Each year the president of the United States provides the nation with a “State of the Union” address that provides an update on the status of our country. Given the many recent developments, industry reports and high-profile cases that have resulted in a flurry of discussion concerning the health, status and future of securities class action litigation, I offer this State of the Union for securities litigation:

It’s about the same as it’s been for the last 10 years.

At least that’s how I see it, despite some curious media pronouncements this year about the supposed demise (or at least the supposed decline) of securities litigation.

Already in 2006, Stanford University/Cornerstone Research, NERA Economic Consulting, and PricewaterhouseCoopers have published interesting studies presenting securities litigation statistics and analysis of possible trends. These studies, combined with notable events such as the high-profile settlements in the Enron case, as well as the criminal indictment of powerhouse plaintiffs’ law firm Milberg Weiss Bershad & Schulman, have provided the press and pundits with numerous opportunities to opine on where securities litigation is headed.

The January 2006 Stanford/Cornerstone report got the ball rolling when it showed that in 2005, new case filings dropped 17%, (from 213 new cases in 2004 to 175). Articles in The Wall Street Journal and New York Times covered the release of this report by describing the “steep drop” or “sharp decline” in securities class actions in 2005, and pondered the possible causes, from the success of Sarbanes-Oxley to the end of the dot-com line of cases.

In fact, however, there was no “steep drop” or “sharp decline” in cases in 2005. Viewed in context, the 2005 decline of 37 cases (17%) simply does not appear to be historically significant. To the contrary, it is directly in line with the pattern of the last 9 years. Looking at the fluctuation of the number of cases filed through the years as shown in the same Stanford/Cornerstone report, this becomes quite clear. A chart copied from that report (see below) shows that since 1997, the number of securities class action filings has gone up and down in a narrow range with amazing consistency: up a bit every even year, down a bit every odd year.

The NERA Economic Consulting study, which was published in April 2006, similarly found that the number of federal filings in 2005 declined to its lowest point since 1997. It concluded, however, that “it is far too early to conclude that there is a downward trend.” The study’s statistical testing confirmed what a glance at the chart above also shows—that “the 2005 dip is not statistically different from either the post-PSLRA average or from a longer-term trend.” Interestingly, NERA also clarified that almost all of the difference between the 2004 and 2005 totals was accounted for by an unexplained drop in filings in the Ninth Circuit, and it concluded that the most likely explanation for the drop in 2005 was simply random year-to-year variation.

The NERA study contained another statistic, however, that generated its own measure of confusion. The study noted that “dismissal rates have doubled since PSLRA” became effective in 1996, stating that “dismissals accounted for only 19.4% of dispositions for cases filed between 1991 and 1995. More recently, for cases filed between 1998 and 2003, dismissals have accounted for 40.3% of dispositions.” The report explained, though, that “there is no indication that dismissal rates have continued to rise after an initial adjustment to the tougher pleading requirements of PSLRA.” In other words, nothing has changed in terms of dismissal rates since approximately 1998.

Notwithstanding that fact, a newsletter called “Agenda” wrote in late May 2006 that securities class actions have begun to “dry up,” citing both the lower number of cases in 2005 and the increase in the number of securities class actions that have been dismissed in recent years. Indeed, more than 40% of the securities class actions filed between 1998 and 2003 were dismissed, according to a study issued last month by NERA Economic Consulting. That's more than double the number of cases filed in the four-year period from 1991 to 1995 that were dismissed.

Again, viewed in context, neither the number of cases in 2005 nor the NERA dismissal statistics support the argument that securities class actions have recently “dried up” in any meaningful way—the number of cases is roughly what it has been since 1997 and the dismissal rate is, according to NERA, the same as it has been since 1998.

Other recent events that, while noteworthy, do not seem to signal any dramatic change in the securities litigation landscape include the Enron settlement and the indictment of law firm Milberg Weiss. While the approval of the Enron settlement in May prompted some to assume that the settlement symbolized the end of the line for big securities settlements, this does not appear to be the case. Indeed, the ISS Settlement Pipeline, which measures the sum of all pending or tentatively announced settlements for which the claim deadline has not passed, currently stands at a massive $14.9 billion and includes significant cases such as Nortel Networks ($2.7 billion), Royal Ahold ($1.1 billion), and the IPO Securities Litigation (currently $1 billion and possibly much more). Indeed, including SEC settlements, there are currently 20 settlements in the pipeline valued at over $100 million.

