Opinion

Alison Frankel

SCOTUS Libor case, by itself, won’t revive antitrust claims

Alison Frankel
Jul 1, 2014 19:14 UTC

Don’t get too excited about the news Monday that the U.S. Supreme Court has agreed to hear the appeal of bond investors whose antitrust claims against the global banks involved in the Libor-setting process were tossed last year.

Untold billions of dollars are at stake in the Libor litigation, in which investors in all sorts of securities pegged to the London Interbank Offered Rate claim that the banks conspired to manipulate the interest rate benchmark. There are now about 60 cases consolidated in the Libor multidistrict litigation before U.S. District Judge Naomi Reice Buchwald in Manhattan, asserting a potpourri of state and federal securities, racketeering and fraud claims as well as violations of federal antitrust laws. Last year, Judge Buchwald gave the bank defendants an almost priceless gift when she concluded that U.S. antitrust laws don’t cover the sort of rate-rigging alleged in the Libor scandal because the banks’ conduct wasn’t anticompetitive. Buchwald has permitted other pieces of the litigation to move forward, most recently refusing to dismiss classwide unjust enrichment claims in an 80-page decision last week, but has refused to re-instate the big-money antitrust allegations, which offer the prospect of treble damages.

The 2nd U.S. Circuit Court of Appeals has been no help to Libor antitrust claimants either. Although Judge Buchwald entered judgment so class action lawyers could appeal her antitrust holding, the 2nd Circuit refused to take the case, holding in an unpublished order in October 2013 that it did not have jurisdiction over the appeal because Buchwald had not yet disposed of all claims in the consolidated Libor litigation.

That was another invaluable ruling for the bank defendants. Under the 2nd Circuit’s reasoning, no plaintiff could hope to revive Libor antitrust claims until Buchwald reached a final resolution of every other claim in the consolidated cases. That could take years of expensive litigation that would put plaintiffs under pressure to settle on the cheap. Moreover, with Buchwald’s antitrust ruling intact for the duration of the consolidated cases, other trial judges presiding over similar suits could adopt her controversial reasoning — as U.S. District Judge George Daniels did in March, when he dismissed an antitrust class action alleging banks colluded to manipulate two other benchmark rates.

So it’s certainly good news for Libor claimants that the U.S. Supreme Court granted a petition for certiorari by bond investors whose case Buchwald dismissed in its entirety when she bounced the Libor antitrust claims. “We are both optimistic and pleased,” said Barry Barnett of Susman Godfrey, who represents a class of investors in over-the-counter securities in the Libor litigation and filed an amicus brief urging the justices to grant the bond investors’ appeal. The cert grant, Barnett said, means that as the Libor class moves ahead with discovery on the claims that have survived Buchwald’s dismissal rulings, they have some hope that the federal antitrust claims will be revived.

On one-year Windsor anniversary, 9th Circuit delivers best gay rights gift

Alison Frankel
Jun 25, 2014 19:12 UTC

Sometimes, the best way to understand the broad implications of a court’s decision isn’t to read the ruling itself but rather the dissent. That was certainly true a year ago, when Justice Antonin Scalia attacked the U.S. Supreme Court’s decision in Windsor v. U.S., which struck down federal prohibitions on same-sex marriage as an unconstitutional intrusion on the equal rights of gays and lesbians. The majority’s ruling was carefully constrained, but a furious Scalia predicted that the stirring language of Justice Anthony Kennedy’s opinion would reverberate more loudly in the lower courts than the actual holding. As we now know from decisions all over the country striking down restrictions on same-sex marriage, Scalia was right.

So if you want to know just how monumental a gay-rights ruling the 9th U.S. Circuit Court of Appeals issued Tuesday, just two days short of Windsor’s one-year anniversary, take a look at the dissent written by Judge Diarmuid O’Scannlain and joined by Judges Jay Bybee and Carlos Bea. O’Scannlain posits that his colleagues’ decision in the case, GlaxoSmithKline v. Abbott Laboratories, “precludes the survival under the federal Constitution of long-standing laws treating marriage as the conjugal union between a man and a woman.” But it’s even more drastic than that, according to the dissent: The appellate decision has changed the standard for evaluating all laws targeting gays and lesbians, the dissent said, “with far-reaching — and mischievous — consequences.”

If the 9th Circuit dissenters turn out to be as good at fortune-telling as Scalia, states in the Western swath of this country — California, Oregon, Washington, Montana, Idaho, Nevada, Arizona, Hawaii and Alaska — won’t be able to curtail equal rights based on sexual orientation, even if the states think they have a rational basis for doing so. That’s a much farther-reaching holding even than the 10th Circuit’s decision Wednesday that Utah’s ban on same-sex marriage is unconstitutional — and for gay rights proponents, it’s quite an anniversary present.

