article, entitled Try Try Again, featured Judge Martin J. Jenkins (N.D. Cal.) gleefully (OK, I added the gleefully part) tossing the case. At the time, I commented that “all may not be lost,” as “Judge Jenkins is going to allow Plaintiffs to submit another amended complaint, but warned that ‘vague assertions and allegations, scattered throughout Plaintiffs' Complaint will not serve to meet their PLSRA burden.’”

Well, here we are in Round II, and Judge Jenkins sure doesn’t seem satisfied. In throwing the case out for good, he says that “for obvious reasons it would have been impossible for Defendants to have disclosed violations that they were not aware of,” and “as a matter of logic it makes little sense to read Defendants' statement as affirming the non-existence unknown violations.”

I’d tell you more, but what’s the point really? This goose appears cooked.

You can read In re Invision, issued August 31, 2006 at 2006 U.S. Dist. LEXIS 76458.

Nugget: “Plaintiffs have plead no specific allegations indicating that Defendants knew of facts at the time that this statement was made such that it would render this statement false.”

Trex Chilled

2006-11-01T21:56:00.000-05:00

Looks like Plaintiffs didn’t fare too well in the Trex securities class action. Reading the opinion, it seemed as if Judge Glen E. Conrad (W.D. Va.) (who was appointed a U.S. Magistrate Judge in 1976 at age 27, and elevated to Article III status in 2003) rejected their complaint on nearly every point imaginable, as he concluded “that the facts and circumstances alleged in this case are not such as to support a departure from the general rule that puffing and forward looking statements do not constitute misstatements or omissions of material facts for purposes of the PSLRA.”

He continued, “as for plaintiffs' claims which arguably implicate statements of present fact, the court concludes that, when read in context with other statements and information made available to the investing public, no reasonable investor could have been misled. To hold otherwise, would create unreasonable reporting requirements that would discourage and chill meaningful communication by corporate officers.”

You can read In re Trex, issued October 6, 2006 at 2006 U.S. Dist. LEXIS 73503 or here.

Nugget: “Even assuming that the accused statements and/or omissions could be viewed as false or misleading, the court concludes that the facts and circumstances alleged by plaintiffs do not give rise to a viable inference of scienter.”

Objectors Rebuffed

2006-10-25T23:07:00.000-04:00

So after "four years of vigorous litigation and two weeks of jury trial, the parties in" the AT&T securities class action settled the case for $ 100 million." Sounds pretty darn good, right? Not to certain objectors. But it looks like they pushed Judge Garrett E. Brown, Jr. (D. N.J.) to the end of his rope, as he found that "Objectors' Counsel fail to show that they improved the Class's recovery in any way," and that "the objections and the subsequent appeal were without merit and failed to improve the Class's recovery in any manner."

In fact, he said that "the Objectors' actions appear to have impeded the Class's recovery -- their objections and subsequent appeal resulted in wasteful litigation and delayed the distribution of funds to the Class. To date, those funds have not yet been distributed."

Looks like that's that. Finally.

You can read In re AT&T, issued September 25, 2006, at 2006 U.S. Dist. LEXIS 69086.

Nugget: "As a preliminary matter, the Court notes that Defendants suggest, in their opposition brief, that Objectors' Counsel should be made to pay expenses and attorneys' fees pursuant to 28 U.S.C. § 1927. (Defs.' Br. at 12-14.) Defendants have not, however, filed a motion seeking such relief, and the Court will therefore consider only the application for fees filed by counsel for Objectors' Counsel."

Judge Ponders PayDay

2006-10-22T22:13:00.000-04:00

OK, the Nugget has been AWOL for a bit, but that’s nothing compared to how long the Cabletron securities class action has been pending. You see, as Judge William E. Smith (D. R.I.) explains, “the case, approaching its tenth year in the judicial system, has traveled from New Hampshire to Rhode Island, through various district judges' chambers, to the Court of Appeals and back, finally landing with this writer in late 2002."

And it looks like – it’s finally over, and if you’re looking for an extensive, academic, and real-world analysis of attorney fee awards in securities class actions, this is your opinion. Want a taste? How about, “the Court is persuaded, based on… the emerging trend in district courts nationwide, that the better approach to awarding attorneys' fees is the Percentage of Fund method.” That’s because “a lodestar cross-check may also be useful; however, it is unclear to this Court where the precise lines of "reasonableness" would be drawn if the lodestar cross-check was mandatory (Is .5 too low? Is 2.5 too high?).” “This Court is not required to decide whether the cross-check is an ethical imperative, nor to define the parameters of lodestar reasonableness; rather, it is sufficient to conclude that when the lodestar cross-check is applied to the fee award in this case, it raises no reasonableness concerns.”

Check out the opinion for more fee talk. You’ll likely be surprised at the conclusion.

You can read In re Cabletron, issued October 12, 2006, at 2006 U.S. Dist. LEXIS 76278.

Nugget: “The Court challenged numerous expenses contained in Plaintiffs' original submission. As a result, Plaintiffs modified their reimbursement request to reflect the removal of various questionable items such as multiple filing fees and premiums on administrative expenses. The amount described in this Order is the amended request.”

Auditor Can't Escape ANR Action

2006-09-21T12:59:00.000-04:00

KPMG Bermuda has lost it’s bid to be dismissed from the ANR securities class action. Senior Judge Ellen Bree Burns (D. Conn.) (pictured left) evaluated the audit firm’s alleged knowledge and intent, holding that “repeated restatements can… raise an inference of scienter.”

The other prong of her opinion addressed materiality, with Judge Burns finding that KPMG Bermuda’s audit opinions, which said that “ANR's financial statements fairly represented its financial position and were created in accordance with GAAP,” “were relied upon by investors making their investment decisions,” and “thus, plaintiffs have adequately pled the existence of material misrepresentations made by KPMG Bermuda.”

You can read Schnall v. ANR, issued August 30, 2006 at 2006 U.S. Dist. LEXIS 61898

Nugget: “While allegations of GAAP and GAAS violations alone are generally not sufficient to create a strong inference, of reckless behavior, where plaintiffs have alleged facts showing that there were numerous red flags that KPMG must have been aware of, if it were conducting any kind of audit, reckless conduct can be, and has been, inferred.”

Shotgun City

2006-09-19T10:59:00.000-04:00

The Eleventh Circuit has ruled in the First Horizon securities class action. But before we get to that, it helps to know that before the case got to the Court of Appeals, the District Judge (after throwing out Plaintiffs’ amended complaint), told Plaintiffs that if they wanted to file a motion to amend, they’d have to pay all of Defendants costs and fees associated with the motion to dismiss. Hmmmm, let’s see. Uh, nope, said the Plaintiffs, instead appealing the ruling.

Well, that appeal has now led to an opinion, authored by Circuit Judge Stanley F. Birch (pictured). In it, the Panel says that “the defendant is a no good defrauder.” Strong language, huh? Actually, the Panel uses that language in a rhetorical sense, ruling for Defendants by accepting the sound-in-fraud argument “when the facts underlying the misrepresentation at stake in the claim are said to be part of a fraud claim, as alleged elsewhere in the complaint.” However, before some of you start to get carried away, the Panel did make clear that they do not intend to “elevate the pleading standard when the claim is not alleged to have been part of another fraud-based claim.” So kind of where we were – don’t allege fraud in your ’33 Act claims.

And here’s another thing not to do if you’re a Plaintiff. The Panel held that “the complaint at issue in this case is a proverbial shotgun pleading,” which to them is a complaint that “incorporate[s] every antecedent allegation by reference into each subsequent claim for relief or affirmative defense.” In other words, how and exactly what you incorporate from the body of the complaint into the Counts is important – especially in the Eleventh Circuit. So if you’re drafting an amended complaint right now, do yourself a favor and read this opinion carefully. Otherwise, you could be responsible for a Nugget article you won’t like.

Oh, and as for the cost and fee thing, the Panel said it chooses to “strike a different path,” concluding that they “disagree that dismissal was the appropriate course of action for the district court to take at this juncture in the litigation,” because things seem “more clearly in Rule 12(e)'s remedy of ordering repleading for a more definite statement of the claim, rather than in Rule 12(b)(6)'s remedy of dismissal for failure to state a claim.” So, “given the district court's proper conclusions that the complaint was a shotgun pleading and that the plaintiffs' failed to connect their causes of action to the facts alleged, the proper remedy was to order repleading sua sponte.”

You can read Wagner v. First Horizon, issued yesterday, here.

Nugget: “Shotgun pleadings wreck havoc on the judicial system. Such pleadings divert already stretched judicial resources into disputes that are not structurally prepared to efficiently use those resources.”

How Do You Like Us in Bold?

2006-09-11T23:40:00.000-04:00

Having been dismissed once back in February 2006, Judge Marilyn Hall Patel (N.D. Cal.) (pictured) gave Plaintiffs in the iPass securities class action another chance. So what did they do? Well, I’m not sure what might have gone wrong, but Judge Patel says “Plaintiffs have merely changed the typeface in their amended complaint.” Is this really for real? Really? Wow, I couldn't see the true falsity before, but now that I read it in 14 point Bolded Palatino Linotype, it's so clear. I'm going to deny the individual defendants' motions to dismiss in full, and suggest to counsel that if they'd gone all out with the BlackAdder ITC fully-loaded 16 point, I'd have even kept those nasty auditors in this thing. But guess what? It didn’t work. I mean it really didn’t work.

In all fairness, it seems there were other changes to the second amended complaint, but they did about as much good as the ill-fated font switch (or whatever the actual typeface change actually was), with Judge Patel topping it all off by noting that Plaintiffs “failure to meet their pleading burden despite the Court's Order having laid out a clear blueprint for doing so suggests that amendment would be futile.”

Result? Dismissed with prejudice.

You can read In re iPass, issued September 6, 2006, at 2006 U.S. Dist. LEXIS 63654.

Nugget: “If anything, sale to repay a loan is more probative of good faith than bad, as it provides a reason for the sale wholly independent of future business difficulties.”

Posner Prose

2006-09-07T22:27:00.000-04:00

Classic Judge Posner. Just classic. I never get tired of reading his opinions, and believe you me I get tired of many of them quick. So, listen to this from yesterday’s Seventh Circuit opinion in the AT&T/Georgeson class action. You see, as he puts it, “after you buy a car and drive away with your new possession, much can happen to affect the value of your purchase. If what happens is traceable to something that occurred before the sale was complete, such as a defective engine block, you may be able to undo the sale on the basis that that something happened ‘in connection with’ the sale. But if something happens after the transaction is complete to make it less worthwhile to you, such as the dealer's replacing a tire that has worn out with one that is the wrong size, it is a separate wrong, not anything connected with the original sale unless the wrong is a breach of warranty.”

But “of course there is a literal sense in which anything that happens that would not have happened but for some prior event is connected to that event. In that sense the fraud of which the plaintiff complains is connected to the merger, without which there would not have been such a fraud against the plaintiff and her class. But in the same sense the fraud is connected to the Big Bang, without which there would never have been a MediaOne or even an AT&T.”

There’s more where that came from, so if you like Posner (Yeah!), or you really can’t wait to read another SLUSA case (until now, always a big Zzzzz), you can read the opinion or listen to the oral argument in Gavin v. AT&T & Georgeson, issued September 6, 2006, right here.

Nugget: “Georgeson's lawyer told us that the defendants had not sought removal on the alternative ground of diversity because they were certain there was jurisdiction under SLUSA. That was a mistake, but he added that he doubted that the plaintiff's complaint satisfied the requirement that the amount in controversy exceed $ 75,000. That was another mistake.”

Let the Money Do the Monitoring

2006-09-05T21:42:00.000-04:00

Judge William J. Haynes, Jr. (M.D. Tenn.) (pictured here during his 2004 Senate confirmation hearing) says that "to be sure, the plaintiff with the larger numeric loss is not automatically the plaintiff with the ‘largest financial interest’.” But “as to the Peoria Fund's various arguments” in the American Service Group securities class action, he reminded everyone that “it must be remembered that ‘[t]he manifest intent of the (PSLRA) is determining the Plaintiff most capable of pursuing the action and representing the interests of the class,’” and that “this standard has been described as "let the money do the monitoring.”

So, “given MARTA's losses, its assets and the limited number of Plaintiffs seeking lead plaintiff status, the Court does not ascertain any practical need for an alternate method for determining the largest financial interest nor for the appointment of co-lead plaintiffs.”

You can read In re American Service Group, issued August 28, 2006 at 2006 U.S. Dist. LEXIS 61779.

Nugget: “If, later in this litigation, good cause is shown to revisit this issue, any plaintiff may move the Court for reconsideration of its appointment of the lead plaintiff.”

Two Little Birds, One Big Stone

2006-08-31T21:32:00.000-04:00

Judge Lance M. Africk (E.D. La.) (George W., Class of ’02) combined his rulings on the motions to dismiss the US Unwired securities class action and the derivative case. You see, after tossing the derivative case on a standing issue, it all came down to safe harbor and loss causation, with Judge Africk first finding that “beyond the blanket assertion by plaintiff that defendants knew that these statements were false when they were made, the Court can find no other suggestions of this alleged fraud.”

As for Dura, chalk this one up for the defense, as Judge Africk held that the Amended Complaint’s “Truth Begins to Emerge," section “failed to detail the statements made during the class period that would have revealed the truth about defendants' alleged misrepresentations and shown these misrepresentations to be the proximate cause of plaintiff's losses.”

So that’s it, right? Well, maybe not, as the dismissal was entered without prejudice. Remains to be seen if Plaintiffs will take another shot and amend.

You can read Romero v. US Unwired, issued August 11, 2006, at 2006 U.S. Dist. LEXIS 60589.

Nugget: “To establish the requisite causation, the truth regarding a defendant's putative misrepresentations must come to light.”

Waiting Game

2006-08-29T08:56:00.000-04:00

No new securities class action decisions came out over the past two days, so I'm just waiting on one. I'm also waiting on Ernesto, so if there's no posts later this week it's because there's no power where I live in Boca Raton, South Florida. Looks like it's going to be a (relatively) small storm, but you never know. Believe me, I'm certain that the power poles here in Florida are made of solid Gingerbread.

Tell it to the Jury Guys

2006-08-27T15:20:00.000-04:00

It’s been a while since I wrote about Dura (O.K., all-right, or anything at all – that was a cheap shot by the way), as my fingers were tiring from reporting on all those failed motions to dismiss, and my intracranial pressure was at dangerous levels from reading one-too-many defense oriented articles about how Dura changed the world (when, unless you’ve eaten some magic mushrooms, which I hear are quite delicious, it changed virtually nothing except you can no longer allege price inflation by itself – a result that’s completely logical to me).

Anyway, a new Dura opinion has been issued by Judge Michael M. Baylson (E.D. Penn) (George W. Bush, Class of ‘02) (pictured), and it’s a must-read for you loss causation groupies. In a nutshell, Judge Baylson told the Defendants that couldn’t have summary judgment based on Dura, but they could ask a jury to decide the issue instead. Gee, thanks a lot, just what we need here at CIGNA, a jury of our “peers.”

So, after sorting out the battle of the experts, Judge Baylson held “that (1) Dura Pharmaceuticals does not compel a fundamental change in the way this Court should analyze proof of economic loss; (2) at this time it is not be appropriate to adopt the investment model advanced by Defendants to measure economic loss under the federal securities laws; (3) one of several methods used by courts prior to Dura Pharmaceuticals to analyze and quantify economic loss and damages is a transaction-based methodology; (4) applying that methodology, SERS has a viable claim for economic loss based on particular shares held at the end of the class period; and (5) there are disputes of material fact related to economic loss and damages that make summary judgment particularly inappropriate; and (6) a jury should be permitted to make relevant factual determinations for the purposes of calculating damages.”

So the Nugget lives. It’s good to be back.

You can read In re Cigna, issued August 18, 2006, at 2006 U.S. Dist. LEXIS 59915.

Nugget: “Granting summary judgment on the present record would deprive the Plaintiffs of their constitutional right under the Seventh Amendment to have a jury decide all issues concerning the award of damages.”

