Inside the Courts – An Update From Skadden Securities Litigators - December 2018

Skadden, Arps, Slate, Meagher & Flom LLP

This quarter’s issue includes summaries and associated court opinions of selected cases principally decided between September 2018 and October 2018.


Fiduciary Duties

Mergers and Acquisitions Litigation


Proxy Solicitations

SEC Enforcement Actions

Securities Fraud Pleading Standards

SLUSA Preclusion


Northern District of California Denies Cryptocurrency Foundation’s Motion to Dismiss, Holding Foundation Is Subject to SEC Jurisdiction

In re Tezos Sec. Litig., No. 17-cv-06779 (N.D. Cal. Aug. 7, 2018)
Click here to view the opinion.

Judge Richard Seeborg denied defendant Tezos’ motion to dismiss, holding that the company’s cryptocurrency — also called Tezos — is a security subject to the jurisdiction of the SEC.

The plaintiff investors argued that cryptocurrency distributed in connection with the defendant’s initial coin offering (ICO) was subject to SEC rules and regulations for the sale of unregistered securities because the critical aspects of the sale occurred in the United States. The defendant argued that the ICO occurred outside the United States because it was administered by the Swiss-based Tezos Foundation, the transactions took place in the U.K. where the software was based and the terms of the sale governing the ICO contained a forum selection clause that designated Switzerland as the exclusive forum for disputes.

The court held that the Tezos ICO fell within the SEC’s jurisdiction. The court reasoned that, in determining whether the sale of “an unregistered security, purchased on the internet, and ‘recorded on the blockchain’” is a domestic transaction subject to the application of U.S. law and thus the SEC’s jurisdiction, the “critical aspects of the sale” must occur in the United States. Here, the court found that because the transaction was hosted on an Arizona-based server, run by a California resident, and ICO investors had likely learned about it from “marketing that almost exclusively targeted [U.S.] residents,” the critical aspects of the sale occurred in the United States, and thus the sale was subject to the jurisdiction of the SEC.

Fiduciary Duties

Aiding and Abetting Breaches of Fiduciary Duty

Court of Chancery Dismisses Aiding-and-Abetting Claims Post-Trial

In re PLX Tech. Inc. Stockholders Litig., Consol. C.A. No. 9880-VCL (Del. Ch.
Oct. 16, 2018)

Click here to view the opinion.

Post-trial, the court entered judgment in favor of a defendant alleged to have aided and abetted breaches of fiduciary duty, holding that although the plaintiffs prevailed on their claims, they failed to prove damages.

The action arose from Avago Technologies’ acquisition of PLX Technology following an activist campaign. Prior to the acquisition, Potomac Capital, a 9.4 percent stockholder, replaced three of PLX’s directors with its co-managing member, Eric Singer, and two other nominees. Soon thereafter, PLX’s financial advisor notified Singer that Avago wanted to acquire PLX at $6.53 per share. Singer did not share that information with the rest of the board. A few months later, a representative of Avago met with Singer and proposed to acquire PLX for $6.25 per share. Nine days later, PLX agreed in principle to a deal at $6.50 per share.

Stockholders filed suit against the members of PLX’s board of directors for breaches of fiduciary duty, and against Potomac, Avago and PLX’s financial advisor for aiding and abetting breaches of fiduciary duty. Prior to trial, all of the defendants other than Potomac were either dismissed from the case or settled the claims against them.

The Court of Chancery held that the plaintiff prevailed on each element of its aiding-and-abetting claim against Potomac but failed to prove damages. The court noted that enhanced scrutiny would apply to a sale of the company for cash unless, under the Delaware Supreme Court’s decision in Corwin v. KKR Financial Holdings LLC, 125 A.3d 304 (Del. 2015), the merger was approved by a fully informed, uncoerced stockholder tender. After finding that the PLX board committed several disclosure violations, the court concluded the standard of review would be enhanced scrutiny under Revlon, Inc. v. MacAndrews & Forbes Holdings, Inc., 506 A.2d 173 (Del. 1986). The court noted that although the “narrow, pre-signing canvass with a post-signing market check” suggested that the process fell within a range of reasonableness, it concluded that the sale process was plagued by “divergent interests,” and that Potomac “succeeded in influencing the directors to favor a sale when they otherwise would have decided to remain independent.” However, with respect to damages, the court determined that the sale price exceeded PLX’s fair value on a standalone basis, even though the process was “flawed from a fiduciary standpoint.”

Controlling Stockholder Litigation

Delaware Supreme Court Affirms Court of Chancery’s Dismissal Under MFW

Flood v. Synutra Int’l, Inc., No. 101, 2018 (Del. Oct. 9, 2018)
Click here to view the opinion.

The Delaware Supreme Court affirmed the Court of Chancery’s dismissal of breach of fiduciary duty claims and related aiding-and-abetting claims under Kahn v. M&F Worldwide Corp. (MFW), 88 A.3d 635 (Del. 2014), clarifying the circumstances under which the business judgment rule may apply to controlling stockholder transactions.