SCOTUS Halliburton ruling could backfire for securities defendants

Alison Frankel
Jun 23, 2014 21:29 UTC

Let’s state the obvious: Big Business did not get what it wanted Monday from the U.S. Supreme Court, which refused in Halliburton v. Erica P. John Fund to overturn Basic v. Levinson, the 25-year-old precedent that permits shareholders to bring classwide claims of securities fraud.

The justices didn’t even adopt the alternate approach — suggested by some Halliburton supporters in friend-of-the-court briefs — of requiring plaintiffs who want to sue as a class to show that supposed corporate misstatements had an impact on share prices. Instead, the court ruled only that defendants may argue against class certification with evidence that share prices didn’t drop as a result of the alleged fraud.

Halliburton’s lawyer, Aaron Streett of Baker Botts, told me that’s still a “significant win,” especially considering that the justices might have upheld the 5th U.S. Circuit Court of Appeals and barred defendants from using such price-impact evidence to keep shareholders from banding together.

Can market competitors police false ads better than class actions?

Alison Frankel
Jun 13, 2014 21:32 UTC

Companies should not mislead consumers about their products. Some do anyway. Those companies should be held accountable for their deception, not only because they lied but also to deter other companies from lying.

No one can seriously dispute any of these points, but what is the most effective way to stop businesses from deceiving consumers? We have state and federal regulatory agencies, of course, but regulators would be the first people to tell you that they can’t police every advertisement, label and package put out by businesses selling products to American buyers. That’s why state consumer protection laws give customers the rights to bring their own cases — except that, as a practical matter, individual consumers don’t really drive litigation against corporations that supposedly deceived them. Class action lawyers do, because they can represent buyers whose individual claims wouldn’t otherwise be worth pursuing.

Consumer class actions over deceptively advertised low-cost items are a remarkably inefficient vehicle for assuring the integrity of the consumer marketplace. Here, again, there’s really no legitimate argument to the contrary. I don’t mean to impugn the intentions of class action lawyers. Most (though not all) of them are prosecuting legitimate cases on behalf of consumers they truly believe to have been deceived by false corporate advertising. They force defendants to change misleading labels, ads or packaging and to agree not to use the deceptive material again. They also sometimes deliver money unclaimed by class members to charities, usually ones involved in righting the alleged wrongs in the case.

Judge says Cleary Argentina memo is privileged, he won’t ‘make use of it’

Alison Frankel
Jun 10, 2014 21:11 UTC

The hedge fund NML Capital is going to have to execute some fancy footwork to maintain its argument that Argentina is plotting to evade a ruling by the 2nd U.S. Circuit Court of Appeals that prohibits the foreign sovereign from making payments to holders of its restructured debt before paying off hedge funds that refused to exchange defaulted bonds.

As I told you last week, NML presented U.S. District Judge Thomas Griesa with what it considered smoking-gun evidence: published accounts of a May 2 memo from Argentina’s lawyers recommending that the country’s “best option” if the U.S. Supreme Court refuses to hear Argentina’s appeal of the 2nd Circuit decision would be to default “and then immediately restructure all of the external bonds so that the payment mechanism and the other related elements are outside of the reach of American courts.”

But in a June 3 letter to lawyers for NML and for Argentina, Judge Griesa said that the memo, written by Cleary Gottlieb Steen & Hamilton for Argentina’s Minister of Economy and Public Finance, “is clearly privileged,” based on his assumption that Cleary didn’t intend the document to become public. (It was leaked in the Argentine press, then was reported by the Financial Times’s FT Alphaville blog, which links to an English translation of the entire five-page memo, entitled “Possible Outcomes of the Petition for Certiorari and Issues Regarding the Settlement of the Debt.”) The judge said he would “not make use of” the privileged document.

SCOTUS repose opinion is good news for securities defendants

Alison Frankel
Jun 9, 2014 21:37 UTC

As of April, the Federal Housing Finance Agency has recovered about $15 billion from 15 big banks that supposedly misrepresented the quality of the mortgage-backed securities they peddled to Fannie Mae and Freddie Mac. FHFA is expecting more to come: The conservator still has cases under way against Goldman Sachs, HSBC, Nomura and Royal Bank of Scotland. The National Credit Union Administration, meanwhile, has netted more than $330 million in settlements with banks that duped since-failed credit unions into buying deficient MBS. NCUA is also still litigating against several other defendants, some of which it sued only last September. When you add in MBS suits by the Federal Deposit Insurance Corporation on behalf of failed banks, there are about four dozen ongoing cases, involving some $200 billion in rotten mortgage-backed securities, brought by congressionally created stewards.

