Welcome to Shearman & Sterling LLP’s Need-To-Know Litigation Weekly, which analyzes notable U.S. decisions, orders and developments each week in areas of Securities Litigation, M&A Litigation, Government/Regulatory Enforcement, Antitrust Litigation and IP Litigation. This weekly newsletter is intended to supplement our various publications and thought leadership concerning these important substantive areas.
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Northern District Of California Rejects New Evidence Allegedly Establishing Scienter And Loss Causation As Basis To Set Aside Judgment
On February 9, 2018, Judge Charles E. Breyer of the United States District Court for the Northern District of California held that “newly discovered evidence” regarding the basis for an auditor’s resignation and the scope of improper expense reimbursements did not justify reconsidering the Court’s prior dismissal of claims under Section 10(b) of the Securities Exchange Act of 1934 for failure to sufficiently allege scienter and loss causation. Rok v. Identiv, Inc., 2018 WL 807147 (N.D. Cal. Feb. 9, 2018).
Northern District Of Illinois Finds Material Misstatements Adequately Alleged
On February 12, 2018, Judge Samuel Der-Yeghiayan of the United States District Court for the Northern District of Illinois denied a motion to dismiss a putative class action under the Securities Exchange Act of 1934 against Treehouse Foods, Inc. (“TreeHouse”) and certain TreeHouse executives. Public Employees’ Retirement System of Mississippi v. TreeHouse Foods, Inc. et al., 16 C 10632 (N.D. Ill. Feb. 12, 2018). Plaintiff alleged that TreeHouse, a manufacturer of store brand food products for grocery stores, materially misrepresented that its acquisitions of Flagstone Foods and the “Private Brands” business of ConAgra Foods, Inc. were successful. The Court denied the motion to dismiss, holding among other things that plaintiff adequately alleged that defendants made actionable misstatements.
Declining To Find Enhanced Scrutiny Inapplicable To Post-Closing Damages Actions, Delaware Court Of Chancery Denies Motion For Summary Judgment
On February 6, 2018, Vice Chancellor J. Travis Laster of the Delaware Court of Chancery denied a summary judgment motion by defendant Potomac Capital Partners II, LP (“Potomac”) in an action by stockholders challenging the sale of PLX Technology, Inc. (“PLX”) to Avago Wireless, Inc. In re PLX Technology Inc. Stockholders Litigation, C.A. No. 9880-VCL (Del. Ch. Feb. 6, 2018). Plaintiffs alleged Potomac, which was PLX’s largest shareholder, aided and abetted members of the PLX board in committing breaches of fiduciary duty in connection with the sale. In its concise order holding that the case would need to go to trial, the Court rejected Potomac’s contention that the business judgment rule, rather than the enhanced scrutiny test, was the operative standard by which to review the deal. The Court further determined that—under the enhanced scrutiny standard—there existed disputes of material fact regarding the PLX board’s actions.
New York Court Denies Approval Of Disclosure-Only Settlement, Finding Supplemental Disclosures “Useless”
On February 8, 2018, Justice Shirley Werner Kornreich of the New York Supreme Court denied a motion for final approval of a disclosure-only settlement in a class action suit brought by shareholders of Martin Marietta Materials, Inc. (“MMM”) regarding its acquisition of Texas Industries, Inc. (“TXI”). City Trading Fund v. Nye, 2018 WL 792283 (N.Y. Sup. Ct., Feb. 8, 2018). Plaintiff, which owned only ten shares in MMM, asserted breach of fiduciary duty claims and sought to enjoin the merger on the ground of inadequate disclosures in the proxy provided to shareholders. The parties, however, reached a settlement, which required defendants to make certain “supplemental disclosures” and provided for the payment of $500,000 in attorneys’ fees to plaintiff’s counsel. Justice Kornreich previously denied approval of the settlement, but that decision was reversed by the New York Supreme Court, Appellate Division and remanded for a fairness hearing. City Trading Fund v. Nye, 144 A.D.3d 595, 21 (N.Y. App. Div. 2016). Moreover, in the interim, the Appellate Division, in Gordon v. Verizon Communications, Inc., 148 A.D.3d 146 (N.Y. App. Div. 2017), adopted a more lenient approval standard for disclosure-only settlements than that followed recently by courts in Delaware and elsewhere. Nevertheless, Justice Kornreich found the supplemental disclosures “utterly useless to the shareholders” and, therefore, declined to approve the settlement.
