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Second Circuit Affirms Dismissal Of Securities Fraud Claims With Prejudice For Failure To Plead Reliance
On October 26, 2018, the United States Court of Appeals for the Second Circuit affirmed the dismissal of a putative securities class action under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 against a financial services company, its broker-dealer (the “Company”), and one current and one former officer of the financial services company. Schwab v. E*TRADE Fin. Corp. et al, 1:18-cv-461 (2d Cir. Oct. 26, 2018). Plaintiff alleged that the Company failed to disclose that it was purportedly violating the duty of “best execution,” which requires broker-dealers to use “reasonable diligence” to obtain the most favorable price for a customer under “prevailing market conditions.” Earlier this year, the United States District Court for the Southern District of New York dismissed plaintiff’s third amended complaint with prejudice after finding that plaintiff had failed to adequately allege reliance, among other elements. The Second Circuit affirmed the judgment, reiterating that the Affiliated Ute presumption of reliance does not apply where the claim is primarily based on misrepresentations rather than on omissions.
Putative Securities Class Action Dismissed Against Biopharmaceutical Company Where Statements Regarding Clinical Trials Were not Actionable And Plaintiffs Failed To Plead Scienter
On October 26, 2018, Judge Thomas D. Schroeder of the United States District Court for the Middle District of North Carolina dismissed a putative class action brought against a biopharmaceutical company (the “Company”) and certain of its officers and directors under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. Hirtenstein v. Cempra, Inc., No. 16-cv-1303 (M.D.N.C. Oct. 26, 2018). Plaintiffs sought to recover for alleged stock losses occurring after the Company allegedly failed to disclose risks associated with an experimental antibiotic used to treat pneumonia. The Court dismissed the action, finding that the challenged statements about the drug’s safety constituted opinions and plaintiffs’ allegations of motive were insufficient to establish a strong inference of scienter.
Second Circuit Court Of Appeals Reverses Investment Banker’s Insider Trading Conviction
On November 5, 2018, the Second Circuit Court of Appeals in a split decision vacated the insider trading conviction of a former Wall Street analyst and remanded the case back to the district court for a new trial. United States v. Stewart, 2018 U.S. App. LEXIS 31207 (2d Cir. Nov. 5, 2018). The analyst was charged with nine counts, including one count of conspiracy to commit securities fraud and tender offer fraud, one count of conspiracy to commit wire fraud, one count of tender offer fraud, and six counts of securities fraud. The trial took place in the U.S. District Court for the Southern District of New York from July 27, 2016, to August 9, 2016, and the analyst was convicted of all nine counts on August 17, 2016. On appeal, the Second Circuit held that the district court erred by excluding key impeachment evidence the defense had sought to introduce.
Bank Of England Imposes Personal Fines On Two Individuals For Failure To Disclose Ongoing Enforcement Actions
On November 7, 2018, the Bank of England’s Prudential Regulation Authority (“PRA”) handed down rare individual penalties when it imposed fines on two high-level former executives of a UK subsidiary of a Japanese financial institution (the “UK Subsidiary”) for failing to timely inform the PRA of regulatory enforcement matters in the United States. The PRA levied a fine on the former chair (the “Chair”) of the UK Subsidiary and a former Non-Executive Director of the UK Subsidiary (the “NED”), for violating PRA Statement of Principle 4 by failing to inform the Bank of England that the Chair had been implicated in an enforcement action by the New York State Department of Financial Services (“DFS”) and would likely be subject to certain penalties and restrictions. The PRA concluded that the failure to disclose this information impeded its ability to assess the fitness and propriety of the Chair, and therefore warranted penalties. The Chair and NED agreed to settle the PRA’s investigation for £22,700 and £14,945, respectively. See Akira Kamiya, Bank of England Prudential Regulation Authority 1.2 (Nov. 7, 2018) (final notice); Takami Onodera, Bank of England Prudential Regulation Authority 1.2 (Nov. 7, 2018) (final notice).
Delaware Court Of Chancery Holds Alleged Breaches Of Representations Do Not Excuse Buyers’ Noncompliance With Post-Closing Obligations Where Buyers Seek To Enforce Claims For Indemnification
On October 29, 2018, Chancellor Andre G. Bouchard of the Delaware Court of Chancery entered final judgment on counterclaims seeking to enforce covenants in a stock purchase agreement requiring the buyers to remit certain tax refunds and insurance proceeds. Post Holdings, Inc. and Michael Foods of Delaware, Inc. v. NPE Seller Rep LLC, C.A. No. 2017-0772 AGB (Del. Ch. Oct. 29, 2018). National Pasteurized Eggs, Inc. (“NPE”) was sold pursuant to a stock purchase agreement. Thereafter, the buyers initiated an action asserting claims for fraud and breaches of representations and warranties, seeking indemnification under the agreement. The sellers filed counterclaims to enforce covenants in the agreement requiring the buyers to remit certain tax refunds and insurance proceeds. The buyers argued that their obligation to remit such proceeds “should be excused” because of the sellers’ alleged prior material breach. Granting judgment on the pleadings to the buyers, the Court held that “buyers cannot continue to accept the benefits of the contract—as they seek to do in this action through their claim for indemnification—while disclaiming their contractual obligation to remit the tax refunds and insurance proceeds to the sellers promptly after they were received.”
Northern District Of California Holds That Commitments Made In Industry Standard Setting Required Chipmaker To License Standard-Essential Patents To “All Comers,” Including Competitors
On November 6, 2018, Judge Lucy H. Koh of the U.S. District Court for the Northern District of California sided with the Federal Trade Commission (“FTC”) and granted a motion for partial summary judgment, holding that contractual commitments it agreed to in the standards-setting process required the defendant chipmaker to license certain essential patents to competing modem chip suppliers. Federal Trade Comm’n v. Qualcomm Inc., No. 17-CV-00220 (N.D. Cal. Nov. 6, 2018).
Federal Circuit Affirms PTAB Finding That Article Is Not A "Printed Publication"
On November 6, 2018, the Court of Appeals for the Federal Circuit (CAFC) issued an opinion affirming a final written decision by the Patent Trial and Appeal Board (PTAB) finding the patent claims that had been challenged by inter partes review (IPR) to be not unpatentable. Acceleration Bay, LLC v. Activision Blizzard Inc., —F.3d—, (Fed. Cir. November 6, 2018). The CAFC ruled that the patent challenger had not proved that an article available on the Internet before the critical date was a “printed publication,” and that the article therefore was not available as prior art.