Net Gainers, Do Not Pass Go, Do Not Collect $2 Million

Now who would’ve thunk that we’d be reading an opinion issued in the Cendant case in 2006? I mean seriously, this thing settled in like 1972, didn’t it? Well, June 2000 actually, but even that’s an awfully long time ago. So what could possibly generate an opinion now you ask? Well, how about some sizeable shareholders who submitted claims in the settlement but were rejected by the administrator because it found their claims“did not merit compensation under the Plan because the profits they made by selling stock at artificially inflated prices cancelled out any losses they suffered on stock held after the irregularities were disclosed.”

So you can read the Court’s lengthy analysis if you’re fascinated by plans of allocation, but if you’re not (perhaps because you are normal), you will be satisfied to know that the Third Circuit, led by Judge Thomas L. Ambro, affirmed the denial of payment to these shareholders because they “reaped a net gain rather than a net loss.” As Johnny might have put it, if you came out ahead, your claim is dead. Dead indeed.

You can read In re Cendant, issued July 18, 2006 right here.

Nugget: “The bottom line: SKAT’s profit far outweighs its loss amount. Thus, it is not entitled to any payout.”

In. Out. Certified.

In the BearingPoint securities class action pending in the rocket docket, Judge T. S. Ellis, III (E.D. Va.) found himself confronted with the “somewhat novel question” of “whether ‘in-and-out’ purchasers of BearingPoint stock, namely those who bought and sold their shares within the class period, can prove loss causation.” Defendants, relying on Dura (no, don’t adjust your set, just more defendants going down the drain with Dura — again), argued that including these traders “in the proposed class will require individual examination of each in-and-out trader to determine whether each such trader has satisfied the loss causation requirement.”

But Judge Ellis rejected Defendants’ argument, holding instead that “although in-and-out traders often have no associated damage because they purchased and sold at prices with the same artificial inflation, this is not always the case. In cases where, as here, there are multiple disclosures, in-and-out traders may well be able to show a loss. Moreover, it is also conceivable that the inflationary effect of a misrepresentation might well diminish over time, even without a corrective disclosure, and thus in-and-out traders in this circumstance would be able to prove loss causation. In sum, because in-and-out traders may conceivably prove loss causation, they are appropriately counted as members of the proposed class.”

Result? You guessed it, class certified.

You can read In re Bearing Point, issued January 17, 2006, at 2006 U.S. Dist. LEXIS 1718.

Nugget: “Even so, the conclusion that the proposed class includes in-and-out traders, does not, alter the conclusion that common issues of law and fact will predominate over individual issues. The issue of whether in-and-out traders can satisfy loss causation is a single legal issue, not dependent on individual factual determinations, and the proper determination of individual damages can be determined at trial through the use of expert witnesses.”

Dura Doesn’t Impose Sell-To-Sue

If you’ve been relying on Judge John Winslow Bissell’s (D. N.J.) August 9, 2005 opinion in Royal Dutch/Shell that held “because the stock had recovered its lost value, any putative class member who did not sell the subject securities within 90 days after the end of the Class Period could not establish the economic loss or loss causation elements of a Section 10(b) securities fraud claim as to those unsold shares,” then you’re probably not going to be very happy with this new development. You see, due to Judge Bissell’s retirement on September 1, 2005, Judge Joel A. Pisano (D. N.J.) now has the case, and has reconsidered Judge Bissell’s imposition of what is appropriately termed sell-to-sue.

In rejecting the doctrine, Judge Pisano concluded that, “in order to plead and prove loss causation and economic loss, a plaintiff alleging fraud in connection with the purchase of securities is not necessarily required to sell the subject securities. First, the statutory scheme that provides the measure of damages available to securities fraud plaintiffs does not mandate sale of the securities. Second, holding plaintiffs have long been permitted to litigate securities fraud claims. Third, policy concerns dictate against the imposition of a sell-to-sue requirement. Finally, Dura neither expressly nor implicitly mandates that the subject securities be sold in order for a plaintiff to have suffered cognizable economic loss.”

Just when you thought Dura might actually change something, right?

You can read In re Royal Dutch/Shell, issued December 12, 2005, at 2005 U.S. Dist. LEXIS 32190.

Nugget: “Mandating that defrauded investors liquidate their holdings in order to preserve their right to pursue damages might have harmful consequences.”

Potential Minefield Awaits When Similar Securities Class Actions Settle

What’s a lead plaintiff to do when two potentially overlapping securities class actions are pending at the same time, and the other one settles? Who knows, but in the Citigroup/Global Crossing litigation we can see how one plaintiff’s choice turned out. In the action that settled, Plaintiffs alleged “that the Citigroup defendants participated in defrauding them by, among other things, issuing analytic reports on Global Crossing and Asia Global Crossing that misrepresented the defendants’ true views of the prospects of those companies.” In the other action, investors who had accounts with Salomon (n/k/a Citigroup) allege they received similar recommendations that were tainted by conflicts of interest that were undisclosed.

