On May 10, 2018, the Unites States Court of Appeals for the Eighth Circuit affirmed the dismissal of putative class actions against TD Ameritrade, Inc. and certain related entities and individuals, asserting violations of various state laws including breach of defendant’s uniform client agreement, fraud, negligent misrepresentation, breach of fiduciary duty, and violations of the Nebraska Consumer Protection Act.  Zola v. TD Ameritrade, Inc., No. 16-3016 (8th Cir. May 10, 2018).  Plaintiffs alleged that defendant failed to direct its retail clients’ securities orders to trading venues that offered the best price, speed of execution, and likelihood of execution; instead, it allegedly directed orders to venues that catered to high-frequency traders who also paid defendant rebates for order flow.  Slip op. at 3.  The Court held that the “best execution” allegations were effectively claims of misrepresentations or omissions in connection with the purchase or sale of covered securities and were therefore precluded by the Securities Litigation Uniform Standards Act (“SLUSA”).

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In a March 29, 2018 decision, amended on May 9, 2018, the United States Court of Appeals for the Second Circuit vacated the dismissal of claims against defendants Tower Research Capital LLC (a New York based high-frequency trading firm) and its founder under the Commodity Exchange Act (“CEA”) by five Korean citizens who traded Korea Exchange (“KRX”) futures contracts on the KRX “night market.”  Choi v. Tower Research Capital LLC, No. 17-648, 2018 WL 2168642 (2d Cir. 2018).  Plaintiffs alleged that defendants engaged in manipulative “spoofing” transactions on the KRX night market—which operated by matching after-hours orders in Korea with anonymous counterparties on CME Globex, an electronic trading platform on the Chicago Mercantile Exchange.  The district court dismissed the action on the ground that the CEA did not apply extraterritorially, but the Second Circuit vacated and remanded, finding that plaintiffs’ allegations made it plausible that the trades were “domestic transactions” under Morrison v. National Australia Bank Ltd., 561 U.S. 247 (2010), and so within the reach of the CEA, and further that plaintiffs stated a claim for unjust enrichment.

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On May 8, 2018, Judge Claudia Wilken of the United States District Court for the Northern District of California granted class certification in an action asserting claims under Section 10(b) of the Securities Exchange Act based on allegations that the medical device manufacturer Thoratec and certain of its officers misrepresented the performance of its primary product.  Cooper v. Thoratec Corp., 2018 WL 2117337 (N.D. Cal. May 8, 2018).  Plaintiffs alleged that defendants made false and misleading statements about the rate of thrombosis suffered by users of its product, first in 2011 and continuing after a New England Journal of Medicine study revealed in November 2013 that thrombosis rates had increased since the clinical trials (which caused Thoratec’s stock to drop by six percent).  After the company disclosed the impact of higher thrombosis rates in 2014, the stock lost a quarter of its value.

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On Monday, April 30, 2018, Judge Robin L. Rosenberg of the United States District Court for the Southern District of Florida dismissed a consolidated putative securities class action against financial services company Ocwen Financial Corporation (the “Company”) and two of its officers.  Carvelli et al. v. Ocwen Financial Corp. et al., No. 9:17-cv-80500 (S.D. Fla. April 30, 2018).  Plaintiffs—shareholders of the Company—alleged that defendants violated Section 10(b) of the Securities Exchange Act of 1934 (the “Exchange Act”) and SEC Rule 10b-5, and that the individual defendants violated Section 20(a) of the Exchange Act, by making materially false and misleading statements and omissions regarding operational and technological deficiencies within the Company’s mortgage servicing software platform, causing losses to plaintiffs when the deficiencies were revealed and the Company’s stock declined.  The Court disagreed, finding that the statements in question were non-actionable puffery or opinion, forward-looking statements accompanied by meaningful cautionary statements, or statements on their face not false, and therefore dismissed the action with prejudice.

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On April 20, 2018, the United States Court of Appeals for the Ninth Circuit held that scienter is not required for securities claims brought under Section 14(e) of the Securities Exchange Act of 1934.  Varjabedian v. Emulex Corporation, et al., No. 16-55088 (9th Cir. Apr. 20, 2018).  In so holding, the Ninth Circuit rejected the decisions of five other circuit courts and ruled Section 14(e) claims require only a showing of negligence.

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On April 20, 2018, Judge William H. Pauley III of the United States District Court for the Southern District of New York dismissed a class action against defendants GFI Group, Inc. (“GFI”) and certain executives of GFI, alleging securities fraud claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (“Exchange Act”) and Rule 10b-5.  Gross v. GFI Group, Inc. et al., No. 1:14-cv-09438 (S.D.N.Y. Apr. 20, 2018).  Plaintiffs alleged that the defendants deceived shareholders by falsely representing in a press release that a takeover bid by CME Group (“CME”) was a “singular and unique” opportunity and implying that the CME deal was the best possible deal for GFI shareholders when it knew there were alternative potential bidders.  In fact, another bidder later waged a hostile takeover, which led GFI’s stock price to surge after plaintiffs sold their stock.  The Court granted defendants’ motion for summary judgment, holding that a proxy statement related to the proposed CME deal defeated plaintiffs’ ability to prove scienter.

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On April 13, 2018, the United States Court of Appeals for the Second Circuit, in a summary order, affirmed the dismissal of a putative class action against Deutsche Bank and certain of its officers asserting claims under Section 10(b) of the Securities Exchange Act of 1934.  In re Deutsche Bank Aktiengesellschaft Sec. Litig., No. 17-2560, 2018 WL 1773502 (2d Cir. 2018).  Plaintiffs alleged that defendants misrepresented the effectiveness of the bank’s anti-money laundering controls, and that weaknesses in those controls were subsequently revealed in the public fallout surrounding the bank’s use of so-called “mirror trades” to move funds out of Russia.  Applying the “more stringent rule for inferences involving scienter” under the Private Securities Litigation Reform Act, the Second Circuit affirmed the dismissal of plaintiffs’ complaint for failure to adequately plead scienter.

