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Need-to-Know Litigation Weekly

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.


By clicking on the title of any case writeup, you can expand beyond the introductory paragraph to read the entire summary and analysis, and you also can access the underlying material. Clicking on the title of any case writeup also automatically will take you to our Need-To-Know Litigation Weekly microsite, which provides separate links to the five substantive areas (Securities Litigation, Government/Regulatory Enforcement, M&A and Corporate Governance, Antitrust Litigation and IP Litigation), each of which contains filters that are searchable both by substantive topic and by time period that will enable you to search and access our existing case summaries and analyses.

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SECURITIES LITIGATION


Tenth Circuit Panel Revives Putative Class Action Against Online Education Company


On August 23, 2022, the United States Court of Appeals for the Tenth Circuit unanimously reversed the dismissal of a putative securities class action against an online education company (the “Company”), alleging violations of Section 10(b) of the Securities Exchange Act of 1934 (the “Exchange Act”), SEC Rule 10b-5, Section 20A of the Exchange Act, and Sections 11, 12(a)(2), and 15 of the Securities Act of 1933 (the “Securities Act”). Plaintiffs alleged that the Company made false and misleading statements about the size and productivity of the Company’s sales force. The district court dismissed the Exchange Act claims because plaintiffs failed to plead a strong inference of scienter and dismissed both the Exchange Act and the Securities Act claims for failure to plead a violation of Item 303 of SEC Regulation S-K. On appeal, the Tenth Circuit reversed and remanded, holding that (i) the Exchange Act allegations “support[ed] an inference of scienter at least as compelling as any nonculpable inference” and (ii) the district court relied on “erroneous reasoning” to dismiss the Exchange Act and Securities Act claims based on the alleged violation of Item 303.

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Eastern District Of Pennsylvania Certifies Class Of Investors In Suit Against Natural Gas Company After Finding That Presumption Of Reliance Was Not Rebutted


On August 23, 2022, Judge Gerald Austin McHugh, Jr. of the United States District Court for the Eastern District of Pennsylvania granted class certification in a securities fraud class action against an energy company and its subsidiary (the “Company”) and its executives under the Securities Exchange Act of 1934. The suit alleged that defendants made misstatements and omissions regarding the status of the construction of three natural gas pipelines and that the Company’s stock price dropped following certain corrective disclosures. The Court certified the class after holding that plaintiffs met the requirements of Rule 23(a) as well as the predominance and superiority requirements of Rule 23(b)(3).

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GOVERNMENT/REGULATORY ENFORCEMENT


SEC Brings Enforcement Action Against Investment Advisor For Allegedly Failing To Disclose Conflicts Of Interest In SPACs Into Which It Invested Client Funds


On September 6, 2022, the Securities and Exchange Commission announced that New York-based, registered investment advisor Perceptive Advisors LLC (“Investment Advisor”) had agreed to pay a $1.5 million civil penalty for allegedly failing to disclose conflicts of interest regarding ownership of its personnel in sponsors of special purpose acquisition companies (SPACs). According to the SEC, the Investment Advisor used private client funds to facilitate transactions benefitting SPACs in which the Investment Advisor’s personnel and other clients had financial interests but failed to disclose the alleged conflicts resulting from those interests.

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M&A AND CORPORATE GOVERNANCE

 

Delaware Court Of Chancery Dismisses Caremark Claims Alleging Breaches Of Fiduciary Duty Following A Cyberattack


On September 6, 2022, Vice Chancellor Sam Glasscock III of the Delaware Court of Chancery granted a motion to dismiss derivative claims for breach of fiduciary duty brought by stockholders of a software company (the “Company”) against its directors following a cyberattack. Construction Industry Laborers’ Pension Fund v. Bingle, No. CV 2021-0940-SG (Del. Ch. Sep. 6, 2022). After the Company allegedly fell victim to hackers who accessed confidential information on the systems of thousands of its customers, plaintiffs alleged that defendants had failed to adequately address the risk to cybersecurity in breach of their oversight obligations under Caremark. The Court indicated that cybersecurity is “mission critical” for online service providers and the complaint alleged oversight practices that were “far from ideal.” But the Court held that pre-suit demand was not excused because the complaint did not plead “specific facts” from which the Court could “infer bad faith liability.”

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ANTITRUST LITIGATION

 

Eleventh Circuit Reverses District Court Dismissal On Shotgun Pleading And Standing Grounds


On August 26, 2022, the United States Court of Appeals for the Eleventh Circuit reversed and remanded a district court’s dismissal of an antitrust lawsuit filed against Defendants Google LLC, YouTube Inc., and Alphabet Inc. on shotgun pleading and antitrust standing grounds. Inform Inc. v. Google LLC, No. 21-13289 (11th Cir. Aug. 26, 2022). The Court ruled that plaintiff Inform Inc.’s amended complaint, while lengthy and perhaps unclear, sufficiently put defendants on notice of their alleged antitrust violations in the markets for online advertising and that plaintiff met the Eleventh Circuit’s two-prong test for pleading antitrust standing.

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INTELLECTUAL PROPERTY LITIGATION

 

Federal Circuit Explores Capability Claims


On August 31, 2022, the Court of Appeals for the Federal Circuit (CAFC) affirmed a determination of non-infringement by the International Trade Commission (ITC). Although the CAFC disagreed with the ITC as to whether the claims were directed towards capability, the CAFC nevertheless affirmed the finding of non-infringement because the capability had not been proven. INVT SPE LLC v. Int’l Trade Comm’n, No. 2020-1903, -- F.4th -- (Fed. Cir. Aug. 31, 2022).

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