Justia Class Action Opinion Summaries

An interlocutory appeal before the Eleventh Circuit centered on an order granting motions to dismiss by two defendants in a securities class action against Jiangbo Pharmaceuticals, Inc., its principal officers, and its audit firm. Jiangbo came into existence as a U.S. corporation in 2007 when its Chinese operational arm, Laiyang Jiangbo, executed a reverse merger with a Florida shell company. Jiangbo's tenure as a public company "was short and fraught with suspicion of misconduct." Shares began trading on NASDAQ on June 8, 2010 and traded on that exchange for just under a year. Only six months after trading began, the Securities and Exchange Commission (SEC) initiated an informal, non-public investigation into Jiangbo. The company's fortunes unraveled quickly soon thereafter, and the SEC formalized its investigation, which remained non-public. Jiangbo made two significant disclosures in late May 2011 that marked the culmination of its decline: it publicly acknowledged the formal SEC investigation for the first time and reported that the company had defaulted on a relatively small principal payment toward debt from its initial financing. Trading ended days later on May 31, 2011, by which time the share price had fallen from a class-period high of $10.49 per share to $3.08. By November 2011, after Jiangbo had moved to another exchange, its shares were trading for just $0.14. The investors' consolidated amended complaint alleged, inter alia, that Elsa Sung (the former Chief Financial Officer) and Frazer LLP (the external auditor) misrepresented the company's cash balances and failed to disclose a material related-party transaction in statements within or appurtenant to those filings, in violation of Section 10(b) of the Securities Exchange Act. The district court found that the investors failed to sufficiently plead their allegations of fraud against defendants Sung and Frazer LLP ("Frazer"). Applying the heightened pleading standard imposed by the Private Securities Litigation Reform Act ("PSLRA"), the Eleventh Circuit Court of Appeals affirmed the district court. View "Brophy v. Jiangbo Pharmaceuticals, Inc." on Justia Law

In connection with a 1998 nationwide, securities-fraud class action initiated against MedPartners, Inc., a physician-practice-management/pharmacy-benefits-management corporation and the predecessor in interest to CVS Caremark Corporation, the Jefferson Circuit Court certified a class that included the plaintiffs in this case. Based on the alleged financial distress and limited insurance resources of MedPartners, the 1998 litigation was concluded in 1999 by means of a negotiated "global settlement," pursuant to which the claims of all class members were settled for an amount that purportedly exhausted its available insurance coverage. Based on representations of counsel that MedPartners lacked the financial means to pay any judgment in excess of the negotiated settlement and that the settlement amount was thus the best potential recovery for the class, the trial court, after a hearing, approved the settlement and entered a judgment in accordance therewith. Thereafter, MedPartners (now Caremark) allegedly disclosed, in unrelated litigation, that it had actually obtained (and thus had available during the 1998 litigation) an excess-insurance policy providing alleged "unlimited coverage" with regard to its potential-damages exposure in the 1998 litigation. In 2003, John Lauriello, seeking to be named as class representative, again sued Caremark and insurers American International Group, Inc.; National Union Fire Insurance Company of Pittsburgh, PA; AIG Technical Services, Inc.; and American International Specialty Lines Insurance Company in the Jefferson Circuit Court, pursuant to a class-action complaint alleging misrepresentation and suppression, specifically, that Caremark and the insurers had misrepresented the amount of insurance coverage available to settle the 1998 litigation and that they also had suppressed the existence of the purportedly unlimited excess policy. In case no. 1120010, Caremark and the insurers appealed the circuit court's order certifying as a class action the fraud claims asserted by Lauriello, James Finney, Jr.; Sam Johnson; and the City of Birmingham Retirement and Relief System. In case no. 1120114, the plaintiffs cross-appealed the same class-certification order, alleging that, though class treatment was appropriate, the trial court erred in certifying the class as an "opt-out" class pursuant to Rule 23(b)(3), Ala. R. Civ. P., rather than a "mandatory" class pursuant to Rule 23(b)(1), Ala. R. Civ. P. Finding no reversible error, the Supreme Court affirmed the circuit court in both cases. View "CVS Caremark Corporation et al. v. Lauriello et al." on Justia Law

