Whose English?

Oops, if you read this post earlier today I had the WRONG picture and link to the Judge. So yes, I figured out how to add pictures to the Nugget (other than my famously notorious one, and yes it took me a year), but I linked and showed Judge Limbaugh’s son, who is actually on the Missouri Supreme Court. Hate to be at that Thanksgiving table — Jones, your motion to speak is denied and affirmed. My apologies to both Your Honors.

So, Judge Stephen N. Limbaugh, SENIOR (E.D. Mo.) (both Judge Limbaugh’s are Rush’s cousins though so I was right about that) gave me a pretty good chuckle with this footnote in his D&K Healthcare opinion, wryly commenting that “although the Court appreciates creativity in pleadings, it must draw the line at words such as “incentivize” that have failed to make it into any recognized English language dictionary.”

When the laughter subsided, and I unlodged the pretzel from my throat, I took a look (I ain’t no English scholar), and, um, it seems the folks over at The American Heritage Dictionary might beg to differ, and don’t even look at this result from no less than Merriam-Webster. Who knows who’s right, but I guess the only option at this point is to shake up that toner cartridge and get that Motion to Reconsider on file guys. Better yet, how about an emergency mandamus request this Saturday night? Just use these procedures, they won’t mind — and I promise it will generate an Order (although I make no guarantee what type).

But seriously though, you want the result of the opinion? Well, it looks like some parties were dismissed and some not, and it appears four orders were somehow issued within one opinion, but you don’t seriously expect me to sort all this out on a Friday before the long weekend do you?

Better think again because I have to go buy the best beer available and some highly explosive Florida style fireworks that absolutely no ordinary citizen like me should be allowed to possess. I hope you don’t live near me, as I plan to use them together.

You can read Dutton v. D&K Healthcare, issued June 23, 2006, at 2006 U.S. Dist. LEXIS 42553.

Nugget: “Defendant Plotnick’s alleged conduct was evidently not a well-kept secret given the pervasive witness accounts by the numerous unidentified persons in the Second Amended Complaint.”

Sanctions May Be in Plaintiffs’ Future

I’ve fought about a lot of things in my ten years as a class action litigator, but this one has to take the cake. I mean, you simply are not going to believe this. In the Transaction Systems Architects action, the “defendants filed a motion to compel for the following specific deficiencies in the plaintiffs’ responses to interrogatories:

1. The ‘verification’ offered by the plaintiffs is not made under oath because it is neither notarized nor declared under penalty of perjury.

2. The ‘verification’ offered by the plaintiffs impermissibly excludes those matter that Mr. Martini [who signed on behalf of the plaintiffs] ‘averred upon information and belief.’”

Well, I bet you know where this is going, but keep this in mind. You might think there’s not much for Nebraska Judges to do, but you’d be wrong. Dead wrong. In fact, the District only has three Magistrate Judges, and weighs in with the seventh heaviest per-judge criminal felony case load in the nation. Clue: might not want to bother these Magistrates, who spend the bulk of their time handling these felony cases, with shall we say, trivial civil matters.

So with that in mind, you can imagine the frustration level of Magistrate Judge Thomas D. Thalken (D. Neb.), while probably just finishing the unenviable task of dealing with twenty arraignment and sentencing hearings that morning, when he had to shift his attention to this hugely important issue. As he noted, “had the plaintiffs merely corrected the defect, the proceeding may have gone more smoothly without the necessity of additional motions and other documents filed by the parties.” But alas, they didn’t correct them, so Judge Thalken had to waste a perfectly good sheet of paper on these warriors.

He concluded that “the defendants need not show prejudice before compliance with the federal rules is required. In fact, even litigants proceeding without counsel must comply with these rules. Accordingly, the plaintiffs will not be exempt. The defendants’ motion to compel verification that the responses were signed under oath is granted.”

Oh, and since “the plaintiffs gave no explanation for their failure to comply with the rules,” “the court shall, after the plaintiffs have a chance to respond, grant the defendants’ reasonable expenses for filing the motion to compel on those issues, unless the plaintiffs show substantial and legal justification for the failure to comply with Rule 33 or just cause why sanctions should not be imposed.”

I couldn’t resist looking at Plaintiffs’ response to this, and sure enough, Plaintiffs admit (in a brief submitted on June 5, 2006 in response to the show cause order), that “the Court’s Order makes clear, in hindsight, that Plaintiffs would have been better served by not submitting this particular dispute to the Court for resolution.”

Yah’ think?

You can read Desert Orchid Partners v. Transaction Systems Architects, issued May 25, 2006, at 2006 U.S. Dist. LEXIS 34547.

Nugget: “The verification does not contain a notary mark or comply with 28 U.S.C. § 1746.”