Death in the Family

2006-08-21T22:11:00.000-04:00

The Nugget will be back full-speed soon, as I plan on starting back up this Monday August 28, so don’t worry. In the meantime, I have some awful news. Last week, attorney Craig Rieders (pictured) died suddenly and unexpectedly. He was only 46 years old.

For those of you who didn’t know him, Craig served as one of the lead bankruptcy counsel in the Enron securities class action, and many other cases in our field. Craig also served as bankruptcy counsel in several of my cases, and was a tremendously talented and street-smart attorney. I mediated a case with him last year with his assistance, and as anyone knows you can really get to know someone if you are in a room together for 12 hours. I can only imagine how devastated his family, friends, and colleagues must be, and I send my deepest sympathies to each of them. Whenever I saw Craig, he always had a new story or joke to tell, and he was always laughing and in a great mood. What a terrible terrible tragedy. I will miss him.

Serial Remover Foiled Again

2006-08-10T21:43:00.000-04:00

I’ve heard of Defendants trying to remove their state court case to federal court, but these guys over at Prudential have got to be some of the most persistent removers (yes, I believe I have invented a new word in this context, but I think this situation warrants it) I’ve ever seen. Long story short, Plaintiffs brought a class action against Prudential in an Ohio state court alleging state court claims. But Pru claims the case is actually “a federal securities class action masquerading as a state-law case, and claims Plaintiffs' purpose is to avoid federal jurisdiction where this kind of action was intended to be brought.” Yeah, right.

Anyway, here’s where things heat up. Twice Prudential tried to remove the case, first at the beginning, and next on the eve of trial, and twice they were remanded. Then the firestorm came, as “the state court trial proceeded, and the jury awarded Plaintiffs $11 million in compensatory damages and $250 million in punitive damages.”

So guess what Prudential did? Yep, that’s right, they removed the case a third time (now seven years after the case was filed), arguing that Merrill Lynch v. Dabit confers federal jurisdiction. Well, I must admit my eyes glazed over reading the rest (something about 28 U.S.C. § 1446), but you’ll surely want to know that newly commissioned Judge Jack Zouhary (N.D. Ohio) (pictured) sent the case back to state court again, and also declined “to decide the issue of whether the holding of Dabit otherwise precludes this class action.”

Want to try for a fourth removal? I wouldn’t put it past them. I have a perfect time – how about after Pru loses each appeal?

Update: Looks like Pru just lost the first appeal, although they did get quite a hefty reduction in the punitive damages -- $250 million cut down to $6 million.

You can read Burns v. Prudential, issued July 10, 2006, at 2006 U.S. Dist. LEXIS 46329.

Nugget: “Ultimately, the cases Prudential cites in its effort to expand the concept of ‘order or other paper’ are either easily distinguishable or unpersuasive.”

Judge Notes Trial Comes at End of Case, Not Beginning

2006-08-08T22:15:00.000-04:00

So when your Judge says that “Defendants are pummeling a straw man,” how do you think it turned out for them? Not to well, actually, as Chief Judge Lewis T. Babcock (D. Colo.) (Reagan Class of ’88) explicitly recognized that “Plaintiffs allege not that the Defendants made false statements concerning demand for their products but rather that they omitted to disclose information that they had a duty to reveal,” and concluded that “a jury could find that the Defendants had a duty to make a full and truthful disclosure of the facts.” Ah yes, the omission. That’s still illegal too, you know.

Judge Babcock also rejected Defendants' attempts “to require that a Plaintiff’s complaint mimic a newspaper article, specifying the what, where, when, why, and how of each discrete communication and transaction of which the fraud was constituted, “ finding “that understanding would render the authorities meaningless.”

You see, that’s because “requiring plaintiffs to set forth in their complaints each and every piece of evidence demonstrating the fraudulent event would be tantamount to trying the case at the pleadings stage, which is verboten.” So, “while the PSLRA certainly heightened pleading standards for securities fraud lawsuits,” Judge Babcock says that “if Congress had intended in securities fraud lawsuits to abolish the concept of notice pleading that underlies the Federal Rules of Civil Procedure, Congress would have done so explicitly.”

You can read Croker v. Carrier Access, issued July 18, 2006, at 2006 U.S. Dist. LEXIS 48603.

Nugget: “The plaintiffs have filed an Amended Complaint consisting of 102 pages, which the defendants describe as prolix. Whether prolix, ponderous, or panoptic, the document is insufficiently detailed to satisfy the defendants, who move in two separate motions for dismissal on the ground that the allegations are not particular.”

Net Gainers, Do Not Pass Go, Do Not Collect $2 Million

2006-08-03T21:43:00.000-04:00

Now who would’ve thunk that we’d be reading an opinion issued in the Cendant case in 2006? I mean seriously, this thing settled in like 1972, didn’t it? Well, June 2000 actually, but even that’s an awfully long time ago. So what could possibly generate an opinion now you ask? Well, how about some sizeable shareholders who submitted claims in the settlement but were rejected by the administrator because it found their claims“did not merit compensation under the Plan because the profits they made by selling stock at artificially inflated prices cancelled out any losses they suffered on stock held after the irregularities were disclosed."

So you can read the Court’s lengthy analysis if you’re fascinated by plans of allocation, but if you’re not (perhaps because you are normal), you will be satisfied to know that the Third Circuit, led by Judge Thomas L. Ambro, affirmed the denial of payment to these shareholders because they “reaped a net gain rather than a net loss.” As Johnny might have put it, if you came out ahead, your claim is dead. Dead indeed.

You can read In re Cendant, issued July 18, 2006 right here.

Nugget: "The bottom line: SKAT's profit far outweighs its loss amount. Thus, it is not entitled to any payout."

Third Circuit Squashes Ungrateful Objectors

2006-08-01T21:35:00.000-04:00

It takes a lot of nerve, let me tell you. Sorry, I'm getting ahead of myself again. You see, Plaintiffs' counsel in the AT&T securities class action reviewed more than 4 1/2 million pages of documents, took eighty depos, and even went to trial for eight days (back in October 2004) before securing a $100 million settlement. And after all that (and that's just scratching the surface I'm sure), some objectors come in at the end complaining that counsel's fee request of 21.25% was too high. Too high? Are these people serious? In a country where most contingent attorneys routinely charge 1/3 (and in some jurisdictions 40% if the case goes to trial), 21.25% is certainly reasonable. And when you factor in four years of intense work with no guarantee of any payment, well, all-right I'll stop.

So anyway, after being rejected by the District Court, the objectors appealed, “contending the award of attorneys' fees and expenses is unfair and unreasonable because (1) it is excessive, (2) it employs a sliding scale that provides for the fee percentage to increase rather than decrease as the settlement amount increases, and (3) it provides for payment of the full amount of attorneys' fees before class members will receive payment. Objectors ask that fees be reduced to 15% of the settlement fund, in addition to requested costs and expenses, and that the pay-out be staged, with the final installment withheld until class members have been paid.”

Well, the Third Circuit rejected the objectors on every point, with perhaps the most interesting part saying that “the District Court did not abuse its discretion in concluding the sliding scale was fair and reasonable in light of the size of the settlement fund, the difficulty and length of the litigation, and the fact that all benefits accruing to class members are properly credited to the efforts of class counsel.”

You can enjoy In re AT&T, issued July 20, 2006, right here. I sure did.

Nugget: “The lodestar cross-check, while useful, should not displace a district court’s primary reliance on the percentage-of-recovery method.”

Nugget Lite

2006-07-23T17:41:00.000-04:00

Well, I took the plunge and resigned my partnership with my current firm. So Nugget posts are probably going to decrease a little in frequency as I have joined Saxena White, P.A., where I will be heading up the litigation department alongside my long-time friends and colleagues, Maya Saxena and Joe White. In the firm's first two months in operation, we've already been appointed lead and/or co-lead counsel in several securities class actions, so we'll have plenty to do.

O.K., O.K., the shameless plugging is over (for today only though), I know what's really on your mind -- you're thinking, who gives a crap about Jones' career, without my Nugget, I'm going to have to read some of these new opinions myself -- oh, the sheer horror! But never fear, I'll try to post about twice a week, and in a couple months, I intend to return to full posting level.

Anyway, thanks again to all you loyal Nugget subscribers and readers -- the site should reach 50,000 total hits this week -- you make all the work that goes into this blog worthwhile.

Tenth Circuit Speaks in Pre-Paid

2006-07-19T23:57:00.000-04:00

It seems like it’s been a while since we had a Court of Appeals PSLRA decision, but the Tenth Circuit has put an end to that dry spell in the Pre-Paid Legal Services action, with colorful language (in places) that definitely reminds me of an Easterbrook opinion. Judge Terrence L. O'Brien (George W. Class of ’02), writing for the Panel, said that “this case may be a close call, but it is difficult to tell because the complaint is so rich in sweeping, generalized and sometimes conclusory allegations. Pleading precision could have better informed the debate and aided the critical analysis necessary to resolve a motion to dismiss.”

So “in the face of a somewhat chaotic complaint the district court understandably cut to the chase. Although the district court listed the numerous alleged GAAP violations, it appears the court distilled the Consolidated Complaint to the single GAAP violation concerning the recording of unearned commission advances as assets. When so limited, the Consolidated Complaint fails to adequately allege scienter because there is no evidence that this alleged GAAP violation was the result of Pre-Paid Defendants' fraudulent intent to mislead investors. The district court noted Pre-Paid's SEC filings disclosed it recorded unearned commission advances as assets on its balance sheets and warned it might not be able to recoup unearned commission advances.”

Wrapping it up, the Panel concluded that “if Pre-Paid Defendants intended to deceive investors, it makes little sense for them to overtly disclose their scheme to the SEC and public. But, charitably regarded, the complaint alleges more subtle means and purposes.”

You can read McNamara v. Pre-Paid, issued July 14, 2006, here or at 2006 U.S. App. LEXIS 17902.

Nugget: “Based on the above, we conclude Plaintiffs' Consolidated Complaint insufficiently pleads scienter. However, unlike the district court, we do not believe Plaintiffs' fraud theory is "patently absurd." The Consolidated Complaint raises some serious "red flags" concerning Pre-Paid Defendants' long term recording of unrecoverable unearned commission advances as assets and the credibility of their pre-2001 SEC disclosures. Nevertheless, it is lacking in allegations demonstrating Pre-Paid Defendants' alleged fraud was economically logical in light of Pre-Paid's repurchase of its own stock at allegedly inflated prices. It also fails to adequately allege Pre-Paid's GAAP violation was the result of an intent to mislead investors. Therefore, dismissal was appropriate.”

The Cold Light of Hindsight

2006-07-18T18:22:00.000-04:00

Plaintiffs must be wondering what hit them the Metris action, having received a summary judgment blow to the head from Judge James M. Rosenbaum (D. Minn.) (Reagan Class of ‘85) (the picture to the left was taken immediately after the ruling was issued), who said that “in the cold light of hindsight, defendants' projections were overly optimistic, but economic prognostication, though faulty, does not, without more, amount to fraud.”

That’s not so bad you say. Oh no, I’m just gettin’ warmed up. How about “these plain vanilla statements are simply too vague to support a securities fraud action; the test is whether a reasonable investor would have considered such statements significant at the time. And a reasonable investor would not. There is nothing concrete or substantial in these statements upon which a reasonable investor would base an investment decision.”

But "where the case unravels,” is on scienter, as, well, “Plaintiffs have failed to produce evidence" of it. "Instead, their case teeters on repeated, but unsupported, theories of motive and opportunity, mixed with a mere suggestion of recklessness. While scienter is generally a question of fact for the jury, neither plaintiffs' motive and opportunity theory, nor their soupcon of recklessness, is sufficient to withstand summary judgment.”

Yes, I was kidding about when the picture was taken, but maybe, just maybe....

You can read In re Metris, issued April 21, 2006, at 428 F. Supp. 2d 1004.

Nugget: “The fact that a company may have hit a rocky patch does not mean it has no positive prospects. The Court finds these allegations too general to pose a triable issue of fact.”

Defeat Snatched from Jaws of Victory

2006-07-13T21:56:00.000-04:00

So, “for the reasons set forth below, the Court grants Defendants' request to reconsider its previous opinion.” Hooray! Pop that cork, and let’s get me some bubbly! What… wait… what’s that? What do you mean he’s not finished? Uh, sorry, but you forgot to read the other part, the one that says “but denies the relief requested as the newly considered case law does not alter the Court's prior decision.”

Bet they kind of feel like this kid, don’t you think? Anyway, it’s our old friend Dura in play here, and this time it has Judge Dennis M. Cavanaugh (D. N.J.) (Clinton Class of ‘00) observing in the Sealed Air action that he “would have to address many issues of fact to make a determination of whether Plaintiff has established loss causation,” but “the Court is prohibited from making these determinations at this point in the litigation.”

You can read Senn v. Hickey, issued July 10, 2006, at 2006 U.S. Dist. LEXIS 46332.

Nugget: “Again, this decision does not mean Defendants may not later prove Plaintiff failed to establish loss causation. The Court is only stating that it would be improper to make a ruling on this issue during a motion to dismiss.”

A Whole Lot of No Fraud

2006-07-11T20:01:00.000-04:00

OK, here’s a hint for all you ’33 Act groupies. If you allege that your Section 11 claim “is the stuff of a quintessential fraud claim” then, um, you’re probably not going to win an argument that your claim doesn’t, well, sound in fraud. I mean try and imagine being slated to do the oral argument in that one? No, Your Honor, quintessential fraud means so much fraud that there actually isn’t any fraud -- I mean, that’s a lot of no fraud Judge.

But, believe it or not, that seems to be exactly what Plaintiffs in the Capital Bancorp action did (at least in writing, and we’re sure not on purpose), and it brought a swift ruling from Judge Phyllis J. Hamilton (N.D. Cal.) (Clinton Class of ‘00) who noted that -- are you ready for the cliffhanger ending -- “plaintiffs' complaint "sounds in fraud.”

Result? Complaint dismissed with partial leave to amend.

You can read Rubke v. Capital Bancorp, issued June 16, 2006, at 2006 U.S. Dist. LEXIS 43745.

Nugget: “Where the complaint makes a wholesale adoption of the securities fraud allegations for purposes of the 1933 § 11 claim, the Ninth Circuit has held that the district court is not required to sift through allegations of fraud in search of some 'lesser included' claim of strict liability. It may dismiss. If it does so, it should ordinarily accept a proffered amendment that either pleads with the requisite particularity or drops the defective allegations and still states a claim.”

Wish Upon a Stay

2006-07-06T23:54:00.000-04:00

In deciding whether to lift the PSLRA stay, Judge William H. Pauley III (S.D.N.Y.) (Clinton Class of ‘98) considered Plaintiffs “claim that because Defendants have previously produced much of the requested material to the SEC, Defendants could easily produce the same material to Plaintiffs.” But, he found that “this consideration is irrelevant,” as “there is no exception to the discovery stay for cases in which discovery would not burden the defendant.” Instead, “the proper inquiry under the PSLRA is whether the plaintiff would be unduly prejudiced by the stay, not whether the defendant would be burdened by lifting the stay.”

Lifting the stay DEE-NYED. Sorry -- I can’t find a picture of Judge Pauley anywhere after spending an exhausting 32 seconds looking for one. You can send me one if you want, but of course I won't get it until Friday night -- and I do not post judicial pictures after Happy Hour.

You can read In re Smith Barney Transfer Litigation, issued June 26, 2006, at 2006 U.S. Dist. LEXIS 42646.

Nugget: “Plaintiffs' have identified no "prejudice" beyond the routine delay arising from the PSLRA stay. Because no exceptional circumstances are present in this case, discovery will remain stayed as to Plaintiffs' securities claims.”

Unique HP Theory Fails

2006-07-05T22:21:00.000-04:00

Yep, he’s Justice Stephen Breyer’s younger brother, and no, this time I didn’t mix up the family member pictures like last time (but only because I already knew what Justice Breyer looks like). So you see, “Plaintiffs' theory is unprecedented and unpersuasive.” In fact, “Plaintiffs cite no law, and the Court is aware of none, that suggests that when a director votes in favor of a written agreement a company is under a legal obligation to modify the language of the agreement to reflect the views expressed orally by that director.” So looks like that’s it (at least at the District Court level) for the Hewlett-Packard securities class action, as Judge Charles R. Breyer (N.D. Cal.) (Clinton ’97) kicked it straight to the curb with prejudice.