Just about all of those cases are alive only because of so-called “extender statutes” in which Congress lengthened the time frame for the agencies to bring claims under the Securities Act of 1933. (The Financial Institutions Reform, Recovery, and Enforcement Act of 1989 addressed claims by NCUA and FDIC; the Housing and Economic Recovery Act of 2008, which created FHFA, gave it extra time for Fannie and Freddie claims.) As you know if you’re a faithful reader, bank defendants have tried to argue that the nearly identical extender provisions in FIRREA and HERA only addressed the Securities Act’s one-year statute of limitations, not the law’s three-year statute of repose. Unfortunately for them, both the 2nd U.S. Circuit Court of Appeals, in an FHFA case against UBS, and the 10th Circuit, in an NCUA case against Nomura, concluded that when Congress enacted the FIRREA and HERA extender provisions, it intended to lift both time bars, the statutes of limitations and repose.

On Monday, in a case called CTS Corporation v. Waldburger, the U.S. Supreme Court gave the banks that have stuck it out in litigation against FHFA, NCUA and FDIC a glimmer of hope. The Waldburger case presented the question of whether an extender statute in the federal Comprehensive Environmental Response, Compensation and Liability Act of 1980 pre-empts the statute of repose under North Carolina tort law. Seven justices, in an opinion by Justice Anthony Kennedy, ruled that it does not. More broadly, though, the court drew a clear line between the statutes of limitation and repose — which is what bank defendants in MBS litigation have long argued for. It’s going to be very interesting to see now what the justices do about Nomura’s pending petition for certiorari in the NCUA case in which 10th Circuit rejected its statute of repose defense. The petition was first scheduled to be considered back in March but the justices haven’t yet issued an order, presumably because they’ve been waiting to rule in Waldburger.

U.S. stays out of Argentina pari passu case at SCOTUS – for now

Alison Frankel
Mar 26, 2014 19:18 UTC

France, Brazil and Mexico told the U.S. Supreme Court this week that the 2nd Circuit Court of Appeals has endangered sovereign debt markets with its ruling last year against the Republic of Argentina. In amicus briefs supporting Argentina’s petition for Supreme Court review, the foreign sovereigns argue that the 2nd Circuit gravely misinterpreted the so-called “pari passu” (or equal footing) clause of Argentina’s sovereign debt contracts. By ruling that Argentina may not pay bondholders who exchanged defaulted bonds for restructured debt before it pays hedge fund creditors that refused to exchange their defaulted bonds, the amicus briefs argue, the 2nd Circuit has undermined international debt restructurings, permitting vulture investors to hold entire foreign economies hostage.

The United States made quite similar arguments, as you may recall, when Argentina’s pari passu case was before the 2nd Circuit. But there’s no filing from the Justice Department among the 10 new amicus briefs urging the Supreme Court to take Argentina’s appeal. Does that mean Argentina has lost its most influential friend in the U.S. court system?

It does not, but it does mean that the administration is waiting for an invitation from the Supreme Court justices before it takes a position in the Argentina pari passu case. And there’s at least some chance the invitation will never come.

At Halliburton argument, justices show little appetite for killing Basic

Alison Frankel
Mar 5, 2014 20:25 UTC

After oral arguments Wednesday morning at the U.S. Supreme Court in Halliburton v. Erica P. John Fund, I ran into a few securities class action plaintiffs lawyers in the court’s lobby, at the statue of Chief Justice John Marshall. They were looking jaunty indeed. The consensus in their little group was that the justices showed little inclination to toss out the 1988 precedent that has been the foundation of the megabillion-dollar securities class action industry. They regarded Wednesday’s argument as a hopeful portent that classwide securities fraud litigation is likely to survive the Supreme Court’s re-examination of Basic v. Levinson.

I have to agree. From the questions posed to Halliburton counsel Aaron Streett of Baker Botts and EPJ Fund lawyer David Boies of Boies, Schiller & Flexner, the Supreme Court seems to be searching for a way to require investors to demonstrate the price impact of alleged corporate misrepresentations in order to win class certification. That would be a new and different burden for the securities class action bar, which, under Basic’s fraud-on-the-market theory, simply had to show that shares traded in an efficient market in order to invoke the presumption that investors relied on corporate misstatements. To establish price impact, plaintiffs would have to hire experts to conduct event studies analyzing the market effect of particular misrepresentations. But such event studies are already common in securities class action litigation, as both sides acknowledged to the justices. So a new price impact requirement would leave the securities class action industry more or less intact. “We can live with that,” one plaintiffs lawyer told me.