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On April 17, 2018, Judge Katherine Polk Failla of the United States District Court for the Southern District of New York denied class certification in an action asserting claims for breach of contract and breach of trust against Wells Fargo Bank, N.A.  Royal Park Investments SA/NV v. Wells Fargo Bank NA, 1:14-cv-09764 (S.D.N.Y. Apr. 17, 2018).  Plaintiff alleged that defendant disregarded contractual duties arising out of its role as trustee of two RMBS trusts by failing to protect RMBS Certificate holders and breached its common law duty of trust to avoid conflicts of interest by putting its own interests ahead of the beneficiaries’ and failing to take necessary action to the detriment of beneficiaries.  Adopting in its entirety Magistrate Judge Sarah Netburn’s Report and Recommendation (“R&R”), see Southern District Of New York Magistrate Judge Recommends Denial Of Class Certification In Action Against RMBS Trustee at https://www.lit-sl.shearman.com/southern-district-of-new-york-magistrate-judge-re, the Court denied class certification on the basis that individual questions affecting proposed class members predominated over common issues.

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On April 10, 2018, the United States Court of Appeals for the Second Circuit revived and remanded to state court a putative class action brought against AXA Equitable Life Insurance Company.  O’Donnell v. AXA Equitable Life Ins. Co., No. 17-1085, 2018 WL 1720808 (2d Cir. 2018).  Plaintiff, a holder of a variable deferred annuity policy from defendant, brought a putative class action against defendant in Connecticut state court alleging breach of contract based on defendant’s alleged failure to obtain prior written approval before implementing a “volatility management strategy” that affected the performance of the annuity.  Defendant removed the case to the United States District Court of Connecticut, where it successfully moved to transfer the action to the United States District Court for the Southern District of New York (“SDNY”).  The district court denied plaintiff’s motion to remand the action to state court and granted defendant’s cross-motion to dismiss the case as being precluded under the Securities Litigation Uniform Standards Act of 1998 (“SLUSA”).  The Second Circuit reversed, holding that a security holder’s passive retention of a security following an alleged misrepresentation of which the holder is unaware does not meet the requirement that an alleged misstatement be made “in connection with” the purchase or sale of a security under SLUSA, and instructed the district court to remand the action to Connecticut state court.

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On March 30, 2018, the United States District Court for the Southern District of New York dismissed a class action against Halyard Health, Inc. (“Halyard”) and its executives, along with Kimberly-Clark Corporation (“Kimberly-Clark”) and its executives, that alleged securities fraud under Sections 10(b) and 20(a) of Securities Exchange Act of 1934 (the “Exchange Act”) and Rule 10b-5.  Jackson v. Halyard Health Inc., et al., 1:16-cv-05093 (S.D.N.Y. Mar. 30, 2018).  Halyard sells health and healthcare supplies and solutions.  Plaintiff alleged that he acquired Halyard securities at inflated prices and suffered losses when Halyard disclosed that one of its products, the MicroCool Breathable High Performance Surgical Gown (“MicroCool”), intended to protect healthcare providers from contact with highly infectious diseases, was ineffective during the 2014 Ebola virus outbreak.  The Court dismissed the action on the ground that the plaintiff failed to adequately plead facts sufficient to give rise to a strong inference of scienter as required by the Private Securities Litigation Reform Act of 1995.
 

On March 30, 2018, the United States District Court for the Southern District of New York dismissed with prejudice a class action complaint against Embraer S.A. (“Embraer” or the “Company”) and several of its officers, alleging securities fraud under Sections 10(b) and 20(a) of Securities Exchange Act of 1934 (the “Exchange Act”) and Rule 10b-5.  Employees Retirement System of the City of Providence, et al. v. Embraer S.A., et al., No. 16-cv-06277 (S.D.N.Y. Mar. 30, 2018).  Plaintiff alleged that the Company made false or misleading statements about and/or failed to disclose violations of the Foreign Corrupt Practices Act (“FCPA”).  The Court dismissed the claims, finding that the Company did not have a duty to disclose uncharged, unadjudicated wrongdoing and that the Company’s disclosures about the government investigation adequately addressed the risks that could result from a finding of unlawful conduct.
 

On Monday, March 26, 2018, the United States Supreme Court heard oral argument in an appeal that presents the question whether American Pipe tolling—which provides that the pendency of a class action generally tolls the statute of limitations for claims of individual members of the putative class—applies not just to subsequent individual actions but also to subsequent class actions.  Transcript, China Agritech, Inc. v. Resh, No. 17-432 (U.S. argued Mar. 26, 2018).  Plaintiffs, alleged owners of shares in China Agritech, filed a putative securities fraud class action following the filing of two other similar class actions for which class certification had been denied.  There was no dispute that the claims of the individual named plaintiffs were timely under the tolling rule of American Pipe & Construction Co. v. Utah, 414 U.S. 538 (1974).  The district court, however, dismissed the class claims as time-barred, only to be later reversed by the Ninth Circuit.  The Circuit Courts of Appeals have reached varying conclusions regarding whether, or the circumstances in which, the filing of a putative but ultimately not certified class action will operate to toll subsequently-asserted class claims, thereby allowing for the seriatim filing of otherwise time-barred class actions in the hope that a class may eventually be certified.  The China Agritech case provides an opportunity for the Supreme Court to resolve the conflict.

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On Tuesday, March 27, 2018, Chief Justice John Roberts announced a unanimous decision of the United States Supreme Court that allows immediate appeals from final decisions issued in any action that has been consolidated with other actions for proceedings under Rule 42(a) of the Federal Rules of Civil Procedure.  Hall v. Hall, --U.S.—, 2018 WL 1472897 (2018).  This decision provides important optionality for parties, including in securities actions (which are often consolidated under Rule 42(a)), to be able to appeal an adverse final decision while continuing to address pending cases within the consolidated proceeding.
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On March 28, 2018, Judge J. Paul Oetken of the United States District Court for the Southern District of New York granted in part and denied in part a motion to dismiss a putative class action against Mylan N.V. and several of its officers asserting claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Section 1 of the Israeli Securities Law of 1968.  In re Mylan N.V. Securities Litigation, 16 Civ. 7926 (JPO) (S.D.N.Y. Mar. 28, 2018).  Plaintiffs alleged that Mylan (which is dual listed on NASDAQ and the Tel Aviv Stock Exchange) misclassified its drug EpiPen for purposes of Medicaid rebates; entered into anticompetitive agreements to inflate drug prices; and made materially misleading statements to investors about its conduct.  While the Court dismissed the Israeli securities law claims “in the interests of international comity,” the Court found that most of the Exchange Act claims were adequately pleaded.

