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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Northern District Of California Denies Motion To Remand Putative Class Action Asserting Both Securities Act And State Law Claims
On August 10, 2018, United States District Judge Phyllis J. Hamilton of the United States District Court for the Northern District of California denied a motion to remand to state court a putative securities class action against digital currency issuer Ripple Labs, Inc., one of its subsidiaries, and its Chief Executive Officer. Coffey v. Ripple Labs Inc., No. 18-cv-03286-PJH (N.D. Cal. Aug. 10, 2018). Plaintiff, a purchaser of XRP, Ripple’s digital currency, sued defendants in California state court, alleging violations of the Securities Act of 1933 (the “Securities Act”) and California’s blue sky statute. Plaintiff alleges that defendants’ sale of XRP to investors in an initial coin offering (in which digital assets are sold to consumers in exchange for legal tender or other cryptocurrencies) constituted an unregistered sale of securities in violation of the Securities Act and the California Corporations Code. Defendants removed the action to federal court pursuant to Section 1453 of the Class Action Fairness Act (“CAFA”), and plaintiff moved to remand the action to state court. The Court denied plaintiff’s motion, holding that Section 1453 of CAFA provides an independent right to removal that is not precluded by the anti-removal provision in Section 22(a) of the Securities Act, at least in cases not involving a “covered security” as defined in the Securities Litigation Uniform Standards Act (“SLUSA”).
Southern District Of New York Dismisses Securities Class Action Against Brokerage Firm For Failure To Adequately Allege Material Misrepresentations And Scienter
On August 10, 2018, Judge Kimba M. Wood of the United States District Court for the Southern District of New York dismissed a putative securities class action against foreign exchange trading company FXCM Inc. (“FXCM” or the “Company”) and its CEO. Ret. Bd. of the Policemen’s Annuity and Benefit Fund of Chicago v. FXCM, No. 15-cv-03599 (S.D.N.Y. Aug. 10, 2018). Plaintiff alleged that defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the “Exchange Act”) and Rule 10b-5 by making material misstatements and omissions concerning certain risks associated with the Company’s business model. The Court held that the alleged misrepresentations were inactionable “puffery,” too vague to be actionable, or were not misleading because the alleged risks were adequately disclosed when the Company’s disclosures were viewed as a whole. The Court also held that plaintiff had failed to allege a strong inference of scienter.
Former Forex Trader Successfully Avoids Extradition From The UK Through Appeal To UK’s High Court Of Justice
On July 31, 2018, the High Court of Justice of England and Wales, Queen’s Bench Division, rejected the United States (“U.S.”) government’s request to extradite a former FX trader and the former head of a bank’s foreign exchange (“forex”) cash trading for Europe, reversing a lower court ruling that had granted the request. Scott v. Government of the United States of America  EWHC 2021 (Admin). The U.S. Department of Justice (“DOJ”) sought to extradite the trader to face ten counts of wire fraud and one count of conspiracy in the U.S. District Court for the Eastern District of New York for alleged forex-rigging. The High Court found that extradition was not in the interest of justice, because most of the harm from the alleged crimes was felt in the United Kingdom (“UK”) and because of the trader’s strong connection with the UK.
Finding Merger Agreement Provisions Regarding Milestone Payments Ambiguous, Delaware Court Of Chancery Denies Dismissal Of Post-Merger Breach Claims
On August 10, 2018, Vice Chancellor Joseph R. Slights III of the Delaware Court of Chancery denied a motion to dismiss breach of contract claims stemming from a merger agreement pursuant to which defendant, Stora Enso AB, acquired non-party, Virdia, Inc. Fortis Advisors LLC v. Stora Enso Ab, C.A. No. 12291-VCS (Del. Ch. Aug. 10, 2018). Plaintiff, Fortis Advisors LLC, as shareholder representative of Virdia’s pre-merger equity holders, asserted that Stora Enso breached the merger agreement in connection with its failure to achieve certain post-closing milestones obligating it to make certain contingent milestone payments. Finding competing interpretations of the merger agreement both reasonable, the Court declined to dismiss the breach claims.
Southern District Of New York Denies Claims For Investment Banking Fees, Holding That The Engagement Terminated And The “Agreement To Agree” Was Unenforceable
On August 10, 2018, Judge Jesse Furman of the United States District Court for the Southern District of New York denied claims for advisory fees brought by investment bank Stone Key Partners LLC (together with Stone Key Securities LLC, “Stone Key”) against its former client, Monster Worldwide, Inc. (“Monster”). Stone Key Partners LLC v. Monster Worldwide, Inc., Case No. 1:17-cv-3851-JMF (S.D.N.Y. Aug. 10, 2018). Monster engaged Stone Key in April 2012 to assist in a “review of strategic alternatives,” including a possible sale, and agreed to compensate Stone Key if it entered into certain transactions within 12 months of any termination of the engagement; Monster engaged another financial institution as a co-advisor. The engagement letter with Stone Key did not clearly require written notice of termination and provided that Stone Key would be paid 55% of a fee that “shall be mutually acceptable . . . and consistent with compensation agreements customarily agreed to by” investment banks for similar transactions in connection with any “partial sale” transaction within the tail period. The Court found that the engagement ended in August 2013, when it was clear (in the eyes of the Court) that the sale exploration process was over, and thus denied claims for transactions completed in 2015 and 2016. The Court also rejected as unenforceable the partial sale fee provision, finding it to be an unenforceable agreement to agree.
The Ninth Circuit Affirms Implied Antitrust Immunity For USA Track & Field And The United States Olympic Committee
On August 7, 2018, the Ninth Circuit Court of Appeals affirmed a district court holding that USA Track & Field and the United States Olympic Committee were immune to antitrust liability for imposing advertising restrictions during the Olympic Trials for track and field athletes. Gold Medal LLC v. USA Track & Field, No. 6:16-cv-00092-MC (9th Cir. Aug. 7, 2018). The Court held that defendants were entitled to implied antitrust immunity because the advertising restriction was integral to performance of their statutory duties under the Ted Stevens Olympic and Amateur Sports Act (“ASA”) to fund the U.S. Olympic Team. Plaintiff alleged that the defendants’ anticompetitive conspiracy imposing advertising restrictions that excluded certain sponsors from the Olympic Trials for track and field athletes violated Section 1 of the Sherman Act.
Federal Circuit Denies Mandamus Petition Regarding IPR Institution Decision
On Thursday, August 16, 2018, the Court of Appeals for the Federal Circuit (CAFC) issued an opinion denying a patent challenger’s petition for a writ of mandamus in connection with the Patent Trial and Appeal Board’s decision not to institute requested inter partes reviews (IPR). In re. Power Integrations, Inc., —F.3d—, (Fed. Cir. August 16, 2018). The CAFC ruled that the mandamus petition was tantamount to an appeal of the non-institution decision, which is foreclosed by statute.
En Banc Federal Circuit Holds That Dismissal Without Prejudice Of District Court Action Does Not Reset IPR Time-Bar Clock
On Thursday, August 16, 2018, the Court of Appeals for the Federal Circuit (CAFC), sitting en banc, issued an opinion reversing the Patent and Trial Board’s determination that a dismissal without prejudice of a district-court complaint resets the statutory clock for filing inter partes reviews (IPR), and vacating the Patent and Trial Board’s final written decision. Oracle Corp. v. Click-to-Call Techs. LP, —F.3d—, (Fed. Cir. August 16, 2018). The CAFC held that service of an infringement complaint triggers the one-year bar regardless of whether that complaint is later dismissed without prejudice.