The action arose from a squeeze-out merger whereby Synutra International was acquired by its controlling stockholder group. The control group’s initial nonbinding proposal did not condition a potential transaction on MFW’s dual protections of both approval by a special committee of independent directors and a majority of the company’s disinterested stockholders. The control group did, however, send a follow-up letter two weeks after its initial proposal expressly conditioning the transaction on such approval. The plaintiff, a stockholder of Synutra, filed a lawsuit challenging the merger, arguing that it did not comply with the standard set forth in the MFW decision, which lessens the standard of review for evaluating mergers involving a controlling stockholder from entire fairness to business judgment review when the merger is conditioned “ab initio” on the dual protections.

In the case below, the Court of Chancery held that, despite the two-week delay in conditioning the deal on MFW’s dual protections, the control group ultimately complied with MFW. Accordingly, the Court dismissed the complaint.

The Delaware Supreme Court agreed with the Court of Chancery and clarified MFW’s ab initio requirement. The court stated that a controller satisfies the requirement when it “condition[s] the buyout on both [procedural protections] at the beginning stages of the process of considering a going private proposal and before any negotiations commence between the Special Committee and the controller over the economic terms of the offer.” The court also expressly overruled dicta in MFW observing that the plaintiff’s “allegations about the sufficiency of the price call[ed] into question the adequacy of the Special Committee’s negotiations.” The court explained that “a plaintiff can plead a duty of care violation only by showing that the Special Committee acted with gross negligence, not by questioning the sufficiency of the price,” and that a “price question is not one for a court applying the business judgment rule standard” but rather for the stockholders to vote on themselves.

Mergers and Acquisitions Litigation

Court of Chancery Authorizes Termination of Merger Agreement Due to Material Adverse Effect

Akorn, Inc. v. Fresenius Kabi AG, C.A. No. 2018-0300-JTL (Del. Ch. Oct. 1, 2018)
Click here to view the opinion.

In a 246-page post-trial decision, Vice Chancellor J. Travis Laster denied a seller’s request for an order directing a buyer to specifically perform its contractual obligations to close a merger, finding that the buyer validly terminated the merger agreement because, among other things, it validly relied on the fact that the buyer had suffered a material adverse effect (MAE), as defined in the merger agreement.

The litigation arose from Fresenius Kabi AG’s contemplated acquisition of Akorn, Inc. pursuant to an April 2017 merger agreement. In the second quarter of 2017, Akorn’s business performance “fell off a cliff” and continued to deteriorate. Later in 2017, Fresenius conducted an investigation that revealed Akorn had “serious and pervasive data integrity problems,” including submitting falsified product data to the Food and Drug Administration (FDA). Fresenius provided Akorn with a notice of termination of the merger agreement on the grounds that Akorn (i) breached regulatory representations and warranties that could reasonably be expected to have an MAE (the Bring-Down Condition); (ii) materially breached a covenant that it complied with or performed in all material respects its obligations (the Covenant Compliance Condition), including to operate in the ordinary course of business (the Ordinary Course Covenant); and (iii) had suffered an MAE. In response, Akorn sued for specific performance, asserting that Fresenius breached the Covenant Compliance Condition by failing to use its reasonable best efforts to consummate the merger (the Reasonable Best Efforts Covenant) and take all actions necessary to obtain antitrust approval (the Hell-or-High-Water Covenant).

First, the court found that Akorn breached the Bring-Down Condition, which required Akorn’s representations, including representations regarding regulatory compliance, to have been true at signing and closing. At the time of signing, Akorn had “widespread regulatory violations and pervasive compliance problems” and these problems “got worse, rather than better,” during the relevant time period. The court estimated that Akorn’s data integrity issues constituted a regulatory MAE because the issues would result in a valuation hit of about $900 million, or a 21 percent decline in Akorn’s implied value under the merger agreement.

Second, the court found that Akorn breached its duty to use “commercially reasonable efforts” — which the court treated as synonymous with “reasonable best efforts” — to carry on its business “in all material respects” in the ordinary course of business. The court found that Akorn’s conduct — in canceling regularly scheduled audits in favor of verification audits that would not reveal additional deficiencies, failing to devote any resources to data integrity projects, submitting regulatory filings to the FDA based on fabricated data and failing to investigate regulatory issues upon receiving whistleblower letters — constituted a material departure from reasonable best efforts to conduct the business in the ordinary course.

Third, the court found that Akorn suffered a MAE that “substantially threaten[ed its] overall earnings potential [] in a durationally-signficant manner.” From Q2 2017 through Q1 2018, Akorn’s year-over-year declines each quarter ranged from 25 percent to 34 percent for revenue, 84 percent to 292 percent for operating income and 96 percent to 300 percent for earnings per share. In contrast, over the five-year span of 2012 to 2016, Akorn grew consistently, year over year, when measured by the same metrics. Akorn’s “dramatic downturn in performance is durationally significant” because it “persisted for a full year” and showed “no signs of abating.”

By contrast, the court found that Fresenius did not breach the Reasonable Best Efforts Covenant because it “analyzed and remained committed to fulfilling its obligations under the Merger Agreement” even while it evaluated its rights, including termination rights. Fresenius did breach the Hell-or-High-Water Covenant because for one week, it embarked on a path that would have pushed obtaining regulatory approval beyond the time frame established in the merger agreement. The court, however, found that Fresenius’ breach was not material because, within one week of deviating, Fresenius reverted back to the path that would have kept obtaining regulatory approval within the merger agreement time frame.