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On March 22, 2018, Chief Judge Colleen McMahon of the United States District Court for the Southern District of New York granted in part and denied in part class certification in a putative class action alleging breach of contract claims against Citibank, N.A.  Merryman et al. v. Citigroup Inc. et al., 15 Civ. 9185 (CM) (S.D.N.Y. Mar. 22, 2018).  Plaintiffs, former holders of American Depositary Receipts (“ADRs”) in three separate companies, brought this putative class action on behalf of a proposed class who currently or previously held any of 35 separate ADRs for which defendant served as depositary bank.  Plaintiffs alleged that defendant breached the contracts governing these ADRs by converting cash distributions received from foreign issuers at one foreign exchange rate and then supposedly using a less favorable rate when remitting the proceeds to ADR holders and retaining the difference (the “spread”).  The Court granted class certification with respect to the securities previously owned by plaintiffs, but held that plaintiffs lacked class standing to bring claims on behalf of holders of other securities.

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On March 27, 2018, Judge F. Dennis Saylor IV of the United States District Court for the District of Massachusetts dismissed a putative class action alleging claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 against Biogen Inc. and certain executives.  Metzler Asset Management GmbH et al. v. Kingsley et al., 16 Civ. 12101 (D. Mass. Mar. 27, 2018).  Plaintiffs, investors in Biogen stock, had alleged that Biogen made false and misleading statements regarding the safety and sales of Tecfidera, a leading multiple sclerosis drug.  Tecfidera’s sales had declined following the death of a patient in a clinical study, causing Biogen to cut its guidance for revenue growth in half, and Biogen’s stock price subsequently declined by more than 20%.  The Court held that, while several alleged misrepresentations and omissions were plausibly misleading or false, Plaintiffs had “fail[ed] to clear the relatively high hurdle” under the PSLRA to adequately allege a “strong inference” of scienter.

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On March 20, 2018, the Supreme Court of the United States, in a unanimous decision delivered by Justice Kagan, ruled that state courts have jurisdiction to adjudicate class actions brought under the Securities Act of 1933 (the “Securities Act”) and that such actions cannot be removed from state to federal court.  Cyan, Inc. et al. v. Beaver County Employees Retirement Fund et al., 583 U.S. ___ (2018).  The Securities Act authorized both federal and state courts to exercise jurisdiction over private causes of action relating to securities offerings and barred removal of such suits from state to federal court.  In 1995, in order to stem perceived abuses of the class-action vehicle in securities litigation, Congress enacted the Private Securities Litigation Reform Act (“PSLRA”).  The PSLRA amended the Securities Act by introducing procedural reforms for securities class actions in federal court.  When plaintiffs began filing securities class actions in state courts instead, to avoid the federal procedural standards, Congress passed the Securities Litigation Uniform Standards Act of 1998 (“SLUSA”).  Cyan, Inc. (“Cyan”), a telecommunications company, and its officers and directors, argued that the SLUSA amendments gave federal courts exclusive jurisdiction over class actions brought under the Securities Act.  The Supreme Court disagreed, holding that those amendments did not divest state courts of concurrent jurisdiction over class actions pursuant to the Securities Act.  The Court also rejected the separate argument regarding removal of such actions, advanced by the U.S. Solicitor General, as amicus curiae, and held that SLUSA does not permit defendants to remove class actions alleging only Securities Act claims from state to federal court.

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On March 22, 2018, Judge Katherine Polk Failla of the United States District Court for the Southern District of New York dismissed a putative securities class action against Chipotle Mexican Grill, Inc. (“Chipotle”), its two former co-CEOs, and its CFO.  Ong v. Chipotle Mexican Grill, Inc. et al., No. 1:16-cv-141-KPF (S.D.N.Y. March 22, 2018).  Plaintiffs—shareholders of Chipotle who allegedly purchased the company’s shares between February 5, 2015 and February 2, 2016—alleged that the company and the individual defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the “Exchange Act”) by failing to disclose in securities filing and press releases certain attendant risks in the fast-food chain’s produce processing and food-safety procedures, allegedly causing plaintiffs to suffer losses when Chipotle’s stock dropped after a series of food-borne illness outbreaks occurred in 2014 and 2015.  The Court disagreed, finding that while it was “as concerned as the parties about food-borne illness outbreaks,” plaintiffs had not adequately pleaded securities fraud, and dismissed plaintiffs’ second amended complaint (“SAC”) with prejudice.

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On March 8, 2018, the United States District Court for the Middle District of Tennessee dismissed a consolidated class action alleging securities fraud claims under Section 10(b) and 20(a) of the Securities Exchange Act against Dollar General Corporation (“Dollar General”), and certain of its executives.  Iron Worker Local Union No. 405 Annuity Fund, et al. v. Dollar General Corporation, et al., No. 3:17-cv-00063 (M.D. Tenn., Mar. 8, 2018).  Plaintiffs alleged defendants misled investors about the negative impact reductions to government benefits, including Supplemental Nutrition Assistance Program (“SNAP”) benefits, would have on Dollar General’s business.  The Court held, among other things, that defendants sufficiently disclosed the importance of SNAP recipients to Dollar General’s business, the impact of an earlier reduction in SNAP benefits did not render the impact of a later change to benefits foreseeable, and that risk factors accompanying optimistic projections rendered certain forward-looking statements inactionable.