Revenge of the Dura

Looks like Plaintiffs’ newly minted complaint in the Dura case is back in the District Court after winding it’s way up to the Supremes and back. In ruling on the motions to dismiss (surprise, surprise, loss causation is the main issue), Judge M. James Lorenz (S.D. Cal.) (Clinton ‘99) commented that, “there is some appeal to requiring a corrective disclosure to occur at the end of the class period,” but such “a rule requiring the corrective disclosure to immediately follow the end of the Class Period would ensure such purchasers’ interests are protected. Nevertheless, the Court finds the authority Defendants cite insufficient to impose such a requirement.”

That’s because “when presented with this case, the Supreme Court could have held that as a matter of law Plaintiffs cannot establish loss causation because the corrective disclosures regarding Albuterol Spiros were made several months after the Class Period ended. The Supreme Court did not so hold, and instead only required the Plaintiffs to properly allege a causal connection between the economic losses suffered and the Defendants’ misrepresentations.”

Result? Motion to dismiss granted in part and denied in part. Leave to amend granted.

You can read In re Dura, issued June 2, 2006, at 2006 U.S. Dist. LEXIS 41193.

Nugget: “The Supreme Court’s decision did not create a heightened pleading standard for loss causation: the Court noted its holding did not affect Rule 8(a)(2)’s applicability.”

Keeping Up With the Joneses

Want to really impress your Judge in a lead plaintiff contest? Well, how about having your proposed lead plaintiff actually show up at the hearing? That’s exactly what Plaintiffs’ counsel did in the Impac Mortgage Holdings action. You see, after Judge Cormac J. Carney (C.D. Cal.) (W. ‘03) declared that “groups of unrelated investors, while not per se impermissible lead plaintiffs under the PSLRA, are not adequate class representatives absent a showing that they are able to coordinate their efforts in the litigation” a Mr. Craig H. Jones (no relation I swear), stepped up to grab the spot, with Judge Carney noting that this “is supported by the fact that Mr. Jones himself appeared at the hearing on this motion with his counsel,” which “indicates that he is committed to involving himself in this litigation and supervising class counsel.”

You can read Schriver v. Impac, issued May 2, 2006, at 2006 U.S. Dist. LEXIS 40607.

Nugget: “The fact that the decision to combine the Impac and IMH groups was made by the groups’ counsel, with no apparent involvement by the group members, does not bode well for the members’ ability to supervise their attorneys.”

Rubber Stamp This

Hey there, Mr. CEO. Yeah, you. Think you can just sign those Sarbanes certifications and head off to the Racquet Club for a quick game of squash and a white wine Spritzer (or whatever it is you drink)? Well, you had better think again, especially if you work for (yep, I said it, work for) the shareholders of the American Italian Pasta Company.

That’s right, Judge Ortrie D. Smith (W.D. Mo) (Clinton ’95) has ruled that “by signing the Sarbones-Oxley certifications and the Annual Reports filed with the SEC, [the CEO] indicated he had reviewed and was familiar with the underlying facts giving rise to those documents — meaning he was either aware of the improper accounting, was reckless with regard to the public reports of AIPC’s finances, or had not conducted any review and did not act in accordance with the certifications.” Take your pick.

You can read IN RE AMERICAN ITALIAN PASTA COMPANY, issued June 19, 2006, at 2006 U.S. Dist. LEXIS 40548.

Nugget: “The Court is not intending to imply those who sign such certifications are strictly liable for misstatements. However, it is a factor that may, in appropriate circumstances, demonstrate the person certifying the pronouncement has merely ‘rubber stamped the numbers’ and thereby acted recklessly.”

Cray’s Day

Plaintiffs sure tried in the Cray action, but it looks like their first amended complaint just didn’t cut it. They lost on a bunch of points, but a couple of the more interesting ones was Judge Thomas S. Zilly (W.D. Wash.) findings that “a five-month period of stock sales does not create a strong inference of scienter where the allegedly false statements were made in a uniform and routine manner for over two years,” and “here, Plaintiffs do not adequately allege that the sales were timed to maximize the benefit from false SOX 302 certifications that were issued quarterly for at least nine quarters.”

Also, Plaintiffs reliance on a confidential witness who made the case-cracking revelation “that there was ‘talk’ that Cray was ‘fudging its books’” was apparently misplaced, with Judge Zilly calling that mere “gossip and innuendo.”

So the complaint was dismissed, but Judge Zilly did give a generous 120 days for them to try one more time.

You can read Limantour v. Cray, issued April 28, 2006, at 2006 U.S. Dist. LEXIS 27186.

Nugget: “The Court concludes that the Complaint adequately alleges that the 10-Q and SOX 302 certifications for third quarter 2002 through third quarter 2004 were false or misleading based on the disclosure in 2005 that there were material weaknesses in Cray’s internal controls and procedures.”