The court therefore concluded that Fresenius had validly terminated the merger agreement. Akorn has since taken an appeal.


SDNY Rules That Companies Must Go to Trial Over Claims Brought by Group of Investment Funds

Silvercreek Mgmt., Inc. v. Citigroup, Inc., No. 02-CV-8881-JPO (S.D.N.Y.
Sep. 28, 2018)
Click here to view the opinion.

Judge J. Paul Oetken granted, in part, several financial institutions’ motions for summary judgment on claims under Section 11 of the Securities Act. The claims originated from plaintiffs’ October 2001 investment of approximately $100 million in two types of Enron securities, which became worthless after Enron’s bankruptcy. As to the Section 11 claim, the financial institutions argued that the plaintiffs had failed to establish that they were underwriters for purposes of Section 11 liability. The court granted summary judgment as to one company because the offering at issue was a Rule 144A private placement, not a public offering, and the court held that Section 11 did not apply. Although the plaintiffs argued that the private offering was sufficiently related to a subsequent public offering of the same securities, the court held that Section 11 liability arises only where the public and private transactions are so intertwined that they appear as one to the investing public, and that the plaintiffs had failed to demonstrate the company’s involvement in any public offering or even that a public offering had occurred.

As to the other company, however, the court found a materially disputed fact with respect to that company’s participation in a public offering of the securities and therefore whether the company could be held to be an underwriter. The court noted that the public registration statement indicated that the company was a reseller of the notes and may be deemed to be an underwriter within the meaning of the Securities Act. The company also purportedly participated in preparing the registration statement and conducting due diligence. The court rejected the company’s argument that it had only a minor role and purchased only a small amount of the securities at issue, holding that Section 11 permits liability for “every underwriter.”

Proxy Solicitations

District of Nebraska Dismisses Shareholder Suit Regarding Allegedly Misleading Proxy Statement

In re Nat’l Research Corp. S’holder Litig., No. 4:17-cv-441 (D. Neb. Oct. 9, 2018)
Click here to view the opinion.

Judge John M. Gerrard dismissed claims brought by a corporation’s minority shareholders under Section 14(a) of the Securities Exchange Act, SEC Rule 14(a)-9 and Nebraska law against a corporation, its chairman and controlling shareholder, and the other members of its board of directors. The plaintiffs alleged that the board violated federal law by including false or misleading information in a proxy statement soliciting minority shareholder approval for a plan to repurchase and retire the corporation’s Class B stock. Specifically, the plaintiffs alleged two theories. First, the proxy statement was misleading because it did not disclose management’s cash flow projections. Second, the proxy statement was misleading because reimbursements to the controlling shareholder characterized as legal, advisory and financial modeling fees were in fact the controlling shareholder’s personal expenses related to a prior failed iteration of the share repurchase plan.

Applying the heightened pleading requirements of the Private Securities Litigation Reform Act (PSLRA), the court dismissed the federal claim. As to the allegation regarding omission of cash flow projections in the proxy statement, the court noted that there was no strong inference of scienter because the plaintiffs failed to ascribe a motive, purpose or “plan in mind” for the omission. The court further observed that omission of the cash flow projections did not render any statement in the proxy statement untrue or misleading.

As to the allegation regarding the mischaracterization of the controlling shareholder’s personal expenses related to the prior failed repurchase plan, the court noted that the amounts reimbursed to the controlling shareholder were in fact for legal, advisory and financial modeling fees. Any disagreement stemmed from the plaintiffs’ view that the prior failed repurchase plan was for the personal benefit of the controlling shareholder. Even though the proxy statement did not disclose that the same lawyer advised both the controlling shareholder and the board of directors, the plaintiffs alleged this only to be a “potential conflict of interest” and not an actual conflict of interest that could render misleading the statement regarding reimbursement for legal fees.

SEC Enforcement Actions

Ninth Circuit Holds That General Partnership Interests Are Investment Contracts and Qualify as Securities Under Federal Law

SEC v. Schooler, No. 16-55167 (9th Cir. Sept. 26, 2018)
Click here to view the opinion.

The Ninth Circuit affirmed the district court’s grant of summary judgment to the Securities and Exchange Commission (SEC), finding that unregistered, purported “partnership interests” sold by the defendant qualified as “investment contracts” and therefore constituted securities under federal law.

The defendant formed a general partnership to identify tracts of land to purchase, with the hope that the land would become developed and increase in value. The defendant sold interests in the partnership to investors. The SEC sued, claiming the partnership interests were unregistered securities and that the defendant had defrauded his investors.

In granting summary judgment to the SEC, the Ninth Circuit held that although the defendant marketed these real estate investments as partnership interests, they qualified as investment contracts under federal law because they were “investment[s] in a common venture premised on a reasonable expectation of profits to be derived from the entrepreneurial or managerial efforts of others.” Specifically, the Ninth Circuit found that the general partnership interests were “stripped of the hallmarks of a general partnership and marketed as passive investments.” For example, unlike a typical real estate investment, general partners had no control over what land to purchase or how much to pay for it. Rather, the defendant “exercised near total control over the investments between receipt of investor payments and execution of the partnership agreements,” and the partnership agreements were not effective upon delivery of investor funds, but rather, at an arbitrary date after “nearly all meaningful decisions were made that would determine the success or failure of the investment.”

