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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Eastern District Of Pennsylvania Dismisses Putative Class Action Against Semiconductor Equipment Manufacturer For Failure To Adequately Allege Falsity And Scienter
On October 9, 2019, Judge C. Darnell Jones, II of the United States District Court for the Eastern District of Pennsylvania dismissed a putative securities class action asserting claims under the Securities Exchange Act of 1934 against a manufacturer of equipment and tools used to assemble semiconductors and its CEO and CFO. Kumar v. Kulicke & Soffa Indus., Inc., No. CV 19-0362, 2019 WL 5081896 (E.D. Pa. Oct. 9, 2019). Based on the company’s disclosure of control deficiencies, improper transactions by an unnamed “senior finance employee,” the resignation of the company’s CFO, and amended financial statements, plaintiffs alleged that the company’s SEC filings and SOX certifications contained material misrepresentations. Id. at *2. The Court held that plaintiffs had identified actionable misstatements as to the CFO but had not adequately alleged scienter and, therefore, dismissed the case, while allowing plaintiffs leave to file an amended complaint.
On September 26, 2019, Justice Saliann Scarpulla of the New York State Supreme Court, County of New York, Commercial Division, dismissed a putative class action against a dental products and services company and certain of its executives and directors asserting claims under Sections 11, 12(a)(2) and 15 of the Securities Act of 1933. In re Densply Sirona, Inc. S’holders Litig., No. 155393/2018 (Sup. Ct. N.Y. Cnty., Sept. 26, 2019). Plaintiffs alleged that defendants made material misrepresentations in a registration statement filed with the SEC in connection with a merger. The crux of plaintiffs’ allegations was that the registration statement failed to disclose material information about an alleged “anticompetitive scheme” to control supply and distribution of the company’s products. The Court held that, even though New York’s heightened pleading standard for fraud claims did not apply in the case at bar, the alleged misstatements were non-actionable statements of opinion or puffery or were not misleading when made.
On October 4, 2019, Judge Robert Lasnik of the United States District Court for the Western District of Washington granted in part and denied in part a motion to dismiss a putative securities class action asserting claims under the Securities Exchange Act of 1934 against a technology company and certain of its executives. In re Impinj, Inc., Sec. Litig., No. C18-5704 RSL, 2019 WL 4917101 (W.D. Wash. Oct. 4, 2019). The Court held that plaintiffs failed to alleged falsity as to certain alleged misrepresentations and dismissed claims against one of the company’s executives for failure to adequately allege scienter, but otherwise upheld plaintiffs’ claims.
DOJ Introduces Guidance Over Inability-to-Pay Claims
On October 8, 2019, the Department of Justice (“DOJ”) issued a memorandum (“Memorandum”) providing guidance on how the DOJ’s prosecutors will handle inability-to-pay claims from companies, intending to provide companies—and prosecutors—with a better understanding of how to evaluate and address these claims. Memorandum to All Criminal Division Personnel from Brian A. Benczkowski regarding Evaluating a Business Organization’s Inability to Pay a Criminal Fine or Criminal Monetary Penalty (Oct. 8, 2019). Assistant Attorney General Brian A. Benczkowski announced the Memorandum, stating that it does not provide any new methodology, but rather merely “puts a lot more meat on the bones” of how these claims are analyzed. Assistant Attorney General Brian A. Benczkowski Delivers Remarks at the Global Investigations Review Live New York (Oct. 8, 2019).
Delaware Court Of Chancery Applies Entire Fairness Standard To Breach Of Fiduciary Duty Claim Arising From Asset Sale That Benefited Senior Preferred Unitholder
On October 11, 2019, Vice Chancellor Kathaleen S. McCormick of the Delaware Court of Chancery dismissed all but one claim arising out of an asset sale by Pro Performance Sports, LLC (“Pro Performance”) to private equity firm Implus Footcare LLC (“Implus”) in which the senior unitholder, venture capital fund Steelpoint Capital Partners, LP (“Steelpoint”), received all of the sale consideration. JJS Ltd. et al., v. Steelpoint CP Holdings LLC et al., C.A. No. 2019-0072-KSJM (Del. Ch. Oct. 11, 2019). The common unitholders challenged the sale, asserting that the LLC managers breached their fiduciary duties by structuring and approving the transaction and violated the terms of the LLC Agreement because the common unitholders were not permitted to vote as a separate class on approval of the sale. The Court dismissed the claims based on the LLC Agreement, but sustained the fiduciary duty claim.
Southern District Of New York Dismisses “Truly Novel” Restraint Of Trade Theory In Pharmaceutical Antitrust Action
On October 8, 2019, United States District Judge for the Southern District of New York Ronnie Abrams dismissed all but one claim in a putative antitrust class action brought against Takeda Pharmaceutical Company Ltd. and various Takeda entities, as well as generic manufacturers Teva Pharmaceuticals, Ranbaxy Pharmaceutical Industries Ltd., Actavis PLC, and Mylan Inc. In re: Actos Direct Purchaser Antitrust Litigation, No. 1:15-cv-03278 (S.D.N.Y. Oct. 8, 2019). The class complaint alleged that Takeda illegally conspired with the other defendants to delay generic competition for its blockbuster diabetes drug Actos through a series of patent settlement agreements, which granted the other defendants non-exclusive licenses to produce generic Actos at a future date prior to the expiration of Takeda’s patents. The Court dismissed these conspiracy claims, finding that plaintiffs’ “truly novel” theory for why the settlement agreements between Takeda and the other defendants violated the antitrust laws lacked “even a colorable basis” of support. The Court’s decision left in place one remaining claim against Takeda for monopolization.
Southern District of New York Dismisses Putative Antitrust Class Action Finding Plaintiffs Failed To Plead Defendants Transacted Business Of A “Substantial Character” In New York
On October 4, 2019, District Judge Edgardo Ramos of the United States District Court for the Southern District of New York dismissed a putative antitrust class action against certain defendants, foreign banks, and individuals for lack of personal jurisdiction and improper venue. In re SSA Bonds Antitrust Litig., No. 16 CIV. 3711 (ER) 2019 WL 4917608 (S.D.N.Y. Oct. 4, 2019). Plaintiffs alleged that the defendant financial institutions and certain employees operating as dealers in the U.S. dollar SSA bond market conspired to fix the price of SSA bonds in violation of Section 1 of the Sherman Act. Several dealer defendants (the “Foreign Dealer Defendants”) and four of their employees (the “Individual Defendants”) moved to dismiss for lack of personal jurisdiction and venue. The Court granted the motion, finding that plaintiffs had not satisfied the venue provision of the Clayton Act because plaintiffs failed to show that the Foreign Dealer Defendants transacted business of a “substantial character” in New York and failed to establish a nexus for purposes of personal jurisdiction “between the alleged business transactions in New York and the claims of this antitrust case.”
Federal Circuit Finds That Patent Sublicenses Do Not Automatically Terminate Upon Termination Of The Main License Agreement
On October 17, 2019, the Court of Appeals for the Federal Circuit (“CAFC”) vacated the judgement of the United States District Court for the District of Delaware granting a motion to dismiss for failure to state a claim on the ground that the defendant had a valid license to the patents-in-suit. Fraunhofer-Gesellschaft v. Sirius XM Radio Inc., __ F.3d __ (Fed. Cir. Oct. 17, 2019). The CAFC found that the license defense could not be resolved on a motion to dismiss because the license was ambiguous, and remanded to the district court.