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, Government/Regulatory Enforcement, M&A And Corporate Governance, 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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Eastern District Of New York Grants In Part And Denies In Part Motion To Dismiss Securities Fraud Class Action Against Mattress Company
On September 30, 2022, Judge Margo K. Brodie of the Unites States District Court for the Eastern District of New York granted in part and denied in part a motion to dismiss a securities fraud class action against a bedding company (the “Company”) alleging that the Company misled investors about the Company’s strength and potential for growth in violation of Sections 11 and 15 of the Securities Act of 1933 and Sections 10(b) and 20(a) of the Securities Exchange Act of 1934. Lematta v. Casper Sleep, Inc., et al., No. 20-CV-2744 (MKB), 2022 WL 4637795 (E.D.N.Y. Sept. 30, 2022). The Court held that (i) alleged misstatements about optimizing pricing and promotional strategies in offering materials for the Company’s initial public offering (“IPO”) were not misleading and (ii) alleged misstatements about anticipated growth were puffery or forward-looking statements accompanied by sufficient cautionary language. The Court otherwise denied the motion to dismiss.
SEC And CFTC Orders Concerning Electronic Communications
On September 27, 2022, the SEC announced charges against affiliates of 11 financial institutions (15 broker-dealers and one investment adviser) for allegedly failing to maintain and preserve electronic communications and allegedly failing to reasonably supervise from January 2018 through September 2021. See SEC Press Release 2022-174 (Sept. 27, 2022). On the same day, the CFTC announced charges against affiliates of the same 11 financial institutions for allegedly failing to maintain, preserve, or produce required records, and allegedly failing to supervise matters related to their businesses as swap dealers and futures commission merchants.
M&A AND CORPORATE GOVERNANCE
Delaware Court Of Chancery Finds Buyer Assumed Post-Closing Liability In Connection With Seller’s Pre-Existing Settlement Agreement
On September 30, 2022, Vice Chancellor Lori W. Will of the Delaware Court of Chancery granted summary judgment to the seller of several cigarette brands, finding that the buyer was responsible pursuant to an asset purchase agreement (“APA”) for post-closing liability in connection with a pre-existing settlement between the State of Florida and the seller. ITG Brands, LLC v. Reynolds American Inc., et. al., C.A. No. 2017-0129-LWW (Del. Ch. Sept. 30, 2022). As part of the settlement entered nearly twenty years before the sale of the brands, the seller and other tobacco companies agreed to make annual payments to Florida based on the companies’ respective market shares of annual tobacco product sales in the United States. The Court focused on a provision of the APA that stated that the buyer assumed “all Liabilities … to the extent arising, directly or indirectly, out of … the use of the Transferred Assets … from and after the Closing.” The Court found that the provision unambiguously assigned the post-closing liability in connection with the Florida settlement to the buyer.
Fifth Circuit Rejects Hospital Operator’s Antitrust Claims Against Dominant Medical Provider In Shreveport, Louisiana
On September 19, 2022, the United States Court of Appeals for the Fifth Circuit held that the operator of a hospital in Shreveport, Louisiana had failed to adequately plead Sherman Act § 1 and § 2 claims against the dominant medical provider in the Shreveport market. BRFHH Shreveport, LLC v. Willis-Knighton Medical Center, No. 21-30622 (5th Cir. Sep. 19, 2022).
United States District Court For The District Of Columbia Dismisses Antitrust Challenge To Healthcare Company’s Acquisition Of Company That Provides Healthcare-Related Data Solutions
On September 19, 2022, Judge Carl Nichols of the United States District Court for the District of Columbia dismissed the Department of Justice and attorneys general of Minnesota and New York lawsuit to block UnitedHealth Group’s proposed acquisition of Change Healthcare. The Court found that the Government failed to meet its burden of proving that the transaction is likely to substantially lessen competition in any relevant healthcare market. United States, et al. v. UnitedHealth Group Incorporated, et al., No. 1:22-cv-0481 (D.D.C, Sep. 19, 2022).
INTELLECTUAL PROPERTY LITIGATION
USPTO Director Issues Precedential PTAB Decision Finding Petitioner’s Conduct An Abuse Of The Inter Partes Review Process
On October 4, 2022, the Director of the United States Patent and Trademark Office (the “Director”) issued a precedential decision finding that the conduct of Petitioner OpenSky Industries, LLC (“OpenSky”) was an abuse of process, sanctioning Petitioner, and remanding to the Patent Trial and Appeal Board (the “Board”) for further proceedings. OpenSky Industries, LLC v. VLSI Technology LLC, IPR2021-01064, Paper 102 (P.T.A.B. Oct. 4, 2022).