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On March 12, 2018, the United States Court of Appeals for the Fifth Circuit affirmed the dismissal of a shareholder’s claims to recover on behalf of Dynegy, Inc. (“Dynegy”) alleged short-swing profits from insiders in violation of Section 16(b) of the Securities Exchange Act of 1934 (“Exchange Act”). Jordan v. Flexton, et al., No. 17-20346 (5th Cir. Mar. 12, 2018). Plaintiff alleged that defendants, Dynegy’s officers, received short-swing insider trading profits from a series of dispositions of equity securities that violated Section 16(b) because the dispositions occurred less than six months after they received the equity securities. Plaintiff maintained that the purchases were not exempt under SEC Rule 16b-3(e) because they were neither pre-approved nor automatic. The district court dismissed the action and held that the transactions were exempt under Rule 16b-3(e). On appeal, the Fifth Circuit affirmed the dismissal on the ground that plaintiff failed to allege facts showing that the dispositions were discretionary or were not pre-approved.

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On March 2, 2018, Judge Charles R. Breyer of the United States District Court for the Northern District of California granted defendants’ request for reconsideration of a motion to dismiss a putative class action brought against Volkswagen Aktiengesellschaf (“VW AG”), Volkswagen Group of America, Inc. (“VWGoA”), Volkswagen Group of America Finance, LLC (“VWGoAF”), and former executives of VW AG and VWGoA.  In re: Volkswagen “Clean Diesel” Marketing, Sales Practices, and Products Liability Litigation, MDL No. 2672 CRB (JSC) (N.D. Cal. Mar. 2, 2018).  Plaintiff had alleged that defendants failed to disclose Volkswagen’s use of “defeat device” software to mask emissions in the company’s diesel engines, in violation of Section 10(b) of the Securities Exchange Act of 1934.  In its previous July 19, 2017 order, the Court dismissed certain claims but found that plaintiff could rely on a presumption of reliance under Affiliated Ute Citizens of Utah v. United States, 406 U.S. 128 (1972), because plaintiff primarily alleged omissions as opposed to misstatements.  Defendants asked the Court to reconsider that ruling in light of the Second Circuit’s November 2017 decision in Waggoner v. Barclays PLC, 875 F.3d 79 (2d Cir. Nov. 6, 2017)—which held that the Affiliated Ute presumption does not apply when the only omission alleged is the omission of the truth that an affirmative misstatement misrepresented.  The Court did so, agreed with Waggoner, and dismissed plaintiff’s remaining claims for failure to adequately plead reliance.

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On February 28, 2018, Judge Peter Sheridan of the United States District Court for the District of New Jersey granted class certification in an action against Aeterna Zentaris, Inc. and certain of its executives.  Li V. Aeterna Zentaris, Inc., No. 3:14-CV-07081 (D.N.J. Feb. 28, 2018), ECF No. 144.  Plaintiffs asserted claims under Section 10(b) of the Securities Exchange Act of 1934, based on allegations that Aeterna made false or misleading statements about the progress of certain clinical trials involving the drug Macrilen, a growth hormone stimulator intended to diagnose whether a person has adult growth hormone deficiency (“AGHD”). 

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On February 26, 2018, the United States Court of Appeals for the Fifth Circuit affirmed in a per curiam unpublished decision the dismissal of a putative securities class action against UBS AG and certain affiliated entities.  Giancarlo, et al. v. UBS Financial Services Inc., et al., No. 16-20663 (5th Cir. Feb. 26, 2018).  Plaintiffs—former clients of a defendant UBS affiliate who invested in former energy giant Enron using the UBS affiliate as their broker—alleged that defendants violated Section 10(b) of the Securities Exchange Act by failing to disclose information purportedly revealing problems with Enron’s accounting, leading to alleged losses when Enron’s precarious financial position was uncovered in November 2001.  The United States District Court for the Southern District of Texas dismissed plaintiffs’ claims, finding that plaintiffs failed to plead facts demonstrating that defendants’ separate corporate status should be disregarded, and thus had failed to adequately plead their “single, fully integrated entity” theory of liability.  The District Court further found that plaintiffs had failed to identify specific brokers or allege facts demonstrating that each broker had an intent to deceive, manipulate, or defraud.  The Fifth Circuit agreed, holding that plaintiffs had failed to meet the heightened specificity requirements for pleading securities fraud under Federal Rule of Civil Procedure 9(b), noting that plaintiffs had not adequately alleged that defendants had knowledge of Enron’s practices, nor a duty to disclose such information to plaintiffs.   

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On February 27, 2018, Judge Naomi Reice Buchwald of the United States District Court for the Southern District of New York dismissed with prejudice a putative securities fraud action brought against Chinese mobile internet service provider NQ Mobile, Inc. (“NQ”) and its CEO and Vice President.  Finocchiaro, et al v. NQ Mobile Inc., et al., No. 1:15-cv-06385 (S.D.N.Y. Feb. 27, 2018).  Plaintiffs—shareholders of NQ—alleged that defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act by making affirmative misstatements about NQ’s value and failing to disclose to investors certain material facts relating to NQ’s corporate acquisition strategy, allegedly causing plaintiffs to suffer losses when the truth was revealed and NQ’s stock dropped.  The Court held that the alleged affirmative misrepresentation was mere puffery which plaintiffs could not have reasonably relied upon and that the alleged material omissions were in fact properly disclosed.  Accordingly, the Court dismissed the complaint with prejudice. 

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On February 9, 2018, Judge Charles E. Breyer of the United States District Court for the Northern District of California held that “newly discovered evidence” regarding the basis for an auditor’s resignation and the scope of improper expense reimbursements did not justify reconsidering the Court’s prior dismissal of claims under Section 10(b) of the Securities Exchange Act of 1934 for failure to sufficiently allege scienter and loss causation.  Rok v. Identiv, Inc., 2018 WL 807147 (N.D. Cal. Feb. 9, 2018).