DC Circuit Vacates Decision, Remands Case Adjudicated by Unconstitutionally Appointed Administrative Law Judge

Harding Advisory LLC v. SEC, No. 17-1070, SEC-3-15574 (D.C. Cir. Sept. 19, 2018)
Click here to view the opinion.

A three-judge panel of the D.C. Circuit set aside an SEC decision and order, and remanded the case for a new hearing. The case involved claims against investment adviser Wing Chau and his company, Harding Advisory LLC (Harding). The administrative law judge (ALJ) assigned to adjudicate the case found that Chau and Harding violated Section 17(a) of the Securities Act and Section 206 of the Investment Advisers Act by committing fraud in connection with the management of certain collateralized debt obligations, and imposed penalties. On review, the commission upheld the ALJ’s decision and imposed additional fines and disgorgement. Chau appealed to the D.C. Circuit. The Court of Appeals ordered a stay pending the U.S. Supreme Court’s decision in Lucia v. Securities and Exchange Commission, 138 S. Ct. 2044 (2018), which challenged the appointment of the ALJ who adjudicated the case as constitutionally invalid.

On June 21, 2018, in its decision in Lucia, the Supreme Court held that ALJs are “Officers of the United States” and thus subject to the Appointments Clause of the U.S. Constitution. The Court further held that if a party makes a timely constitutional challenge to the appointment of the ALJ who adjudicates his or her case, the party is entitled to relief. In the case of an adjudication tainted by an Appointments Clause violation, the appropriate relief is a new hearing before a properly appointed official.

Following the decision in Lucia, the SEC moved to remand Chau’s case to the commission for a new hearing. Chau opposed, arguing that under Lucia, the commission’s order could not be affirmed or modified but rather must be set aside. Chau reasoned that the Supreme Court’s mention in Lucia of “remand” as a remedy for an Appointments Clause violation was merely dicta that carried no weight.

The D.C. Circuit issued an order setting aside the commission’s decision and remanding Chau’s case to the SEC for a new hearing before a different ALJ or before the commission, in accordance with Lucia. The circuit court rejected Chau’s argument that the case could not be remanded. Quoting language from its decision in Sierra Club v. EPA, 322 F.3d 718 (D.C. Cir. 2003), the court emphasized that “carefully considered language of the Supreme Court, even if technically dictum, generally must be treated as authoritative.”

On November 30, 2017, while this case was pending, the SEC announced that it ratified the appointments of its ALJs in order to settle the question of whether the hiring process for those judges violates the Appointments Clause.

Securities Fraud Pleading Standards

Fifth Circuit Affirms Dismissal of Section 10(b) Claim, Holding That Challenged Statements Did Not Constitute Material Misrepresentations and Plaintiffs Did Not Plead Loss Causation

Emps.’ Ret. Sys. of the State of Haw. v. Whole Foods Mkt., Inc., No. 17-50840 (5th Cir. Oct. 3, 2018)
Click here to view the opinion.

On October 3, 2018, a three-judge panel dismissed a putative class action lawsuit against Whole Foods Market, Inc. and several of its officers. The suit alleged violations of Sections 10(b) and 20(a) of the Securities Exchange Act.

On June 24, 2015, the New York City Department of Consumer Affairs (DCA) released a report detailing violations of national weights-and-measures standards by Whole Foods. On June 29, 2015, Whole Foods CEOs John Mackey and Walter Robb posted a video to the retailer’s website, stating that the company had “made some mistakes” with regard to its pricing. When the company released its third-quarter financial data on July 29, 2015, it failed to meet its sales targets for the quarter, as the company experienced a slowdown in sales growth in the weeks between
the DCA’s report on June 24, 2015, and the end of the quarter on July 5, 2015.

The plaintiffs, who purchased Whole Foods stock between July 31, 2013, and July 29, 2015, alleged that three categories of statements made by Whole Foods during that period were false in light of the weights-and-measures violations: (i) assertions of competitive pricing; (ii) statements suggesting high standards for transparency, quality and corporate responsibility; and (iii) exaggerated financial results that fraudulently reported revenues earned as a result of the weights-and-measures violations. The plaintiffs alleged that these statements deceived stockholders into purchasing stock at artificially inflated prices.

The district court dismissed the case for failure to state a claim, holding that the complaint did not sufficiently identify a material false or misleading statement or adequately plead loss causation, and thus failed to meet the elements of a Section 10(b) cause of action.

The Fifth Circuit affirmed. It held that the plaintiffs failed to allege the competitive pricing statements were misleading because they had not compared the prices at the time in question with prior prices, nor had they alleged that the prices were unattractive to consumers. The court explained that even though the prices actually charged were higher than advertised, this did not yield the inevitable conclusion that the charged prices were uncompetitive. The court further held that statements regarding transparency, quality and corporate responsibility were “the sort of puffery that a reasonable investor would not rely on,” rather than material misrepresentations.

