Tell it to the Jury Guys

It’s been a while since I wrote about Dura (O.K., all-right, or anything at all – that was a cheap shot by the way), as my fingers were tiring from reporting on all those failed motions to dismiss, and my intracranial pressure was at dangerous levels from reading one-too-many defense oriented articles about how Dura changed the world (when, unless you’ve eaten some magic mushrooms, which I hear are quite delicious, it changed virtually nothing except you can no longer allege price inflation by itself – a result that’s completely logical to me).

Anyway, a new Dura opinion has been issued by Judge Michael M. Baylson (E.D. Penn) (George W. Bush, Class of ‘02) (pictured), and it’s a must-read for you loss causation groupies. In a nutshell, Judge Baylson told the Defendants that couldn’t have summary judgment based on Dura, but they could ask a jury to decide the issue instead. Gee, thanks a lot, just what we need here at CIGNA, a jury of our “peers.”

So, after sorting out the battle of the experts, Judge Baylson held “that (1) Dura Pharmaceuticals does not compel a fundamental change in the way this Court should analyze proof of economic loss; (2) at this time it is not be appropriate to adopt the investment model advanced by Defendants to measure economic loss under the federal securities laws; (3) one of several methods used by courts prior to Dura Pharmaceuticals to analyze and quantify economic loss and damages is a transaction-based methodology; (4) applying that methodology, SERS has a viable claim for economic loss based on particular shares held at the end of the class period; and (5) there are disputes of material fact related to economic loss and damages that make summary judgment particularly inappropriate; and (6) a jury should be permitted to make relevant factual determinations for the purposes of calculating damages.”

So the Nugget lives. It’s good to be back.

You can read In re Cigna, issued August 18, 2006, at 2006 U.S. Dist. LEXIS 59915.

Nugget: “Granting summary judgment on the present record would deprive the Plaintiffs of their constitutional right under the Seventh Amendment to have a jury decide all issues concerning the award of damages.”

The Cold Light of Hindsight

Plaintiffs must be wondering what hit them the Metris action, having received a summary judgment blow to the head from Judge James M. Rosenbaum (D. Minn.) (Reagan Class of ‘85) (the picture to the left was taken immediately after the ruling was issued), who said that “in the cold light of hindsight, defendants’ projections were overly optimistic, but economic prognostication, though faulty, does not, without more, amount to fraud.”

That’s not so bad you say. Oh no, I’m just gettin’ warmed up. How about “these plain vanilla statements are simply too vague to support a securities fraud action; the test is whether a reasonable investor would have considered such statements significant at the time. And a reasonable investor would not. There is nothing concrete or substantial in these statements upon which a reasonable investor would base an investment decision.”

But “where the case unravels,” is on scienter, as, well, “Plaintiffs have failed to produce evidence” of it. “Instead, their case teeters on repeated, but unsupported, theories of motive and opportunity, mixed with a mere suggestion of recklessness. While scienter is generally a question of fact for the jury, neither plaintiffs’ motive and opportunity theory, nor their soupcon of recklessness, is sufficient to withstand summary judgment.”

Yes, I was kidding about when the picture was taken, but maybe, just maybe….

You can read In re Metris, issued April 21, 2006, at 428 F. Supp. 2d 1004.

Nugget: “The fact that a company may have hit a rocky patch does not mean it has no positive prospects. The Court finds these allegations too general to pose a triable issue of fact.”

Where’s Kevorkian When You Need Him?

Well, it took eleven years, but it looks like the Jasmine securities class action is finally over. Originally filed in November 1994, it appears Plaintiffs were practically begging the Court to put an end to their seemingly endless suffering. You see, after last June’s partial summary judgment dismissal (Ho, Ho, Ho, Who’s Laughing Now?), Defendants swooped in with five more summary judgment motions to finish off more of the claims. On December 20, 2005, Judge Robert B. Kugler (D.N.J.) noted that “Plaintiffs did not oppose the motions, opting instead to file a brief conceding that loss causation is the rule of the case and that the lack of loss causation entitled Defendants to summary judgment.” Judge Kugler then granted the motions and ordered “the parties to submit a statement advising the Court of any unresolved claims against any Defendants.” Plaintiffs complied, and at the same time “moved to amend/correct the December 20, 2005, Judgment to grant summary judgment on all remaining claims.” Please Your Honor, please.