You can read Hanrahan v. Hewlett-Packard, issued June 16, 2006, at 2006 U.S. Dist. LEXIS 43768.

Nugget: “Plaintiff does not cite any case that suggests a publicly-traded company cannot report the accurate fact that a board of directors has unanimously approved some action when one board member who voted for the action has expressed reservations or even opposition to the action. Such a ruling would greatly expand the reach of the securities laws.”

Whose English?

2006-06-30T17:54:00.000-04:00

Oops, if you read this post earlier today I had the WRONG picture and link to the Judge. So yes, I figured out how to add pictures to the Nugget (other than my famously notorious one, and yes it took me a year), but I linked and showed Judge Limbaugh's son, who is actually on the Missouri Supreme Court. Hate to be at that Thanksgiving table -- Jones, your motion to speak is denied and affirmed. My apologies to both Your Honors.

So, Judge Stephen N. Limbaugh, SENIOR (E.D. Mo.) (both Judge Limbaugh's are Rush’s cousins though so I was right about that) gave me a pretty good chuckle with this footnote in his D&K Healthcare opinion, wryly commenting that “although the Court appreciates creativity in pleadings, it must draw the line at words such as "incentivize" that have failed to make it into any recognized English language dictionary.”

When the laughter subsided, and I unlodged the pretzel from my throat, I took a look (I ain't no English scholar), and, um, it seems the folks over at The American Heritage Dictionary might beg to differ, and don’t even look at this result from no less than Merriam-Webster. Who knows who's right, but I guess the only option at this point is to shake up that toner cartridge and get that Motion to Reconsider on file guys. Better yet, how about an emergency mandamus request this Saturday night? Just use these procedures, they won’t mind -- and I promise it will generate an Order (although I make no guarantee what type).

But seriously though, you want the result of the opinion? Well, it looks like some parties were dismissed and some not, and it appears four orders were somehow issued within one opinion, but you don’t seriously expect me to sort all this out on a Friday before the long weekend do you?

Better think again because I have to go buy the best beer available and some highly explosive Florida style fireworks that absolutely no ordinary citizen like me should be allowed to possess. I hope you don’t live near me, as I plan to use them together.

You can read Dutton v. D&K Healthcare, issued June 23, 2006, at 2006 U.S. Dist. LEXIS 42553.

Nugget: “Defendant Plotnick's alleged conduct was evidently not a well-kept secret given the pervasive witness accounts by the numerous unidentified persons in the Second Amended Complaint.”

Sanctions May Be in Plaintiffs’ Future

2006-06-28T06:19:00.000-04:00

I’ve fought about a lot of things in my ten years as a class action litigator, but this one has to take the cake. I mean, you simply are not going to believe this. In the Transaction Systems Architects action, the “defendants filed a motion to compel for the following specific deficiencies in the plaintiffs' responses to interrogatories:

1. The ‘verification’ offered by the plaintiffs is not made under oath because it is neither notarized nor declared under penalty of perjury.

2. The ‘verification’ offered by the plaintiffs impermissibly excludes those matter that Mr. Martini [who signed on behalf of the plaintiffs] ‘averred upon information and belief.’”

Well, I bet you know where this is going, but keep this in mind. You might think there’s not much for Nebraska Judges to do, but you’d be wrong. Dead wrong. In fact, the District only has three Magistrate Judges, and weighs in with the seventh heaviest per-judge criminal felony case load in the nation. Clue: might not want to bother these Magistrates, who spend the bulk of their time handling these felony cases, with shall we say, trivial civil matters.

So with that in mind, you can imagine the frustration level of Magistrate Judge Thomas D. Thalken (D. Neb.), while probably just finishing the unenviable task of dealing with twenty arraignment and sentencing hearings that morning, when he had to shift his attention to this hugely important issue. As he noted, “had the plaintiffs merely corrected the defect, the proceeding may have gone more smoothly without the necessity of additional motions and other documents filed by the parties.” But alas, they didn’t correct them, so Judge Thalken had to waste a perfectly good sheet of paper on these warriors.

He concluded that “the defendants need not show prejudice before compliance with the federal rules is required. In fact, even litigants proceeding without counsel must comply with these rules. Accordingly, the plaintiffs will not be exempt. The defendants' motion to compel verification that the responses were signed under oath is granted.”

Oh, and since “the plaintiffs gave no explanation for their failure to comply with the rules,” “the court shall, after the plaintiffs have a chance to respond, grant the defendants' reasonable expenses for filing the motion to compel on those issues, unless the plaintiffs show substantial and legal justification for the failure to comply with Rule 33 or just cause why sanctions should not be imposed.”

I couldn’t resist looking at Plaintiffs’ response to this, and sure enough, Plaintiffs admit (in a brief submitted on June 5, 2006 in response to the show cause order), that “the Court’s Order makes clear, in hindsight, that Plaintiffs would have been better served by not submitting this particular dispute to the Court for resolution.”

Yah’ think?

You can read Desert Orchid Partners v. Transaction Systems Architects, issued May 25, 2006, at 2006 U.S. Dist. LEXIS 34547.

Nugget: “The verification does not contain a notary mark or comply with 28 U.S.C. § 1746.”

Revenge of the Dura

2006-06-26T12:58:00.000-04:00

Looks like Plaintiffs’ newly minted complaint in the Dura case is back in the District Court after winding it’s way up to the Supremes and back. In ruling on the motions to dismiss (surprise, surprise, loss causation is the main issue), Judge M. James Lorenz (S.D. Cal.) (Clinton ‘99) commented that, “there is some appeal to requiring a corrective disclosure to occur at the end of the class period,” but such “a rule requiring the corrective disclosure to immediately follow the end of the Class Period would ensure such purchasers' interests are protected. Nevertheless, the Court finds the authority Defendants cite insufficient to impose such a requirement.”

That’s because “when presented with this case, the Supreme Court could have held that as a matter of law Plaintiffs cannot establish loss causation because the corrective disclosures regarding Albuterol Spiros were made several months after the Class Period ended. The Supreme Court did not so hold, and instead only required the Plaintiffs to properly allege a causal connection between the economic losses suffered and the Defendants' misrepresentations.”

Result? Motion to dismiss granted in part and denied in part. Leave to amend granted.

You can read In re Dura, issued June 2, 2006, at 2006 U.S. Dist. LEXIS 41193.

Nugget: “The Supreme Court's decision did not create a heightened pleading standard for loss causation: the Court noted its holding did not affect Rule 8(a)(2)'s applicability.”

Keeping Up With the Joneses

2006-06-22T22:21:00.000-04:00

Want to really impress your Judge in a lead plaintiff contest? Well, how about having your proposed lead plaintiff actually show up at the hearing? That’s exactly what Plaintiffs’ counsel did in the Impac Mortgage Holdings action. You see, after Judge Cormac J. Carney (C.D. Cal.) (W. ‘03) declared that “groups of unrelated investors, while not per se impermissible lead plaintiffs under the PSLRA, are not adequate class representatives absent a showing that they are able to coordinate their efforts in the litigation” a Mr. Craig H. Jones (no relation I swear), stepped up to grab the spot, with Judge Carney noting that this “is supported by the fact that Mr. Jones himself appeared at the hearing on this motion with his counsel,” which “indicates that he is committed to involving himself in this litigation and supervising class counsel.”

You can read Schriver v. Impac, issued May 2, 2006, at 2006 U.S. Dist. LEXIS 40607.

Nugget: “The fact that the decision to combine the Impac and IMH groups was made by the groups' counsel, with no apparent involvement by the group members, does not bode well for the members' ability to supervise their attorneys.”

Rubber Stamp This

2006-06-21T21:36:00.000-04:00

Hey there, Mr. CEO. Yeah, you. Think you can just sign those Sarbanes certifications and head off to the Racquet Club for a quick game of squash and a white wine Spritzer (or whatever it is you drink)? Well, you had better think again, especially if you work for (yep, I said it, work for) the shareholders of the American Italian Pasta Company.

That’s right, Judge Ortrie D. Smith (W.D. Mo) (Clinton '95) has ruled that “by signing the Sarbones-Oxley certifications and the Annual Reports filed with the SEC, [the CEO] indicated he had reviewed and was familiar with the underlying facts giving rise to those documents -- meaning he was either aware of the improper accounting, was reckless with regard to the public reports of AIPC's finances, or had not conducted any review and did not act in accordance with the certifications.” Take your pick.

You can read IN RE AMERICAN ITALIAN PASTA COMPANY, issued June 19, 2006, at 2006 U.S. Dist. LEXIS 40548.

Nugget: “The Court is not intending to imply those who sign such certifications are strictly liable for misstatements. However, it is a factor that may, in appropriate circumstances, demonstrate the person certifying the pronouncement has merely 'rubber stamped the numbers' and thereby acted recklessly.”

Cray's Day

2006-06-19T22:24:00.000-04:00

Plaintiffs sure tried in the Cray action, but it looks like their first amended complaint just didn’t cut it. They lost on a bunch of points, but a couple of the more interesting ones was Judge Thomas S. Zilly (W.D. Wash.) findings that “a five-month period of stock sales does not create a strong inference of scienter where the allegedly false statements were made in a uniform and routine manner for over two years,” and “here, Plaintiffs do not adequately allege that the sales were timed to maximize the benefit from false SOX 302 certifications that were issued quarterly for at least nine quarters.”

Also, Plaintiffs reliance on a confidential witness who made the case-cracking revelation “that there was ‘talk’ that Cray was ‘fudging its books’” was apparently misplaced, with Judge Zilly calling that mere “gossip and innuendo.”

So the complaint was dismissed, but Judge Zilly did give a generous 120 days for them to try one more time.

You can read Limantour v. Cray, issued April 28, 2006, at 2006 U.S. Dist. LEXIS 27186.

Nugget: “The Court concludes that the Complaint adequately alleges that the 10-Q and SOX 302 certifications for third quarter 2002 through third quarter 2004 were false or misleading based on the disclosure in 2005 that there were material weaknesses in Cray's internal controls and procedures.”

Welcome, and Where are the Female Law Bloggers?

2006-06-18T21:07:00.000-04:00

Let's all give a warm welcome to two new securities related blogs. The first is Lies, Damn Lies, & Forward Looking Statements, from Adam T. Savett, which actually has been around for about four months, and I must say is quite amazing for the depth of its analysis and quality of its links. The other is D&O Diary, brought to you by Kevin LaCroix. The Diary, which is brand spankin' new, also looks like it's going to be a big hit. Let's hope it's around longer than the totally lame D&O Insurance Blog by some guy named Dorenberg who cranked out a bakers' dozen posts over two months before fizzling out in August 2005.

Boy, am I going to feel like an ass if something bad happened to Dorenberg. My sincere apologies if that's the case. And now that I think about it, the site only lists a last name, so it could be a woman. Sorry about that, I assumed it's a guy, as word on the blogging street is that legal blogs are overwhelmingly written by male lawyers, and if anyone knows the reason(s) please enlighten us. I mean, just look at our area, securities law -- about eight major blogs, all by men. I checked around the web, and found this post called Women & Blogging, which might just explain why. Thoughts anyone? (You can click the comment link below, and yes you can be anonymous if you want, and no registration is required).

Nugget from June 6, 2006 American Lawyer article: "To be sure, legal bloggers are still working through their growing pains. Debate rages among them about whether law review articles are relevant anymore, whether blogging counts as real scholarship, whether junior faculty should avoid blogging until they gain tenure, why women tend to eschew legal blogs, what counts as a legal blog, and so on."

A Little Fishy

2006-06-14T21:16:00.000-04:00

It’s one thing to mess with Shrek, but involving poor little Nemo in securities class action litigation? I mean if standing up for the little guy causes you to drag a helpless widowed clownfish into the case, well, I’m not sure how you sleep at night.

Seriously though, that’s just what Judge Mariana R. Pfaelzer (C.D. Cal.) had to deal with in Dreamworks, when she looked at Plaintiffs’ channel-stuffing allegations, concluding that “Plaintiffs allege at different points in the Amended Complaint that Dreamworks initially shipped either 25 million or 30 million copies of the Shrek 2 DVD,” and “according to the Amended Complaint, the Finding Nemo DVD, released a year before Shrek 2, sold 31.35 million units in the first 90 days after its release.” So, “given that Shrek 2, according to Plaintiffs' own sources, had outperformed Finding Nemo at the box office, an initial shipment of 25-30 million units does not appear inconsistent with the trends and expectations set forth in the Prospectus.”

Result? 33 Act claims gone with prejudice. 34 Act claims gone without prejudice. 60 days to amend complaint granted.

You can read In re Dreamworks, issued April 12, 2006, at 2006 U.S. Dist. LEXIS 24456.

Nugget: “Even taking as true the allegation that Defendants were aware of the trend, the documents cited by Plaintiff in the Amended Complaint undermine the contention that Defendants knew or should have known that this trend would have a material impact on the sales of the Shrek 2 DVD.”

Seventh Circuit Mentions PSLRA in Prisoner Case

2006-06-13T23:04:00.000-04:00

Looks like inmate Willie Simpson isn’t very happy. That’s because he alleges that his complaints about prison officials caused retaliation which earned him “300 days in segregation.” Who’s Willie you want to know? Well, who knows, but yesterday, when the Seventh Circuit upheld his complaint under notice pleading (anyone remember what that is anymore?) it observed that “not even the Securities Litigation Reform Act, the statute that has moved the farthest from notice pleading for a particular subject matter (securities class actions), requires proof as opposed to plausible allegations.”

Yes, yes, I know it's not terribly relevant, but it's nice to hear an appellate court formally recognize this fact -- one which obviously no one (dare we say even the 10b-5 Daily?) can reasonably argue with.

Anyway, unless you're a FOW (sorry -- Friend of Willie), believe me, there’s absolutely no point for you to read Simpson v. Nickel, issued June 12, 2006, but if you still want to, it’s at 2006 U.S. App. LEXIS 14329.

Nugget: “Any district judge (for that matter, any defendant) tempted to write 'this complaint is deficient because it does not contain. . .' should stop and think: What rule of law requires a complaint to contain that allegation?”

Club Fed is Dead

2006-06-12T22:41:00.000-04:00

Turns out trying to beat the rap is only half the battle if you are convicted on securities fraud charges. You see, once the jury has sealed your fate, the real game begins -- where to serve your 20 year stint. That's because our friends over at the BOP let you request where you'll go. Of course, like most things in prison, you had better ask nicely as BOP can send your wimpy butt pretty much anywhere they want. So if you'd like to see Forbes' take on the best places to go to prison, click here (check out the slide show too).

P.S. Don't panic everyone, the Nugget will be back tomorrow with another new securities class action opinion. There weren't any new ones today anyway.

Nugget: "The days of 'Club Fed'--think golf courses and lobster bakes--are long gone."

Happy Birthday Nugget

2006-06-11T22:07:00.000-04:00

Well, it seems like just yesterday that I started this site, but the Nugget turns one year old today. And there's going to be some changes around here. Did you know I have never used the words "I" or "me" on the Nugget. It's true, and actually I'm not really sure why. But enough is enough.

Don't worry (as if you would), the Nugget is still going to be your source for emerging securities class action law, but I'd like to branch out a little more. So be sure to email me any juicy or interesting securities class action happenings, because I might just write about it. Anyway, thank you all for your loyal readership, it's both exciting and humbling that over 250 of you have signed up for daily email updates from the Nugget. And I guess nearly 50,000 hits in 12 months isn't too shabby either. So again, thank you and come back again soon. Nugget 2.0 is just gettin' started, and it's sure to offend someone near you soon, so don't miss it.