If oral argument is a reliable predictor of the Supreme Court’s ultimate direction – a dicey proposition, of course – all of the lawyers and economic experts who worried they’d be scrabbling for work if the court overruled Basic can relax a bit. In fact, if the justices figure out some way to make price impact part of the class certification process, economics consultants could actually emerge from the Supreme Court’s scrutiny of Basic with more securities fraud business than ever.

As Basic hangs in the balance, next SCOTUS securities case looms

Alison Frankel
Mar 4, 2014 19:28 UTC

On Wednesday, the U.S. Supreme Court will hear oral arguments in Halliburton v. Erica P. John Fund, the most momentous securities case of the last quarter century. When this term ends in June, we’ll know whether the fraud-on-the-market theory that the Supreme Court codified in the 1988 case Basic v. Levinson will remain intact as the foundation of the securities class action industry or whether shareholders will lose the leverage of classwide damages claims for supposed fraud under the Exchange Act of 1934. I’ve been saying it for months: Untold billions of dollars hang on the justices’ determination in the Halliburton case.

The stakes are admittedly not quite as high in Omnicare v. Laborers District Council Construction Industry Pension, which the justices have just agreed to hear next term. Omnicare presents the question of whether plaintiffs asserting claims under Section 11 of the Securities Act of 1933 must only show that defendants made objectively false statements in offering documents – as the 6th Circuit Court of Appeals held in the Omnicare case – or must also show that defendants didn’t believe the supposedly false statements at the time they were made, as at least two other federal circuits have concluded. Section 11 class actions, as you know, aren’t historically as prevalent as Exchange Act fraud class actions. But if the Supreme Court overturns Basic v. Levinson, Securities Act claims will be one of the few remaining avenues for shareholders who want to sue through class actions. The justices’ reasoning on the standard of proof will go a long way toward determining how big a threat these cases present to issuers – and to their underwriters, auditors and lawyers.

To set that standard, the Supreme Court will have to resolve apparent tension between two of its own precedents. In the court’s 1991 ruling in Virginia Bancshares v. Sandberg, the majority considered “the actionability per se of statements of reasons, opinions or belief” under Section 14 of the Exchange Act. Because that sort of statement “purports to express what is consciously on the speaker’s mind,” the Supreme Court said, it made sense to limit any discussion of liability to misstatements that did not reflect the speakers’ true beliefs and opinions. According to Omnicare’s petition for certiorari, the 2nd, 3rd and 9th Circuits have all relied on that holding in Virginia Bancshares to conclude that even under Section 11 of the Securities Act – which calls for a more expansive view of liability than the Exchange Act provision at issue in the Virginia Bancshares case – defendants can only be sued for statements that depart from their actual opinions.

Big guns roll out to defend securities class actions as SCOTUS amici

Alison Frankel
Feb 6, 2014 19:40 UTC

Conventional wisdom has it that the future of most securities fraud class actions will come down to U.S. Supreme Court Chief Justice John Roberts (and possibly Justice Samuel Alito, who, as a judge on the 3rd Circuit Court of Appeals, wrote quite interesting decisions about fraud-on-the-market reliance). Last term, in dissents in Amgen v. Connecticut Retirement Plans, Justices Antonin Scalia, Clarence Thomas and Anthony Kennedy made clear their skepticism about the court’s 1988 precedent in Basic v. Levinson, the case that made securities fraud class actions possible via its holding that shareholders may be presumed to have relied on corporate misstatements about a stock that trades in an efficient market. Based on the Amgen majority opinion, Justices Ruth Bader Ginsburg, Stephen Breyer, Elena Kagan and Sonia Sotomayor seem disinclined to overturn Basic when the court once again takes up the issue of classwide shareholder reliance on March 5 in Halliburton v. Erica P. John Fund.

Presumably with Chief Justice Roberts in mind, the Erica P. John Fund and its lawyers at Boies, Schiller & Flexner made deference to Supreme Court precedent a major theme of the merits brief they filed last week. As I told you, Boies Schiller cast Basic as a decision rooted in the 80-year-old history of this country’s securities laws, entwined with government regulation of the securities markets and implicitly endorsed by Congress, which has had multiple opportunities over the last 25 years to roll back the presumption of reliance and has repeatedly declined to do so.

As of late Wednesday, it’s not only Boies Schiller saying so to the Supreme Court. Erica P. John – and, by extension, the securities class action industry – has received powerful support in amicus briefs from (among many others) the Justice Department; two former chairmen of the Securities and Exchange Commission (one Republican, one Democrat); 11 current and former members of Congress; and scholars of the doctrine of stare decisis, whose filing was authored by Harvard Law professor Charles Fried – the onetime U.S. solicitor general who wrote the Justice Department brief supporting investors in the original Basic case at the Supreme Court.

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