With respect to the plaintiffs’ allegation of exaggerated financials, the court held that the plaintiffs failed to plead the alleged fraud with particularity, as they did not plead, for each statement alleged to have been misleading, how much of its revenue Whole Foods allegedly overstated. The court further held that the plaintiffs failed to adequately plead loss causation with respect to the allegedly exaggerated financials. The plaintiffs alleged that their loss occurred when Whole Foods’ stock price dropped about 10 percent on July 30, 2015, over a month after the weights-and-measures scandal was revealed. The court held that because the plaintiffs did not allege that any new information was revealed in the time period between the DCA findings and the price drop, they failed to identify a decline in stock price that shortly followed a corrective disclosure.


Western District of Washington Dismisses Securities Fraud Class Action Arising From Consumer Investigation for Failure to Assert Particularized Facts

In re Zillow Grp. Inc. Sec. Litig., No. C17-1387-JCC (W.D. Wash. Oct. 2, 2018)
Click here to view the opinion.

Judge John C. Coughenour dismissed a putative class action against Zillow Group that arose from a Consumer Financial Protection Bureau (CFPB) investigation into Zillow’s co-marketing deal for agents and lenders, finding that the plaintiffs failed to allege falsity with particularity.

Zillow, an online real estate marketing site, offered real estate agents and mortgage lenders a co-marketing program that allowed lenders to contribute to a real estate agent’s advertising costs in exchange for appearing on the agent’s online listing and receiving some of the leads the agent received from visitors to the site. In April 2015, the CFPB began investigating Zillow’s co-marketing program, and in February 2017, it notified Zillow that it was considering legal action for violations of the Real Estate Settlement Procedures Act (RESPA). In August 2017, investors sued, alleging that Zillow previously made misrepresentations regarding the investigation and that they purchased Zillow shares at an artificially inflated price.

The plaintiffs alleged that Zillow made false or misleading statements during an investor call that led investors to believe the co-marketing program was in compliance with RESPA, when Zillow knew it was not. The plaintiffs also claimed that Zillow should have disclosed the CFPB’s investigation, and that its failure to do so also misled investors.

The court granted Zillow’s motion to dismiss. The court determined that investors failed to allege particularized facts demonstrating that Zillow knew the co-marketing program violated RESPA. The court further found that Zillow was not required to disclose the CFPB investigation because its affirmative statements did not give off the impression that Zillow was not under regulatory scrutiny. Therefore, Zillow had no duty to
disclose it.


Sixth Circuit Reverses Dismissal of Shareholder Suit Alleging Pharmaceutical Company Fraudulently Misled Investors

Dougherty v. Esperion Therapeutics, Inc., No. 17-1701 (6th Cir. Sept. 27, 2018)
Click here to view the opinion.

The Sixth Circuit reversed a decision dismissing a putative class action brought against a pharmaceutical company by a group of its shareholders. The plaintiffs, who purchased stock in the company during the class period, alleged that the company misled investors by stating in a press release that the FDA would not require it to perform a costly test before approving a drug for market. When the company walked back its statements upon receipt of further information from the FDA, the company’s stock price fell 48 percent. The plaintiffs brought suit as a result.

The plaintiffs alleged the company misled investors with false statements, violating Sections 10(b) and 20(a) of the Securities Exchange Act and Rule 10b-5 promulgated thereunder. The district court held that the plaintiffs failed to adequately plead a strong inference of scienter because the company’s statements were not reckless and, further, that the statements fell within the safe harbor provision of the PSLRA as forward-looking statements.

The Sixth Circuit disagreed. In analyzing the company’s statements under the factors set forth in Helwig v. Vencor, Inc., 251 F.3d 540 (6th Cir. 2001), the court determined that the company’s two alternative explanations for the discrepancy in its statements were no more plausible than the plaintiffs’ position that the statements were knowingly or recklessly false. Furthermore, the court found that the statements were not forward-looking, but rather, were mixed statements of present fact and future prediction and, as such, fell outside the PSLRA’s safe harbor. Accordingly, the Sixth Circuit reversed the district court’s dismissal and remanded.

SDNY Dismisses Putative Class Claims Brought by Investors in Multinational Gold Mining Company

In re Barrick Gold Corp. Sec. Litig., 17-cv-3507-NRB (S.D.N.Y. Sep. 20, 2018)
Click here to view the opinion.

Judge Naomi Reice Buchwald dismissed putative class claims against a multinational gold mining company brought under Section 10(b) of the Securities Exchange Act. The plaintiffs alleged that, following several incidents in 2016 and early 2017 where one of the company’s major mines located in Argentina had chemical spills resulting in certain regulatory measures being imposed by local authorities, the company made false and misleading statements that mischaracterized the impact that those incidents would have on the mine’s operations. The plaintiffs alleged that the company had misrepresented that it had taken certain remedial steps and that the mine’s output and operating costs for 2017 would not be materially perturbed by the incidents. The plaintiffs alleged that the truth was revealed when the company later announced quarterly operating results showing forecasted reduced output and increased costs for the mine as a result of local regulatory restrictions.

The court determined that the company’s statement about remediation was not adequately alleged to be false because they did not plead that the defendants had not undertaken the remedial steps described in their public statements (for example, implementing aerial surveillance of the mine). The court further determined that the plaintiffs failed to adequately plead a strong inference of scienter. Although some of the company’s executives had access to information that might have rendered their statements knowingly misleading, the “individually insufficient allegations do not combine to create an inference of scienter sufficient to satisfy the PSLRA.” The court also determined that the company’s statements were not actionable because they were protected by the PSLRA’s safe harbor for forward-looking statements. The statements concerned the mine’s expected future economic performance for 2017 and were accompanied by meaningful cautionary language.