This shareholder derivative suit was one of several suits alleging that Smith & Wesson Holding Corporation, a major gun manufacturer incorporated in Nevada, made misleading public statements in 2007 about demand for its products. In reaction to these cases, Smith & Wesson formed a Special Litigation Committee (SLC) to investigate and evaluate the viability of any of these claims and to make a recommendation to Smith & Wesson’s Board whether to pursue any of these claims. The SLC issued a final report recommending against filing any claims. In 2010, Plaintiff asserted Nevada state law claims against Smith & Wesson’s officers and directors, including breach of fiduciary duty and waste of corporate assets. On the basis of the SLC’s conclusions, Defendants, former and current officers and directors of Smith & Wesson, moved for summary dismissal under Delaware law, as adopted by Nevada. The district court granted the motion. The First Circuit affirmed, holding that the district court did not err in finding as a matter of law that the SLC was independent and that the SLC’s investigation was reasonable and conducted in good faith. View "Sarnacki v. Golden" on Justia Law

This appeal stemmed from a putative securities fraud class action brought by lead plaintiff Nitesh Banker on behalf of all persons who purchased common stock in Gold Resource Corporation (GRC) during the class period between January 30, 2012, and November 8, 2012. GRC, a Colorado corporation, was a publicly traded mining company engaged in Mexico in the exploration and production of precious metals, including gold and silver. GRC’s aggressive business plan called for a dramatic increase in mining production during its initial years. Plaintiff alleged the "El Aguila" project experienced severe production problems during the class period, and that defendants knew about these problems but concealed them from investors. Plaintiff alleged GRC and four of its officers and directors committed securities fraud in violation of federal securities laws. He also asserted claims against individual defendants as "control persons." The district court dismissed the complaint with prejudice pursuant to Fed. R. Civ. P. 12(b)(6), holding that plaintiff failed to meet the heightened pleading standard for scienter required by the Private Securities Litigation Reform Act of 1995. Plaintiff appealed. But finding no reversible error, the Tenth Circuit affirmed. View "In re: Gold Resource Corp." on Justia Law

Accretive provides cost control, revenue cycle management, and compliance services to non-profit healthcare providers. Accretive and Fairview entered into a Revenue Cycle Operations Agreement (RCA), accounting for about 12% of Accretive’s revenue during the class period, and a Quality and Total Cost of Care (QTCC) contract, promoted as the future for healthcare services. In 2012, the Minnesota Attorney General sued Accretive for noncompliance with healthcare, debt collection, and consumer protection laws. Accretive wound down its RCA contract short of its term, expecting a loss of $62 to $68 million. The AG released a damaging report on Accretive’s business practices. Fairview cancelled its QTCC contract. Accretive’s stock fell from over $24 to under $10 per share. Plaintiffs filed a class action under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, alleging that Accretive concealed its practices to artificially inflate its common stock. The parties negotiated a settlement of $14 million: $0.20 per share ($0.14 with attorneys’ fees and expenses deducted). Notice was sent to 34,200 potential class members. Only one opted out; only Hayes filed an objection. At the fairness hearing, the district court granted approval, awarding attorneys’ fees of 30% and expenses of $63,911.14. Hayes did not attend. The Seventh Circuit affirmed. View "Hayes v. Accretive Health, Inc." on Justia Law

At issue in this case was whether alleged misrepresentations made by Defendants were made “in connection with” a transaction in covered securities under the Securities Litigation Uniform Standards Act of 1998 (SLUSA). Plaintiffs, investors in a licensed non-diversified investment company, filed a putative class action in Puerto Rico court against the Fund and others alleging fraud or misrepresentation in violation of Puerto Rico law after the Fund invested the majority of its assets in notes sold by Lehman Brothers, resulting in the Fund adopting a plan of liquidation. Defendants removed the action to the federal district court, asserting that it fell within the ambit of the SLUSA. Plaintiffs unsuccessfully sought remand on jurisdictional grounds. Ultimately, the district court granted Defendants’ motions to dismiss premised on SLUSA preclusion. The First Circuit vacated the judgment of dismissal and remitted with instructions to return the case to the Puerto Rico Court, holding that the link between the misrepresentations alleged and the covered securities in the Fund’s portfolio was too fragile to support a finding of SLUSA preclusion under Chadbourne & Parke LLP v. Troice. View "Hidalgo-Velez v. San Juan Asset Mgmt., Inc." on Justia Law

