In King v. VeriFone Holdings, Inc., C.A. No. 5045-VCS (Del. Ch. May 12, 2010), the Delaware Court of Chancery dismissed a derivative plaintiff’s Section 220 books and records action on the ground that the purpose for the request — to bolster demand futility allegations in the prematurely filed derivative complaint — was improper. The court criticized plaintiff for filing a derivative complaint before counsel was able to complete his investigation, solely to “win the race to the courthouse.” This decision reflects the Chancery Court’s willingness to impose consequences on plaintiffs who do not follow appropriate procedures in their haste to obtain lead plaintiff status.
 Continue Reading Delaware Chancery Court Dismisses Derivative Plaintiff’s Section 220 Books And Records Action

In Slayton v. American Express Co., No. 08-5442, 2010 WL 1960019 (2d Cir. May 18, 2010), the United States Court of Appeals for the Second Circuit affirmed the dismissal of a securities fraud class action against American Express Company (“Amex”) on the ground that the complaint did not plead a strong inference of defendants’ scienter. While the court affirmed dismissal, it rejected Amex’s argument that the alleged misrepresentation was protected by the “safe harbor” for forward-looking statements set forth in the Private Securities Litigation Reform Act of 1995 (“Reform Act”). In doing so, the Court set forth useful guidance for determining when a statement is “forward-looking” and whether cautionary warnings are sufficiently “meaningful” to trigger the protection of the statute’s safe harbor.
 Continue Reading Second Circuit Affirms Dismissal Of Securities Fraud Complaint, But Rejects Reform Act Safe Harbor Defense

In Greb v. Diamond Int’l Corp., 2010 Cal. App. LEXIS 566 (Cal. App. 1st Dist. Apr. 26, 2010), the California Court of Appeal for the First District affirmed the trial court’s dismissal of a personal injury claim against a dissolved Delaware corporation, holding that the claim was filed more than three years after dissolution of the corporation in violation of Delaware General Corporation Law Section 278. In doing so, the Court made it clear that, for purposes of lawsuits filed in California against dissolved non-California corporations, the law of the state of incorporation controls whether claims are timely filed.
 Continue Reading California Court Of Appeal Applies Three-Year Limitation Under Delaware Law To Claim Against Dissolved Delaware Corporation

In Merck & Co. v. Reynolds, No. 08-905, 2010 U.S. LEXIS 3671 (Apr. 27, 2010), the Supreme Court of the United States held that a private securities fraud claim accrues for statute of limitations purposes at the earlier of when (1) the plaintiff does in fact discover, or (2) a reasonably diligent plaintiff would have discovered, “the facts constituting the violation.” The Supreme Court held further that “facts constituting the violation” include the “fact” of defendants’ scienter, i.e., “a mental state embracing intent to deceive, manipulate, or defraud.” This unanimous clarification by the Supreme Court of how lower courts should apply the statute of limitations for private securities fraud claims provides a bit more breathing room for would-be plaintiffs.
 Continue Reading United States Supreme Court Clarifies Statute Of Limitations For Private Securities Fraud Actions

In Pacific Investment Management Co. LLC v. Mayer Brown LLP, No. 09-1619, 2010 WL 1659230 (2d Cir. Apr. 27, 2010), the United States Court of Appeals for the Second Circuit affirmed the dismissal of securities fraud claims asserted against outside counsel to Refco Inc. (“Refco”), holding that such secondary actors can be held liable for damages in a private securities fraud action only if the alleged false or misleading statements are attributed to that secondary actor at the time the statements were disseminated. Without a showing of this so-called “attribution requirement,” secondary actors who participate in the preparation or creation of false statements can be guilty of no more than “aiding and abetting,” which under Central Bank of Denver, N.A. v. First Interstate Bank of Denver, N.A., 511 U.S. 164 (1994), cannot form the basis of a securities fraud claim. This decision confirms the Second Circuit’s strict application of Central Bank and Stoneridge Investment Partners, LLC v. Scientific-Atlanta, Inc., 552 U.S. 148 (2008), to limit securities fraud claims against secondary actors.
 Continue Reading Second Circuit Affirms Dismissal Of Securities Fraud Claims Against Secondary Actors Because Alleged False Statements Were Not Attributed To Them

In Bezirdjian v. O’Reilly, Case No. A124859, 183 Cal. App. 4th 316, 2010 WL 1212437 (Cal. App. Mar. 30, 2010), the California Court of Appeal for the First Appellate District affirmed the dismissal of a shareholder derivative action against current and former board members of Chevron Corporation. The Court held that the plaintiff failed to allege facts with sufficient particularity to rebut the presumption that the company’s refusal to pursue the case in response to the shareholder demand was protected by the business judgment rule. This decision joins the growing body of California cases that follow or apply Delaware law in protecting the integrity of corporate decision-making.
 Continue Reading California Court Of Appeal Affirms Dismissal Of Shareholder Derivative Action Where Company Refused Demand