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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Southern District Of New York Denies Motion For Judgment On The Pleadings, Rejecting Argument That Code Of Conduct Statements Were Inactionable Puffery
On June 11, 2019, Judge Colleen McMahon of the United States District Court for the Southern District of New York denied defendants’ motion for judgment on the pleadings in a putative securities class action asserting violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the “Exchange Act”) against a jewelry retailer (the “Company”) and certain of its senior executives. In re Signet Jewelers Limited Sec. Litig., No. 16-cv-6728, 2019 WL 2428529 at *1 (S.D.N.Y. Nov. 26, 2018). Plaintiff alleged that certain declarations filed in connection with a separate gender discrimination case rendered false and misleading the Company’s public statements about its commitment to preventing gender discrimination. Rejecting defendants’ argument that the Company’s statements were inactionable puffery, the Court ruled that plaintiff had adequately pleaded that the statements were material because, among other things, they appeared to be directly and specifically at odds with the conduct alleged in the complaint.
SEC Files Contested Complaint Over Unregistered $100 Million Initial Coin Offering, In Case That Could Clarify Application Of Registration Requirements To Cryptocurrency
On June 4, 2019, the U.S. Securities and Exchange Commission (“SEC”) sued Kik Interactive Inc. (“Kik”) for conducting an unregistered offering of $100 million of digital tokens. See U.S. Securities and Exchange Commission v. Kik Interactive Inc., No. 19-cv-5244 (S.D.N.Y. June 4, 2019). The case has already generated substantial publicity, as Kik previously published a Wells submission it had lodged with the SEC urging against an enforcement action. Kik has argued that the digital tokens it offered were currency, not securities, and that in any event proceeding through enforcement is improper in the face of uncertainty as to how the securities laws apply to initial coin offerings (“ICOs”). The SEC has taken increasingly forceful positions that ICOs require registration, and this case may test the limits of its arguments.
Delaware Court Of Chancery Denies Motion To Dismiss Fiduciary Duty Breach Claims Related To Repricing Of Stock Options
On June 13, 2019, Vice Chancellor Kathaleen S. McCormick of the Delaware Court of Chancery largely denied a motion to dismiss a derivative action for breach of fiduciary duty and unjust enrichment against directors and officers of a biosciences company (the “Company”) in connection with the alleged repricing of stock options shortly before the company announced the issuance of a “key” patent to its subsidiary. Howland v. Kumar, C.A. No. 2018-0804-KSJM (Del. Ch. June 13, 2019). Plaintiff, a stockholder in the Company, alleged that the directors and officers were aware of the patent issuance yet delayed the public announcement until after the board’s compensation committee approved the reduction in the strike price of more than 2 million stock options primarily held by defendants. The Court held that pre-suit demand on the board was excused, because a majority of the board was “interested by virtue of having received the repriced options.” Applying an “entire fairness” standard of review, the Court found that it was reasonably conceivable from the pleadings that the process and price were unfair and, therefore, denied the motion to dismiss.
Northern District Of Georgia Rules On Antitrust State Action Immunity
On May 8, 2019, Judge William M. Ray II of the United States District Court for the Northern District of Georgia issued an order granting in part and denying in part defendants’ motion to dismiss. SmileDirectClub, LLC, v. Georgia Board of Dentistry, et al., No. 1:18-cv-02328-WMR (D.N.G. 2019). Plaintiff alleged that the Georgia Board of Dentistry (the “Board”) and its individual members (collectively, “defendants”) conspired to exclude non-dentists from participating in the market for orthodontic aligner treatment services in Georgia. The Court found that claims against the Board were barred by sovereign immunity, while claims against individual members of the Board were adequately pled and survived dismissal.
Federal Circuit Rules That State Sovereign Immunity Does Not Bar IPRs
On June 14, 2019, the Court of Appeals for the Federal Circuit (“CAFC”) issued an opinion affirming Patent Trial and Appeal Board (“PTAB”) decisions declining to dismiss petitions for inter partes review (IPR). Regents of the Univ. of Minn. v. LSI Corp. et al., —F.3d—, (Fed. Cir. June 14, 2019). The CAFC ruled that the doctrine of sovereign immunity does not bar IPR of state-owned patents.