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On February 12, 2018, Judge Samuel Der-Yeghiayan of the United States District Court for the Northern District of Illinois denied a motion to dismiss a putative class action under the Securities Exchange Act of 1934 against Treehouse Foods, Inc. (“TreeHouse”) and certain TreeHouse executives.  Public Employees’ Retirement System of Mississippi v. TreeHouse Foods, Inc. et al., 16 C 10632 (N.D. Ill. Feb. 12, 2018).  Plaintiff alleged that TreeHouse, a manufacturer of store brand food products for grocery stores, materially misrepresented that its acquisitions of Flagstone Foods and the “Private Brands” business of ConAgra Foods, Inc. were successful.  The Court denied the motion to dismiss, holding among other things that plaintiff adequately alleged that defendants made actionable misstatements.

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​On February 9, 2018, the United States Court of Appeals for the Second Circuit affirmed the dismissal of aiding and abetting claims against UBS AG, AIA LLC, and their affiliated entities and individuals.  SPV Osus Ltd. v. UBS AG, et al., No. 16-2173-cv (2d Cir. Feb. 9, 2018).  Plaintiff alleged defendants aided and abetted a Ponzi scheme orchestrated by Bernard L. Madoff Investment Securities LLC (“BLMIS”), by sponsoring and providing support for two European-based feeder funds despite being aware of fraudulent activity.  Plaintiff further alleged it suffered losses of approximately $2.9 billion when the scheme was uncovered.  The United States District Court for the Southern District of New York had denied plaintiff’s motion to remand the case to New York Supreme Court, where plaintiff had originally filed, and had granted defendants’ motion to dismiss the complaint for lack of personal jurisdiction.  On appeal, plaintiff argued that the district court erred by:  (1) denying plaintiff’s motion to remand because the instant litigation was not “related to” the Madoff/BLMIS bankruptcies and thus the federal court lacked subject-matter jurisdiction; (2) holding that the court lacked personal jurisdiction over defendants; and (3) holding that plaintiff failed to adequately plead proximate cause.  The Second Circuit rejected plaintiff’s arguments and affirmed the dismissal of the action based on lack of personal jurisdiction over defendants and failure to plead proximate cause.

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On January 30, 2018, Judge John R. Tunheim of the United States District Court for the District of Minnesota granted class certification in a consolidated securities fraud class action against Medtronic and certain of its officers and employees.  West Virginia Pipe Trades Health & Welfare Fund v. Medtronic, Inc., et al., No. 13-cv-01686-JRT-FLN (D. Minn. Jan. 30, 2018).  Plaintiffs—institutional investors who purchased Medtronic stock during the proposed class period—allege that defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 by manipulating early clinical studies of INFUSE, an alternative to replacement bone-tissue graft, by knowingly concealing adverse side effects observed in clinical trials, and by failing to sufficiently disclose that it paid physician authors a total of $210 million to publish positive articles about INFUSE in medical journals.  Plaintiffs allege that Medtronic’s deception artificially inflated the company’s stock price, causing a large stock drop in August 2011, when the truth was revealed through a corrective disclosure.  Plaintiffs sought to certify a class of all purchasers of Medtronic stock between September 8, 2010 and August 3, 2011.  The Court certified the class, but shortened the class period end date to June 3, 2011, which is the date of the initial corrective disclosure.

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On January 31, 2018, the United States Court of Appeals for the Ninth Circuit affirmed in a per curiam decision a district court decision denying in part defendants’ motion for summary judgment on claims brought under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 by investors in First Solar, Inc., one of the world’s largest producers of solar panels.  Mineworkers’ Pension Scheme et al. v. First Solar Inc., No. 15-17282 (9th Cir. Jan. 31, 2018).  After partially denying summary judgment, the district court certified for interlocutory appeal a question as to the correct test for loss causation under the Exchange Act in the Ninth Circuit.  In addressing this question, the Ninth Circuit resolved a perceived ambiguity between two lines of decisions in the Circuit by affirming the district court’s holding that a plaintiff can establish loss causation by proving that “the defendant misrepresented or omitted the very facts that were a substantial factor in causing the plaintiff’s economic loss” even if the alleged fraud was not itself disclosed to the market before the plaintiff suffered the loss.  In so doing, the Ninth Circuit rejected the defendants’ argument that “[s]ecurities fraud plaintiffs can recover only if the market learns of the defendants’ fraudulent practices” before the claimed loss.

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On January 20, 2018, Judge John Koeltl of the United States District Court for the Southern District of New York dismissed a putative class action under Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder filed against E*TRADE Securities LLC (“E*TRADE”), E*TRADE Financial Corporation (“E*TRADE Financial”), and one current and one former officer of E*TRADE Financial.  Schwab v. E*TRADE Fin. Corp., --F. Supp. 3d --, 2018 WL 502787 (S.D.N.Y. 2018).  Plaintiff alleged that E*TRADE falsely represented that it would execute clients’ orders consistent with its duty of “best execution”—which requires it to use “reasonable diligence” to obtain the most favorable price for a customer under “prevailing market conditions”—because E*TRADE allegedly executed orders in consideration of only two factors—its order-handling agreements with venues and the maximization of payments for order flow.  In prior decisions, the Court dismissed common law claims as precluded by the Securities Litigation Uniform Standards Act (“SLUSA”), and dismissed without prejudice the second amended complaint for failure to adequately allege reliance or scienter.  Addressing plaintiff’s third amended complaint, the Court again determined that plaintiff had failed to adequately plead reliance or scienter, and dismissed the action with prejudice.

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In a January 10, 2018 ruling unsealed on January 19, Magistrate Judge Sarah Netburn of the United States District Court for the Southern District of New York recommended denial of Royal Park Investments’ request for class certification in an action against Wells Fargo Bank, N.A. (“Wells Fargo”).  Royal Park Investments SA/NV v. Wells Fargo Bank, N.A., 14-CV-09764-KPF-SN (S.D.N.Y. Jan. 10, 2018).  Plaintiff asserts claims for breach of contract and breach of trust in connection with Wells Fargo’s role as trustee of two RMBS trusts, alleging that Wells Fargo disregarded contractual duties by failing to protect RMBS Certificateholders and breached its common law duty of trust to avoid conflicts of interest by putting its own interests ahead of the beneficiaries’ and failing to take necessary action to the detriment of beneficiaries.  Concluding that individual questions affecting proposed class members predominated over common issues, Magistrate Judge Netburn recommended that plaintiff’s motion be denied.

