What's Next?

After the U.S. Supreme Court gets done with the statute of limitations, will it turn to the issue of foreign-cubed cases? Bloomberg reports that the Court has asked the Solicitor General to present its views on the National Australia Bank cert petition. At issue in the case is whether a U.S. court should exercise jurisdiction over an action brought against a foreign issuer on behalf of a class of foreign investors who purchased their securities on a foreign exchange (otherwise known as a "foreign-cubed" case).

The 10b-5 Daily's discussion of the lower court decision can be found here. Thanks to John Letteri for the link to the Bloomberg article.

Around The Web

A few interesting items:

(1) What is Judge Sonia Sotomayor's record in securities class actions? Two notable Second Circuit decisions in which she has participated are Dabit (later unanimously overturned by the Supreme Court) and In re IPO Securities Litigation.

(2) Am Law Litigation Daily reports that the Amsterdam Court of Appeals has approved the proposed Royal Dutch Shell settlement with non-U.S. investors.

(3) The American Lawyer has an article on the lead plaintiff/lead counsel decision in a securities class action brought against Merrill Lynch. The court was highly critical of the "portfolio monitoring" services provided by the lead counsel candidates.

Supreme Court To Address Circuit Split On Statute Of Limitations

The U.S. Supreme Court is going to address when the running of the statute of limitations is triggered in securities fraud cases, but not in the case many observers expected.

Last year, the Court asked the Solicitor General to weigh in on the cert petition filed in the Trainer Wortham (9th Cir.) case. When the Solicitor General finally did so this spring, however, it suggested that the Merck (3rd Cir.) case would be a clearer test of the statute of limitations issue. The Court apparently agreed and granted cert in the case yesterday.

The official question presented in Merck is:

Did the Third Circuit err in holding, in accord with the Ninth Circuit but in contrast to nine other Courts of Appeals, that under the "inquiry notice" standard applicable to federal securities fraud claims, the statute of limitations does not begin to run until an investor receives evidence of scienter without the benefit of any investigation?

The Court will hear the case in the term starting October 5, 2009. A summary of the Third Circuit's decision can be found here.

No Guarantee Of Future Results

When a district court within the Fourth Circuit dismisses a securities class action, it usually stays dismissed. But past performance is no guarantee of future results. In In re Mutual Funds Investment Litig. 2009 WL 1241574 (4th Cir. May 7, 2009), the U.S. Court of Appeals for the Fourth Circuit has reversed the dismissal of a market timing case brought against Janus Capital Group. Moreover, the decision contains some significant legal holdings.

(1) Pleading of Loss Causation - While the Fifth Circuit recently held that loss causation is only subject to notice pleading, the Fourth Circuit is standing tough. The court reaffirmed that, pursuant to Fed. R. Civ. P. 9(b), loss causation must be plead with particularity.

(2) Making of a Misrepresentation - To satisfy the fraud-on-the-market theory, the defendant must have made "a misrepresentation that is public and attributable to the defendant." There is an ongoing circuit split over how to evaluate whether a statement can be attributed to a particular defendant. Some courts (e.g., the Second and Eleventh Circuits) have adopted a "bright line" rule requiring that the misstatement must be attributable on its face to the defendant. Other courts (e.g., the Ninth Circuit) have concluded that substantial participation in the making of the misstatement is sufficient.

The Fourth Circuit declined to fully adopt either approach, instead offering this compromise: it is sufficient for a plaintiff to "alleg[e] facts from which a court could plausibly infer that interested investors would have known that the defendant was responsible for the statement at the time is was made, even if the statement on its face is not directly attributable to the defendant." Applying its new standard to the instant case, the court found that Janus Funds investors would have attributed to Janus Capital Management, the investment advisor to the funds, "a role in the preparation or approval of the allegedly misleading prospectuses. " Janus Funds investors would have been unlikely to come to the same conclusion about Janus Capital Group, however, which was the parent company of the investment advisor.

(3) Scheme Liability - The court found that it did not have to separately evaluate the possible existence of scheme liability. Under Stoneridge, "the existence of a fraudulent scheme does not permit a plaintiff to avoid proving any of the traditional elements of primary liability, such a scienter and reliance." Since the court had already evaluated these elements in connection with the misrepresentation claims, it did not have to go any further.

Holding: Reversed and remanded.

Class Members As Clients

Texas billionaire Sam Wyly has suffered another setback in his long-running battle to obtain documents related to the Computer Associates securities class action. (The 10b-5 Daily has posted about the litigation over the years - see here, here, and here.) In a decision issued last week, the New York Court of Appeals found that Wyly, as an "absent" class member in the Computer Associates case, does not enjoy a presumptive right of access to the files held by plaintiffs' counsel upon the termination of representation. Moreover, in his federal court challenge of the Computer Associates settlement, Wyly had failed to demonstrate a "legitimate need" for these files and it was appropriate for the state court to defer to the federal court's determination on this issue.

The New York Law Journal has an article on the decision. In the article, Wyly's counsel notes that his client's federal court challenge of the Computer Associates settlement is currently on appeal and Wyly "will pursue the relevant documents there." Stay tuned.

Household Roundup

The big news from late last week was the jury verdict for the plaintiffs in the Household International securities class action. Originally filed in 2002, the complaint alleged that Household engaged in a "massive predatory lending scheme" that led to a $600 million financial restatement. The jury found that the defendants acted at least recklessly as to 16 different statements made to the market, causing Household's stock price to be artificially inflated. The trial will now move on to the damages phase.

As just the seventh securities class action based on conduct that took place after Dec. 1995 (i.e., after the passage of the PSLRA) to go to a trial verdict, the Household case is getting a lot of attention. Here are some links:

Press: Chicago Tribune (May 8, 2009); Chicago Daily Herald (May 8, 2009)

Blogs: The D&O Diary; AmLaw Litigation Daily; Securities Litigation Watch (including a helpful analysis of the jury verdict form).

Beazer Homes Settles

Beazer Homes USA, Inc. (NYSE: BZH), a Georgia-based homebuilder, has announced the preliminary settlement of the securities class action pending against the company in the N.D. Ga. The case, originally filed in March 2007, was one of the first subprime cases and stems from disclosures related to the company's loan origination practices.

The settlement is for $30.5 million and is being funded by the company's insurers. The D&O Diary has a comprehensive post on the settlement, including links to many of the key court documents.