Precedent Setting Decisions

“[Milberg] has scored a $750 million settlement against Xerox Corp. in a long-running case involving the company’s accounting manipulations.  It ranked among the largest recoveries in securities litigation history and one of eight settlements the firm won this year of more than $10 million.”
The National Law Journal, “Firms to Watch — Plaintiffs’ Hot List” (Oct. 5, 2009)
Milberg is a leader in developing the federal securities, antitrust, and consumer protection laws for the benefit of investors and consumers.  The Firm has represented individual and institutional plaintiffs in hundreds of class action litigations in federal and state courts throughout the country, usually serving as lead or co-lead counsel.  Many of these litigations have resulted in favorable appellate level decisions, some of which are discussed below.
Milberg represented an investment management group in a case against the Chicago Board Options Exchange, Inc. (“CBOE”) and Options Clearing Corp. (“OCC”).  The plaintiff investment management group alleged that it was injured when the CBOE and OCC privately disclosed strike price information to certain insiders prior to the information being made public.  In the interim between the private disclosure and the public announcements, the plaintiff purchased tens of thousands of affected options.  The lower court dismissed the complaint on the grounds that the CBOE and OCC, as self-regulatory organizations, were immune from suit.  However, the Appellate Court reversed, holding that a private disclosure to insiders served no regulatory purpose and should not be protected from suit.  The Illinois Supreme Court declined the defendants’ petition for leave to appeal.
Milberg won a significant victory before the United States Supreme Court, which issued a decision addressing when an investor is placed on “inquiry notice” of a securities fraud violation sufficient to trigger the statute of limitations under 28 U.S.C. § 1658(b).  The Court held that the plaintiff must be on actual or constructive notice of facts concerning the defendants’ scienter in order to trigger the statute of limitations.  This important holding potentially enables plaintiffs to bring claims based on misstatements made beyond the two-year limitations period.
Here, the United States Supreme Court announced a new uniform standard for evaluating the sufficiency of a complaint under the PSLRA.  The court held that on a motion to dismiss, a court “must consider the complaint in its entirety,” accepting “all factual allegations in the complaint as true,” as well as “tak[ing] into account plausible opposing inferences.”  On remand, the Seventh Circuit, applying this new uniform standard, unanimously sustained the complaint as sufficiently pled.
This important decision set significant precedent regarding the scope of preemption under the Securities Litigation Uniform Standards Act of 1998 (“SLUSA”).  In reversing the District Court’s dismissal of the plaintiffs’ claims, the Third Circuit held that “SLUSA does not mandate dismissal of an action in its entirety where the action includes only some pre-empted claims.”  Under this holding, “any valid federal claims pled in the same action - claims that, if brought independently, would clearly fall outside of SLUSA's pre-emptive scope - need not also be dismissed.”
This decision clarified whether a theory of scienter based on the “core operations” inference satisfies the PSLRA’s heightened pleading standard.  In siding with the plaintiffs, the Ninth Circuit held that “[a]llegations that rely on the core operations inference are among the allegations that may be considered in the complete PSLRA analysis.”  The court explained that under the “holistic” approach required by Tellabs, all allegations must be “read as a whole” in considering whether plaintiffs adequately pled scienter.
In this opinion, the Ninth Circuit clarified loss causation pleading requirements. The opinion established that plaintiffs in a securities fraud action may adequately plead loss causation where they provide sufficient detail of their loss causation theory and some assurance that the theory has a basis in fact.
In this derivative case, plaintiff shareholders sued certain of the company’s officers and directors based on allegations of illegal options backdating.  In this significant opinion reversing the lower court’s dismissal, the Appellate Division clarified the standards of demand futility and held that a board of directors loses the protection of the business judgment rule where there is evidence of the directors’ self-dealing and poor judgment.
In reversing and remanding the District Court’s dismissal, the Seventh Circuit resolved in plaintiffs’ favor an important issue involving the PSLRA’s “safe harbor” for forward-looking statements.  The court held that whether a cautionary statement is meaningful is an issue of fact, which cannot be resolved at the pleading stage.
This important decision reaffirmed the principle that whether an undisclosed fact would have been material to investors cannot ordinarily be decided on a motion to dismiss.  The Eighth Circuit, stressing that “[t]he question of materiality hinges on the particular circumstances of the company in question,” observed that even relatively small errors in financial statements might be material if they concern areas of particular importance to investors and raise questions about management integrity.
In this opinion, the First Circuit joined the Second Circuit in allowing plaintiffs to base securities fraud allegations on confidential sources.  The court also noted that a lack of discovery may result in a correspondingly less stringent standard for pleading securities fraud claims with particularity.
In this securities fraud case, the Second Circuit held that the PSLRA’s pleading standard for scienter was largely equivalent to the pre-existing Second Circuit standard and vacated the District Court’s dismissal which sought to impose a higher pleading standard under the PSLRA.  The Second Circuit also rejected any general requirement that plaintiffs must disclose their confidential sources to satisfy the PSLRA’s newly-enacted particularity requirements.
Here, Milberg successfully argued that under the PSLRA, plaintiffs sufficiently plead scienter by alleging that the defendants acted knowingly or with reckless disregard for the consequences of their actions.  In so ruling, the Third Circuit specifically adopted the Second Circuit’s scienter pleading standard for fraud claims under the PSLRA.
In this case, the First Circuit ruled that when filing a prospectus related to the issuance of securities, the issuer must disclose intra-quarter, materially adverse changes in its business.  The court rejected the defendants’ argument that there was no duty to disclose until after the quarter ended.
The court held that a Rule 23.1 demand is not required in a shareholder suit brought pursuant to Section 36(b) of the Investment Company Act. In so holding, the court explained:  “Since directors cannot cut off a suit and § 36(b) does not authorize them to institute one, and because shareholder plaintiffs are necessarily challenging fees the directors evaluated and approved, the traditional reason for the demand requirement simply does not apply.”
The Fifth Circuit reversed the District Court’s summary judgment order dismissing plaintiffs’ claims for failure to prove reliance, paving the way for the Fifth Circuit’s future acceptance of the “fraud-on-the-market” rationale.
This is the seminal appellate decision on the “fraud-on-the-market” theory of reliance, which allows investors who purchase stock at artificially inflated prices to recover even if they were personally unaware of the false and misleading statements reflected in the stock’s price.  In so holding, the court noted that class actions are necessary to protect the rights of defrauded purchasers of securities.
   
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