So when Citigroup settled with plaintiffs in the first action, the lead plaintiff in the other action objected, arguing that the release could be construed to apply to his claims against some of the same defendants. Well, that wasn’t good enough for Judge Gerard E. Lynch (S.D.N.Y.), who denied the objection, holding that if the objector “seeks, in the separate action, damages attributable to trading losses in Global Crossing securities, such damages result directly from the same alleged misconduct at issue in this case.” “The losses were incurred as a result of the same investment decision, as a result of the same alleged misconduct, resulting in the same loss to the same plaintiff. If [the objectors] have a different legal theory of liability based on these facts, which they believe is stronger, and therefore more likely to yield a larger recovery or a better settlement, than the theories being advanced by Lead Plaintiffs, they were free to opt out of the present class and pursue recovery based on that theory.” The objectors “are not free, however, to remain a part of the instant class, partake of an award of damages under the present settlement, and then pursue further damages in a separate action based on the same losses arising from the same investment decision as a result of the same misconduct. Any such result would be substantively unfair, as well as frustrating to class action settlements.”

You can read the decision, issued July 12, 2005, at 2005 U.S. Dist. LEXIS 14245.

Nugget: “A defendant can hardly be expected to settle an action based on claims of a particular wrong, pay damages to plaintiffs under that settlement, and then have to continue to defend claims by some of the same plaintiffs for further compensation based on the same harm.”

Nugget: “That is a question that can only be resolved as the facts and legal theories in his lawsuit are developed and litigated.”

Broadcom Judge Shatters Record Held For Quarter Century

Big news today. Huge. A new all-time record has been set for the number of times the phrase “under the unique facts of this particular case” has ever been used in a reported U.S. decision. No kidding, ever. Judge Gary L. Taylor (C.D. Cal.) crushed the old record by wielding the phrase four times in one decision. You heard it right, four times. Actually, he did it six times if you are willing to count the extra “under the unique circumstances of this particular case” he started the whole thing off with, and the “under the particular circumstances of this case” he threw in for a second change-up.

But what about the old record? You can’t remember? Surely you jest. Who among us doesn’t remember where we were when the Juice was acquitted, the Berlin Wall came down, or the late California Jurist Bernard S. Jefferson issued his grumpy “under the unique facts of this particular case” not once, but twice, in his now infamous dissent in People v. Campbell, 87 Cal. App. 3d 678 (Cal. App. 2d Dist. 1978), a sordid tale of a cellmate getting his “butt kicked in the dayroom of tank 3.”

But we can’t dwell on this milestone for long, as there is case law to be learned. So, what was it that was so unique? Well, in the Broadcom securities class action, the opposing sides were at odds over what type of model should be used to determine damages. The Plaintiffs wanted to use the trading model, while the defendants preferred the damages to be proven-up in the claims administration process. After a two day evidentiary hearing (reportedly during which fans were on the edge of their seats), Judge Taylor settled on Defendants’ proposal. Sure there were lots of reasons, but how much would it help you to know them unless your case has facts that are just as “unique” as those in the Broadcom litigation.

In case your securities class action has the same facts as the Broadcom case boasts, you should run, not walk, to 2005 U.S. Dist. LEXIS 12118.

Nugget: “After review of the PSLRA, the Court concludes the statute neither requires nor prohibits proof of aggregate damages. The statute leaves it open for a court to select the most reliable method of damages proof that is available in that particular case.”

Nugget: “Rule 23 allows district courts to devise imaginative solutions to problems created by the presence of individual damages issues in a class action litigation.”

Sixth Circuit Chimes in on Dura

A panel of the Sixth Circuit consisting of Judges Kennedy, Daughtrey, and Sutton issued a unanimous opinion yesterday affirming Judge Rosen’s (E.D. Mich.) September 19, 2003 pre-Dura dismissal of the Kmart securities class action. The Court of Appeals found that plaintiffs’ loss causation allegations did “not differ in any material respect from Broudo’s” allegations in Dura, and therefore did not meet the required pleading standard. The Court held that the Kmart plaintiffs “did not plead that the alleged fraud became known to the market on any particular day, did not estimate the damages that the alleged fraud caused, and did not connect the alleged fraud with the ultimate disclosure and loss.” The decision, which was not recommended for full-text publication, is available here or at 2005 U.S. App. LEXIS 11267.

Nugget: “[T]he observation that a stock price dropped on a particular day, whether as a result of bankruptcy or not, is not the same as an allegation that a defendant’s fraud caused the loss.”