With respect to Milberg Weiss, it seems clearer by the day that even if the firm’s practice is diminished or destroyed altogether by the indictment, there will not be a significant impact on securities class actions generally. There are far too many competent plaintiffs’ law firms out there that will gladly fill any void that may be created. It also appears that to the extent Milberg Weiss is losing any lawyers, it is because these lawyers are being recruited away by competitors, where they will promptly resume their securities class action practices.

One thing that has changed markedly in the securities class action world is the size of settlements. The recent PwC 2005 Securities Litigation Study showed that the average settlement of a securities class action soared to $71.1 million in 2005, a 156% increase from the $27.8 million average in 2004. Notably, these numbers exclude the mega-settlements in the historic WorldCom and Enron cases.

As PwC notes, the reasons for this surge likely include the success of plaintiffs in involving third parties such as investment banks, accountants, and law firms as defendants in these cases, as well as the huge “theoretical economic damages” present in cases involving companies with large market capitalizations and huge stock drops. Other reasons may include the impact of large pension funds serving as lead plaintiffs, and the phenomenon that each new high dollar settlement sets the bar a bit higher, encouraging plaintiffs to demand more money in settlements (and arguably contributing to a recent surge in the number of trials occurring in securities class action cases).

In short, the State of Securities Litigation in 2005 looked a lot like it did in 2004 … and 2003 … and 2002… and so on. Just with bigger numbers.

Thursday, June 15, 2006

Weil, Gotshal & Manges' "2005 Securities Litigation Survey"

Load up the printer with 133 sheets of paper and print yourself a copy of Weil, Gotshal & Manges' 2005 Securities Litigation Survey.  The Survey provides an excellent and quite thorough review of recent securities litigation decisions, broken down by topic and circuit, and should be quite helpful to lawyers practicing in this area.

Permalink | Comments (0) | TrackBacks (0) | Print Article

Back To Top

Wednesday, June 14, 2006

Litigation About Litigation, Part II

It seemed the "litigation about litigation" trend that I thought I spotted and posted about last summer had run out of steam ... but wait!  What's this?  Justin Scheck of the The Recorder writes in this article that "a group of plaintiffs lawyers is being sued in L.A. federal court for breaching their fiduciary duty -- to a company whose board they were suing."

The article notes that the new case

grows out of long-running securities litigation against Tenet Healthcare, and the competing state and federal derivative suits against the Tenet board of directors that were filed on its heels.

Lawyers from the Arkansas plaintiff firm Cauley, Bowman, Carney & Williams filed a derivative suit in federal court around the same time a separate group of plaintiffs filed parallel state court claims.

That, Cauley lawyers argue, let Tenet's board, and its lawyers with Skadden, Arps, Slate, Meagher & Flom, engage in what plaintiffs lawyers call a reverse auction: a situation in which a defendant facing competing suits chooses to settle with the plaintiff asking for the smallest recovery, killing the costlier parallel claims.

In a complaint filed late last month in L.A. federal court, Cauley partner Joseph (Hank) Bates III says that after spending two years litigating derivative claims in federal court -- and even having detailed settlement talks -- Tenet decided the federal plaintiff's demands were too high, and turned to the state plaintiff, who quickly settled the case.

That deal jettisoned the federal suit, and resulted in $5 million in attorney fees for the plaintiffs firms Faruqi & Faruqi and Robbins Umeda & Fink.

This left the Cauley lawyers irate.

And these "irate" Cauley lawyers reportedly then sued the plaintiffs' lawyers that settled the state case.  So add this case to the pile of "litigation about litigation" cases we started collecting last summer.

