Securities Litigation
 Proof of Loss Causation under Arizona Securities Laws
Grand v. NacchioNo. CV-07-0041 Arizona Supreme Court
The Arizona Supreme Court declined to grant review to reaffirm the loss causation principles articulated by the United States Supreme Court in Dura Pharmaceuticals v. Broudo. The intermediate appellate court's decision permits a plaintiff to "recover losses caused by a general market decline (rather than from any alleged fraud), regardless of whether the plaintiff actually purchased the stock from the defendant, regardless of whether the plaintiff still owns the stock, and regardless of whether the plaintiff actually suffered any loss due to the alleged fraud." No other court has adopted such a broad recovery rule and NCLC filed this brief urging the Arizona Supreme Court to reverse this outlier case.
Amicus brief filed 4/19/07. Decision 9/25/07.
 Primary Liability for Secondary Actors under the Securities LawsStoneridge Investment Partner, LLP v. Scientific-Atlanta, Inc.
No. 06-43 Supreme Court of the United States
NCLC urged the Supreme Court to affirm the Eighth Circuit's conclusion that Section 10(b) of the Securities Exchange Act does not authorize a private right of action against third parties for so-called "scheme liability." In its brief, NCLC argued that that scheme liability—which is nothing more than aiding and abetting liability in disguise and is not supported by the terms of the statute—would disadvantage American issuers of securities because they would have to price their commercial transactions to reflect the substantial added risk of liability for their business partners. To avoid litigation risk, both domestic and foreign companies would have significant incentives to do business with companies listed on foreign exchanges, or with private companies.
Amicus brief filed 8/15/07. Oral argument to be held 10/9/07.
Cross-Border Expansion of Securities Laws
Morrison, et al. v. National Australia Bank, Ltd., et al.
No. 07-0583-cv U.S. Court of Appeals for the Second Circuit
NCLC filed a brief urging the Second Circuit to dismiss a securities class action brought by foreign plaintiffs against a foreign company for conduct that occurred abroad. In this case the plaintiffs, Australian shareholders, filed a securities fraud action in federal court in New York under American law against an Australian defendant for alleged misstatements made in Australia. In its brief, NCLC explained that Supreme Court precedent foreclosed this extraterritorial application of the law and warned that permitting this action to proceed could harm foreign direct investment in the U.S. and the competitiveness of our capital markets.
Amicus brief filed 7/13/07.
 Proof of Scienter under the Securities Laws
Tellabs, Inc., et al. v. Makor Issues & Rights, Ltd.No. 06-484 Supreme Court of the United States
Urging the Court to adopt a stricter pleading test as to the sufficiency of scienter allegations in securities fraud cases than did the court below, NCLC reminded the Court that Congress enacted the Private Securities Litigation Reform Act (PSLRA) to curb vexatious litigation. In particular, NCLC described the significant risk of blackmail settlements and highlighted the potential of a stricter pleading standard for avoiding that risk. The courts of appeals have arrived at three different approaches in determining whether the defendant had the proper state of mind to be held culpable, with the Seventh Circuit, in the decision below, developing a particularly weak variant.
 Class Certification and Foreign Shareholders
In re Vivendi Universal, S.A. Securities LitigationNo. 07-1463 United States Court of Appeals for the Second Circuit Urging the Second Circuit to grant review of the district court's certification order, NCLC argues that the issue as to whether foreign shareholders' claims can be certified is an important one which should be resolved without delay. In this case, Vivendi Universal is being sued by a group of domestic and foreign shareholders for securities fraud under U.S. laws. Though it conceded that it could not be sure that any settlement or judgment of this action would be preclusive in the foreign shareholders' home jurisdictions, the district court certified the class which included shareholders from England, France and the Netherlands. In its brief, NCLC argues that there should be a virtual certainty of preclusive effect before a class including foreign members should ever be certified.
Amicus brief filed 4/17/07.  View briefCorporate Scienter and Collective Knowledge Doctrine Teamsters Local 445 Freight Division Pension Fund v. Dynex Capital Inc., et al.No. 06-2902 United States Court of Appeals for the Second Circuit NCLC urged the Second Circuit to reject the collective knowledge doctrine and affirm that, for purposes of the securities laws, corporations cannot be held liable if no one employee of the company can be held liable on an individual basis. The plaintiff in this case contended that knowledge not otherwise shared by two groups of employees of the defendants should be combined so that the company could be said to retain "collective knowledge" of the fraudulent misstatements at issue. In its brief, NCLC argued that such a rule, rejected by every other court to consider it, would resurrect negligence liability for corporations, permit abusive discovery and harm the standing of our capital markets as they compete globally. Amicus brief filed 1/17/07. View brief
Secondary Actors' Liability under the Securities Laws
Regents of the University of California v. Credit Suisse First Boston, et al.