SLUSA Preclusion

Ninth Circuit Holds Breach of Fiduciary Duty Claims Precluded by SLUSA

Northstar Fin. Advisors v. Schwab Invs., No. 16-15303 (9th Cir. Sept. 14, 2018)
Click here to view the opinion.

The Ninth Circuit dismissed a putative class action asserting a breach of fiduciary duty claim, finding that it was a covered class action precluded by the Securities Litigation Uniform Standards Act (SLUSA).

The plaintiffs alleged that the defendant breached its fiduciary duty to shareholders by mismanaging an index fund. Specifically, the plaintiffs alleged that the fund’s 1997 proxy statement representing that the fund would be managed conservatively was a contract that defendant breached by concentrating more than 25 percent of the fund’s assets in mortgage-backed securities and collateralized mortgage obligations from 2007 to 2009.

SLUSA bars class actions based on state law claims alleging a misrepresentation or omission in connection with the purchase or sale of covered securities. Here, the Ninth Circuit affirmed dismissal of the plaintiffs’ claims, holding that they were barred by SLUSA because the plaintiffs’ purported contract claim based on a breach of promises made in the proxy statement was actually a disguised securities fraud claim. The panel reasoned that the plaintiffs expressly pleaded an omission — that investors were not told about the deviation from the conservative investment policy stated in the proxy agreement. Therefore, the plaintiffs “did not simply plead a garden-variety breach of contract claim,” but rather, a misrepresentation or omission barred by SLUSA.

Download pdf

Written by:

Skadden, Arps, Slate, Meagher & Flom LLP

Skadden, Arps, Slate, Meagher & Flom LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
- hide

JD Supra Privacy Policy

Updated: May 25, 2018:

JD Supra is a legal publishing service that connects experts and their content with broader audiences of professionals, journalists and associations.

This Privacy Policy describes how JD Supra, LLC ("JD Supra" or "we," "us," or "our") collects, uses and shares personal data collected from visitors to our website (located at (our "Website") who view only publicly-available content as well as subscribers to our services (such as our email digests or author tools)(our "Services"). By using our Website and registering for one of our Services, you are agreeing to the terms of this Privacy Policy.

Please note that if you subscribe to one of our Services, you can make choices about how we collect, use and share your information through our Privacy Center under the "My Account" dashboard (available if you are logged into your JD Supra account).

Collection of Information

Registration Information. When you register with JD Supra for our Website and Services, either as an author or as a subscriber, you will be asked to provide identifying information to create your JD Supra account ("Registration Data"), such as your:

  • Email
  • First Name
  • Last Name
  • Company Name
  • Company Industry
  • Title
  • Country

Other Information: We also collect other information you may voluntarily provide. This may include content you provide for publication. We may also receive your communications with others through our Website and Services (such as contacting an author through our Website) or communications directly with us (such as through email, feedback or other forms or social media). If you are a subscribed user, we will also collect your user preferences, such as the types of articles you would like to read.

Information from third parties (such as, from your employer or LinkedIn): We may also receive information about you from third party sources. For example, your employer may provide your information to us, such as in connection with an article submitted by your employer for publication. If you choose to use LinkedIn to subscribe to our Website and Services, we also collect information related to your LinkedIn account and profile.

Your interactions with our Website and Services: As is true of most websites, we gather certain information automatically. This information includes IP addresses, browser type, Internet service provider (ISP), referring/exit pages, operating system, date/time stamp and clickstream data. We use this information to analyze trends, to administer the Website and our Services, to improve the content and performance of our Website and Services, and to track users' movements around the site. We may also link this automatically-collected data to personal information, for example, to inform authors about who has read their articles. Some of this data is collected through information sent by your web browser. We also use cookies and other tracking technologies to collect this information. To learn more about cookies and other tracking technologies that JD Supra may use on our Website and Services please see our "Cookies Guide" page.

How do we use this information?

We use the information and data we collect principally in order to provide our Website and Services. More specifically, we may use your personal information to:

  • Operate our Website and Services and publish content;
  • Distribute content to you in accordance with your preferences as well as to provide other notifications to you (for example, updates about our policies and terms);
  • Measure readership and usage of the Website and Services;
  • Communicate with you regarding your questions and requests;
  • Authenticate users and to provide for the safety and security of our Website and Services;
  • Conduct research and similar activities to improve our Website and Services; and
  • Comply with our legal and regulatory responsibilities and to enforce our rights.

How is your information shared?

  • Content and other public information (such as an author profile) is shared on our Website and Services, including via email digests and social media feeds, and is accessible to the general public.
  • If you choose to use our Website and Services to communicate directly with a company or individual, such communication may be shared accordingly.
  • Readership information is provided to publishing law firms and authors of content to give them insight into their readership and to help them to improve their content.
  • Our Website may offer you the opportunity to share information through our Website, such as through Facebook's "Like" or Twitter's "Tweet" button. We offer this functionality to help generate interest in our Website and content and to permit you to recommend content to your contacts. You should be aware that sharing through such functionality may result in information being collected by the applicable social media network and possibly being made publicly available (for example, through a search engine). Any such information collection would be subject to such third party social media network's privacy policy.
  • Your information may also be shared to parties who support our business, such as professional advisors as well as web-hosting providers, analytics providers and other information technology providers.
  • Any court, governmental authority, law enforcement agency or other third party where we believe disclosure is necessary to comply with a legal or regulatory obligation, or otherwise to protect our rights, the rights of any third party or individuals' personal safety, or to detect, prevent, or otherwise address fraud, security or safety issues.
  • To our affiliated entities and in connection with the sale, assignment or other transfer of our company or our business.