Permalink | Comments (0) | TrackBacks (0) | Print Article

Back To Top

Tuesday, September 6, 2005

Don't Mess With Judge Walton

The PSLRA Nugget flags the interesting securities litigation opinion from Judge Reggie B. Walton of the U.S. District Court for the District of D.C. (Burman v. Phoenix Worldwide Industries, August 30, 2005). The opinion is interesting not for any securities-related reason but rather because of Judge Walton's Footnote 1, in which he expresses his displeasure for the type of condescending and simply unnecessary "argument" that is all-too-common in litigation today:

....Based upon the papers thus far submitted to this Court, it is clear that this is a highly contentious litigation. Despite the apparent animosity between the parties, counsel are reminded that they are expected to treat each other, and every other individual involved in this litigation, with "dignity, respect and civility, both in court and in out-of-court conference, meeting and discovery proceedings." Judge Walton's General Order and Guidelines for Civil Cases at 1, available at http:// www.dcd.uscourts.gov/rbw-general-civil-order.pdf. This includes civility in the papers submitted to this Court. The papers submitted by the defendants do not demonstrate the dignity and respect the Court expects of litigants appearing before it. See, e.g., Def.'s Reply at 7 ("Defendants agree that a review of the Amended Complaint is a 'painstaking' endeavor."); 18 ("If Plaintiffs do not appear to understand their own claims, how can Defendants?"); 29 ("Defendants are not obligated to teach Plaintiffs how to properly plead their complaint. However, we will give Plaintiffs a clue."). Such condescending invectives do nothing to advance a party's position. As members of the Bar, counsel surely know how to vigorously advance their respective party's position without being disrespectful or mean spirited. The Court will look with disfavor on any further circumstances that warrant such a reminder, and if warranted, will take appropriate action to sanction such behavior.

Amen to that. I'm sure the timing is coincidental, but check out the article cited in this August 31, 2005 post by Evan Schaeffer on this very point. Schaeffer writes:

Step #3 Adopt the Right Tone

It's at this point that many veer wildly off course.

Tone can be defined as the underlying attitude we take towards our opponent and our opponent's arguments. This attitude isn't explicitly spelled out, but shows through the fabric of our legal arguments.

Tone comes in all varieties—objective, respectful, or professional on the one hand; condescending, self-righteous, or bitter on the other.

Too often we pull out all our guns and attack, either rudely mocking the arguments of opposing counsel, or even worse, rudely mocking opposing counsel.

This approach seems to add an extra oomph to the force of our legal argument.

Yet all too often, what actually happens is that we alienate the reader—that is, the court. An angry, defiant tone just doesn't add a lot. Ever met someone whose response to every difficult situation is a sarcastic retort? Amusing for a few minutes, but then listeners get bored or disgusted, and want to leave the room.

Remember: The judge already knows you disagree with your opponent's position.

Begin by rationally stating why you disagree. An objective, reasonable tone is usually the most persuasive.

So kudos to Judge Walton for attempting to preserve civility in his courtroom and for reinforcing that angry sarcasm is almost never a persuasive or appropriate tone for legal argument.

By the way, this is the same Judge Walton who earlier in August was written up in this Washington Post article for single-handedly stopping an assault he witnessed in a DC traffic circle while driving his family to the airport. The 56-year-old judge reportedly wrestled another man's attacker to the ground and subdued him until the police came.  Police spokesman Kenny Bryson was quoted in the article as saying "God bless Judge Walton. I surely wouldn't want to mess with him. He's really to be commended for jumping in."

Permalink | Comments (0) | TrackBacks (0) | Print Article

Back To Top

Thursday, June 23, 2005

Should In-House Counsel's VP Title Cause Waiver of Privilege?, Part II

Corporate Counsel has this article updating the train wreck that we posted about back in June 2004, i.e., the excruciating scenario still playing out in Jasmine Networks v. Marvell Semiconductor.  As we stated back in June,

The case stems from the following lawyer-nightmare scenario, which I think blows right by the Seventh Circle of Document Review Hell in terms of sheer lawyer anguish: Three Marvell employees--Marvell's general counsel; its VP of engineering, and in-house patent attorney--gathered to call a person at Jasmine, a company with which Marvell was negotiating to purchase some technology. Using a speakerphone, the three left a message on the Jasmine employee's voicemail. However, after leaving the initial message, they failed to hang up the speakerphone, and proceeded to have a conversation that also was recorded on the voicemail.

