In the consolidated appeal In re Cornerstone Therapeutics Inc., Stockholder Litigation and In re Zhongpin Stockholders Litigation, Nos. 564, 2014 and 706, 2014, 2015 Del. LEXIS 231 (Del. May 14, 2015), the Delaware Supreme Court considered for the first time the pleading burden a stockholder plaintiff must meet when seeking to recover monetary damages from an independent and disinterested director who is protected by an exculpatory charter provision authorized under 8 Del. C. § 102(b)(7). The Court held that to survive a motion to dismiss by that director, the complaint must plead a non-exculpated claim against that director, even if the underlying standard of review is entire fairness. Cornerstone confirms the need for the Chancery Court to analyze exculpation on a director-by-director basis in all cases at the earliest practical time, including at the pleading stage, in order to fulfill Section 102(b)(7)’s legislative purpose.
Continue Reading Delaware Supreme Court Holds That a Stockholder Plaintiff Must Plead a Non-Exculpated Claim to Avoid Section 102(b)(7)-Based Dismissal When Seeking Damages From Independent and Disinterested Directors
Delaware Supreme Court Confirms Chancery Court’s Broad Authority to Impose Use Restrictions on Information Obtained From Section 220 Books and Records Inspections
In United Technologies Corp. v. Treppel, No. 127, 2014, 2014 Del. LEXIS (Del. Dec. 23, 2014), the Delaware Supreme Court held that the Delaware Court of Chancery is authorized regulate how stockholders use information obtained through books and records inspections under Section 220 of the Delaware General Corporation Law (“Section 220”). The defendant corporation, in opposing a stockholder’s Section 220 proceeding, had sought to bar the stockholder from using any obtained information in any legal action brought outside of Delaware. The Vice Chancellor, however, expressed the belief that the Chancery Court lacked the statutory authority to impose such a restriction. The Delaware Supreme Court reversed and identified the factors the Chancery Court should consider in exercising its discretion to impose the restriction on remand. United Technologies reaffirms the Chancery Court’s important role in regulating books and records inspections in a manner that avoids inflicting unnecessary costs and burdens on corporations and their stockholders.
Continue Reading Delaware Supreme Court Confirms Chancery Court’s Broad Authority to Impose Use Restrictions on Information Obtained From Section 220 Books and Records Inspections
First Circuit Affirms District Court’s Exclusion of Event Study as Unreliable Under Daubert
In Bricklayers & Trowel Trades Int’l Pension Fund v. Credit Suisse Sec. (USA) LLC, No. 12-1750, 2014 U.S. App. LEXIS 8994 (1st Cir. May 14, 2014), the United States Court of Appeals for the First Circuit affirmed a district court’s exclusion of an event study as unreliable under Daubert v. Merrell Dow Pharm., Inc., 509 U.S. 579, 597 (1993). Plaintiffs, AOL shareholders, had offered the event study to show that alleged misstatements by defendant Credit Suisse First Boston (“CSFB”) ultimately caused declines in AOL’s stock price. The First Circuit agreed that plaintiffs’ expert, Dr. Scott D. Hakala, in performing the event study, failed to examine relevant “event dates,” classified certain dates as relevant even though the disclosures on those dates largely repeated previously disclosed information, and failed to control for confounding factors. As plaintiffs’ loss causation evidence consisted entirely of the event study, the First Circuit also affirmed summary judgment on behalf of CSFB. Notwithstanding the common and widely accepted use of event studies in securities cases, Bricklayers reminds practitioners of the need to fully scrutinize event studies under Daubert admissibility rules.
Continue Reading First Circuit Affirms District Court’s Exclusion of Event Study as Unreliable Under Daubert
District Court Cites Recent “Evolution” of Rule 23 Standards to Deny Class Certification Motion in Securities Action Based Upon Allegedly Misleading Registration Statement
In In re Kosmos Energy Ltd. Securities Litigation, No. 3:12-CV-373-B, 2014 U.S. Dist. LEXIS 36365 (N.D. Tex. Mar. 19, 2014), the United States District Court for the Northern District of Texas (Boyle, J.) denied lead plaintiff’s class certification motion in a consolidated action alleging claims under Sections 11, 12(a)(2) and 15 of the Securities Act of 1933 (“1933 Act”), 15 U.S.C. §§ 77k, 77l(a)(2), 77o. The 1933 Act regulates registration and offering statements by holding issuers and other offering participants strictly liable for material misstatements and omissions. Reliance is not an element of the claim. Plaintiff’s class certification motion rested on the notion that 1933 Act claims presumptively deserve class treatment. The district court, however, rejected the continued vitality of this notion in light of the recent “evolution of the case authority on class certification” requiring “a more skeptical view with a more exacting review process.” The district court’s decision recognizes that, as with other substantive areas of law, this “evolution” applies in securities law cases. Hence, historically “pro-plaintiff” approaches to class certification in securities cases (including cases based on 1933 Act claims) must yield to the newly evolved class certification standards.
Continue Reading District Court Cites Recent “Evolution” of Rule 23 Standards to Deny Class Certification Motion in Securities Action Based Upon Allegedly Misleading Registration Statement