U.S. Subsidiary Of Dutch Bank Pleads Guilty To Allegations That It Conspired To Obstruct OCC Examination Of AML Program
On February 7, 2018, Dutch bank Rabobank’s U.S. subsidiary pleaded guilty to conspiring to impair, impede, and obstruct a review by the Office of the Comptroller of the Currency (“OCC”) of the bank’s anti-money laundering (“AML”) program, agreeing to forfeit more than $368 million as a result. See United States v. Rabobank, National Association, 18-cr-0614, Plea Agreement (Feb. 7, 2018); DOJ Press Release, Rababank NA Pleads Guilty, Agrees to Pay Over $360 Million, No. 18-148 (Feb. 7, 2018).
PCAOB And Accounting Firm Employees Charged With Misuse Of Confidential Data To Improve Firm’s Inspection Results
On January 22, 2018, the SEC announced civil charges against six certified public accountants for their role in an alleged scheme to misappropriate confidential information from the Public Company Accounting Oversight Board (“PCAOB”) relating to the PCAOB’s planned inspections of an accounting firm, so that the firm could use the confidential information to help it avoid poor inspections. Press Release 2018-6, SEC, Six Accountants Charged with Using Leaked Confidential PCAOB Data (Jan. 22, 2018). On the same day, the United States Attorney’s Office for the Southern District of New York (“USAO”) announced the unsealing of an indictment charging five of the six defendants in the SEC action with conspiracy and wire fraud for their participation in the alleged scheme. Press Release, DOJ, Five Former KPMG Executives and PCAOB Employees Charged in Manhattan Federal Court (Jan. 23, 2018). The sixth SEC defendant had previously pleaded guilty (and had agreed to settle the SEC’s claims) and is cooperating with the government’s investigation.
District Of Delaware Denies Building Supply Company’s Motion To Dismiss Claims That It Monopolized And Unlawfully Restrained Trade In The Ceiling Tile Market Through Exclusive Agreements
On February 9, 2018, Judge Mark A. Kearney of the United States District Court for the District of Delaware denied in part Armstrong World Industries Inc.’s (“Armstrong”) motion to dismiss a lawsuit filed by rival ceiling tile manufacturer Roxul USA Inc. (“Roxul”), finding that Roxul alleged facts plausibly demonstrating monopolization and attempted monopolization in violation of Sherman Act Section 2, and concerted action in restraint of trade in violation of Sherman Act Section 1 and Clayton Act Section 3. However, Judge Kearney granted Armstrong’s motion to dismiss Roxul’s claims relating to the sale of ceiling tiles in Canada because Roxul failed to allege how reduced competition in Canada had a “direct, substantial and reasonably foreseeable effect” on U.S. commerce, as required by the Foreign Trade Antitrust Improvements Act (“FTAIA”).
U.S. District Court For The District Of New Jersey Dismisses Class Action For Failure To Identify Concerted Action And Relevant Market
On January 9, 2018, Judge William J. Martini of the United States District Court for the District of New Jersey dismissed with prejudice a putative class action brought by a purchaser of Jaguar vehicles against Jaguar Land Rover North America LLC, Jaguar Land Rover Limited (collectively, the “manufacturer defendants”), their dealers, and a third-party consulting company. Baar v. Jaguar Land Rover North Am., LLC, et al., No. 2:17-04142 (D.N.J. Jan. 9, 2018). Plaintiff alleged that defendants unreasonably restrained trade by implementing and enforcing a no-export agreement that prohibited purchasers from reselling Jaguar’s vehicles abroad for at least one year. The Court held that the plaintiff’s complaint failed to state a violation of federal or state antitrust laws because it did not adequately allege (1) concerted action among the defendants, or (2) that Jaguar’s no-export policy produced anticompetitive effects within a cognizable antitrust product and geographic market.
Federal Circuit Waves Caution Flag On Section 101
On February 8, 2018, the United States Court of Appeals for the Federal Circuit (CAFC) issued an opinion affirming in part and vacating in part a finding of section 101 unpatentability. Berkheimer v. HP Inc., ___ F.3d ___ (appeal no. 2017-1437). The district court had granted a motion to dismiss on section 101 grounds, and while the CAFC affirmed the dismissal as to some claims, as to other claims it remanded the case to the district court, emphasizing the role of fact issues in section 101 analyses and thus complicating resolution of section 101 issues.
Ninth Circuit Holds Copyright In Drawing Of Dolphins Not Infringed, Even If Drawing Copied
On February 2, 2018, the United States Court of Appeals for the Ninth Circuit affirmed a district court’s ruling that even if a gallery owner had copied an artist’s drawing of two dolphins, the copied elements were unprotectable “ideas that nature has already expressed for all.” Folkens v. Wyland Worldwide, No. 16-15882 (9th Cir. Feb. 2, 2018).