To put the inadvertently left message in context, Marvell and Jasmine had entered into a nondisclosure agreement that protected the secrecy of Jasmine's trade secrets and employee information. To that end, Marvell was given an opportunity to look at the trade secret information, but not to remove it. Patent disclosures, among the most important of Jasmine's intellectual property, could be reviewed but not copied. Enough was to be shown Marvell to demonstrate the value without disclosing the secret. As summarized by the California Court of Appeals (Sixth District), the contents of the inadvertent voicemail "demonstrate[d] the theft of Jasmine's trade secret, the potential consequences and the planned cover up." 

Ouch. 

According to the article, the California Supreme Court has now agreed to review the case, and Marvell and Jasmine are currently preparing their briefs.  The key legal issue appears to be that the lower appeals court held that because the general counsel also held the title of vice president and was an officer of the company, the fact that Marvell did not intend to waive the privilege through the inadvertent disclosure was immaterial.  Groups like the Association of Corporate Counsel are concerned (and have submitted this amicus curiae letter), and argue that the opinion, "if left standing, means that an in-house lawyer who is providing legal services, but who does so with a corporate title (such as 'vice president') attached to his business card, can inadvertently waive the privilege, contrary to the rule for all other attorneys."

Permalink | Comments (0) | TrackBacks (0) | Print Article

Back To Top

Monday, May 16, 2005

The Morgan Stanley Email Fiasco

The WSJ has this very timely article in today's edition breaking down the three-ring-circus that was Morgan Stanley's effort to collect and produce responsive emails to Ronald Perelman in Perelman's high-profile lawsuit against MS. 

The WSJ article has a very detailed account of MS' travails, which reportedly included repeated discovery of additional backup tapes that might include responsive emails.  At one point MS "unearthed 1,423 computer-backup tapes in a closet in a Brooklyn office building."   Later, MS found 129 more tapes sitting on a metal shelf in one of its midtown Manhattan offices.

MS encountered plenty of other problems that the article lays out in detail.  The WSJ article notes that ultimately, the judge became so dissatisfied with MS' response that she ruled that its actions were in "bad faith" and that the jury could simply assume the MS helped defraud Perleman:

...Judge Maass issued a partial default judgment against Morgan Stanley, essentially handing an automatic loss to the Wall Street firm, because "the [discovery] abuses have continued unabated." The judge said she would instruct the jury to assume that the firm had helped defraud Mr. Perelman.

"The prejudice to [Mr. Perelman's side] from these failings cannot be cured," she wrote. "The judicial system cannot function this way."

Judge Maass stopped short of granting the default judgment in full. She ruled Mr. Perelman must prove he lost money on the transaction and that he relied on information provided by Morgan Stanley or Sunbeam in making his investment.

When the trial opened in early April, Judge Maass read the nine-person jury a lengthy statement, saying, in part: "Morgan Stanley participated in a scheme to mislead [Coleman] and others and cover up the massive fraud at Sunbeam until Morgan Stanley and Sunbeam could close the purchase of Coleman."

Not surprisingly, the jury appears to have found the judge's instruction pretty persuasive:  Bloomberg reports that this afternoon, a Florida state jury awarded Perelman $604.3 million in compensatory damages on his claims that Morgan Stanley defrauded him as part of the 1998 sale of his controlling stake in Coleman Co. to Sunbeam Corp.  Next the jury must decide whether to award punitive damages.

MS issued a statement this afternoon vowing to appeal:

"The verdict, while disappointing, is not surprising, given the unprecedented and highly prejudicial rulings imposed by the trial judge," the company said in a statement. "Morgan Stanley was not permitted to defend itself on the merits. As a result, the jury heard allegations, instead of true facts, and Morgan Stanley was denied a fair trial. Far from being part of the Sunbeam fraud, Morgan Stanley was a victim of that fraud, losing $300 million when Sunbeam collapsed, one of the many true facts that the jury was not allowed to hear."

Permalink | Comments (0) | TrackBacks (0) | Print Article

Back To Top

Wednesday, April 13, 2005

Kerkorian-DaimlerChrysler Update VII: Charities Receive Total Consciousness

Our eyes were moist as we read this article from the Las Vegas Sun.  According to Kerkorian's attorney, if Kerkorian had prevailed in his billion-dollar claim against DaimlerChrysler, he planned to give the money to charity.  His defeat, however, apparently means that the charities, like Kerkorian, will receive only total consciousness as a result of the case.