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On December 29, 2017 and January 9, 2018, respectively, the United States Court of Appeals for the Ninth Circuit and the United States Court of Appeals for the Eighth Circuit each affirmed district court dismissals of putative securities class actions asserting violations of various state laws based on securities brokerage firm defendants’ alleged violation of the “duty of best execution” in executing client trades.  Fleming v. Charles Schwab Corp., No. 16-15179 (9th Cir. Dec. 29, 2017); Lewis v. Scottrade, Inc., No. 16-3808 (8th Cir. Jan. 9, 2018).  In affirming the district courts’ dismissals of these clams, both the Ninth Circuit and the Eighth Circuit reasoned that the alleged “best execution” violations were, in substance, allegations of deceptive conduct “in connection with the purchase or sale of” a security and thus barred by the Securities Litigation Uniform Standards Act (“SLUSA”).  

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On January 12, 2018, the United States Court of Appeals for the Second Circuit vacated a district court order certifying a securities fraud class action brought by purchasers of common stock in The Goldman Sachs Group, Inc. (“Goldman” or the “Company”).  Arkansas Teachers Ret. Sys. v. Goldman Sachs, No. 16-250 (Jan. 12, 2018).  The district court certified the class, ruling that defendants failed to rebut the presumption of reliance first articulated in Basic Inc. v. Levinson, 485 U.S. 224 (1988) because defendants did not “conclusively” prove a “complete absence of price impact.”  On appeal, the Second Circuit ruled that, consistent with its precedent, defendants seeking to rebut the Basic presumption of reliance must do so by a preponderance of the evidence.  Because it was unclear if the district court applied a more demanding standard than preponderance of the evidence, the Second Circuit vacated the district court’s decision and remanded it to consider the defendants’ evidence under the proper standard.

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On December 18, 2017, Judge Aleta A. Trauger of the United States District Court for the Middle District of Tennessee denied a motion to dismiss a putative class action under Section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”) filed against CoreCivic—a publicly traded real estate investment trust that operates private prisons—and certain CoreCivic executives.  Grae v. Corr. Corp. of Am., No. 3:16-CV-2267, 2017 WL 6442145 (M.D. Tenn. Dec. 18, 2017).  Plaintiffs alleged that CoreCivic and the individual defendants made and authorized numerous false and misleading statements concerning the quality of CoreCivic’s operations and how those operations complied with standards set by the U.S. Federal Bureau of Prisons (“BOP”) despite being on notice that their operations failed to so comply in numerous instances, and that defendants’ statements were later contradicted by a United States Department of Justice Office of Inspector General (“OIG”) audit report and a memorandum by then–Deputy Attorney General Sally Q. Yates critical of the private prison industry, causing CoreCivic’s stock price to plummet more than 50% in eight days.  In denying defendants’ motion to dismiss, the Court held that the totality of plaintiffs’ allegations sufficiently supported their “central theory of liability.”

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​On December 13, 2017, the United States Court of Appeals for the Sixth Circuit reversed the dismissal of a consolidated putative class action against Community Health Systems, Inc. (“Community”), its CEO, and CFO.  Norfolk Cty. Ret. Sys. et al. v. Cmty. Health Sys., Inc. et al., No. 16-6059 (6th Cir. Dec. 13, 2017).  Plaintiffs—shareholders of Community—alleged that Community and certain of its officers had violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 by fraudulently inflating Community’s share price through false and misleading statements regarding Community’s operating model.  Plaintiffs alleged that the value of Community’s shares fell immediately in April 2011 after a Community competitor, Tenet Healthcare Corporation, publicly disclosed in a civil complaint against Community expert analyses alleging that Community’s profits depended largely on Medicare fraud, and fell further in October 2011 after one of Community’s officers admitted to certain of Tenet’s allegations.  Judge Kevin H. Sharp of the United States District Court for the Middle Division of Tennessee dismissed the putative class action complaint, finding that while plaintiffs had sufficiently pled that defendants intentionally made misleading statements, they had not adequately alleged that the misleading statements had caused plaintiffs’ losses because the disclosures came in the form of Tenet’s complaint—and was therefore regarded by the market as mere “allegations” rather than truth.  The Sixth Circuit reversed.

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On December 12, 2017, the New York Court of Appeals dismissed certain breach of contract claims brought by HSBC Bank USA, N.A. (“HSBC”) against Nomura Credit & Capital, Inc. (“Nomura”), in four separate actions related to Nomura’s role as a sponsor in residential mortgage-backed securities (“RMBS”) transactions.  Nomura Home Equity Loan, Inc., Series 2006-FM2, by HSBC Bank USA, Nat’l Ass’n, solely in its capacity as Trustee, et al. v. Nomura Credit & Capital, Inc. (And Three Other Actions), No. 39 (N.Y. Dec. 12, 2017).  The Court of Appeals dismissed HSBC’s claims for general contract damages—based on alleged breaches of a “no untrue statement” provision contained in the Mortgage Loan Purchase Agreement (“MLPA”)—for each transaction, finding that HSBC’s claims relate to the characteristics of the underlying mortgage loans, and are therefore subject to the contract’s provision mandating cure or loan repurchase as the sole remedy for breaches of mortgage loan-specific representations.

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On December 5, 2017, the United States District Court for the Northern District of California denied class certification in a putative securities fraud class action against Finisar Corporation (“Finisar”), a technology company focused on fiber optic subsystems, and its current chairman/CEO and former CEO, in which plaintiffs alleged that defendants misled investors by denying that Finisar’s revenue growth was the result of inventory build-up by customers.  In re Finisar Corporation Securities Litigation, No. 5:11-cv-01252-EJD (N.D. Cal. Dec. 5, 2017).  In denying plaintiffs’ motion for class certification, the Court ruled that defendants successfully rebutted the fraud-on-the-market presumption of reliance by demonstrating that defendants’ statements had no statistically significant impact on Finisar’s stock price.