How We Protect Your Information

JD Supra takes reasonable and appropriate precautions to insure that user information is protected from loss, misuse and unauthorized access, disclosure, alteration and destruction. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. You should keep in mind that no Internet transmission is ever 100% secure or error-free. Where you use log-in credentials (usernames, passwords) on our Website, please remember that it is your responsibility to safeguard them. If you believe that your log-in credentials have been compromised, please contact us at

Children's Information

Our Website and Services are not directed at children under the age of 16 and we do not knowingly collect personal information from children under the age of 16 through our Website and/or Services. If you have reason to believe that a child under the age of 16 has provided personal information to us, please contact us, and we will endeavor to delete that information from our databases.

Links to Other Websites

Our Website and Services may contain links to other websites. The operators of such other websites may collect information about you, including through cookies or other technologies. If you are using our Website or Services and click a link to another site, you will leave our Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We are not responsible for the data collection and use practices of such other sites. This Policy applies solely to the information collected in connection with your use of our Website and Services and does not apply to any practices conducted offline or in connection with any other websites.

Information for EU and Swiss Residents

JD Supra's principal place of business is in the United States. By subscribing to our website, you expressly consent to your information being processed in the United States.

  • Our Legal Basis for Processing: Generally, we rely on our legitimate interests in order to process your personal information. For example, we rely on this legal ground if we use your personal information to manage your Registration Data and administer our relationship with you; to deliver our Website and Services; understand and improve our Website and Services; report reader analytics to our authors; to personalize your experience on our Website and Services; and where necessary to protect or defend our or another's rights or property, or to detect, prevent, or otherwise address fraud, security, safety or privacy issues. Please see Article 6(1)(f) of the E.U. General Data Protection Regulation ("GDPR") In addition, there may be other situations where other grounds for processing may exist, such as where processing is a result of legal requirements (GDPR Article 6(1)(c)) or for reasons of public interest (GDPR Article 6(1)(e)). Please see the "Your Rights" section of this Privacy Policy immediately below for more information about how you may request that we limit or refrain from processing your personal information.
  • Your Rights
    • Right of Access/Portability: You can ask to review details about the information we hold about you and how that information has been used and disclosed. Note that we may request to verify your identification before fulfilling your request. You can also request that your personal information is provided to you in a commonly used electronic format so that you can share it with other organizations.
    • Right to Correct Information: You may ask that we make corrections to any information we hold, if you believe such correction to be necessary.
    • Right to Restrict Our Processing or Erasure of Information: You also have the right in certain circumstances to ask us to restrict processing of your personal information or to erase your personal information. Where you have consented to our use of your personal information, you can withdraw your consent at any time.

You can make a request to exercise any of these rights by emailing us at or by writing to us at:

Privacy Officer
JD Supra, LLC
10 Liberty Ship Way, Suite 300
Sausalito, California 94965

You can also manage your profile and subscriptions through our Privacy Center under the "My Account" dashboard.

We will make all practical efforts to respect your wishes. There may be times, however, where we are not able to fulfill your request, for example, if applicable law prohibits our compliance. Please note that JD Supra does not use "automatic decision making" or "profiling" as those terms are defined in the GDPR.

  • Timeframe for retaining your personal information: We will retain your personal information in a form that identifies you only for as long as it serves the purpose(s) for which it was initially collected as stated in this Privacy Policy, or subsequently authorized. We may continue processing your personal information for longer periods, but only for the time and to the extent such processing reasonably serves the purposes of archiving in the public interest, journalism, literature and art, scientific or historical research and statistical analysis, and subject to the protection of this Privacy Policy. For example, if you are an author, your personal information may continue to be published in connection with your article indefinitely. When we have no ongoing legitimate business need to process your personal information, we will either delete or anonymize it, or, if this is not possible (for example, because your personal information has been stored in backup archives), then we will securely store your personal information and isolate it from any further processing until deletion is possible.
  • Onward Transfer to Third Parties: As noted in the "How We Share Your Data" Section above, JD Supra may share your information with third parties. When JD Supra discloses your personal information to third parties, we have ensured that such third parties have either certified under the EU-U.S. or Swiss Privacy Shield Framework and will process all personal data received from EU member states/Switzerland in reliance on the applicable Privacy Shield Framework or that they have been subjected to strict contractual provisions in their contract with us to guarantee an adequate level of data protection for your data.

California Privacy Rights

Pursuant to Section 1798.83 of the California Civil Code, our customers who are California residents have the right to request certain information regarding our disclosure of personal information to third parties for their direct marketing purposes.