Permalink | Comments (1) | TrackBacks (0) | Print Article

Back To Top

Monday, April 11, 2005

Kerkorian-DaimlerChrysler Update VI: Kerkorian Receives Total Consciousness

Caddyshack (1980)

Carl Spackler: So I jump ship in Hong Kong and make my way over to Tibet, and I get on as a looper at a course over in the Himalayas. A looper, you know, a caddy, a looper, a jock. So, I tell them I'm a pro jock, and who do you think they give me? The Dalai Lama, himself. Twelfth son of the Lama. The flowing robes, the grace, bald... striking. So, I'm on the first tee with him. I give him the driver. He hauls off and whacks one - big hitter, the Lama - long, into a ten-thousand foot crevasse, right at the base of this glacier. Do you know what the Lama says? Gunga galunga... gunga, gunga-galunga. So we finish the eighteenth and he's gonna stiff me. And I say, "Hey, Lama, hey, how about a little something, you know, for the effort, you know." And he says, "Oh, uh, there won't be any money, but when you die, on your deathbed, you will receive total consciousness." So I got that goin' for me, which is nice.

Back in 2003-2004, we followed the Kerkorian-DaimlerChrysler lawsuit for months, from the Seventh Circle of Document Review Hell to the post-trial festivities.  Then, for over a year, we waited in vain by the Business Wire to learn the Court's ruling.  Finally giving in to the reality that "a watched Business Wire never boils," we reluctantly agreed to leave our post momentarily for needed medical attention, and awoke from general anesthesia to learn that it was all over:  the AP reports that on Thursday, Judge Farnan ruled in DaimlerChrysler's favor, rejecting Kerkorian's $1 billion claim that DaimlerChrysler falsely labeled it's combination with Chrysler Corp. as a "merger of equals."

An attorney for Kerkorian reportedly acknowledged that Kerkorian's company Tracinda was "clearly disappointed" with the judgment, but added that "we are pleased that other DaimlerChrysler shareholders who followed Tracinda's lead and filed lawsuits based on our exact claims and key discovery were successful in reaching a settlement with DaimlerChrysler."  In other words, "total consciousness" for Kerkorian.

Permalink | Comments (0) | TrackBacks (0) | Print Article

Back To Top

Tuesday, January 4, 2005

2004: The Year in Review

Here are my picks for some of the best, worst and oddest securities litigation-related events in 2004:

Best Settlement: The historic settlement in the WorldCom/Citigroup case, which resulted in a massive settlement fund of $2.575 billion. This is the second-largest settlement of all time, behind only the $2.85 billion settlement in 2000 by Cendant Corp. The stakes will be even higher in the upcoming trial of the non-settling defendants in the WorldCom case, which is set to begin Feb. 28.

Best Friend of the Plaintiffs' Securities Class Action Bar: New York Attorney General Eliot Spitzer, whose activism has helped fuel private securities litigation in recent years, spurred yet another huge wave of securities class actions in the fourth quarter of 2004 through his investigation of, and litigation against, insurance brokers and companies. And it now appears that Mr. Spitzer's work may help plaintiffs' law firms on the expense side of their business, as well. In December, his office announced that it was investigating whether improper behavior by insurance companies has been a factor in the rising cost of malpractice insurance for lawyers, and reportedly began interviewing class action attorneys about their particular problems getting insurance.

Best Comeback: After having their securities class action against Bristol-Myers Squibb Co. thrown out by a federal judge in April 2004, shareholders appealed to the Second U.S. Circuit Court of Appeals. Even before any ruling came from the appeals court, the investors were able to strike a $300 million settlement agreement, one of the 20 largest of all time.

Best Last Laugh: Back in 2003, a 71-year-old West Palm Beach retiree who lost $2 million when MCI and WorldCom stock plummeted, took the novel legal approach of suing Citigroup for his pain and suffering (which allegedly included high blood pressure, anxiety attacks, and mental and physical stress) under the Florida tort of "outrage." Told that at least one prominent securities defense attorney found the claim laughable, plaintiff's attorney Ted Babbitt countered, "We'll see who laughs last . . . it only takes a finding by one judge to make this cause of action available to millions of shareholders." In September, a state circuit judge denied a motion to dismiss the suit, a ruling that Mr. Babbitt's firm says has put the case "on a road to a Florida state jury trial and potential punitive damages."