Welcome, and Where are the Female Law Bloggers?

Let’s all give a warm welcome to two new securities related blogs. The first is Lies, Damn Lies, & Forward Looking Statements, from Adam T. Savett, which actually has been around for about four months, and I must say is quite amazing for the depth of its analysis and quality of its links. The other is D&O Diary, brought to you by Kevin LaCroix. The Diary, which is brand spankin’ new, also looks like it’s going to be a big hit. Let’s hope it’s around longer than the totally lame D&O Insurance Blog by some guy named Dorenberg who cranked out a bakers’ dozen posts over two months before fizzling out in August 2005.

Boy, am I going to feel like an ass if something bad happened to Dorenberg. My sincere apologies if that’s the case. And now that I think about it, the site only lists a last name, so it could be a woman. Sorry about that, I assumed it’s a guy, as word on the blogging street is that legal blogs are overwhelmingly written by male lawyers, and if anyone knows the reason(s) please enlighten us. I mean, just look at our area, securities law — about eight major blogs, all by men. I checked around the web, and found this post called Women & Blogging, which might just explain why. Thoughts anyone? (You can click the comment link below, and yes you can be anonymous if you want, and no registration is required).

Nugget from June 6, 2006 American Lawyer article: “To be sure, legal bloggers are still working through their growing pains. Debate rages among them about whether law review articles are relevant anymore, whether blogging counts as real scholarship, whether junior faculty should avoid blogging until they gain tenure, why women tend to eschew legal blogs, what counts as a legal blog, and so on.”

A Little Fishy

It’s one thing to mess with Shrek, but involving poor little Nemo in securities class action litigation? I mean if standing up for the little guy causes you to drag a helpless widowed clownfish into the case, well, I’m not sure how you sleep at night.

Seriously though, that’s just what Judge Mariana R. Pfaelzer (C.D. Cal.) had to deal with in Dreamworks, when she looked at Plaintiffs’ channel-stuffing allegations, concluding that “Plaintiffs allege at different points in the Amended Complaint that Dreamworks initially shipped either 25 million or 30 million copies of the Shrek 2 DVD,” and “according to the Amended Complaint, the Finding Nemo DVD, released a year before Shrek 2, sold 31.35 million units in the first 90 days after its release.” So, “given that Shrek 2, according to Plaintiffs’ own sources, had outperformed Finding Nemo at the box office, an initial shipment of 25-30 million units does not appear inconsistent with the trends and expectations set forth in the Prospectus.”

Result? 33 Act claims gone with prejudice. 34 Act claims gone without prejudice. 60 days to amend complaint granted.

You can read In re Dreamworks, issued April 12, 2006, at 2006 U.S. Dist. LEXIS 24456.

Nugget: “Even taking as true the allegation that Defendants were aware of the trend, the documents cited by Plaintiff in the Amended Complaint undermine the contention that Defendants knew or should have known that this trend would have a material impact on the sales of the Shrek 2 DVD.”

Seventh Circuit Mentions PSLRA in Prisoner Case

Looks like inmate Willie Simpson isn’t very happy. That’s because he alleges that his complaints about prison officials caused retaliation which earned him “300 days in segregation.” Who’s Willie you want to know? Well, who knows, but yesterday, when the Seventh Circuit upheld his complaint under notice pleading (anyone remember what that is anymore?) it observed that “not even the Securities Litigation Reform Act, the statute that has moved the farthest from notice pleading for a particular subject matter (securities class actions), requires proof as opposed to plausible allegations.”

Yes, yes, I know it’s not terribly relevant, but it’s nice to hear an appellate court formally recognize this fact — one which obviously no one (dare we say even the 10b-5 Daily?) can reasonably argue with.

Anyway, unless you’re a FOW (sorry — Friend of Willie), believe me, there’s absolutely no point for you to read Simpson v. Nickel, issued June 12, 2006, but if you still want to, it’s at 2006 U.S. App. LEXIS 14329.

Nugget: “Any district judge (for that matter, any defendant) tempted to write ‘this complaint is deficient because it does not contain. . .’ should stop and think: What rule of law requires a complaint to contain that allegation?”

Club Fed is Dead

Turns out trying to beat the rap is only half the battle if you are convicted on securities fraud charges. You see, once the jury has sealed your fate, the real game begins — where to serve your 20 year stint. That’s because our friends over at the BOP let you request where you’ll go. Of course, like most things in prison, you had better ask nicely as BOP can send your wimpy butt pretty much anywhere they want. So if you’d like to see Forbes’ take on the best places to go to prison, click here (check out the slide show too).

P.S. Don’t panic everyone, the Nugget will be back tomorrow with another new securities class action opinion. There weren’t any new ones today anyway.

Nugget: “The days of ‘Club Fed’–think golf courses and lobster bakes–are long gone.”