Second Circuit Scienter

2006-06-08T21:23:00.000-04:00

When the Second Circuit (OK, OK all you bowtied appellate geeks, a Panel of the Second Circuit) speaks out on scienter, you had better listen. You see, they say that the “appropriate lens for understanding Plaintiffs' allegations is to evaluate whether they assert the kind of "conscious recklessness" that we have found to create a strong inference of scienter.” That’s because “the requisite inference of intent may not be based on the types of motives shared by virtually all public companies and corporate insiders, but rather may arise where the complaint sufficiently alleges that the defendants: (1) benefited in a concrete and personal way from the purported fraud; (2) engaged in deliberately illegal behavior; (3) knew facts or had access to information suggesting that their public statements were not accurate; or (4) failed to check information they had a duty to monitor."

So, since “Plaintiffs' Complaint lacks adequate allegations that Defendants were undertaking the challenged transactions for motives other than long-term profitability through the cultivation of major clients,” and it “also does not sufficiently allege that Defendants were undertaking the challenged transactions with contemporaneous knowledge that its transactions with Enron and other prominent clients were illegal under generally accepted accounting principles or were proceeding in a manner that easily can be foreseen to result in harm,” the dismissal is affirmed.

You can read the unpublished Fadem v. Citigroup, issued February 6, 2006, at 165 Fed. Appx. 928.

Nugget: “Because we agree that the issue of scienter was not adequately pleaded, we need not reach the issue of the sufficiency of Plaintiffs' allegations of falsity.”

What's the Difference?

2006-06-07T21:25:00.000-04:00

Defendants cried foul in the Veritas securities class action, claiming that “plaintiffs have not pled fraud with adequate specificity because no ‘dates, transactions, customer names and amounts by which revenue was allegedly misstated’ were disclosed. Did it work you smartly ask? Well, not one bit actually, as Chief Judge Sue L. Robinson (D. Del.) quickly schooled them that “the requirement for particularity in pleading fraud does not demand an exhaustive cataloging of facts, but only specificity sufficient to provide assurance that plaintiffs have investigated the alleged fraud and reasonably believe that a wrong has occurred.”

You see, “the court concludes that plaintiffs have adequately pled facts regarding improper revenue recognition” because “the complaint, based in part on former Veritas employees with personal knowledge of the wrongdoings, alleges a scheme by defendants to inflate the company's revenue numbers by including ‘sales’ from contracts that had not been signed by the customer or that were missing essential terms such as price.”

Also, “the complaint alleges that these fraudulent activities were ‘standard practice’ at the company, that they happened ‘all the time,’ and that incomplete or unsigned contracts were personally approved by defendant Brigden who, when confronted about this practice, stated, ‘What's the difference? We already know what the numbers for the quarter are.’ So, “under the circumstances, the court finds the pleading is adequate to withstand a motion to dismiss.”

You can read In re Veritas, issued May 23, 2006, at 2006 U.S. Dist. LEXIS 32619.

Nugget: “No manner of cautionary language can cure false statements knowingly made.”

Too Many Gaps

2006-06-06T21:12:00.000-04:00

It seems the “fundamental problem with Plaintiffs' allegations” in the Gilead securities class action is “that they require the Court to make the unreasonable inference that a public revelation on August 8 caused a price drop three months later on October 28.” In other words, as Judge Martin J. Jenkins (N.D. Cal.) continued, “there are too many logical and factual gaps in Plaintiffs' allegations to support the conclusion that Defendants' alleged misconduct proximately caused Gilead's stock decrease in October.”

So, since “there was no price drop immediately after the August 8 revelation,” and “Plaintiffs have failed to remedy the deficiencies of their allegations in each amended version, the Court finds that further amendment is futile. Accordingly, the Court dismisses the Complaint with prejudice.”

You can read In re Gilead, issued May 12, 2006, at 2006 U.S. Dist. LEXIS 32893.

Nugget: “Indeed, the evidence Plaintiffs have presented to the Court only supports an inference that the market gave little or no weight to the FDA Warning Letter.”

Tell Us Again Please

2006-06-05T17:43:00.000-04:00

So get this, in the Interbank securities class action, the D.C. Circuit Court of Appeals reviewed Judge John D. Bates' (D.D.C.) 2004 partial dismissal of CIBC and Radin Glass and sent it back to him, telling him to explain why he dismissed with prejudice. Well, looks like he's complied with that Order, and it is doubtful (to say the least) that Plaintiffs will be very happy about it. As Judge Bates puts it, “Plaintiffs did not merely fail to comply with some technical procedural requirement; rather, they failed to come forward with allegations sufficient to sustain the claims against either of these two defendants in the face of a motion to dismiss under Rule 12(b)(6) or a motion for judgment on the pleadings under Rule 12(c).”

Of course, “had plaintiffs' failure to meet the pleading requirements been the result of ignorance about the PSLRA's standards, and had plaintiffs represented that they were capable of making more detailed allegations, perhaps dismissal with leave to re-plead would have been warranted. But, as it was, plaintiffs could not possibly have alleged other facts consistent with the challenged complaint sufficient to make out a proper cause of action against CIBC or Radin.” So, you see, “dismissal without prejudice would only have resulted in a futile effort by plaintiffs to re-litigate the same issues determined against them by this Court and not challenged on appeal.”

You can read In re Interbank, issued May 26, 2006, at 2006 U.S. Dist. LEXIS 33463.

Nugget: “By limiting their appeal to the finding that there was no proper motion to amend and the decision to dismiss the claims with prejudice, plaintiffs conceded that their complaint was inadequate.”

You're Fired

2006-05-31T11:16:00.000-04:00

OK, let’s be honest, how often do you hear a federal judge admit a mistake? Not just begrudgingly, but fully admit it, as in I “mistakenly misconstrued,” I “erred,” no seriously, I “erroneously determined” an issue. What’s the issue you ask? Remember back on April, 2006 when the Nugget reported that the City of Philadelphia Pension Board had been appointed Lead Plaintiff in the Dana securities class action based on LIFO? Well, seems one of the losing movant groups, the Pension Trust Fund Group (PTFG), wasn’t very satisfied with that result. But instead of whining about it, they moved to reconsider, arguing that “the City's calculations separated out the LIFO losses of the PTFG's individual member groups, effectively understating those figures.”

To which Judge James G. Carr (N.D. Ohio) concluded “There is no question that characterization is accurate.” You see, as Judge Carr explained, “the City's chart listed line items for: 1) the Plumber & Pipefitters National Pension Fund; 2) the SEIU Pension Plans Master Trust; and 3) West Virginia Laborers Pension Trust Fund. These entities are all part of the PTFG, not individual applicants for lead plaintiff status. Consequently, I should have considered their losses in the aggregate, and therefore erred in interpreting the City's chart the way I did. Accordingly, the PTFG does have greater LIFO losses than the City,” and “PTFG is appointed lead plaintiff.”

You can read Frank v. Dana, issued May 24, 2006, at 2006 U.S. Dist. LEXIS 33021.

Nugget: “Relying on the City's representation, I erroneously determined that party had the largest LIFO losses.”

Hide the Ball

2006-05-25T22:03:00.000-04:00

You hear a lot about false statements in PSLRA cases, right? So much that sometimes it starts to seem like everyone forgets that hiding the truth can be securities fraud too -- otherwise known as a material omission. Well, Plaintiffs in the Hilb Rogal securities class action didn’t forget, but of course a lot of good it did them.

Judge Gerald Bruce Lee (E.D. Va.), in very similar logic to yesterday’s Nugget, said that “where information about a company was made available in an analyst report, or by newspaper articles, any withholding of information by the company is immaterial and cured any omissions by the company.” He then methodically proceeds through each alleged omission, cutting them down like helpless blades of Poa under a liquid-cooled Grasshopper. Of course, he did find that “Defendants did make a misrepresentation of a material fact,” but don’t break out that bubbly just yet. You see, “the Court finds that Plaintiff fails to plead that the Individual Defendants had a motive to defraud investors based on their desire to obtain increased executive compensation and their desire to expand the business by corporate acquisitions.”

Result? Well, “the Court dismisses Plaintiff's First Amended Complaint with prejudice because Plaintiff has already had two full opportunities to state a claim and failed to do so.”

You can read Iron Workers v. Hilb Rogal, issued April 24, 2006, at 2006 U.S. Dist. LEXIS 29460.

Nugget: “Federal securities laws do not require a company to accuse itself of wrongdoing.”

Warn Me

2006-05-24T17:13:00.000-04:00

You know you’re in bad shape when “the very problems that Plaintiffs identify as the actual cause of Defendants' eventual need to warn that they would not meet analysts' expectations for the third quarter are the same as the problems that Defendants warn of in their cautionary language.” At least that’s how Judge James A. Beaty, Jr. (M.D. N.C.) sees things in the Laboratory Corporation of America securities class action, which he tossed because, among other things, “Defendants identified the specific risks that caused their forecasts to vary.”

It's not clear from the Opinion if Plaintiffs will get another chance to amend.

You can read In re Laboratory Corporation of America, issued May 18, 2006, at 2006 U.S. Dist. LEXIS 31232.

Nugget: “Moreover, the Court notes that Plaintiffs have failed to show that these statements were actually false.”

Ninth Circuit Wants Reasons For Refusal to Allow Fourth Version of Complaint

2006-05-22T22:09:00.000-04:00

Looks like the Ninth Circuit isn’t going to let Judge Napoleon A. Jones’ (S.D. Cal.) dismissal of the third amended complaint in the JNI securities class action stand -- at least not without more explanation. You see, although the Panel said that they “agree with the district court's careful and well-reasoned decision,” Judge Jones, who “issued detailed orders dismissing Plaintiffs' first and second amended complaints with leave to amend,” “then dismissed Plaintiffs' third amended complaint without leave to amend.” However, he “did not discuss any of the Foman factors,” “stating only the following with respect to whether Plaintiffs should be granted leave to amend: ‘In its previous Order, the court cautioned Plaintiffs that they would receive no further opportunities to amend their pleadings. Accordingly, the TACC is DISMISSED WITH PREJUDICE.’”

But, the Panel recognized, “Plaintiffs represent that they could amend their pleading to address at least some of the deficiencies noted by the district court, so “on remand, the district court may permit Plaintiffs once again to amend their complaint or it may state with particularity its reasons for declining to do so.”

Click here to read Hey Mack, an early Nugget article (boy, was the Nugget overly-energetic back then) on another Judge Jones decision -- for Plaintiffs.

You can read Osher v. JNI (which is unpublished), issued May 12, 2006, at 2006 U.S. App. LEXIS 12186.

Nugget: “Leave to amend is to be granted with extreme liberality in securities fraud cases, because the heightened pleading requirements imposed by the PSLRA are so difficult to meet.”

Molex Misdeeds

2006-05-19T12:23:00.000-04:00

Judge Ruben Castillo (N.D. Ill.) describes it as “a complex securities case involving numerous allegations of corporate misdeeds amid suspicious factual circumstances, including the resignation of Molex's independent auditor, several undisclosed accounting errors, and multiple short-term changes in accounting methods.” And it seems those alleged suspicious misdeeds were more than enough for Defendants to lose their motions to dismiss.

Judge Castillo touched on lots of issues, but said that “although the magnitude of the accounting errors in the instant case were a relatively small percentage of Molex's total income,” “Plaintiffs have detailed each of Defendants' prior notice of the various errors and manipulative accounting methods, as well as their alleged conscious decision not to reveal the errors to the public or to their independent auditor.” So “although general allegations of GAAP violations are insufficient, ‘[t]he critical facts alleged by the plaintiffs in this case are the identification of the specific transactions alleged to have violated GAAP and the amount of detail provided in explaining those transactions.’”

You can read Takara Trust v. Molex, issued April 28, 2006, at 2006 U.S. Dist. LEXIS 29655.

Nugget: “While SAB No. 99 does not carry the force of law, SEC staff accounting bulletins constitute a body of experience and informed judgment, and SAB No. 99 is thoroughly reasoned and consistent with existing law.”

Judge Keeps Tire Company Action Rolling

2006-05-17T23:30:00.000-04:00

Well, now that the Bridgestone securities class action is back from the Sixth Circuit, it has Judge Robert L. Echols (M.D. Tenn.) pondering some loss causation issues. You see, the complaint was drafted back in 2001, long before Dura, so it “alleges similarly to Dura:" Blah, blah, blah. Oh, sorry, it alleges that "class members were damaged in reliance on the integrity of the market" because "they paid artificially inflated prices for Bridgestone's stock and ADRs."

Uh-oh, right? Well, no, because “even so, Plaintiff alleges elsewhere in the Consolidated Complaint that the value of Bridgestone shares dropped significantly in September 2000, shortly after she bought one ADR, as a direct result of additional negative information about Bridgestone and Firestone that made its way into the marketplace.”

So, “this distinguishes Plaintiff's case from Dura” “because Plaintiff does allege that Bridgestone's share price fell in September 2000 as the true severity of problems with ATX tires surfaced and Plaintiff does connect the alleged fraud with the ultimate disclosure and loss.”

You can read In re Bridgestone, issued May 3, 2006, at 2006 U.S. Dist. LEXIS 28745.

Nugget: “Here, Plaintiff has alleged the share price drop and tied it directly to the market's acknowledgment of Bridgestone's and Firestone's prior alleged misrepresentations.”

With Details Like These, Who Needs Enemies?

2006-05-16T20:59:00.000-04:00

Looks like Judge Ricardo S. Martinez (W.D. Wash.) wasn’t too crazy about “Plaintiffs’ use of anonymous witnesses,” in the Cell Therapeutics action, tagging their revelations as “generalized and speculative statements.” But before you Defendants run off citing this one in your case, better make sure those witnesses said things as specific as they did here, such as “Bianco knew everything,” and had “people who reported to him,” who told him “every possible detail.” Good luck getting details like that, especially about a CEO, wow.

Of course, to be fair, Plaintiffs complaint may have had more detail from witnesses, but these are the only ones cited in Judge Martinez' Order, so that's as far as the Nugget has the time (or energy) to go.

Result? Plaintiffs get 30 days to amend and try again.

You can read Heywood v. Cell Therapeutics, issued May 4, 2006, at 2006 U.S. Dist. LEXIS 28684.

Nugget: “Plaintiffs' attempt to analogize similar cases is also unavailing. All the cases on which plaintiffs substantially rely are distinguishable; in each case, the defendants either grossly misrepresented some specific material fact, or failed to disclose some concrete indication that they could not expect FDA approval for their product.”

Where’s Kevorkian When You Need Him?

2006-05-15T17:22:00.000-04:00

Well, it took eleven years, but it looks like the Jasmine securities class action is finally over. Originally filed in November 1994, it appears Plaintiffs were practically begging the Court to put an end to their seemingly endless suffering. You see, after last June’s partial summary judgment dismissal (Ho, Ho, Ho, Who’s Laughing Now?), Defendants swooped in with five more summary judgment motions to finish off more of the claims. On December 20, 2005, Judge Robert B. Kugler (D.N.J.) noted that “Plaintiffs did not oppose the motions, opting instead to file a brief conceding that loss causation is the rule of the case and that the lack of loss causation entitled Defendants to summary judgment.” Judge Kugler then granted the motions and ordered “the parties to submit a statement advising the Court of any unresolved claims against any Defendants.” Plaintiffs complied, and at the same time “moved to amend/correct the December 20, 2005, Judgment to grant summary judgment on all remaining claims.” Please Your Honor, please.

So you’d think that would be it, but noooooo, Judge Kugler “denied Plaintiffs' Motion to Amend/Correct." Why you ask? Because they failed "to identify any errors in the Court's Order of December 20, 2005.” What do we have to do to get rid of this thing? Anyway, the last group of Defendants then moved for summary judgment again to euthanize Plaintiffs, who then “instead of filing an Opposition” merely adopted and incorporated their earlier response “conceding Andersen's entitlement to summary judgment.”

This time Plaintiffs got their wish, with Judge Kugler throwing out the rest of the case for the same loss causation reasons he did nearly a year ago.

Whew.

You can read McKown v. Jasmine, issued May 5, 2006, at 2006 U.S. Dist. LEXIS 27860.

Nugget: “Where the market never obtains information, it must be the case that factors other than that information are the sole cause of plaintiffs' loss."