Worst Holiday Season: Martha Stewart, who spent the holidays as an inmate in the minimum-security women's prison in Alderson, West Virginia (a.k.a. "Camp Cupcake"). Runner-up for worst holiday season goes to all counsel involved in the high-profile criminal prosecution of Richard Scrushy, former CEO of HealthSouth, who is scheduled to go to trial on Jan. 5.

Best Line Written about the Martha Stewart Case: In February, Ms. Stewart's lawyers announced that she would not testify and would put on only one defense witness and a handful of documents. Her lawyers estimated that her defense would take about 15 minutes, or as Greg Smith of the New York Daily News put it, "the same amount of time the diva recommends letting a German Chocolate Inside-Out Cake cool after baking."

Harshest Opinion: The 69-page decision by Chief Administrative Law Judge Brenda P. Murray prohibiting Ernst & Young from taking on new audit clients for six months. In her decision, Judge Murray said "the evidence shows that [E&Y] has an utter disdain for the Commission's rules and regulations on auditor independence."

Most Eye-Opening New SEC Enforcement Trend: Huge penalties (tens of millions of dollars) against corporations for perceived non-cooperation during SEC investigations.

Most Eye-Opening New DOJ Prosecutorial Trend: The quasi-"deputization" of private counsel conducting internal investigations of alleged fraud at corporations. In April, several former executives at Computer Associates International were indicted for obstruction of justice based on statements made not to any government official but rather to the company's outside counsel, which was conducting an internal investigation of possible financial fraud.

Worst Headline: "SEC expected to keep watching out for investors," The Associated Press, Sunday, Dec. 12. Of course, this is only an "expectation."

Most Unexpected Reprieve: Gary Winnick, former chairman of Global Crossing. After a lengthy SEC investigation concerning the public disclosure of certain "swaps" of fiber-optic network capacity with other telecom companies, the SEC's Enforcement Division recommended that the SEC bring a case and impose a fine against Winnick. After Winnick reportedly agreed to settle by paying a fine of $1 million, the proposed case and settlement were presented to the SEC commissioners for approval. In a highly unusual occurrence, however, the SEC commissioners voted 3-2 to reject the SEC staff's recommendation, concluding that Winnick did not sign off on the disclosures at issue. As a result, Winnick was neither charged nor fined by the SEC.

Best Comic Relief: The SEC's job posting for an in-house psychologist to help "improve employee attitudes and satisfaction related to employee retention, job satisfaction, burnout, conflict and stress," which prompted an immediate barrage of one-liners. Among them, Bill McLucas (former director of the SEC's Division of Enforcement) reportedly joked, "Just one? They should get a couple." He also suggested that current Enforcement Director Stephen Cutler should get the first appointment once the psychologist came on board so that "he can take out his hostilities with that person instead of my clients." No word on whether the position was ever filled.

A Hearty Welcome to: Class action settlement notices written in plain English as required under the recent amendments to Federal Rule 23(c)(2). Rule 23(c), which now requires that settlement notices be written "in plain, easily understood language," has had a dramatic effect on the readability and usefulness of these important notices.

Good Riddance to: "Buried notice," the dubious practice of trying to avoid competition for the roles of lead plaintiff/lead counsel by publishing the required "notice" of newly filed cases not on a national business wire such as PR Newswire or Business Wire, but rather in places designed not to attract attention (such as in the back pages of a hard copy newspaper). Although the Private Securities Litigation Reform Act, which was enacted in the infancy of the Internet, technically permits notice to be published in any "business-oriented publication," the industry practice and standard is to provide notice via the business wires. Indeed, in March, a federal court in Baltimore ruled that even publishing notice in The New York Times is now insufficient under the PSLRA.

