Corporate Securities Law Blog

This article was authored by members of the Firm's Government Contracts & Regulated Industries Practice Group. For additional articles and postings concerning this and related topics, please refer to Sheppard Mullin's Government Contracts Blog, which can be found at www.governmentcontractslawblog.com.

It has long been questioned whether the “Christian Doctrine,” pursuant to which mandatory contract clauses reflecting core procurement policy are incorporated into government prime contracts by operation of law, can be used to incorporate such clauses into subcontracts. That question may now have an answer. In a non-CDA decision issued last year that has flown somewhat “under the radar,” the Department of Labor’s Administrative Review Board (“ARB”) held that at least some such clauses are incorporated into subcontracts by operation of law. OFCCP v. UPMC-Braddock, ARB Case No. 08-048 (“UPMC-Braddock”).
 

On August 25, 2010, the Securities and Exchange Commission voted 3-to-2 along party lines to adopt a controversial proxy access regime to facilitate shareholders’ ability to nominate a limited number of candidates for election as directors. The new rules, which are primarily contained in new Rule 14a-11 promulgated under the Securities Exchange Act of 1934, will permit a single shareholder or group of shareholders owning at least 3% of the shares entitled to vote for directors to nominate, in accordance with applicable state corporate law, a number of directors up to 25% of the number of authorized directors and have such nominees included in the company’s proxy statement.
 

In In re Aetna, Inc. Securities Litigation, No. 09-2970, 2010 WL 3156560 (3d Cir. Aug. 11, 2010), the United States Court of Appeals for the Third Circuit held that certain allegedly misleading statements regarding the pricing of insurance premiums by a large health insurance company were protected under the safe harbor provision of the Private Securities Litigation Reform Act of 1995 (“Reform Act”), 15 U.S.C. § 78u-5(c)(1). The Court reasoned that the statements warranted protection because they were not only forward-looking — despite containing both present and future elements — but also immaterial. This decision further clarifies the Court’s analysis of mixed present/future statements for purposes of protection under the Reform Act’s safe harbor for forward-looking statements.
 

In Northstar Financial Advisors, Inc. v. Schwab Investments, No. 09-16347, 2010 WL 3169400 (9th Cir. Aug. 12, 2010), the United States Court of Appeals for the Ninth Circuit held that nothing in Section 13(a) of the Investment Company Act of 1940 (“ICA”), as originally enacted or as subsequently amended, either created a private right of action or implied that such a right exists with the clarity and specificity required under United States Supreme Court precedent. In so holding, the Ninth Circuit followed the Second Circuit and the recent trend of federal courts to reject implied private rights of action under the ICA.
 

In NetCoalition v. Securities & Exchange Commission, No. 09-1042 (D.C. Cir. Aug. 6, 2010), the United States Court of Appeals for the District of Columbia Circuit held that the Securities & Exchange Commission (“SEC” or “Commission”) failed adequately to explain the basis of, and failed to provide adequate support for, its approval of a proposed fee by NYSE Arca for access by investors to its proprietary “depth-of-book” product, Arcabook.  The Court vacated the approval order and remanded the matter to the SEC for further consideration of whether the proposed fee is consistent with the requirements and purposes of the Securities Exchange Act of 1934 (“Exchange Act”).
 

The practice of marketing registered public offerings of debt securities with credit ratings information and related disclosure of issuer credit ratings in SEC filings will change with the passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 ("Dodd-Frank").
 

The treatment of accrued but unused vacation pay (hereinafter, referred to as "Vacation Benefits") in the context of selling a business has arisen in recent transactions involving clients advised by the firm's Corporate Practice Group. This gives us an opportunity to remind business owners operating in California of the landscape of the rules associated with the payment of Vacation Benefits and the practice of transferring those liabilities to the new employer in the sale of a business.
 

In Securities & Exchange Commission v. Platforms Wireless Int’l Corp., No. 07-56542, 2010 U.S. App. LEXIS 15328 (9th Cir. July 27, 2010), the United States Court of Appeals for the Ninth Circuit held that under Section 10(b) of Securities Exchange Act of 1934 (“1934 Act”), 15 U.S.C. § 78j(b), and Rule 10b-5, 17 C.F.R. § 240.10b-5, a showing that a statement is so obviously misleading to a reasonable person that the defendant who made the statement must have known of its misleading nature is sufficient on summary judgment to prove defendant’s scienter. The Court held further that a defendant cannot defeat summary judgment merely by denying subjective knowledge of the risk that a statement could be misleading. This decision clarifies two points of law in the Ninth Circuit: first, that the Private Securities Litigation Reform Act of 1995, 15 U.S.C. § 78u-4 (“Reform Act”), did not alter the substantive requirement for pleading scienter for claims under Section 10(b) and Rule 10b-5, and second, that deliberate recklessness, for purposes of demonstrating scienter, may be proved by an objective, not subjective, evaluation of a defendant’s mental state.
 

NERA and Cornerstone Research (in cooperation with Stanford Law School’s Securities Class Action Clearinghouse) recently issued their respective assessments of securities litigation for the first six months of 2010. (Their findings and analyses are summarized in press releases here: NERA, Cornerstone.) Both report that new federal securities class action filings continued to decline from 2009, as litigation following the 2008 credit crisis winds down. (We previously reported on trends for 2009 here.) If new filings continue at the same pace through the rest of the year, we could see the lowest level of filings since 2006 and the second lowest since 1997.

For further information, please contact John Stigi at (310) 228-3717.