Plaintiffs filed this complaint on behalf of a class of all persons and entities who purchased or otherwise acquired Chesapeake common stock from 2009 to 2012, and who were damaged from those purchases/acquisitions. The complaint alleged that Defendants materially misled the public through false statements and omissions regarding two different types of financial obligations: (1) Volumetric Production Payment transactions (under which Chesapeake received immediate cash in exchange for the promise to produce and deliver gas over time); and (2) the Founder Well Participation Program (under which Chesapeake CEO Aubrey McClendon was allowed to purchase up to a 2.5% interest in the new gas wells drilled in a given year). With respect to the "VPP program," Plaintiffs alleged Defendants touted the more than $6.3 billion raised through these transactions but failed to disclose that the VPPs would require Chesapeake to incur future production costs totaling approximately $1.4 billion. Plaintiffs contended the failure to disclose these future production costs was a material omission that misled investors into believing there would be no substantial costs associated with Chesapeake’s obligations to produce and deliver gas over time. The district court granted Defendants’ motion to dismiss the complaint, holding that Plaintiffs had failed to plead with particularity facts giving rise to a strong inference of scienter as required by the Private Securities Litigation Reform Act of 1995. Viewing all of the allegations in the complaint collectively, the Tenth Circuit was not persuaded they gave rise to a cogent and compelling inference of scienter. Accordingly, the Court affirmed the district court's dismissal of the case. View "Weinstein, et al v. McClendon, et al" on Justia Law

A pension fund and other America Online (AOL) shareholders brought a class action against Credit Suisse First Boston (CSFB), former CSFB analysts, and other related defendants (collectively, Defendants), alleging violations of sections 10(b) and 20(a) of the Securities Exchange Act and of SEC Rule 10b-5. Specifically, Plaintiffs claimed (1) CSFB made material misstatements and fraudulently withheld relevant information from the market in its reporting on the AOL-Time Warner merger; and (2) the shareholders purchased stock in the new company at artificially inflated prices as a result of the alleged misstatements and omissions. The district court awarded summary judgment to Defendants. The First Circuit Court of Appeals affirmed, holding (1) the district court did not err in excluding the shareholders’ expert testimony for lack of reliability; and (2) without the expert’s testimony, Plaintiffs were unable to establish loss causation.View "Bricklayers & Trowel Trades Int’l Pension Fund v. Credit Suisse Secs. (USA) LLC" on Justia Law

Plaintiff filed a securities class action contending that AIG and its board of directors wrongfully reduced the value of certain securities issued by AIG. The court affirmed the district court's dismissal of the suit for lack of subject matter jurisdiction because the Securities Litigation Uniform Standards Act of 1998 (SLUSA), 15 U.S.C. 77p(d) and 78bb(f)(3), does not confer federal jurisdiction over plaintiff's state-law claims. View "Campbell v. AIG, et al." on Justia Law

To recover damages in a private securities-fraud action under section 10(b) of the Securities Exchange Act of 1934 and Securities and Exchange Commission Rule 10b–5, a plaintiff must prove reliance on a material misrepresentation or omission made by the defendant. The Supreme Court has endorsed a “fraud-on-the-market” theory, which permits plaintiffs to invoke a rebuttable presumption of reliance on public, material misrepresentations regarding securities traded in an efficient market. The theory facilitates the certification of securities-fraud class actions by permitting reliance to be proved on a class-wide basis. Connecticut Retirement sought FRCP 23(b)(3) certification of a securities-fraud class action against a biotechnology company (Amgen). The district court certified the class. The Ninth Circuit affirmed, rejecting an argument that Connecticut Retirement was required to prove materiality before class certification under Rule23(b)(3)’s requirement that “questions of law or fact common to class members predominate over any questions affecting only individual members.” The Supreme Court affirmed. Proof of materiality is not a prerequisite to certification of a securities-fraud class action. Materiality is judged by an objective standard and can be proved through evidence common to the class. Failure of proof of materiality would not result in individual questions predominating, but would end the case. A requirement that putative class representatives establish that they executed trades “between the time the misrepresentations were made and the time the truth was r¬vealed” relates primarily to typicality and adequacy of representation, not to the predominance inquiry. The Court rejected Amgen’s argument that, because of pressure to settle, materiality may never be addressed by a court if it is not evaluated at the class-certification stage. The potential immateriality of Amgen’s alleged misrepresentations and omissions was no barrier to finding that common questions predominate. View "Amgen Inc. v. CT Ret. Plans & Trust Funds" on Justia Law