Ostrich Defendants

2006-05-11T23:30:00.000-04:00

“A defendant whose head is in the sand with respect to corporate earnings likely has his head in the sand with respect to his Sarbanes-Oxley certification as well.” So says Judge James L. Robart (W.D. Wash.) in the Watchguard securities class action. He also said that “although the passage of Sarbanes-Oxley may make it somewhat more reasonable to infer that a certifying Defendant whose head is in the sand is being deliberately reckless, it does not transform the PSLRA's requirement of falsity-plus-scienter into a requirement of falsity-plus-a-Sarbanes-Oxley-certification.”

So “because the PSLRA places the burden on Plaintiffs to plead facts giving rise to a ‘strong inference’ that a defendant's head was above the sand, or was at least deliberately recklessly buried in the sand, its defendant-friendly provisions trump the plaintiff-friendly Sarbanes-Oxley Act, at least in this case.”

Result? Case dismissed with leave to amend.

You can read In re Watchguard, issued April 21, 2006, at 2006 U.S. Dist. LEXIS 27217.

Nugget: “Corporate officers make mistakes. If the market is efficient, it will punish corporations whose mistakes are too frequent or too egregious. Securities fraud, however, requires much more than a mistake -- it requires a misstatement that was either intentional or deliberately reckless.”

Both Sides Win, Both Sides Lose

2006-05-10T22:05:00.000-04:00

Many of you surely remember reading in the Nugget last October about how Judge Marilyn Hall Patel (N.D. Cal.) called everyone down to the courthouse and basically advised Defendants to file answers instead of motions to dismiss in the Cornerstone securities class action. Well, now we are at the class certification stage, and Judge Patel has issued her ruling. In it, she finds that “Defendants' assertion that Lead Plaintiff and the named representatives are atypical and inadequate as class representatives because of Lamphere's [he’s a class rep] purported non-reliance on the CornerStone financial statements, the possibility of a statute of limitations defense, and the existence of potential intra-class conflicts is not supported by the relevant caselaw.” However, “pursuant to the Supreme Court's holding in Dura, the Class may not include individuals who purchased and sold CornerStone stock prior to any corrective disclosure by the company.”

Result this time? “Plaintiff's motion for class certification is granted, subject to an amendment of the Class definition to exclude plaintiffs who purchased and sold their stock prior to any corrective disclosure in July 2001.”

So -- not a total loss for Defendants by any means, as Plaintiffs proposed class period reached back to July 1998.

You can read In re Cornerstone Propane Partners, issued May 3, 2006, at 2006 U.S. Dist. LEXIS 25819.

Nugget: “Statute of limitations defenses for named plaintiffs are not a bar to class certification for securities fraud.”

Ouch

2006-05-09T22:12:00.000-04:00

Seems like that document preservation Order the Nugget reported on back in January might not matter much now. That’s because Plaintiffs have suffered (yet more) pain from Judge William L. Standish (W.D. Pa.) (pinch hitting for Judge Arthur J. Schwab) in the IT Group securities class action. The nearly one-and-a-half pound decision (literally -- it’s 100 pages), eliminates all of Plaintiffs’ claims with prejudice, and observes that this “third version” of the complaint was “developed over a period of more than four years, and based upon evidence gleaned from an on-going bankruptcy proceeding from which Plaintiffs have received documentary and deposition evidence not usually available to typical securities fraud class plaintiffs.”

But Judge Standish said that in his “previous opinion" he "pointed out precisely the shortcomings in pleading scienter for the individual Defendants, advice which Plaintiffs either failed to follow or are unable to allege with the particularity required by the PSLRA.” In addition, “Plaintiffs have made allegations related to loss causation which are not merely offered in the alterative, but are self-contradictory, a defect which is fatal to their claims.”

Possible appeal? The Nugget thinks so.

Looking back: Loyal Nuggets will likely remember this article, a definite classic, where Judge Standish refused to appoint local counsel.

You can read Payne v. DeLuca, issued May 2, 2006, at 2006 U.S. Dist. LEXIS 25621.

Nugget: “Plaintiffs attempt, it appears, to plead their case by successive approximation, asking Defendants and the Court to point out shortcomings which they then assert they will ‘fix.’ This is not an acceptable method of pleading one's case in federal court.”

Judge Shoots Down Moving Target

2006-05-08T13:51:00.000-04:00

You know you’re in bad shape when your judge says your complaint “is defective because” your “theory of fraud, itself, is legally flawed and is premised on either a fundamental misunderstanding of” Defendants’ “business model, at best, or a blatant misrepresentation of the pertinent facts.”

Yep, that’s the situation in the Applied Signal securities class action, with Judge Saundra Brown Armstrong (N.D. Cal.), after dismissing Plaintiffs theory regarding the company’s backlog, holding that “the Court finds it important to point out that this case departs from the usual circumstances where dismissal with leave to amend is appropriate because the plaintiff has merely failed to allege, with sufficient particularity, facts supporting a viable legal theory of securities fraud.”

So “since Plaintiff could only amend his Consolidated Amended Complaint to allege additional facts that are consistent with the facts that have already been plead, the Court finds that granting Plaintiff leave to amend in order to augment the Consolidated Amended Complaint with additional facts would be futile.”

You can read In re Applied Signal Technology Inc., issued February 8, 2006, at 2006 U.S. Dist. LEXIS 24498.

Nugget: “Further, since Plaintiff has already changed his theory of fraud twice, granting further leave to amend would be highly prejudicial to Defendants. The typically liberal standard of allowing leave to amend should not be employed to require Defendants to defend against an amorphous, "moving target" securities fraud case that is not well thought-out or well supported.”

Quality Not Quantity

2006-05-04T23:28:00.000-04:00

Plaintiffs citation to a 60 Minutes story was apparently not enough for Judge Joan Humphrey Lefkow (N.D. Ill.) to deny Defendants’ motions to dismiss in the Career Education securities class action. You see, Judge Lefkow commented that “even ignoring the problems inherent in a news report from a television program like 60 Minutes, e.g., the reporter's biases, the editing of the interviews to tell a story, plaintiff cannot rely on a 60 Minutes report to meet his pleading requirements under the PSLRA because he has failed to establish that the story related to incidents occurring during the Class Period or that it is probable that each of the interviewees had access to or knowledge of the allegations about which they spoke.”

This is the second loss for Plaintiffs, but Judge Lefkow will let them try a third (and final) time with the caveat that they “take note… that the quality of the allegations, rather than the quantity, is what is important in pleading a claim of securities fraud.”

You can read In re Career Education, issued March 28, 2006, at 2006 U.S. Dist. LEXIS 25252.

Nugget: “Plaintiff again argues that the court is to consider the totality of the allegations rather than dissecting each allegation as if it were standing alone. This argument puts the cart before the horse. Before the court draws any inferences, plaintiff must first meet the pleading requirements of the PSLRA, which requires that the complaint allege with specificity the statements that were false or misleading, the reasons why these statements were false or misleading, and if pleading on information and belief, what specific facts support that information and belief.”

Merry-Go-Round Stops

2006-05-03T23:52:00.000-04:00

If you read yesterday’s article, you already know that getting leave to amend isn’t necessarily going to help you. But today it does. Just look at the Checkpoint securities class action, which Judge Richard M. Berman (S.D.N.Y.) dismissed in March 2005, with leave to amend of course.

Looks like this time Plaintiffs got it right, as Judge Berman said that the new allegations “cure the scienter deficiencies relating to revenue projections” “to the effect that the Individual Defendants knew of material differences between their public statements and Check Point's financial performance. Among other things, Plaintiffs allege that Defendants had access to specific information of sales results, sales projections, and updates with various departments that sales were declining due to increased competition and that problems with NG, Check Point's most important product, were well understood.”

Also, “Plaintiffs adequately alleges loss causation” under Dura because they “allege that competitive pressure and problems with NG caused Check Point's revenue shortfall which caused Check Point's share price to decline when the Company announced its 1Q02 revenue.”

You can read In re Check Point Software Technologies, issued April 26, 2006, at 2006 U.S. Dist. LEXIS 24317.

Nugget: “The Court has previously determined that the timing and the amount of information that Check Point disclosed is a question of fact.”

Merry-Go-Round

2006-05-02T22:30:00.000-04:00

Judge David C. Godbey (N.D. Tex.), who tossed the Odyssey Healthcare securities class action last September, noted back then that “the iniquities of group pleading and puzzle pleading and” his “confidence that those issues would be addressed in any amended pleading.” Well, after reviewing the newly minted amended complaint, he now laments that “unfortunately, that confidence has proved to be unfounded.”

Guess it’s not a big surprise, as in the first dismissal Order, Judge Godbey noted his “view that the deficiencies it found were inherent in the facts, rather than reflecting any lack of effort by counsel, and that amendment would likely be unavailing.”

That notwithstanding, since the latest complaint only “adds two substantive paragraphs,” one of which “does not refer to any specific defendant,” and the other “fails to provide any factual basis for how the former general manager would have knowledge,” “the Court therefore grants Defendants' motion to dismiss,” this time “with prejudice.”

You can read In re Odyssey Healthcare, issued March 20, 2006, at 2006 U.S. Dist. LEXIS 23577.

Nugget: “It appears that by amending, Plaintiffs did not intend to cure the deficiencies found by the Court in the Dismissal Order, but rather to persuade the Court it should reconsider the Dismissal Order.”

Too Many Chefs

2006-05-01T17:45:00.000-04:00

Judge David A. Baker (M.D. Fla.) didn’t appear to be too excited about the prospect of appointing two law firms as co-lead counsel in the Faro Technologies securities class action, commenting that “with each additional cook working on the same culinary masterpiece, the kitchen becomes less efficient, not more so.” If the Court were to follow counsel’s “logic, a hundred firms could bring a hundred different perspectives and insights to the case. This, of course, begs the question,” “is more necessarily better? Or, put another way, how many law firms does it take to represent a Class? The Court is no more convinced that this task is best accomplished by retaining two law firms than it was upon first review of the issue.”

However, and this is a pretty big however, “counsel fares better by focusing on the fact that a sophisticated, experienced Lead Plaintiff made an educated, informed choice to be represented in this litigation by both firms.” “Thus, despite the Court's hesitation to appoint two firms in this relatively small class action, it is not the Court's choice to make, as there is no evidence that the selection is adverse to the interests of the Class.”

You can read In re Faro Technologies, issued April 26, 2006, at 2006 U.S. Dist. LEXIS 23500.

Nugget: “The Court notes, however, that impressive biographies of each attorney actually work against the motion. If, as argued, 'each attorney . . . has significant experience prosecuting class action and other complex litigation,' then why are so many of them necessary?”

Half Full

2006-04-26T22:42:00.000-04:00

We had Plaintiffs getting hammered the other day, but now it’s time to turn the tables. This time it’s Defendants who get stomped, and oh boy, do they get stomped. Listen to these comments from Judge Curtis Joyner (E.D. Pa.) on the motions to dismiss in the Select Medical securities class action.

O.K., well, let’s see, Judge Joyner concluded that Defendants' arguments are "unpersuasive and irrelevant," "would entirely undermine the Exchange Act's fraud provisions," "ignores significant distinctions," they "offer no legal authority for this conclusion," "present no binding authority," "is not persuasive," "is unavailing," "present no legal authority for the categorical exclusion of second-hand knowledge," "is seriously misplaced," "have not persuaded us otherwise," their "reliance on the lack of market reaction is misplaced," make unpersuasive "conclusory arguments" regarding "the confidential witnesses" "offer no authority," "cannot defend alleged material omissions by noting that their statements omitted the same information on which Plaintiffs' claims are based," and to top it all off, "we reject Defendants characterization of the case."

But that's just on the issues of on the issues of materiality, duty, safe harbor, bespeaks caution, particularity, confidential witnesses, loss causation, and scienter. This glass is half full, as Defendants did "correctly point out that it is not a violation of the securities laws to simply fail to . . . provide sufficient internal controls." Nice.

Result? Plaintiffs take near total victory on the motions.

You can read Marsden v. Select Medical, issued April 6, 2006, at 2006 U.S. Dist. LEXIS 16795.

Nugget: "Because we have found that Plaintiffs have identified actionable statements made earlier in the Class Period, we will not dismiss their claims based on post-Class Period statements."

Block Quotes Don't Cut It

2006-04-25T22:33:00.000-04:00

Judge Jeffrey S. White (N.D. Cal.), who upheld Plaintiffs’ 1933 Act claims, but dismissed the 1934 Exchange Act claims, has a few words of advice for Plaintiffs should they choose to amend their complaint again in the Intrabiotics securities class action. You see, because the complaint contains “large block quotes,” and “Plaintiffs engage in a pattern of quoting long excerpts from documents which contain multiple statements,” Judge White said that Plaintiffs, who “are responsible for identifying with particularity what statements are false and misleading,” “have not fulfilled their responsibility in this regard.” So, next time around, they “should clearly identify which specific statements within the documents or block quotes they contend are false or misleading.”

Of possible interest: Intrabiotics, with $15 million in D&O insurance, and about $50 million in cash, has not generated a single penny of revenue since its inception in 1994. Not even one.

You can read In re Intrabiotics, issued January 23, 2006, at 2006 U.S. Dist. LEXIS 15753.

Nugget: “If the DSMB, and then Defendants, were able to determine before the trial was completed that iseganan was not achieving its goals and was unsafe, then it is possible that the DSMB and Defendants had such information even sooner than the decision to terminate the trial was announced. The problem with Plaintiffs' Complaint is that it provides no basis for determining, or even inferring, when, Defendants may have had such information.”

Oligarch's Unique Defense Won't Fly

2006-04-24T21:34:00.000-04:00

What do a Siberian prison, a brutal knife attack, and the richest oligarch in Russia all have in common? Why, the Yukos Oil Company securities class action, of course. You see, “in October 2003, the Russian Federation arrested Yukos' President, Mikhail Khodorkovsky ("Khodorkovsky"), and seized his equity holdings in the Company. Soon thereafter, the Russian Ministry of Taxation charged Yukos with underpaying the previous years' taxes by approximately $ 27.5 billion” (did he say billion, with a B?) “and the Russian Federation confiscated Yukos' primary assets, sending the Company into an economic tailspin.”

Judge William H. Pauley III ‘s (SDNY) opinion on the motion to dismiss is long and reaches various results, but is notable for its analysis of the “state doctrine” defense. The what you ask? Don’t feel bad, the Nugget never heard of it either, but apparently it “prevents the courts of the United States from questioning the validity of public acts (acts jure imperii) performed by other sovereigns within their own borders.” See where this is going? Basically, Defendants argued that “the adjudication of this dispute inevitably will require this Court to inquire into the actions and motives of the Russian Government.”

Well, Judge Pauley, in rejecting the argument, first noted that “Defendants have not cited any precedent invoking the act of state doctrine to abstain from adjudicating a securities fraud action.” Of course, even if they had, their new argument seemed destined for failure, as Judge Pauley pointed out that “under the arguments advanced by Defendants, the doctrine would mandate abstention from any action in which a foreign corporation is alleged to have concealed conduct deemed illegal by its home country upon a defendant's mere assertion that the sovereign's determination was in error. Such an application of the act of state doctrine would effectively insulate foreign corporations from a large swath of securities fraud claims by United States investors.”

So whatever happened to that Khodorkovsky fellow that fifteen Russian FSB agents arrested as he stepped off his private jet? Well, it looks like he’s pulling a nine year stint in Prison Camp 13 (yes, in Siberia), where he was recently slashed and disfigured by knife wielding attackers (his attorneys say it was orchestrated by the guards). It’s true, really, see here and here. Good thing for Scrushy he didn't live in Russia, huh?

You can read In re Yukos, issued March 30, 2006, at 2006 U.S. Dist. LEXIS 13794.

Nugget: “Moreover, Plaintiffs' scienter allegations stem from the Russian Federation's arrest of two other oligarchs, Boris Berezovsky and Vladimir Gusinsky, who openly criticized Putin.”