Permalink | Comments (1) | TrackBacks (1) | Print Article

Back To Top

Wednesday, February 25, 2004

Martha Stewart Goes All In

As they say in No Limit Texas Hold 'em poker, Martha Stewart and her attorneys are going "all in" on their bet that the government has failed to prove its case against her. According to numerous reports such as this one in the New York Daily News, Stewart will not testify and will put on only one defense witness and a handful of documents later today. Her lawyer, Robert Morvillo, estimates her defense will take about 15 minutes, or as the Daily News's Greg Smith puts it in his article, "the same amount of time the diva recommends letting a German Chocolate Inside-Out Cake cool after baking."

In another article in the Washington Post, former federal prosecutor Jacob S. Frenkel summed up the situation well by stating that "the defense lawyers will be heroes if their clients are acquitted and will be second-guessed for a long time if their clients are convicted."

Permalink | Comments (0) | TrackBacks (0) | Print Article

Back To Top

Thursday, February 12, 2004

Kerkorian-DaimlerChrysler Update V: Trial Concludes, Post-Trial Festivities Begin

Two and a half months after it started on December 1, 2003, the trial in the case filed by Tracinda Corp. against DaimlerChrysler finally came to an end yesterday in the U.S. District Court for the District of Delaware. The trial itself only consumed 13 days in court, but dragged on for several months because of a 7 week stay that resulted from the late production of certain documents (last discussed here).

Sarah A. Webster of The Detroit Free Press has this detailed article summarizing the conclusion of the trial and where the case may go from here. Some highlights from the article:

--The parties have collectively spent over $50 million litigating this case.

--U.S. District Judge Joseph J. Farnan Jr., who will decide the case in lieu of a jury, requested closing briefs instead of closing arguments. Both sides said they expect to submit briefs in about 90 days. Judge Farnan's decision is not expected until at least May 2004, after which an appeal by the losing party is likely.

--Daniel Fischel, a professor at the University of Chicago law school, testified as an expert witness on behalf of DaimlerChrysler that "this merger was a godsend for Chrysler and its shareholders.... I believe damages are zero." Fischel testified that he himself accumulated at least $800,000 in bills for his work in the case.

Permalink | Comments (0) | TrackBacks (0) | Print Article

Back To Top

Tuesday, January 27, 2004

WorldCom Bankruptcy Examiner Issues Third and Final Report

The law firm Kirkpatrick & Lockhart LLP, counsel to the Examiner in the WorldCom bankruptcy proceedings, filed its Third and Final Report [NOTE: Large (542 page) PDF file] with the U.S. Bankruptcy Court for the Southern District of New York today. K&L's First Interim Report filed November 4, 2002 and Second Interim Report filed on June 9, 2003 also are available.

Permalink | Comments (0) | TrackBacks (0) | Print Article

Back To Top

Wednesday, January 21, 2004

"What About the High Blood Pressure," Part III

Since August 2003 we've been following the plight of one Anthony Amodio and his unusual case against Citigroup (last discussed here) alleging the Florida tort of "outrage," which appears to be a variation of intentional infliction of emotional distress. According to the original article in the Miami Herald, "Anthony Amodio's lawsuit against the nation's largest bank alleges that he is penniless and has heart problems because he was advised to keep his 23,820 shares of WorldCom stock, amid claims that the share price would climb to $150, even when it was valued in April 2002 at only $7." The article noted that Amodio now allegedly suffers from high blood pressure, anxiety attacks and mental and physical stress that make it impossible for him to return to work, and his lawsuit reportedly asks for the $2 million lost, plus interest, attorney fees and unspecified damages for pain and suffering. In support of his claims, Amodio sought to depose former WorldCom Chief Executive Bernard Ebbers, Citigroup Chairman Sanford Weill and its former telecom analyst, Jack Grubman.

A few weeks later, an article in the Miami Daily Business Review stated that after being told that at least one prominent securities defense attorney found the claim laughable, Amodio's attorney Ted Babbitt countered "We'll see who laughs last.... It only takes a finding by one judge to make this cause of action available to millions of shareholders."

So, where do things stand? Has Amodio laughed last? Not yet. To the contrary, the docket sheet indicates that Citigroup has pretty effectively tied Amodio's case up in knots by (1) removing the case to federal court; (2) moving to compel arbitration; and (3) opposing his motion to amend the complaint. Moreover, the docket entry for October 29, 2003, indicates that Amodio's deposition notices optimistically scheduling the depositions of Ebbers, Weill and Grubman for Nov. 4, 5 and 6, 2003 were "cancelled." Undaunted, on November 4, 2003, Amodio caused a summons to be issued for Scott Sullivan. By all accounts, however, Mr. Sullivan is quite busy at this time and will not likely be meeting with Amodio any time soon.