So you’d think that would be it, but noooooo, Judge Kugler “denied Plaintiffs’ Motion to Amend/Correct.” Why you ask? Because they failed “to identify any errors in the Court’s Order of December 20, 2005.” What do we have to do to get rid of this thing? Anyway, the last group of Defendants then moved for summary judgment again to euthanize Plaintiffs, who then “instead of filing an Opposition” merely adopted and incorporated their earlier response “conceding Andersen’s entitlement to summary judgment.”

This time Plaintiffs got their wish, with Judge Kugler throwing out the rest of the case for the same loss causation reasons he did nearly a year ago.

Whew.

You can read McKown v. Jasmine, issued May 5, 2006, at 2006 U.S. Dist. LEXIS 27860.

Nugget: “Where the market never obtains information, it must be the case that factors other than that information are the sole cause of plaintiffs’ loss.”

Cavalry Arrives in CIGNA

When Defendants in the CIGNA Corp. securities class action planned to attack the proposed class representative (SERS) on loss causation grounds, Plaintiffs just didn’t sit idly by. Instead, they sought “to allow two other putative class members — the Miami General Employees’ Sanitation Employees Retirement Trust (“Miami Employees”) and the Public Employees’ Retirement System in Mississippi (“MPERS”) — to intervene as additional proposed class representatives.”

Defendants balked, but Judge Legrome D. Davis (E.D. Penn.) (writing for Judge Michael M. Baylson — for reasons unknown) (E.D. Penn.) stymied them, noting that “CIGNA is planning to file a summary judgment motion on these grounds within the next week. Apparently fearful of this motion, SERS has secured the agreement of Miami Employees and MPERS to become additional proposed class representatives. SERS quite properly indicates that its motive in doing this is to protect the interests of the putative class. The Court finds this to be a legitimate substantive reason to allow the intervention. If, due to a failure to prove loss causation and/or economic loss, SERS is dismissed as a party or is deemed to be an unworthy class representative notwithstanding its Lead Plaintiff status, the interests of the putative class will clearly be at risk. Given the significance that the PSLRA has placed on the status and responsibility of the Lead Plaintiff in this type of case, the Court finds that any present or potential doubts about SERS being able to fulfill its role should be alleviated by allowing Miami Employees and MPERS to join SERS as proposed class representatives.”

And to top it all off, Judge Davis easily wiped away Defendants’ supposed reasons for opposing the intervention, noting that “Defendant has not offered any substantive reason, other than the fact that they do not want the burden of dealing with the claims of new parties to delay what they hope will be a successful termination of SERS as Lead Plaintiff. However, Defendant has no right to expect that any ruling against SERS on loss causation and/or economic loss grounds will necessarily terminate Defendant’s liability to the other members of the putative class. To do so would eviscerate the whole concept that Congress had in mind in establishing the Lead Plaintiff concept in the PSLRA.”

You can read In re Cigna, issued March 23, 2006, at 2005 U.S. Dist. LEXIS 41293.

Nugget: “If defendants are successful in their summary judgment motion against SERS, such a result should not cause termination of the entire case if other putative class members are willing, able and ready to step forward as class representatives and also as Lead Plaintiffs and can prove loss causation and/or economic loss.”

Defendants Lose Dura Summary Judgment Bid

First it was the 12(b)(6) Dura motions to dismiss that changed almost nothing, then it was the 12(c) Dura motions that didn’t fare much better. Now it’s the summary judgment motions, and, well, seems Dura isn’t having the effect that some in the defense bar no doubt had hoped for (although admittedly others said it would discourage baseless suits from ever being filed, a reasonable but hard to test assertion). As for the cases that are on file, it’s not that Defendants haven’t won some motions that addressed Dura — they have. But for the most part, the result would likely have been the same with or without Dura. (See this Paul Weiss article by Richard Rosen and Dawn Barker for an excellent recap on Dura).

