The issue revolved around the plaintiffs’ invocation of the fraud on the market theory, which affords them a rebuttable presumption of reliance on the challenged statements. The idea is that the “market price of shares reflects all publicly available information and, hence, any material misrepresentations.” Basic, Inc. v. Levinson, 485 U.S. 224, 246 (1988). To invoke the presumption, plaintiffs must show that the alleged misrepresentations were publicly known, that the stock traded in an efficient market, and that the transactions at issue took place between the time of the misrepresentation and the revelation of the truth. Halliburton, slip op. at 5-6.

They do not, however, have to prove loss causation, which the Supreme Court explains in Halliburton is a separate idea entirely. To prove loss causation, plaintiffs must show that the stock price dropped because of the correction of the prior misrepresentation, and not because of other factors in the market. Id. at 6. The Court declared that this proof has “no logical connection” to proving the facts necessary to invoke the fraud on the market theory.

Key points:

• Whistleblowers do NOT have to report violations internally before going to the SEC;
• Attorneys, auditors and internal compliance personnel are generally not eligible to be whistleblowers;
• Culpable whistleblowers are not necessarily ineligible, but any reward may be reduced;
• Multiple proceedings based on the same nucleus of fact can be aggregated to meet the $1 million threshold to get a whistleblower bounty;
• Information provided must be specific, credible and timely.

Call us with any questions.

By Sean Carnathan

It has become as predictable as the sun rising that whenever a significant merger is announced, there is a race to the courthouse by plaintiffs’ lawyers to challenge that merger, often in different states. The problem has grown in the past several years and is starting to get a lot of attention from courts and commentators. A recent decision by Chancellor Chandler (who will retire June 17, 2011), Allion Healthcare, Inc. Shareholders Litigation, discusses the problem.

“Judges, defense counsel, and the plaintiffs’ bar are now routinely confronted with [multi-forum deal litigation] and have yet to come up with a workable solution.” Potential problems include not only waste of private and judicial resources, but also a risk of inconsistent decisions if more than one jurisdiction decides the case. The forum shopping issues are complex too. Plaintiffs may look for the forum where the judge seems most likely to approve their settlement. Defense counsel may try to favor the weakest plaintiffs’ counsel (known as “pilgrims” because they are early settlers) to get the best settlement. Even if a settlement is approved, plaintiffs counsel from other jurisdictions may oppose it in order to secure their fees.

In a footnote, Chancellor Chandler offered his recommendation for how to handle the problem:

“Defense counsel should file motions in both (or however many) jurisdictions where plaintiffs have filed suit, explicitly asking the judges in each jurisdiction to confer with one another and agree upon where the case should go forward.” . . . This would be . . . one (if not the most) efficient and pragmatic method to deal with this increasing problem. It is a method that has worked for me in every instance where it has been tried.”

Interesting idea.

By Sean Carnathan

In the recent decision AT&T Mobility LLC v. Concepcion, Slip Op. No. 09-893, 563 U.S. ___ (April 27, 2011), the U.S. Supreme Court drove a big wooden stake right through the heart of class action arbitration, effectively putting an end to them under existing law.

The holding of the majority opinion is that because the Federal Arbitration Act (“FAA”) requires enforcement of agreements to arbitrate, the well-established California law that most collective-arbitration waivers are unconscionable is preempted by federal law. But the majority’s reasoning is premised on a total fallacy, namely that “[r]equiring the availability of classwide arbitration interferes with fundamental attributes of arbitration and thus creates a scheme inconsistent with the FAA.”

That is just plain not so. The Court is allowing the FAA to be used as a Trojan horse to engraft other terms, onerous to consumers, onto arbitration clauses.

Why should you care? Because legal proceedings are expensive, and there are many wrongful acts that no one can afford to prosecute individually. That’s the whole point to a class action — to band together many small claims into one big claim worth fighting about. Are they subject to abuse? Of course, any powerful tool is. But that doesn’t mean that the solution is to eliminate the tool altogether.

After the AT&T decision, you can safely bet that class-action waivers in arbitration clauses will multiply like bunnies in all kinds of contracts.

Second Circuit Approves Attorney Advertising

By Sean T. Carnathan
Litigation News
Associate Editor
May 17, 2010

The U.S. Court of Appeals for the Second Circuit recently approved attorney advertising [PDF] that includes depictions of the lawyers as having super powers.

The challenged advertisements included ones referring to the lawyers of the firm as “heavy hitters,” portraying comical scenes, or incorporating special effects and jingles. In some advertisements, they depicted themselves “providing legal assistance to space aliens,” towering as giants above buildings, or running so fast that they appeared as blurs.

The firm’s advertising efforts apparently work. According to one ad posted on their website, “Quality Counts,” last year the firm fielded more than 9,000 calls from personal injury plaintiffs and handled more than 1,500 cases.

The dispute arose when the New York Appellate Division adopted new rules prohibiting certain types of attorney advertising and solicitation, which would have barred, among other things, “testimonials from clients relating to pending matters, portrayals of judges or fictitious law firms, attention-getting techniques unrelated to attorney competence, and trade names or nicknames that imply an ability to get results.”

Read the rest of Attorney Carnathan’s article at the American Bar Association’s Litigation News section >>

Jail Time for Spoliation?

By Sean T. Carnathan,
Litigation News Associate Editor
November 29, 2010

Serious spoliation can carry serious consequences, including the possibility of jail time for the culpable party. In a recent order, Magistrate Judge Paul W. Grimm, of the U.S. District Court for the District of Maryland, provided an exhaustive review of what the court found to be a four-year campaign of spoliation of evidence in a case involving alleged violations of copyrights and patents, and unfair competition. Victor Stanley, Inc. v. Creative Pipe, Inc. The court also painstakingly detailed its various options when imposing sanctions.

Extreme Sanctions
As a result of the defendants’ spoliation of evidence, the court not only awarded the plaintiff a partial default judgment but also determined that the defendants’ willful acts of spoliation constituted civil contempt. These actions included the “permanent deletions of countless” pieces of electronically stored information by one of the individual defendants.

Read the rest of Attorney Carnathan’s article at the American Bar Association’s Litigation News section >>