You can make a request for this information by emailing us at or by writing to us at:

Privacy Officer
JD Supra, LLC
10 Liberty Ship Way, Suite 300
Sausalito, California 94965

Some browsers have incorporated a Do Not Track (DNT) feature. These features, when turned on, send a signal that you prefer that the website you are visiting not collect and use data regarding your online searching and browsing activities. As there is not yet a common understanding on how to interpret the DNT signal, we currently do not respond to DNT signals on our site.

Access/Correct/Update/Delete Personal Information

For non-EU/Swiss residents, if you would like to know what personal information we have about you, you can send an e-mail to We will be in contact with you (by mail or otherwise) to verify your identity and provide you the information you request. We will respond within 30 days to your request for access to your personal information. In some cases, we may not be able to remove your personal information, in which case we will let you know if we are unable to do so and why. If you would like to correct or update your personal information, you can manage your profile and subscriptions through our Privacy Center under the "My Account" dashboard. If you would like to delete your account or remove your information from our Website and Services, send an e-mail to

Changes in Our Privacy Policy

We reserve the right to change this Privacy Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our Privacy Policy will become effective upon posting of the revised policy on the Website. By continuing to use our Website and Services following such changes, you will be deemed to have agreed to such changes.

Contacting JD Supra

If you have any questions about this Privacy Policy, the practices of this site, your dealings with our Website or Services, or if you would like to change any of the information you have provided to us, please contact us at:

JD Supra Cookie Guide

As with many websites, JD Supra's website (located at (our "Website") and our services (such as our email article digests)(our "Services") use a standard technology called a "cookie" and other similar technologies (such as, pixels and web beacons), which are small data files that are transferred to your computer when you use our Website and Services. These technologies automatically identify your browser whenever you interact with our Website and Services.

How We Use Cookies and Other Tracking Technologies

We use cookies and other tracking technologies to:

  1. Improve the user experience on our Website and Services;
  2. Store the authorization token that users receive when they login to the private areas of our Website. This token is specific to a user's login session and requires a valid username and password to obtain. It is required to access the user's profile information, subscriptions, and analytics;
  3. Track anonymous site usage; and
  4. Permit connectivity with social media networks to permit content sharing.

There are different types of cookies and other technologies used our Website, notably:

  • "Session cookies" - These cookies only last as long as your online session, and disappear from your computer or device when you close your browser (like Internet Explorer, Google Chrome or Safari).
  • "Persistent cookies" - These cookies stay on your computer or device after your browser has been closed and last for a time specified in the cookie. We use persistent cookies when we need to know who you are for more than one browsing session. For example, we use them to remember your preferences for the next time you visit.
  • "Web Beacons/Pixels" - Some of our web pages and emails may also contain small electronic images known as web beacons, clear GIFs or single-pixel GIFs. These images are placed on a web page or email and typically work in conjunction with cookies to collect data. We use these images to identify our users and user behavior, such as counting the number of users who have visited a web page or acted upon one of our email digests.

JD Supra Cookies. We place our own cookies on your computer to track certain information about you while you are using our Website and Services. For example, we place a session cookie on your computer each time you visit our Website. We use these cookies to allow you to log-in to your subscriber account. In addition, through these cookies we are able to collect information about how you use the Website, including what browser you may be using, your IP address, and the URL address you came from upon visiting our Website and the URL you next visit (even if those URLs are not on our Website). We also utilize email web beacons to monitor whether our emails are being delivered and read. We also use these tools to help deliver reader analytics to our authors to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

Analytics/Performance Cookies. JD Supra also uses the following analytic tools to help us analyze the performance of our Website and Services as well as how visitors use our Website and Services:

  • HubSpot - For more information about HubSpot cookies, please visit
  • New Relic - For more information on New Relic cookies, please visit
  • Google Analytics - For more information on Google Analytics cookies, visit To opt-out of being tracked by Google Analytics across all websites visit This will allow you to download and install a Google Analytics cookie-free web browser.

Facebook, Twitter and other Social Network Cookies. Our content pages allow you to share content appearing on our Website and Services to your social media accounts through the "Like," "Tweet," or similar buttons displayed on such pages. To accomplish this Service, we embed code that such third party social networks provide and that we do not control. These buttons know that you are logged in to your social network account and therefore such social networks could also know that you are viewing the JD Supra Website.

Controlling and Deleting Cookies

If you would like to change how a browser uses cookies, including blocking or deleting cookies from the JD Supra Website and Services you can do so by changing the settings in your web browser. To control cookies, most browsers allow you to either accept or reject all cookies, only accept certain types of cookies, or prompt you every time a site wishes to save a cookie. It's also easy to delete cookies that are already saved on your device by a browser.

The processes for controlling and deleting cookies vary depending on which browser you use. To find out how to do so with a particular browser, you can use your browser's "Help" function or alternatively, you can visit which explains, step-by-step, how to control and delete cookies in most browsers.

Updates to This Policy

We may update this cookie policy and our Privacy Policy from time-to-time, particularly as technology changes. You can always check this page for the latest version. We may also notify you of changes to our privacy policy by email.

Contacting JD Supra

If you have any questions about how we use cookies and other tracking technologies, please contact us at:

- hide

This website uses cookies to improve user experience, track anonymous site usage, store authorization tokens and permit sharing on social media networks. By continuing to browse this website you accept the use of cookies. Click here to read more about how we use cookies.