Double Down

When it comes to securities litigation, all of today's action was in the U.S. Supreme Court.

First, the Court granted cert in the National Australia Bank case (over the objections of the DOJ and SEC) and will review the extraterritorial application of the U.S. securities laws. Bloomberg and Securities Docket have coverage of the decision. Interestingly, Justice Sotomayor recused herself from considering the cert petition.

Second, the Court heard arguments in the Merck case on when the running of the statute of limitations is triggered in securities fraud cases. According to press reports (which the oral argument transcript would appear to confirm), the justices seemed disinclined to overturn the Third Circuit's ruling and find that the plaintiffs' claims are barred by the statute of limitations. Exactly what the Court will hold is sufficient to begin the two-year "discovery" period, however, remains to be seen. The briefs filed in the case can be found here.

Applying The PSLRA

A mere fourteen years after the passage of the Private Securities Litigation Reform Act, litigation over the meaning of the various procedural provisions continues. Two recent cases highlight disputes over the role of the court in the selection of lead counsel and the scope of the exceptions to the mandatory discovery stay.

(1) Selection of Lead Counsel - In Cohen v. U.S. District Court for the N.D. of Cal., 2009 WL 3681701 (9th Cir. Nov. 5, 2009), the court addressed a writ of mandamus filed by the lead plaintiff in a securities class action. At issue was whether the district court had acted within its authority when it rejected the lead plaintiff's proposed lead counsel and substituted lead counsel of the court's own choosing.

The Ninth Circuit found that "[i]t would be difficult for the [PSLRA] to be more clear that it is lead plaintiff who selects lead counsel, not the district court." While the district court had the "limited power to accept or reject the lead plaintiff's selection," it could go no further.

Holding: Remanded to district court to accept or reject lead plaintiff's selection for lead counsel according to applicable standard. (Go to Securities Litigation Watch for more on the decision.)

(2) Mandatory Discovery Stay - The PSLRA provides that "all discovery and other proceedings shall be stayed during the pendency of any motion to dismiss, unless the court finds upon the motion of any party that particularized discovery is necessary to preserve evidence or to prevent undue prejudice to that party." Whether a plaintiff suffers undue prejudice if not provided with documents that have already been produced to a government agency or in other litigations has been a contentious issue.

In In re Bank of America Corp. Securities, Derivative, and ERISA Lit., No. 09 MDL 2058 (S.D.N.Y. Nov. 16, 2009), the court considered whether to lift the discovery stay in a case related to the merger of Bank of America and Merrill Lynch. The merger is also the subject of a Delaware derivative action, an SEC action, and numerous governmental investigations. The court found that the plaintiffs had sufficiently demonstrated undue prejudice because "[d]iscovery is moving apace in parallel litigation" and without access to the documents produced in those proceedings the plaintiffs would "be less able to make informed decisions about litigation strategy."

Holding: Motion granted to lift the discovery stay as to the documents already produced in related matters. (See The American Lawyer for a comprehensive write-up of the decision, including links to all of the court filings.)

Marsh & McLennan Settles

Marsh & McLennan Companies, Inc. (NYSE: MMC), a global professional services firm, has announced the preliminary settlement of the securities class action pending against the company in the S.D.N.Y. The case was originally filed in 2004 and is based on alleged false financial statements related to an insurance brokerage industry practice of charging and collecting “contingent commissions."

The settlement is for $400 million, with $205 million to be covered by insurance. According to a press release issued by one of the lead plaintiffs, the average recovery will be $.77 a share. Bloomberg has an article on the settlement and Reuters follows-up with a profile of the Ohio Attorney General and his involvement in the case.

The 10b-5 Daily has previously posted about the Marsh case in relation to the court's decisions on collective scienter and confidential witnesses.

Around The Web

A couple of interesting items from around the web.

Pay To Play - In the context of securities litigation, "pay to play" is when lawyers compete to be selected as class counsel for public entities serving as lead plaintiffs in securities class actions by making political contributions to politicians that exercise control over the entities (typically public pension funds). It is a perennial subject of proposed reform, although it has proven difficult to regulate.

The Wall Street Journal had an editorial (subscrip. req'd) on "pay to play" this past weekend. The paper noted that the practice appears to be widespread and state attorneys general, who receive donations from the same plaintiffs law firms, may be reluctant to investigate. Senator Bob Bennett, however, is one politician who is interested in the topic. According to the New York Daily News, Bennett says that Congress may need to launch an investigation. On the other hand, not everyone is convinced that there is a lot of merit to the allegations of "pay to play." Securities Litigation Watch has two recent posts discussing the empirical counterarguments (here and here)

Extraterritorial Application - One of the government's stated reasons for urging the U.S. Supreme Court not to hear the National Australia Bank case was that Congress may soon address the issue of the extraterritorial application of the securities laws. The legislation that the government was referring to - the Investor Protection Act of 2009 - has been voted out of committee. The full House may take up the bill in December. The provisions on extraterritorial application (Section 215) grant jurisdiction in U.S. courts when (a) there is "conduct within the United States that constitutes significant steps in furtherance of the violation" or (b) there is "conduct occurring outside the United States that has a foreseeable substantial effect within the United States." Thanks to John Letteri for the tip.