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On December 6, 2017, the United States District Court for the Northern District of Illinois dismissed a securities fraud lawsuit brought against DeVry Education Group, Inc. and several of its executives (“DeVry”), with leave to amend, because plaintiffs failed to sufficiently plead that DeVry executives knowingly misrepresented the employment rates and placement statistics of DeVry University (“DVU”) graduates in violation of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5.  Pension Trust Fund for Operating Engineers v. DeVry Education Group, Inc., No. 16 Civ. 5198 (N.D. Ill. Dec. 6, 2017).  The Court held that the Private Securities Litigation Reform Act of 1995 (“PSLRA”) requires plaintiffs to set forth “particularized factual allegations” that do more than show the “plausibility or reasonableness” of scienter allegations and that the complaint, which relied heavily on earlier lawsuits by regulators, failed to meet this standard.  The decision serves as a reminder that securities lawsuits often fail when they attempt to piggy-back on lawsuits filed by government regulators or other stakeholders.

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On November 28, 2017, the U.S. Supreme Court heard argument in Cyan, Inc. v. Beaver County Employees Retirement Fund, No. 15-1439, a case addressing whether state courts have jurisdiction over class actions asserting exclusively claims under the Securities Act of 1933 (“Securities Act”).  A high-level summary of the argument is below.

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On November 21, 2017, the United States Court of Appeals for the Ninth Circuit affirmed a dismissal by Judge Jon S. Tigar of the United States District Court for the Northern District of California of a putative class action against Yelp, Inc. (“Yelp”) and three of its senior executives.  Curry, et al. v. Yelp, Inc., et al., Case No. 16-15104 (9th Cir. Nov. 21, 2017).  Plaintiffs brought claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (“Exchange Act”), alleging that Yelp made material misstatements regarding the authenticity and independence of the reviews posted by users on its website, and that those misstatements, when brought to light in media reports, caused Yelp’s stock value to drop.  The district court dismissed with prejudice plaintiffs’ amended complaint, finding that plaintiffs failed to sufficiently allege material false statements, loss causation, and scienter.  The Ninth Circuit affirmed the district court’s decision, concluding that plaintiffs failed to adequately allege loss causation and scienter and holding that the amended complaint fell short of the “demanding standards set for claims of federal securities law violations.”

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On November 15, 2017, the United States Court of Appeals for the Fourth Circuit affirmed the dismissal of a putative securities fraud class action against PowerSecure International, Inc. (the “Company” or “PowerSecure”), and Sidney Hinton, its president and CEO.  Maguire Fin. LP v. PowerSecure Int’l Inc., No. 16-2163 (4th Cir. Nov. 15, 2017).  Plaintiffs alleged that defendants defrauded investors by knowingly making misrepresentations about the renewal of a major contract in violation of Section 10(b) of the Securities Exchange Act of 1934.  The district court dismissed the complaint after finding that plaintiffs failed to adequately allege scienter.  The Fourth Circuit affirmed, stating that “[a] plaintiff may not stack inference upon inference” to satisfy the PSLRA’s heightened pleading requirements for scienter. 

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On November 6, 2017, the United States Court of Appeals for the Second Circuit affirmed a class certification order in a case concerning claims under the Securities Exchange Act of 1934 (the “Exchange Act”) relating to the operation of alternative trading systems (so-called “dark pools”).  Waggoner v. Barclays PLC, No. 16-1912-cv, -- 3d. -- (2d Cir. Nov. 6, 2017).  Plaintiffs—three individuals who purchased American Depository Shares in Barclays PLC—asserted claims against Barclays PLC, its U.S. subsidiary Barclays Capital Inc., and three senior officers of the companies, based on allegedly misleading statements indicating that Barclays monitored its alternative trading system (known as Liquidity Cross or “LX”) to protect clients from high-frequency traders.  In affirming class certification based on the presumption of reliance in Basic Inc. v. Levinson, 485 U.S. 224 (1988), the Second Circuit held that direct evidence of price impact is not always required in order to demonstrate market efficiency.

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On November 8, 2017, the Supreme Court of the United States, in a unanimous decision, held that not all deadlines for filing appeals are jurisdictional; instead, if a time limit on filing an appeal appears only in a court-made rule, and not in a statute, the limitation is a “claim-processing rule,” not a jurisdictional bar, and therefore can be waived or forfeited.  Hamer v. Neighborhood Hous. Servs. of Chicago, 583 U.S. —, 2017 WL 5160782 (2017).  On this basis, the Court vacated the Seventh Circuit’s dismissal of petitioner’s appeal for lack of jurisdiction, remanding for further proceedings.

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On October 20, 2017, Judge Michael M. Anello of the United States District Court for the Southern District of California denied in part and granted in part a motion to dismiss brought by Qualcomm, Inc. (the “Company”), its CEO, and four directors, in response to a shareholder lawsuit.  3226701 Canada, Inc. v. Qualcomm, Inc., Case No. 15-cv-2678-MMA (WVG) (S.D. Cal. Oct. 20, 2017).  Plaintiff alleged violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (“Exchange Act”), as well as violations of SEC Rule 10b-5, in connection with statements made by the Company and its directors regarding one of its microprocessors used in smartphones and other mobile devices.  The Court held that plaintiff had adequately pleaded falsity and scienter in connection with some of the alleged statements, but that other statements were not actionable.  The Court allowed the claims against the CEO and the Company to proceed, but dismissed the claims against the four directors.