No. 06-20856 U.S. Court of Appeals for the Fifth Circuit Agreeing with NCLC, the Fifth Circuit adopted a test which clarifies that only a defendant's own conduct can support liability under the securities laws. In Central Bank of Denver v. First Interstate Bank, the Supreme Court concluded that private plaintiffs may not advance claims for aiding and abetting liability under Section 10(b) of the Securities and Exchange Act. In its brief, NCLC argued that the district court, in permitting plaintiffs to rely on the defendants' "purpose and effect" in conducting their transactions, did not properly assess whether any of those transactions were themselves fraudulent within the meaning of the securities laws. Amicus brief filed 12/13/06. Decision 3/19/07.
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Certification of Securities Class Action
Miles v. Merrill Lynch, a/k/a In re Initial Public Securities Offering
No. 05-3349
U. S. Court of Appeals for the Second Circuit
In a dramatic victory for the business community, the Second Circuit has affirmed strict standards for achieving class certification. Having been informed by NCLC that the district court abandoned the "rigorous analysis" standard that trial courts must use to examine plaintiffs' class action allegations, the Second Circuit agreed to review the district court's certification of a class of millions of plaintiffs. The Second Circuit then concluded that the district court's willingness to accept "some showing" of the Rule 23 elements was far too weak in light of the importance of the Rule 23 requirements for class certification. In considering six representative class actions, the district court had ruled that 55 investment banks and over 300 public companies must face over 300 class-action suits over charges that they used IPO allocations to inflate stock prices during the market boom.
Amicus brief in support of appeal filed 10/27/04. Court granted review pursuant to FRCP 23(f) on 6/30/05. Amicus brief on the merits filed 10/12/05. Decision 12/5/06.
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Shareholder Access Proposals in Violation of SEC Rules
American Federation of State, County and Municipal Employees v. AIG Corporation
No. 05-1308
U.S. Court of Appeals for the Second Circuit
NCLC urges the appellate court to affirm the lower court's rejection of AFSCME's attempt to force the company to include the union's shareholder access proposal in the company's 2005 proxy statement. Attempts by special interest groups to nominate board directors through the proxy process are one of the most contentious issues in the area of corporate governance. This case is a classic example of AFSCME's on-going campaign to place a shareholder nomination proposal in the proxies of several large companies and an attempted "end-run" around the Securities and Exchange Commission which has proposed, but has never adopted, a shareholder access rule which the Chamber vigorously opposes.
Amicus brief filed on 9/16/05. Decision 9/5/06.
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Securities Litigation Reform under the PSLRA
Simpson, et al. and the California State Teachers' Retirement System v. Homestore.com, Inc., et al.
No. 04-55665
U. S. Court of Appeals for the Ninth Circuit
NCLC argued to the Ninth Circuit that companies with whom Homestore.com conducted business cannot be held liable, as a matter of law, under the Private Securities Litigation Reform Act (PSLRA) for the events that led to Homestore's restatement of revenue. This is because the PSLRA's language, statutory history, and Supreme Court precedent preclude aider-and-abettor liability in a shareholder suit. Nonetheless, the SEC filed an amicus brief arguing that Homestore's business partners should be held liable for participating in a "scheme" to defraud, an argument that the district court rejected.
Amicus brief in support of Defendant-Appellees and affirmance filed 12/22/04. Decision 6/30/06.
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Securities Class Action and Remand Decisions
No. 05-409
Supreme Court of the United States
The Supreme Court declined to permit appellate review when a federal district court sends a securities class action back to state court where it was originally filed. In its brief, NCLC supported appellate review of so-called "remand decisions" as consistent with congressional efforts to rein in some of the worst abuses of securities class action litigation. In Merrill Lynch v. Dabit, a case decided in March 2006, the Supreme Court said that federal law preempted state law in a similar securities class action. NCLC filed an amicus brief in that case as well.
Amicus brief filed 3/29/05. Oral argument held 4/24/06. Decision 6/15/06. View brief..............................................................................................................