Permalink | Comments (0) | TrackBacks (0) | Print Article

Back To Top

Thursday, January 15, 2004

SDNY Dismisses Complaint Alleging Retaliatory Withdrawal of Analyst Coverage

On January 9, 2004, Judge Duffy of the SDNY dismissed Antigenics Inc.'s complaint (Case No. 03 Civ. 0971(RCC)) against U.S. Bancorp Piper Jaffray ("Piper Jaffray"), an unusual case alleging retaliatory withdrawal of research analyst coverage by Piper Jaffray. Antigenics alleged that after it declined to use Piper Jaffray as lead underwriter on its secondary offering (because Piper Jaffray said it could not complete the offering in the desired time frame), Piper Jaffray threatened to, and then did, drop their analyst coverage of Antigenics and stopped making a market in Antigenics stock. The Complaint alleged that Piper Jaffray employees stated on multiple occasions that such a course of action was necessary to "teach their clients a lesson" or to "send a message to other clients."

According to the Complaint, Piper Jaffray subsequently released a public statement stating: "Research Coverage Discontinued. We are discontinuing coverage of Antigenics, Inc. [ ] Our last published rating was Strong Buy." No reason for the discontinuation was stated in the press release.

Antigenics claimed that Piper Jaffray's conduct "caused certain investors--some of whom were contacted by Piper Jaffray directly--to cancel orders making up nearly 25% of the offering; that this cancellation caused a decline in the price of the offering; and that an option which permitted an increase in the number of shares to be offered was not exercised because of the damage done to the market by Piper Jaffray."

Antigenics sued Piper Jaffray for, among other things, violation of Section 10(b) of the Exchange Act, alleging that "the cessation of analyst coverage of Antigenics by Piper Jaffray without disclosing their illicit intentions manipulated the interest in the offering and the market price of the stock." The Court rejected this claim, however. First, the Court found that Piper Jaffray's ""Research Coverage Discontinued..." statement was not a material misstatement, as it was "literally accurate and remains so in both its context and presentation. As such, it is improbable, if not impossible, that this statement would mislead investors."

Second, the Court found that an omission of material information had not been pleaded:

Antigenics has not shown that Piper Jaffray was under an obligation to explain the reasons why they dropped analyst coverage. Although Antigenics argues that the defendants breached "contractual" and "fiduciary" duties, they fail to provide any foundation as to how such duties were established. Without such a duty, Piper Jaffray was in no different a position than any other firm providing analyst coverage. Moreover, even if such a "contractual" or "fiduciary" relationship existed, these allegations would still not constitute a claim under 10b-5. The damage alleged does not arise from "manipulative or deceptive" conduct but rather from some additional duty placed on the defendants. Since the plaintiff has insufficiently pleaded securities fraud under Rule 10b-5, the claim is dismissed. (Citations omitted).

Permalink | Comments (0) | TrackBacks (0) | Print Article

Back To Top

Monday, January 12, 2004

Looking Ahead: What's in Store for 2004

The following article appeared in the January 2004 edition of ISS's SCAS Alert:

Looking Ahead: What's in Store for 2004
By Bruce Carton, Executive Director

2003 was a particularly interesting year in the world of securities litigation and enforcement, with many notable events and trends: the ever-growing mutual fund scandal, which has already spawned criminal, SEC, and private litigation; the research analyst cases, which resulted in huge SEC settlements and, more recently, court dismissals of private litigation; the initial billion-dollar settlement in the initial public offering securities litigation; the developing trends of "institutional opt-outs" and settlements demanding corporate governance reforms; and much more.

ISS's Securities Class Action Services has analyzed these developments in 2003 for our clients. Here's what we see on the horizon for 2004:

Kerkorian-DaimlerChrysler Trial. As a general rule, billion-dollar securities fraud cases simply do not make it to trial. But somehow this one has -- all the way to trial in federal court in Delaware. Billionaire Kirk Kerkorian alleges that the u