Anyway, agree or not, take the Loewen Group (“TGLI”) securities class action, where Defendants asserted on summary judgment that the corrective disclosures occurred on three specific dates beginning in November 1997 when “the price of TLGI stock either increased or decreased slightly after the information was made available publicly.” Plaintiffs didn’t exactly disagree, as Judge Thomas N. O’Neill, Jr. (E.D. Pa.) noted that Plaintiffs “for the most part,” “do not dispute that the improper accounting of imputed interest was disclosed on the dates alleged by the defendants.” Instead, Plaintiffs say that “those disclosures merely provided additional detail to information already known, and that the market’s reaction to the imputed interest charges was already accounted for as part of the stock price drops in September 1997 and October 1998.”

Judge O’Neill concluded that “throughout the class period, the price of TLGI stock dropped significantly, from $ 33.250 on March 5, 1997, to $ 5.125 on January 14, 1999 and TLGI’s market capitalization dropped by $ 2 billion. Plaintiffs have pleaded loss causation adequately by alleging that they purchased TLGI stock at an inflated price and lost money when the price fell. They allege that the stock price fell as a result of the defendants’ failure to properly record imputed interest, and have offered enough evidence on that point to survive summary judgment. To prove loss causation at trial, plaintiffs face a stronger burden of persuasion and will probably need to rely on expert reports, but they have satisfied their burden at this time.” As a result, “Plaintiffs have met their burden regarding loss causation.”

You can read In re Loewen, issued October 18, 2005, at 395 F. Supp. 2d 211.

Nugget: “Under Dura, plaintiffs cannot satisfy the loss causation requirement by claiming that they bought securities at inflated prices. To survive summary judgment, plaintiffs must demonstrate some actual loss.”

Ho, Ho, Ho, Who’s Laughing Now?

Seriously, what would possibly possess you to tell the judge that your opponents’ argument is “laughable” and “nonsensical?” O.K., it’s understandable if you’re John Payne conducting an important holiday sanity hearing, but otherwise this type of invective is more likely to get you an order like this one. In this instance, it was Plaintiffs in the Jasmine securities class action who ridiculed Defendants’ summary judgment position that “there can be no loss causation absent disclosure of the fraud.” Judge Robert B. Kugler (D.N.J.) sure didn’t find it funny, as he ruled that “because the market can only react to news when it is revealed, the price of Jasmine’s stock could not have fallen as a result of the misrepresentations unless the market knew about the misrepresentations – that is, unless the Misrepresentations had directly or indirectly been disclosed to the market.” As a result, he found Plaintiffs’ argument “unpersuasive,” as “loss causation requires disclosure.”

You can read McKown v. Jasmine, issued June 30, 2005, at 2005 U.S. Dist. LEXIS 32164.

Nugget: “Although the plaintiffs now argue that the market can correct a stock price before investors receive notice of the relevant information, there can be no loss causation absent disclosure of the fraud to the market.”

Ninth Circuit Affirms Summary Judgment Dismissal

After nearly eight years of litigation, it looks as if a Panel of the Ninth Circuit has put an end to the Imperial Credit Industries (“ICII”) securities class action, perhaps for good. In evaluating a summary judgment ruling from the Central District of California in favor of ICII’s executives and auditor KPMG, the Panel, consisting of Ninth Circuit Judges Kim McLane Wardlaw and Marsha S. Berzon, along with Senior District Judge James M. Fitzgerald (D. Alaska), has affirmed the case-ending ruling. The problem? Well, you see, “the gravamen of plaintiffs’ claims is that ICII’s public filings during the class period fraudulently inflated the value of ICII’s securities by inflating the value of its 46.9% equity holdings in Southern Pacific Funding Corporation (“SPFC”).” But, the Panel noted that “the plaintiffs failed to provide evidence that SPFC’s residuals, were, in fact, overvalued at any point in time during the class period,” because they “failed to introduce the testimony of a qualified residuals valuation expert, or any other proof of an actionable misrepresentation or transaction or loss causation.”

You can read Mortensen v. Imperial Credit (issued as unpublished on August 17, 2005) at 2005 U.S. App. LEXIS 17790.

Nugget: “The district court correctly concluded that the Moore Report and Marek Report, the only expert reports submitted by plaintiffs, failed to qualify as proper expert testimony on this subject.”