Extraterritorial Application of California's Securities Law
Peregrine Litigation Trust v. Superior Court of the State of California, County of San Diego
No. S141028
California Supreme Court
The California Supreme Court declined review of an appeals court decision which exposed officers and directors of corporations to lawsuits brought by non-resident plaintiffs for alleged misconduct. In a case that could have had significant implications for multinational corporations doing business in California, NCLC argued that the appeals court decision sets a dangerous precedent and that the California Supreme Court should adhere to the internal affairs doctrine, which provides for uniformity and predictability involving states of incorporation. NCLC is actively monitoring other opportunities for California's high court to consider this issue.
Letter brief filed 1/20/2006. Decision 4/10/06.
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Primary Liability under Section 10(b) for Secondary Actors
Quaak v. DexiaNo.
05-2580
United States Court of Appeals for the First Circuit
NCLC urges the First Circuit to reverse the decision below because it contravenes the Supreme Court's holding in Central Bank of Denver, N.A. v. First Interstate Bank of Denver that no civil liability exists for aiding and abetting a violation of section 10(b) of the Securities and Exchange Act and that such conduct is enforced by the Securities and Exchange Commission alone. Instead, as the NCLC reminded the court in its brief, a factfinder must conclude that the defendant engaged in the prohibited activity itself before assigning liability.
Amicus brief filed 1/11/06. Decision 3/29/06.
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Federal Preemption and the Securities Litigation Uniform Standards Act
Merrill Lynch, Pierce, Fenner & Smith v. Dabit
No. 04-1371
Supreme Court of the United States
Describing the litigation background to the enactment of the Securities Litigation Uniform Standards Act ("SLUSA"), NCLC urged the Supreme Court to overrule the Second Circuit's determination that SLUSA does not preempt state law claims brought by plaintiffs who merely held their securities during the applicable time period rather than purchasing or selling them. In its brief, NCLC made clear that such suits "are especially susceptible to misuse as a vehicle to extract extortionate settlements because they allege speculative injuries that typically are proven through use of oral testimony. Congress could not have intended to allow national class actions asserting such claims to survive the SLUSA."
Amicus brief filed 11/14/05.
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Enforcement of SEC Regulation FD
Securities and Exchange Commission v. Siebel Systems, Inc., et al.
No. 04 CV 5130 (GBD)
U.S. District Court for the Southern District of New York
The federal district court granted Siebel Systems' motion to dismiss the case filed against the company for alleged violations of SEC Regulation FD ["Fair Disclosure"]. Regulation FD states that public companies cannot disclose material information to securities analysts and institutional investors without also disclosing it publicly. The court found that SEC failed to support its allegations that certain positive statements made by company officials constituted "material nonpublic information" that should have been disclosed to the public. In doing so, the court chided the Commission for "[a]pplying Regulation FD in an overly aggressive manner" and for "plac[ing] an unreasonable burden on a company's management and spokesperson to become linguistic experts, or otherwise live in fear of violating Regulation FD should the words they use later be interpreted by the SEC as connoting even the slightest variance from the company's private statements."
Amicus brief in support of motion to dismiss filed 1/18/05. Oral argument held 3/15/05. Decision 8/31/05.
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First Amendment Implications of Securities Regulations
Securities and Exchange Commission v. Siebel Systems, Inc., et al.
No. 04 CV 5130 (GBD)
U. S. District Court for the Southern District of New York - Civil Division
NCLC supports Siebel Systems challenge to SEC Regulation FD ["Fair Disclosure"]. Regulation FD states that public companies cannot disclose material information to securities analysts and institutional investors without also disclosing it publicly. NCLC contends that the regulation greatly exceeds the SEC's statutory authority and impairs fundamental First Amendment values.
Amicus brief in support of motion to dismiss filed 1/18/05. Oral argument held 3/15/05.
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Certification of Securities Class Action
In Re Initial Public Securities Offering
No. 04-
U. S. Court of Appeals for the Second Circuit
NCLC urges the Second Circuit to review the district court's certification of a class of millions of plaintiffs on the ground that the district court abandoned the "rigorous analysis" standard that trial courts must use to examine plaintiffs' class action allegations. The district court ruled that 55 investment banks must face at least six class-action suits over charges that they used IPO allocations to inflate stock prices during the market boom. The court's relaxation of the certification standard meant that the plaintiffs were not required to show that an efficient market took account of any of the defendants' alleged misrepresentations, that the plaintiffs actually relied on the price of the securities as an accurate reflection of their value, or that there was a causal link between the allegedly fraudulent scheme and the price of the securities at issue.
Amicus brief in support of appeal filed 10/27/04.
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