Hammertime

2006-04-23T17:16:00.000-04:00

There’s just no other way to say it. Plaintiffs got hammered by Judge Phyllis J. Hamilton (N.D. Cal.) in the Silicon Storage Technology securities class action. After dismissing them on scienter, falsity, Dura, and just about every other basis imaginable, Judge Hamilton served up this rosy prediction: "Notwithstanding the fact that the dismissal is with leave to amend, the court questions whether plaintiffs will be able to state a claim. The gravamen of plaintiffs' complaint as presented in the CAC is that SST mismanaged the valuation of its inventory, and then failed to disclose that mismanagement. The allegation that defendants should have written down the inventory earlier than they did, or should have disclosed that SST's valuation system was ‘arbitrary,’ is essentially a claim that there were material deficiencies in SST's inventory control procedures. Generally speaking, incidents of fiduciary misconduct and internal mismanagement are not by themselves sufficient to trigger liability under the Exchange Act."

Of course, the last time we reported on Judge Hamilton, she was being partially reversed up at the Ninth Circuit, so it should be interesting to see what happens next. If anyone knows what Plaintiffs plan to do, please click the Comment below and tell the rest of us.

You can read In re Silicon Storage Technology, issued March 10, 2006, at 2006 U.S. Dist. LEXIS 14790.

Nugget: "The CAC alleges that the overvaluation of inventory and later disclosure of the lack of internal controls that led to the overvaluation caused a 22.5% decline in the price of SST's stock price. The court finds that the allegations in the CAC do meet the requirements of Dura."

The Big Picture

2006-04-20T23:19:00.000-04:00

Who says Buckeyes can’t churn out opinions just as long and complex as they do in SDNY? Well, if it’s you, it’s time to check out Judge Algenon L. Marbley’s (S.D. Ohio) 100 page monster in the In re Cardinal Health securities class action. The best part is the conclusion, where Judge Marbley commented that “as Plaintiffs stated during oral argument, the scienter analysis in these types of securities fraud cases is akin to looking at a painting. Though one or two brush strokes may be more powerful up close, to fully appreciate the painting, the viewer must step back to take in the ‘big picture.’ Applying this analogy to the facts in this case, the Complaint viewed in toto the conclusion that Plaintiffs have met their burden under the PSLRA, pleading sufficient facts to raise a strong inference that the Cardinal Defendants acted with the requisite scienter.”

Bottom line? E&Y and one exec dismissed. The company and 5 execs remain in the case.

You can read In re Cardinal Health Inc., issued April 12, 2006, at 2006 U.S. Dist. LEXIS 18687.

Nugget: “Considering Plaintiffs' arguments, the Court agrees that where the Plaintiffs allege that the subject of the misrepresentations and omissions caused their losses, they need not specify "corrective disclosures" causing the decline in stock value.”

The Quintessential Class Action

2006-04-19T23:54:00.000-04:00

You could read the 20 page class certification decision in the Priceline.com securities class action, but let’s face it, if you had the energy to do that, you wouldn’t need the Nugget now would you? So want to know how Judge Dominic J. Squatrito (D. Conn.) summed it all up?

Well, he said quite simply that “this is the quintessential securities fraud class action.” That’s right, you see that’s because “an enormous group of potential plaintiffs, with losses ranging from millions of dollars to tens of dollars, seek to recover damages arising from one entity's actions.” So, since “the focus of this litigation is upon the propriety defendants' conduct, and any issues pertaining to individual class members only pale in comparison to the importance of defendants' potential liability,” “this class action shall be certified under Rule 23(b)(3).”

So attack the class reps all you want, but no one can argue with this logic. No one except someone who's wrong, of course. You know -- the drinking the Flavor-Aid types.

You can read In re Priceline, issued April 4, 2006, at 2006 U.S. Dist. LEXIS 18603.

Nugget: “The court will not, at this stage of the litigation, determine which plaintiffs may or may not be able to prove loss causation; it is enough at this time that the class definition includes all persons who may have been harmed by the fraud alleged in the complaint -- whether each person within this class may recover is a question reserved for another day.”

NextCard Execs Can't Blame Auditor

2006-04-18T22:45:00.000-04:00

Looks like the NextCard securities class action is going to be around for a while. If you hadn’t heard, the case was thrown out at the motion to dismiss stage back in February 2005, but Plaintiff were allowed to try again, and that’s exactly what they did. This time, they fared much better, with Judge Jeremy Fogel (N.D. Cal.) concluding that he was "not persuaded by Defendants' argument that the certification of the company's financials by its outside auditor, Ernst & Young, LLP ("E&Y"), negates or weakens the inference of scienter. Plaintiffs originally named E&Y as a defendant in this action based upon allegations that E&Y was a knowing participant in a scheme to defraud the market and in colluded in accounting improprieties. E&Y has settled with Plaintiffs. Under these circumstances, the fact that E&Y certified the financials does not raise an inference that the financials were appropriate or that Defendants were entitled to rely upon E&Y's certification."

Result? Plaintiffs allegations are upheld against 4 of the 5 individual defendants.

You can read In re NextCard, issued March 20, 2006, at 2006 U.S. Dist. LEXIS 16156.

Nugget: "While allegations that Defendants were involved in a "scheme" are relevant to paint a picture of what was going on at the company during the class period, and may be relevant to the question of scienter, the Court's focus must be on the alleged misrepresentations and omissions made by Defendants."

Defendants Bet it All on Dura, and Win

2006-04-17T22:16:00.000-04:00

Judge James D. Whittemore (M.D. Fla.) seems a bit frustrated with the parties in the TECO securities class action, commenting that "Plaintiffs spend an inordinate amount of time arguing their position on the other elements of their fraud claim," and "these arguments are neither relevant nor helpful as Defendants' seek dismissal based on failure to plead loss causation and do not challenge the other elements." "Further, the parties spend an inordinate of time arguing about the requirements for proving loss causation." But, "regardless of the words or labels used, the requirements are the same. Under Dura, it is not enough for Plaintiffs to allege an inflated stock price. Rather, Plaintiffs must allege that some truth was disclosed in the market that revealed prior misstatements or omissions -- fraud -- by Defendants that is causally connected to their losses."

So what’s the result? Not good for Plaintiffs, as Judge Whittemore concluded that "although the ‘revelations’ referenced by Plaintiffs suggest that analysts were pessimistic regarding TECO's future, the information contained in the purported revelations does not identify, reveal or correct any prior misstatement, omission, or improper accounting practice by Defendants. In fact, none of the purported revelations indicate or establish that the changes occurring with TECO were remotely associated with prior fraudulent conduct."

Case dismissed without prejudice.

You can read In re TECO Energy Inc., issued March 30, 2006, at 2006 U.S. Dist. LEXIS 18101.

Nugget: "Even assuming that the revelations gave some indication of prior misstatements, omissions, or improper accounting practices, Plaintiffs have not sufficiently alleged that those revelations were related to the fraudulent scheme alleged in the Complaint."

Eighth Circuit Addresses Aiding & Abetting Liability

2006-04-12T23:53:00.000-04:00

Ever wonder why you get that free cable TV? C’mon admit it, you know you’ve received free cable at some point. Oh, sorry, you were the one who reported it right away, and demanded the cable company come out today (at some unknown point between 6 AM and 11:30 PM, of course) and get it shut off. Then, you hand-delivered a check (uphill through a ferocious blizzard) to the company for the exact amount of free cable you received, regardless if you watched. You are so good, bet even Johnny’s Gram-gram is smiling down upon you right now.

Anyway, back to the point. The reason you got free cable was so your friendly publicly traded cable company can claim you as a subscriber, thus boosting (temporally and artificially) the number of customers they can claim they have, silly. Well, at least that’s part of the allegations in the Charter (NASDAQ: CHTR) securities class action.

But today, we are only concerned with Plaintiffs’ appeal of their failed attempt in the District Court to add two of Charter’s vendors (that’s who Charter purchased the set-top boxes from) into the mix of Defendants, and to find out what the Eighth Circuit is going to do about it.

Well, apparently not much, as the Panel held that "we are aware of no case imposing § 10(b) or Rule 10b-5 liability on a business that entered into an arm's length non-securities transaction with an entity that then used the transaction to publish false and misleading statements to its investors and analysts." Indeed, "this point is significant," because "to impose liability for securities fraud on one party to an arm's length business transaction in goods or services other than securities because that party knew or should have known that the other party would use the transaction to mislead investors in its stock would introduce potentially far-reaching duties and uncertainties for those engaged in day-to-day business dealings. Decisions of this magnitude should be made by Congress."

So Plaintiffs lose this battle, and their free HBO. What, no Soprano's? Now that's enough to get the Supreme's involved.

You can read In re Charter here, or read the briefs, or even listen to the oral argument, issued April 11, 2006, at 2006 U.S. App. LEXIS 8798.

Nugget: "Thus, any defendant who does not make or affirmatively cause to be made a fraudulent misstatement or omission, or who does not directly engage in manipulative securities trading practices, is at most guilty of aiding and abetting and cannot be held liable under § 10(b) or any subpart of Rule 10b-5."

LIFO Wins the Day Again

2006-04-11T23:47:00.000-04:00

Quick. Which do you use for calculating a Lead plaintiffs’ losses, FIFO or LIFO? Don’t know? Well, the City of Philadelphia Board of Pensions & Retirement no doubt does now, because they have just won the Lead Plaintiff position in the Dana Corp securities class action, and LIFO helped them do it.

You see, Judge James G. Carr (N.D. Ohio), who appointed the City as lead, reasoned that "with respect to any pre-existing shares, defendant's misconduct did not influence the purchases which were based on accurate information. Thus, those shares fall outside the purpose and plain language of the statute." "Further, losses with respect to pre-existing shares stem not from defendant's misconduct, but from the failure of defendant's business. If a firm overstates its earnings, artificially propping up its share price, and then corrects the problem causing that share price to fall, the drop in value itself is not a product of the overstatement - only the timing of the drop in value is. Put simply, the value of those pre-existing shares would have fallen even if the firm did not misstate its earnings - the drop in value would just have occurred sooner."

So, "to determine which party has the largest financial interest for the purposes of appointing a lead plaintiff, this court endorses the use of LIFO over FIFO. Consequently, the City of Philadelphia has the largest financial interest and is the presumptive lead plaintiff."

If you want more on this LIFO thing (like who wouldn't, right?), you can hop over to this Nugget article from last July.

You can read Johnson v. Dana Corp, issued March 27, 2006, at 2006 U.S. Dist. LEXIS 17018.

Nugget: "The IRS, [on the other hand], adopts FIFO not because it is necessarily more accurate than LIFO, but because it forces taxpayers to recognize gains they would prefer - for tax purposes - to ignore. In this context, however, FIFO has the opposite effect - allowing plaintiffs to cordon off their profits from the defendant's misconduct."

Thanks. Oh, and Goodbye.

2006-04-10T23:01:00.000-04:00

Judge Stewart R. Dalzell (E.D. Pa.) was "most grateful" to Plaintiffs for their "professional courtesy" in providing a "red-lined version of the 132-page second amended complaint," as it "greatly simplified" the "task." What "task" might that be you ask? How about granting Defendants’ motions to dismiss -- again.

You see, Judge Dalzell held that "Plaintiffs have again failed to allege particularized facts that create a strong inference that defendants acted with the scienter that the law requires," because they have not pled "facts showing that the Individual Defendants were presented with suspicious earnings figures or information that would call into question otherwise reasonable earnings reports."

In sum, "the relevant jurisprudence prevents us from reflexively imputing to the Individual Defendants knowledge of a subsidiary's under-reporting of transportation costs. We cannot do so absent strong indications that those defendants had sufficient reason to know of, or be suspicious about, the defective accounting system."

You can read In re Stonepath, issued April 3, 2006, at 2006 U.S. Dist. LEXIS 15808.

Nugget: "We cannot impute knowledge to those defendants of the deficiencies of an accounting program used by a subsidiary, albeit an important one."

Plaintiffs Seek Contempt Order

2006-04-09T23:33:00.000-04:00

True, this decision is a bit dated, but in the Nugget’s defense it just popped up in Lexis the other day -- and it’s gets juicy. Seems Plaintiffs in the CV Therapeutics Inc securities class action want defense counsel held in contempt for allegedly revealing confidential witness information. Here’s how Judge Susan Illston (N.D. Cal.) sorted it all out.

"Plaintiff asks the Court to hold defendants in contempt and impose sanctions based on their alleged violation of this Court's December 7, 2004 order restricting disclosure of the identities of the confidential witnesses ("CWS") in this case. According to plaintiff, defendants' counsel disclosed to CW3 the identities of CW1 and CW2; plaintiff submits the declaration of CW3 attesting to this fact. In that declaration, CW3 also states that defense counsel made the potential threat that, if he did not provide a declaration retracting his prior statements to plaintiff, he would be deposed. Plaintiff asks the Court to hold defendants in contempt and, as a sanction, to foreclose defendants from deposing any of the CWs."

"Defendants submit a declaration from their counsel stating that he has no recollection of making this disclosure and that he believes it never occurred. They suggest that CW3 instead learned the identities of CW1 and CW2 through the biographical information in the CW statements, which defense counsel provided to CW3. In addition, defendants deny that defense counsel's statement constituted a threat of deposition, and argue that counsel was merely explaining that an affidavit would avoid the need for a deposition. Defendants speculate that plaintiff's proposed sanction is merely an attempt to gain a litigation advantage in light of the recent refutation of the complaint's CW statements by two of the four CWs."

"Taking CW3's and Jay Pomerantz's declarations together, the Court concludes that counsel did disclose the identities of CW2 and CW1 to CW3. CW3 states unequivocally that Mr. Pomerantz did so; counsel states merely that he does not recall revealing the names and does not believe he did so. However, the Court does not find that defense counsel's disclosure was a willful or blatant violation of its order. In addition, it does not consider defense counsel's statement about a deposition of CW3 to be a threat."

"Accordingly, the Court declines to make the requested contempt finding or to impose the drastic sanction proposed by plaintiff. Plaintiff's motion is DENIED."

You can read Crossen v. CV Therapeutics, issued August 10, 2005, at 2005 U.S. Dist. LEXIS 41396.

Nugget: "The Court hereby GRANTS plaintiff's motion to certify the class and appoint Crossen as lead plaintiff."

Enron Judge Tackles Dura

2006-04-06T23:55:00.000-04:00

Even the Enron Judge is getting into the Dura shuffle. And despite what the Nugget said earlier, this opinion could be the most comprehensive analysis of Dura yet. Judge Melinda Harmon (S.D. Tex.) says that “although Plaintiff's proposed class purchased Enron securities at a highly inflated price because of Enron's alleged fraudulent financial statements, both complaints make clear that key corrective disclosures in the latter part of 2001 exposing material misstatements and omissions in earlier years of Enron's financial reports caused the sharp drop in price and the investors' damage."

So, “the relatively small time gap between the five transactions at issue and Jeff Skilling's August 2001 resignation, Enron's October 2001 corrective disclosures to the world, followed by SEC's investigation, is short, just over a year, thus tightening the causation link. The price of the stock plunged following Enron's revelation and its swift descent into bankruptcy. The putative class's economic loss was not the disparity in the inflated purchase price and the actual quality of the investment, but the significant decline in the price of the securities with the startling revelation in the fall of 2001 of Enron's previously concealed debt obligations, financial exposure, and vulnerability to bankruptcy, which it allegedly had deliberately hidden from investors.”

You, and especially those confused people who think Dura somehow affects the fraud-on-the-market rule (yes, you are confusing transaction causation -- factor 4 in Dura -- with loss causation -- factor 6, which the Supremes actually address), should check out the opinion, which denies RBC’s motion to dismiss.

You can read In re Enron, issued December 22, 2005, at 2005 U.S. Dist. LEXIS 41240.

Nugget: “Plaintiff's suit was filed on January 9, 2004, more than fifteen months before the Supreme Court issued its ruling in Dura Pharmaceuticals on April 19, 2005. Dismissal based on a complaint's failure to comply with a Supreme Court's subsequent ruling, without allowing the plaintiff an opportunity to cure pleading deficiencies if it can, would be unjust.”

Cavalry Arrives in CIGNA

2006-04-05T22:46:00.000-04:00

When Defendants in the CIGNA Corp. securities class action planned to attack the proposed class representative (SERS) on loss causation grounds, Plaintiffs just didn’t sit idly by. Instead, they sought “to allow two other putative class members -- the Miami General Employees' Sanitation Employees Retirement Trust ("Miami Employees") and the Public Employees' Retirement System in Mississippi ("MPERS") -- to intervene as additional proposed class representatives.”