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On October 18, 2017, Judge Ricardo S. Martinez of the United States District Court for the Western District of Washington dismissed with leave to amend a consolidated amended complaint asserting violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 against Seattle Genetics, Inc. (the “Company”) and certain of its current and former executives (the “Individual Defendants”).  Patel v. Seattle Genetics Inc., No. C17-41RSM (W.D. Wash. Oct. 18, 2017).  Based largely on information obtained from a confidential witness, the complaint alleged that defendants misled investors by claiming that the Company’s cancer treatment drug did not cause a toxic side effect on a patient’s liver, while failing to disclose that certain patients in a clinical trial had already experienced liver toxicity (hepatotoxicity).  Although the Court found that plaintiff adequately alleged a material omission, it dismissed the complaint for failure to plead scienter because, in the Court’s opinion, the Individual Defendants’ general knowledge of the Company’s day-to-day business was insufficient to impute to them knowledge about potential problems with hepatotoxicity in a clinical trial. 

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On October 19, 2017, the United States Court of Appeals for the Second Circuit, in a summary order, affirmed dismissal of an action seeking disgorgement of alleged short-swing profits realized by Defendants Eminence Partners II, L.P. and related entities in connection with their sale of common stock in The Men’s Wearhouse, Inc. (“Men’s Wearhouse”) under Section 16(b) of the Securities Exchange Act of 1934 (the “Exchange Act”), 15 U.S.C. § 78p(b).  Morrison v. Eminence Partners II, LP, No. 17-843 (2d Cir. Oct. 19, 2017).  The Second Circuit held that plaintiff lacked standing under Section 16(b) because his shares of Men’s Wearhouse stock were exchanged for shares in its parent company, Tailored Brands, Inc. (“Tailored Brands”), in a corporate reorganization that was completed before the lawsuit was filed.

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​On Monday, October 16, 2017, Judge Jon S. Tigar of the United States District Court for the Northern District of California granted in part and denied in part a motion to dismiss a shareholder class action alleging violations of the Securities Exchange Act of 1934 by Twitter Inc. (“Twitter”) and certain of its executives.  Shenwick v. Twitter, Inc., No. 16-CV-05314-JST, 2017 WL 4642001 (N.D. Cal. Oct. 16, 2017).  Plaintiffs alleged that Twitter and its executives made false and/or misleading statements regarding Twitter’s user metrics that painted a misleading picture of Twitter’s financial health and growth.  The Court permitted many of plaintiffs’ claims to proceed, even while dismissing certain allegations as non-actionable “puffery,” and discounting allegations in the complaint attributed to confidential witnesses.

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Resolution of whether Item 303 of Securities and Exchange Commission Regulation S-K creates an affirmative duty to disclose and a private right of enforcement under the Securities Exchange Act of 1934 will have to wait.  On October 17, 2017, the Supreme Court of the United States removed argument in Leidos, Inc. v. Indiana Public Retirement System, et al., 583 U.S. __, 16-581 (Oct. 17, 2017), from its calendar and held further proceedings in abeyance.  Leidos is an appeal in a putative shareholder class action alleging violations of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder against government contractor Leidos, Inc. (“Leidos”).  See U.S. Supreme Court To Consider Registrant’s Liability For Non-Disclosure Under Item 303 Of Regulation S-K, Shearman & Sterling LLP Need to Know Litig. Newsletter (Apr. 4, 2017), http://www.lit-sl.shearman.com/us-supreme-court-to-consider-registrantrsquos-lia.  The Court granted certiorari on March 27, 2017, merits briefing was completed on October 2, 2017, and the Court had set oral argument for November 6, 2017.  In their October 6, 2017, joint motion noting an agreement in principle to settle, the parties stated that they were preparing settlement documentation and will ask the Court to reschedule argument for October Term 2018 if a final settlement is not approved by May 31, 2018.

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On October 4, 2017, United States District Judge Stephen V. Wilson of the United States District Court for the Central District of California dismissed without prejudice a putative class action against Facebook, Inc., and three of its senior executives.  Anshen v. Facebook, No. 2:17-cv-00679-SVW-AGR (C.D. Cal., Oct. 4, 2017).  Plaintiffs alleged that defendants violated Section 10(b) of the Securities Exchange Act of 1934 (the “Exchange Act”), Rule 10b-5 promulgated thereunder, and Section 20(a) of the Exchange Act by fraudulently inflating Facebook’s “average duration of video view” advertisement efficacy metric, leading to a decrease in expected revenue and a drop in the company’s share price when the inaccuracy of the metric was later disclosed.  The company maintained that it inadvertently had overstated this key metric by 60—80% for two years because only advertisements that were viewed for more than three seconds were included in the calculation.  The Court rejected plaintiffs’ claims, finding that plaintiffs had failed to adequately plead scienter or causation.

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​The U.S. Supreme Court has scheduled oral argument on November 28, 2017 in Cyan, Inc. v. Beaver County Employees Retirement Fund, No. 15-1439, a case that is expected to resolve the issue of whether state courts continue to have jurisdiction over class actions asserting only claims under the federal Securities Act of 1933 (“Securities Act”).  The case began in June 2014, when certain purported purchasers of Cyan’s common stock brought a securities class action in California state court against Cyan, certain officers and directors of Cyan, and the underwriters of its IPO, asserting claims for violations of Sections 11, 12(a)(2) and 15 of the Securities Act.  Defendants moved to dismiss the complaint for lack of subject matter jurisdiction, arguing that the Securities Litigation Uniform Standards Act of 1998 (“SLUSA”) deprived the California state court of jurisdiction over a putative class action asserting only claims under the Securities Act.  Relying on an earlier decision by the California intermediate appellate court in Luther v. Countrywide Financial Corporation, the trial court rejected defendants’ arguments.  After the California Court of Appeals denied defendants’ appeal without opinion and the California Supreme Court denied discretionary review, in May 2016, defendants filed a petition for writ of certiorari to the U.S. Supreme Court.  In granting certiorari, the U.S. Supreme Court seeks to resolve a split among lower courts as to whether SLUSA divests state courts of jurisdiction over class action cases that allege only claims under the Securities Act, as well as whether SLUSA created a right to remove such cases to federal court, even if concurrent state and federal jurisdiction survived SLUSA.

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