In Rubenstein v. Int’l Value Advisers, LLC, No. 19-560-CV, 2020 WL 2549507 (2d Cir. May 20, 2020), the United States Court of Appeals for the Second Circuit affirmed a district court’s decision holding that an investor was not a member of a “group” of corporate insiders for purposes of short-swing profit liability under Section 16(b) of the Securities Exchange Act of 1934 (the “1934 Act”), 15 U.S.C. § 78p(b). In affirming, the Second Circuit determined that the investor’s investment management agreement delegating discretionary authority to an advisor was not an agreement with the “issuer,” and that an investment advisor’s client does not become an insider group member simply because the advisor files a Schedule 13D. The decision provides helpful guidance regarding the extremely narrow limits of Section 16(b) liability, and shields passive investors who merely delegate management authority over their portfolios to investment advisors.
Continue Reading Second Circuit Holds That Investors Who Delegate Discretionary Authority to Investment Advisors are not Members of a “Group” for Purposes of Section 16(b) Liability
Frustration of Purpose – Do I Have a Defense?
The COVID-19 (“coronavirus”) public health crisis has caused unprecedented business disruptions and uncertainty for existing contractual obligations. While many are focused on whether a force majeure clause will be triggered by the recent events, contracting parties should also consider the doctrine of “Frustration of Purpose.” Under California law, the frustration of purpose doctrine may be invoked where:
- Performance remains possible;
- but the fundamental reason of both parties for entering into the contract has been frustrated by an unanticipated supervening circumstance; and
- it destroys substantially the value of performance by the party standing on the contract.[1]
However, to excuse nonperformance of a contract on the ground of commercial frustration, the frustration must be so severe or substantial that it is not fairly to be regarded as within the risks that were assumed under the contract.[2]
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The Impact of Coronavirus on Supply Chain
The global Coronavirus Disease 2019 (“COVID-19” or “coronavirus”) outbreak has caused supply chain disruptions to businesses around the world. From delayed production to halted factory operations and slim shipping and freight options, the coronavirus costs keep mounting for businesses facing huge losses. Developing a cogent response to the outbreak can be extremely challenging, given the scale of the crisis and the rate at which it is evolving. Sheppard Mullin has mobilized a task force to assist clients address potential legal issues that may arise with respect to their supply chain or contracts.
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Third Circuit Holds that SLUSA Does Not Preclude Class Action Opt-Outs from Pursuing Individual Actions
In North Sound Capital, LLC v. Merck & Co, Inc., No. 18-2317, 2019 WL 4309663, 2019 U.S. App. LEXIS 27518 (3d Cir. Sept. 12, 2019), the United States Court of Appeals for the Third Circuit reversed a New Jersey district court ruling, which held that the Securities Litigation Uniform Standards Act of 1998 (“SLUSA”) precluded state law claims in lawsuits brought by investors who opted-out of class action lawsuits. In reversing, the Third Circuit determined that the opt-out plaintiffs could indeed bring their state law fraud claims against the same defendants as the class action lawsuits because their subsequently filed suits did not fall within the definition of a “covered class action” under SLUSA. The decision provides helpful guidance as to whether investors who choose to opt-out of class action lawsuits may be precluded under SLUSA from proceeding with individual lawsuits seeking similar relief.
Continue Reading Third Circuit Holds that SLUSA Does Not Preclude Class Action Opt-Outs from Pursuing Individual Actions