Defendants balked, but Judge Legrome D. Davis (E.D. Penn.) (writing for Judge Michael M. Baylson -- for reasons unknown) (E.D. Penn.) stymied them, noting that “CIGNA is planning to file a summary judgment motion on these grounds within the next week. Apparently fearful of this motion, SERS has secured the agreement of Miami Employees and MPERS to become additional proposed class representatives. SERS quite properly indicates that its motive in doing this is to protect the interests of the putative class. The Court finds this to be a legitimate substantive reason to allow the intervention. If, due to a failure to prove loss causation and/or economic loss, SERS is dismissed as a party or is deemed to be an unworthy class representative notwithstanding its Lead Plaintiff status, the interests of the putative class will clearly be at risk. Given the significance that the PSLRA has placed on the status and responsibility of the Lead Plaintiff in this type of case, the Court finds that any present or potential doubts about SERS being able to fulfill its role should be alleviated by allowing Miami Employees and MPERS to join SERS as proposed class representatives.”

And to top it all off, Judge Davis easily wiped away Defendants’ supposed reasons for opposing the intervention, noting that “Defendant has not offered any substantive reason, other than the fact that they do not want the burden of dealing with the claims of new parties to delay what they hope will be a successful termination of SERS as Lead Plaintiff. However, Defendant has no right to expect that any ruling against SERS on loss causation and/or economic loss grounds will necessarily terminate Defendant's liability to the other members of the putative class. To do so would eviscerate the whole concept that Congress had in mind in establishing the Lead Plaintiff concept in the PSLRA.”

You can read In re Cigna, issued March 23, 2006, at 2005 U.S. Dist. LEXIS 41293.

Nugget: “If defendants are successful in their summary judgment motion against SERS, such a result should not cause termination of the entire case if other putative class members are willing, able and ready to step forward as class representatives and also as Lead Plaintiffs and can prove loss causation and/or economic loss.”

Scare Tactics

2006-04-04T22:16:00.000-04:00

Plaintiffs allegations that management in the Belo Corp securities class action engaged in “scare tactics” against their own employees just didn’t cut it with Judge Sidney A. Fitzwater (N.D. Tex.). Instead, it seems to have prompted Judge Fitzwater to say that “it is clear that plaintiffs are accusing Moroney and Decherd of nothing more than techniques that shareholders -- including, presumably, the plaintiff-shareholders -- would expect management of a publicly-held company to undertake: stress among employees the importance of increasing circulation to bolster revenues; inform them that revenue positively impacts shareholder value; make each employee understand that person's individual role in contributing to the company's success; remind them of the consequences (employee layoffs) of not increasing circulation; and emphasize each employee's individual, daily obligation to increase circulation.”

Judge Fitzwater noted that it is simply not “wrong for management to direct, persuade, or create incentives for those whose work they manage.” So what is wrong? Why, to “manipulate figures, fabricate numbers, or misrepresent the publication's actual circulation,” of course. Unfortunately for Plaintiffs, Judge Fitzwater said their complaint did not achieve this standard.

The result on this one is total loss on the motions to dismiss for Plaintiffs, although they were granted 30 days to try again with a new and improved amended complaint if they so desire.

You can read Fener v. Belo, issued March 30, 2006, at 2006 U.S. Dist. LEXIS 14376.

Nugget: “It is essential to gain an understanding from the complaint -- unadorned by the embellishment and characterizations that a lawyer's pen can add through use of intensifiers, adjectives, and adverbs -- of what plaintiffs say the scheme actually was and how a given defendant played a part in it.”

Dura Dogma Rejected

2006-04-03T20:54:00.000-04:00

"Our securities laws do not operate in a vacuum." So says Judge Faith S. Hochberg (D. N.J.) in the Bradley Pharmaceuticals securities class action. That’s right all you Dura exaggerators, Judge Hochberg has labeled your grandiose versions of Dura as "rigid and dogmatic," and made it clear that "in Dura, the Supreme Court only suggested that the plaintiffs needed to have alleged in some fashion that ‘the truth became known’ before ‘the share price fell.’"

So, "guided by a pragmatic understanding of Dura, the Court concludes that Plaintiffs have adequately pled loss causation. The revelation of the 'truth' about the Deconamine sale did not take the form of a single, unitary disclosure, but occurred through a series of disclosing events. The February 28, 2005 announcement partially disclosed what the alleged misrepresentations had concealed from the market and began to reveal to the market place what the April 27 Press Release later confirmed."

Result? You already know, don’t you? Yep, Defendants’ motions to dismiss denied in full.

You can read In re Bradley Pharmaceuticals, issued March 23, 2006, at 2006 U.S. Dist. LEXIS 13738.

Nugget: "As the Supreme Court noted in Dura, pleading rules are not meant to impose a great burden upon a plaintiff."

Two Birds, One Order.

2006-03-29T22:21:00.000-05:00

Defendants must be seeing stars in the Veeco securities class action. Seriously, it’s bad enough losing the motion to dismiss, but losing class certification in the same Order? Say it ain’t so. But it is so, and this time it’s Judge Colleen McMahon (S.D.N.Y.) on the Bench. Her opinion covers a lot of ground, and Defendants aren’t without certain victories (like shaving the class period from 15 to 9 months), but let’s face it, you know you’re in trouble when the Judge says that “Plaintiffs' extensive allegations of fraud -- whether or not sufficient to ultimately establish defendants' liability -- undoubtedly satisfy Rule 9(b)'s and the PSLRA's heightened pleading requirements.”

And following a trend the Nugget has long reported, Judge McMahon provided what arguably is the best description yet of just how non-complicated the whole Dura loss causation thing really is, holding that “plaintiffs allege that they were harmed when Veeco's stock plummeted as a result of defendants' disclosure of prior misrepresentations and material omissions relating to the company's performance and earnings. The complaint thus contains the very allegations regarding share price decrease and public exposure to the truth the Supreme Court found lacking in the Dura complaint.”

That's right all you Dura exaggerators (you know who you are), enough to get past motions to dismiss and class certification objections.

You can read In re Veeco, issued March 21, 2006, at 2006 U.S. Dist. LEXIS 13226.

Nugget: “The court has no reason to believe that [the class representative is inadequate based on ignorance], and finds it odd that defendants would set themselves up as champions of the class interests by making such an argument.”

The Softer Side of Scienter

2006-03-28T23:25:00.000-05:00

Well, looks like we have a result in the Sears securities class action. In a decision that is quite notable in terms of its brevity, Judge Robert W. Gettleman (N.D. Ill.) (who admits he looks good in black) doesn’t mince too many words. In rejecting Defendants’ arguments on falsity and scienter, he concluded that “in short, the amended complaint contains more than enough factual detail for a reasonable person to conclude that Lacy was aware that the statements being made were misleading and either intentionally chose to ignore them, or intentionally elected to mislead the public. Because Lacy was acting within his scope of his position as CEO of Sears, his alleged knowledge of the falseness of the statements can be imputed to Sears. Accordingly, the court concludes that the amended complaint alleges scienter adequately as to both Lacy and Sears. The motion to dismiss is denied.”

You can read Levie v. Sears Holding Corp, issued March 22, 2006, at 2006 U.S. Dist. LEXIS 12725.

Nugget: “Thus, whether and/or when the Sears-Kmart merger negotiations became material is a fact question not to be decided on a motion to dismiss as a matter of law.”

Try Try Again

2006-03-27T21:42:00.000-05:00

Defendants can score a victory for themselves in the Invision Technologies securities class action, with Judge Martin J. Jenkins (N.D. Cal.) granting their motions to dismiss the 1934 Act claims. It seems the case centers around Invision's March 15, 2004 “press release announcing that it was being acquired by General Electric Company.” You see, it seems a few months after this announcement, “InVision issued another press release, this time saying that the DOJ and the SEC were investigating several transactions involving InVision employees located abroad, in which employees allegedly made payments to foreign officials in violation of the FCPA.”

In rejecting Plaintiffs’ complaint, Judge Jenkins said that “the language cited by Plaintiffs contains broad assertions about Defendants' duty to disclose that are vague in nature," "are not specifically directed to the March 15 Announcement," and "do not explain why that statement in particular was false or misleading.” He also commented that “obviously, Plaintiffs' factual allegations must be based upon what Defendants actually said, not upon Plaintiffs' desired interpretation of what Defendants said. Here Plaintiffs' factual allegations, even viewed in the light most favorable to Plaintiffs, do not in any way illuminate the truth or falsity of Defendants' actual Certification statements. Therefore, Plaintiffs have failed to meet their PLSRA burden in this respect.”

But all may not be lost. Judge Jenkins is going to allow Plaintiffs to submit another amended complaint, but warned that “vague assertions and allegations, scattered throughout Plaintiffs' Complaint will not serve to meet their PLSRA burden.”

You can read In re Invision, issued January 24, 2006, at 2006 U.S. Dist. LEXIS 12166.

Nugget: “In order for the Court to construe the allegations, as plead, as actually alleging the falsity of Defendants' Certification statements, the Court would have to interpret Defendants' statements well beyond their plain meaning. The Court declines to do so.”

Note: A quick check of the docket reveals that Plaintiffs have already filed an amended complaint, and that Judge Jenkins has set the oral argument on the next round of motions for June 6, 2006 at 9:30 A.M. So don't change that dial.

Goodyear Plaintiffs Deflated

2006-03-26T12:50:00.000-05:00

Looks like Plaintiffs have suffered total loss in the Goodyear Tire & Rubber securities class action. This time, it’s Judge John R. Adams (N.D. Ohio) who punctures Plaintiffs’ amended complaint with comments like "Plaintiffs' argument is illogical," and "Plaintiffs’ allegations amount to nothing more than speculation and conjecture."

What happened? Well, Judge Adams rejected scienter, falsity, and just about every other argument that Plaintiffs made. As for scienter, he said that even though "arguably, the facts are such that there may be some inference of scienter," "the Court does not find this inference to be strong enough to sustain a securities fraud action."

Judge Adams also held that "the most plausible of competing inferences, as opposed to Plaintiffs' theory of divergent and wide ranging fraud, is that Defendants acted diligently in remedying problems as soon as they became aware of their existence. If the Court were to allow Plaintiffs to plead scienter on the fact that Goodyear recognized the need for remedial measures, it would give companies a disincentive to make public disclosures regarding their problems."

Judge Adams concluded by remarking that "while the Amended Complaint does specify each statement that was allegedly misleading, it falls short of describing the reason or reasons why each statement was misleading. To explain, the Amended Complaint repeatedly refers to a list of alleged improprieties that may or may not have anything to do with the statements. For example, each allegedly false series of statements refers back to section of the Amended Complaint that contains a laundry list of allegations purporting to pertain to each separate statement. It is Plaintiffs' burden to plead fraud on a statement-by-statement basis, and they may not evade that requirement by requiring the Court to try to match the allegedly fraudulent statements to the allegations of wrongdoing that are scattered throughout the seventy-plus page Amended Complaint."

Result? Judge Adams granted Defendants’ motions to dismiss, rejected "Plaintiffs' two-sentence request for leave to amend their Amended Complaint," and entered a judgment against Plaintiffs. Remains to be seen if we’ll see these parties in Cincinnati.

You can read In re Goodyear Tire & Rubber, issued March 22, 2006, at 2006 U.S. Dist. LEXIS 11914.

Nugget: "There is no disputing that Goodyear issued false statements -- the issue this Court is called on to decide is whether the statements were fraudulent."

Too Much Fraud

2006-03-23T21:44:00.000-05:00

"This is a classic fraud case masquerading as a negligence claim." At least that’s what Judge Charles R. Breyer (N.D. Cal.) says about the 1933 Act claims in the Leadis Technology (NASDAQ LDIS) securities class action. You see, in throwing out the entire action, Judge Breyer held that "while plaintiffs need not prove fraud, the gravamen of the Complaint is nevertheless ‘grounded in fraud.’ Thus, the heightened pleading standard of Rule 9(b) applies." He also noted that "Plaintiffs have admitted the Complaint fails to meet the particularity requirements of Rule 9(b), and the Court agrees." Therefore, "since plaintiffs have further represented to the Court that an amendment to the Complaint would be futile, defendants' motions to dismiss are GRANTED WITH PREJUDICE."

For the Third Circuit’s and another District Judge’s views on the sound in fraud doctrine, take a look here and here.

You can read In re Leadis, issued March 1, 2006, at 2006 U.S. Dist. LEXIS 11152.

Nugget: "This is a quintessential fraud claim. Despite plaintiffs' best efforts to mask this reality and merely plead a negligence claim, their allegations necessarily depend on defendants' knowledge of these on-going occurrences and their decision to mislead investors by making the disclosures in forward-looking-rather than present-tense-statements."

Uncertain Terrain

2006-03-21T22:49:00.000-05:00

It’s not every day you have a Russian company as a Defendant in a U.S. securities class action, is it? But today is the day, and the spotlight is on Open Joint Stock Company Vimpel-Communications, which has nearly 11,000 employees trying to provide “wireless communications services to customers in Russia and Kazakhstan.” And you think your job is hard. Anyway, Defendants moved to dismiss Plaintiffs allegations that Vimpel “failed to disclose the existence of a tax audit,” and that it “owed back taxes,” and it was up to Judge Naomi Reice Buchwald (S.D.N.Y.) to settle things, and she has.

You see, in evaluating the consolidated amended complaint (“CAC” for short), Judge Buchwald concluded that “based on the facts set forth in the CAC, Russian tax laws present an uncertain terrain for individuals and companies doing business there. None of the facts set forth in the CAC support the conclusion that VimpelCom officers knew (or should have known) that the August 2004 tax inspection would result in adverse consequences to VimpelCom or that the company's interpretation of tax laws related to VAT was ‘highly unreasonable.’”

“Plaintiffs' allegations also do not demonstrate how VimpelCom's public statements during the class period were inconsistent with the existence of the August 2004 tax inspection,” and “the fact that VimpelCom promptly disclosed tax authorities' preliminary conclusions concerning the company's tax liability further undermines the allegation that defendants acted recklessly.” As a result, “plaintiffs' allegations completely fail to support a conclusion that defendants acted with an intent to deceive or defraud the public.”

Result? Dismissed with prejudice.

Want more? For a quick viewpoint on the Russian tax system compared to the U.S., go here.

You can read In re Vimpel, issued March 14, 2006, at 2006 U.S. Dist. LEXIS 10256.

Nugget: “This seems a quintessential case of impermissibly pleading ‘fraud by hindsight.’ Plaintiffs' allegations do not suggest how VimpelCom could have known that it would owe ‘back taxes’ related to VAT offsets before it received the preliminary act from Russian tax officials. Moreover, the allegations do not suggest why the company should have suspected that its method of handling VAT offsets was improper.”

Their Best Shot

2006-03-20T10:10:00.000-05:00

After tossing the SPSS Inc. securities class action for the second time, Judge James B. Moran (N.D. Ill.) offered this candid comment/prediction: "The heightened pleading requirements of the PSLRA are not the usual stuff of federal pleading motions, which generally relate to the exceedingly relaxed pleading requirements of Rule 12(b)(6). Where to draw the line in light of PSLRA is a relatively new experience. We have no doubt that this dismissal will be appealed, and it may well be that the Court of Appeals will conclude that we raised the threshold too high. If it so concludes, then the action may proceed upon the present pleadings. If it agrees with this court that the PSLRA standard acts as a bar, we see no prejudice to plaintiffs in not permitting them to amend once again. As this and the earlier opinion in this case illustrate, the issues are very fact-, or more accurately, ‘allegation’ - intensive. We are confident that plaintiffs have given it their best shot in the second amended complaint, and we see no reason to repeat an analysis of yet another complaint."

You can read Davis v. SPSS, issued March 14, 2006, at 2006 U.S. Dist. LEXIS 10678.

Nugget: "Plaintiffs' second amended complaint differs very little from plaintiff's first amended complaint. With the exception of adding a plaintiff to remedy their previous standing problem, plaintiffs have not cured any of the deficiencies we identified in our thorough response to plaintiff's first amended complaint."

Mo' Money, Mo' Money, Mo' Money

2006-03-15T22:05:00.000-05:00

The securities law blogospheres may have lit up last December after the Nugget reported Judge Kent A. Jordan’s (D. Del.) comment that "it is time to decide which of the plaintiffs' law firms will win the money race," but it turns out Judge James L. Robart (W.D. Wash.) had already beat everyone to the punch -- by nearly five months (the opinion popped up online yesterday).

You see, in deciding the lead plaintiff issue in the Watchguard Technologies securities class action, Judge Robart (who refers to proposed lead plaintiffs as "contestants") said that "three contestants" "are vying for the lead plaintiff position," so "the court now turns to the rules that govern this competition." "As the leading Ninth Circuit authority observes, ‘this is not a beauty contest.’" Instead, as Judge Robart put it, "it is a contest over money, and which contestant stands to gain more of it." Well, OK then.

The Nugget HATES generalizations about judges based on their appointments alone, as it is a simplistic, naïve, and downright foolish practice. But some (not the Nugget of course) might point out that both Judges are recent Bush appointees. Whether or not that means anything at all, well, you can decide. After all, Judge Michael M. Baylson (E.D. Pa.) is a Bush appointee too, and look what he’s saying. So is Judge Diane S. Sykes (7th Cir.), and she was hardly hostile in her latest opinion.

You can read In re Watchguard, issued July 13, 2005, at 2005 U.S. Dist. LEXIS 40923.

Nugget: "The PSLRA contemplates a quick selection of a lead plaintiff near the outset of a case, without opportunity for discovery on likely damages or losses."

Discovery Stay Overstaying Welcome

2006-03-13T22:39:00.000-05:00

As reported right here at the Nugget, Plaintiffs won the motions to dismiss in the McDonald’s (NYSE MCD) securities class action last September. So why are Plaintiffs still fighting to lift the PSLRA discovery stay? Actually, it turns out that even though Plaintiffs won, Judge Blanche M. Manning (N.D. Ill.) took the unusual step of ordering Plaintiffs to amend their complaint. Why? Because she “considered certain facts not alleged in the complaint but raised instead by plaintiffs' response to the motion to dismiss,” so she wanted them to include those facts in a revised complaint.

So here Plaintiffs are, six months later, trying to get Magistrate Judge Sidney I. Schenkier (N.D. Ill.) to lift the discovery stay. Judge Schenkier concluded “at bottom, plaintiffs' argument is that the stay should not apply because the current motion to dismiss is meritless -- a point they press vigorously in seeking to lift the stay. Certainly, plaintiffs' argument about the strength of the original motion to dismiss would not be a basis to lift the stay before the motion is decided -- and plaintiffs do not argue otherwise. Plaintiffs have not cited any authority to support the proposition that we may preview the outcome of a second motion to dismiss in deciding whether to lift the stay. Moreover, it is not our province to rule on the merits of defendants' second motion to dismiss, which is pending before the district judge; and we therefore express no view as to the outcome of that motion.”

Result? The stay remains in place.

You can read Selbst V. McDonald’s, issued March 1, 2006, at 2006 U.S. Dist. LEXIS 8862.

Nugget: “The gist of plaintiffs' argument before this Court is that defendants' current motion to dismiss pending before the district judge is frivolous. However, we note that plaintiffs have not availed themselves of the procedural tools to raise that contention with the district judge: they have not sought sanctions on the ground that the motion to dismiss is being brought for an improper purpose or lacks a basis in law or fact, FED.R.CIV.P. 11(b), or that the motion "multiplies the proceedings in . . . [the] case unnecessarily and vexatiously.”

One Last Chance

2006-03-12T16:28:00.000-05:00

Looks like Plaintiffs haven’t fared to well in the REMEC, Inc. securities class action, as Judge Jeffrey T. Miller (S.D. Cal.) has granted Defendants’ motions to dismiss entirely. In focusing in on the scienter allegations, Judge Miller commented that “one distinguishing characteristic of a strong showing of scienter is that it highlights a mental state embracing a strong intent to deceive, manipulate, or defraud, and serves to separate optimistic statements and or negligent acts from fraudulent ones. Plaintiff's argument in support of scienter is one based primarily on their executive positions within the Company.” “Plaintiff further alleges that Defendant Ragland bullied the sales staff and pressured them into providing sales numbers that met with his sales forecasts.” But these allegations didn’t work, as Judge Miller concluded that “Plaintiff reaches too far,” and “while these allegations move down the scienter path, they fail to distinguish what is non-actionable bullish conduct from fraudulent or reckless conduct.”

But all may not be lost. Judge Miller also held that “in light of the heightened pleading standards, the drafting of a cognizable complaint can be a matter of trial and error.” So, “because the court cannot conclude that there are no circumstances under which Plaintiff can state a claim, the court grants Plaintiff one last opportunity to state a claim that complies with the PSLRA.”

You can read In re Remec, issued February 14, 2006, at 2006 U.S. Dist. LEXIS 8657.

Nugget: “While the allegations set forth in the SAC are more prolix and repetitive than the two earlier attempts to state a claim, they similarly lack actionable substance. This is particularly true where Remec made full disclosure of its declining gross profit margins throughout this period of time in its SEC filings and public statements. Plaintiff must go beyond mere characterization and allege specific facts showing that Defendants possessed the requisite state of mind.”

If There's a Drop, You Must Stop

2006-03-08T22:27:00.000-05:00

Ready for a surprise? Defendants have finally broken their losing streak on Dura, scoring a devastating victory that will no doubt reverberate through the halls of justice in the months and years to come. Wow, you’re not really that gullible, are you? Of course they didn’t, as Judge Robert E. Blackburn (D. Colo.) (the Judge in the Qwest Communications case), in partially upholding Plaintiffs claims on the motions to dismiss in the ICG Communications, Inc. securities class action, rejected Defendants’ Dura arguments, finding that the "announcements of substantially reduced earnings expectations, and other serious problems with ICG's business, reasonably can be seen as revelation of the negative truth about ICG's business. ICG's stock price dropped precipitously after these truths were revealed. These allegations are sufficient to plead loss causation under the applicable standard."

OK, once and for all, if the truth is disclosed and the stock plummets -- freeze, drop the overpriced pen, and back away -- easy does it (the Nugget has a hair trigger) -- from Dura. Face it, you’re surrounded, so just put it down, and maybe, just maybe, you won’t get hurt.

You can read In re ICG Communications, issued February 7, 2006, at 2006 U.S. Dist. LEXIS 6695.

Nugget: "The law does not require the plaintiffs to allege that ICG disclosed every fine detail of the alleged manipulation of ICG's revenue to establish that those manipulations caused the plaintiffs' losses."

Liaison Free

2006-03-07T22:13:00.000-05:00

Now think about it. Why does lead counsel need to have an appointed local counsel? Oh sorry, liaison counsel, excuuuse me. Everyone really must be more careful with their word choices. What’s next? Forgetting the Grey Poupon? But seriously, you don’t get your investigators appointed, or your forensic accountants, and nothing in the PSLRA requires the appointment of local counsel. Most importantly, surely you, as formidable lead counsel, don’t need to have the Court appoint liaison counsel. And think about the nightmare when you try and fire -- sorry -- transition -- them should you ever be in such an unfortunate position. Don’t you want to be able to do that without bothering someone appointed by the President of the United States? OK, well, at least think about it, and check out this view from Judge William L. Standish (W.D. Penn.), who rejected the appointment of local -- man, this is difficult -- liaison -- counsel in the IT Group (now Shaw Group Inc) securities class action.

"No resume is provided for Chimicles, nor is there any description of that firm's proposed duties as liaison counsel in either the brief in support of the Renewed Motion or in the proposed order. As Judge William H. Walls has noted, qualified lead counsel should surely be capable of performing the ministerial tasks typically assigned to liaison counsel (e.g., advising lead counsel on local procedural matters, coordinating administrative matters, distributing communications between the court and other counsel, convening meetings of counsel, and advising parties of developments in the case.)" "In fact, several of the ministerial duties identified by Judge Walls are explicitly assigned to co-Lead Counsel in the proposed order. In the absence of an explanation of why liaison counsel are required or what their duties might be, the Court declines to appoint Chimicles & Tikellis to that role."

You can read Clair v. DeLuca, issued January 26, 2006, at 232 F.R.D. 523.

Nugget: "When Miller Shea brought in Lionel Glancy, Mr. Glover ‘was overjoyed’ because he recognized this name from reading financial publications as an attorney who dealt with ‘significant class action cases.’"

Disclosure: No local counsel in any locality were harmed in the drafting of today’s article.

At a Loss

2006-03-06T22:02:00.000-05:00

Who’s ready to chalk yet another Dura victory up on the board for Plaintiffs? OK, OK, calm down, they’ll be plenty more to come, so don’t worry, everyone will get their turn. This time ‘round, it’s Judge George B. Daniels (S.D.N.Y.) in the Winstar Communications securities class action, who says that “to establish loss causation by pleading a corrective disclosure, a plaintiff must allege that when truthful word revealing the falsity of defendant's representation reached the public, the market reacted negatively causing plaintiff to suffer an injury.”

Makes sense right? Maybe to you, but not to these Defendants, who “notwithstanding the absence of legal authority,” (hey, why let a pesky thing like that stand in the way?) “seek to complicate this basic pleading standard by claiming that there are additional components, relating to the source and form that the disclosure must take, that also must be satisfied to plead a corrective disclosure.” They also “argue that a corrective disclosure must be based on fact-specific information, and cannot simply be opinions or speculations.”

But Judge Daniels rejected these arguments, holding that “it is the exposure of the falsity of the fraudulent representation that is the critical component of loss causation,” and that “a defendant should not be rewarded by denying defrauded investors recovery simply because the information revealing the alleged fraud was a third party's opinion, notwithstanding the fact such opinion is proven to be true.” So, since “allegations that the market reacted negatively to an opinion or speculation which in fact exposes the falsity of defendants' representations can be sufficient to plead loss causation,” “plaintiffs have sufficiently pled a causal nexus between the Winstar defendants' alleged fraudulent accounting practices and plaintiffs' claimed losses.”

You can read In re Winstar, issued February 27, 2006, at 2006 U.S. Dist. LEXIS 7618.

Nugget: “To require the pleadings establish that when word exposing the falsity of defendants' statements leaked into the market place, it took the form of a factual revelation which was, at that time, verifiably truthful, would place a prohibitively unreasonable burden on a plaintiff.”

Watch Those Stats

2006-03-05T17:41:00.000-05:00

So the battle right now in the Hanger Orthopedic securities class action is focused on where the battle will be. Plaintiffs say the Eastern District of New York, Defendants say the District of Maryland, and it’s up to Judge Frederic Block (E.D.N.Y.) to settle the score – and he has.

Of course, each side had its arguments about where witnesses were located and other things you no doubt couldn’t care less about. Blah, blah, blah, you say, right? But one interesting note is that Defendants, citing Administrative Office of the United States Courts, Federal Court Management Statistics ("FCMS"), “point out -- and plaintiffs do not dispute -- that the Eastern District of New York's docket is significantly more congested than the District of Maryland's: As of September 30, 2005, the number of pending cases (civil and criminal) per active judge in the Eastern District was 622; in the District of Maryland, it was only 377.” But according to Judge Block, “FCMS does not take into account the impact of senior judges on a court's caseload.” Once that is factored in, “according to the Court's calculations, senior judges reduced the caseload per judge to 444 in the Eastern District and to 314 in the District of Maryland.”

Looks like those senior judges in EDNY are taking on quite the case load, doesn’t it? Oh, and it should come as no surprise that Judge Block might be a tad sensitive about these statistics. After all, he himself took senior status on September 1, 2005.

Result? Defendants get their transfer to Maryland.

You can read In re Hanger Orthopedic, issued February 28, 2006, at 2006 U.S. Dist. LEXIS 7549.

Nugget: “The present action bears many hallmarks of a typical securities-fraud case: it is a putative class action brought against Hanger and its principal officers; it is based on alleged misrepresentations in, and omissions from, statements originating at Hanger's Maryland headquarters; and most of the witnesses and documents relating to those statements are located in Maryland. As explained above, these factors all weigh in favor of transfer.”

Eagle Eye on Expenses

2006-03-02T21:30:00.000-05:00

The $31.5 million settlement's done and the 25% fee has been awarded. Now we'll just be needin' our out-of-pockets reimbursed and we'll be on our way. Yep, we'll make like a tree -- and get outta here. You won't find us hangin' around, no sir. Well, it's not going to be that easy my friend, not if you are in Senior Judge William T. Hart's (N.D. Ill.) courtroom in the Van Kampen action. You see, Judge Hart observed "two problems with the reimbursement request for expert fees."

"The first is that some of the fees that Lead Counsel has labeled as expert fees are actually payments for work more properly characterized as work that should be charged as attorney fees." For example, "Lead Counsel seek reimbursement for fees paid to Joel Seligman, the then-dean of the Washington University School of Law whom Lead Counsel describe as 'among the nation's foremost experts on securities law.' An expert on the law is an attorney. Had this case gone to trial, the court would have instructed the jury as to securities law and no witness, expert or otherwise, would have been permitted to testify as to the state of applicable securities law. The advice received from Seligman, as helpful as it may have been to counsel, is properly characterized as legal fee work. Lead Counsel will not be separately reimbursed for fees charged by Seligman."

"A second issue is the rates charged by the experts. Allen charged $ 375.00 per hour for most work and $ 625.00 per hour for deposition testimony. Michael Barclay, Ph.D., a professor of finance at the Simon School of Business Administration at the University of Rochester, charged $ 450.00 per hour. He was plaintiffs' damages expert." "Lead Counsel have not established that the requested reimbursements are based on customary and reasonable hourly rates. The reimbursements will be based on $ 350.00 per hour for all work of Allen and Barclay, including deposition testimony."

Oh, and here's the best one (all-right, all-right, the Nugget below is better): "$350.00 for pro hac vice fees will not be reimbursed. It is the attorney's choice as to where to seek admission and where to practice. For $100.00, the attorney could be permanently admitted to this court instead of paying $ 50.00 per case. A client should not be charged for the cost of the attorney being admitted to practice."

You can read Abrams v. Van Kampen Funds, issued February 21, 2006, at 2006 U.S. Dist. LEXIS 6778.

Nugget: "It is noted, though, that charges for accessing this court's electronic filing system (CM/ECF) might properly be categorized as unreimbursable firm overhead. However, the charge will be allowed because it is only $16.29."

Two to Five is a Crowd

2006-03-01T22:39:00.000-05:00

Yep, it’s official. Judge Richard Owen (S.D.N.Y.) (of recent reverse psychology fame) doesn’t want groups. Groups of proposed lead plaintiffs that is. You see, in the battle between five movants for the lead plaintiff spot in the Doral securities class action, Judge Owen said “with the exception of the 1199SEIU Fund, which is a single-party movant, the putative plaintiffs have aggregated themselves into ‘groups’ of otherwise unrelated investors, and their collective financial interest is thus calculated. Nothing before this Court indicates that these random cumulations of plaintiffs are anything more than an effort to achieve the highest possible ‘financial interest’ figure to be chosen, which, however, also cumulates case control problems and rival disagreements, resulting in delay and increased expense. I reject this approach as essentially inconsistent with the intention of the PSLRA.”

He pointed out that “by allowing attorneys to designate otherwise unrelated plaintiffs as a purported ‘group,’ and by allowing unrelated groups to aggregate investments in an effort to generate the ‘largest financial interest,’ a strong possibility emerges that lawyers will form such groups to manipulate the selection process, and thereby gain control of the litigation.”

So Judge Owen selected the movant (who was part of a proposed group by the way) with the largest loss, the West Virginia Investment Management Board, to be the sole lead plaintiff.

You can read In re Doral, issued February 8, 2006, at 2006 U.S. Dist. LEXIS 7189.

Nugget: “Moreover, the statute itself states simply that the most adequate plaintiff ‘is the person or group of persons,’ deemed to have the largest financial interest in the relief sought -- but it does not say ‘groups’ of persons, which obviously could easily result in substantial multiplication of costs and consequent diminution of stockholder recovery.”