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.
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California District Court Grants Motion To Dismiss With Prejudice Putative Securities Class Action Against Healthcare Company, Finding That Plaintiffs Failed To Allege False Statements Or Misleading Omissions In The Company’s IPO Offering Documents
On June 9, 2022, Judge David O. Carter of the United States District Court for the Central District of California granted a motion to dismiss a putative class action lawsuit alleging violations of Sections 10(b) and 20(a) of the Securities Exchange Act (the “Exchange Act”) and Rule 10b-5 thereunder, and Sections 11 and 15 of the Securities Act of 1933 (the “Securities Act”) against a healthcare company (the “Company”), its directors, and the underwriters of the Company’s initial public offering. R. Brian Terenzini v. GoodRx Holdings, Inc. et al., No. 2:20-cv-11444, (C.D. Cal. June 9, 2022). Plaintiffs alleged in their amended complaint that at the time of the Company’s IPO it failed to disclose in its Registration Statement and subsequent investor communications the significant risk of competition from a large online retailer. The Court held that—as with the original complaint—plaintiffs failed to allege actionable misstatements or omissions as well as scienter and granted defendants’ motion to dismiss with prejudice.
SEC Brings Action Against Investment Advisers For Allegedly Misleading Robo-Adviser Clients About Hidden Fees
On June 13, 2022, the Securities and Exchange Commission (“SEC”), announced that it had instituted a settled administrative proceeding accusing several investment advisers (the “Advisers”) that focused on robo-advising, and all of which were themselves subsidiaries of a prominent investment adviser, of violating Sections 203(e) and 203(k) of the Investment Advisers Act of 1940 and Section 15(b) of the Securities Exchange Act of 1934. Broadly, the SEC accused them of failing to invest client cash in ways that their own analyses showed would be optimal for the clients, and instead retaining cash in a way that benefitted the Advisers. The Advisers did not admit or deny the SEC’s allegations as part of the resolution, but as part of the settlement agreed collectively to disgorge approximately $52 million and to pay a civil monetary penalty of $135 million and were also required to engage an independent consultant and engage in certain other undertakings.
SEC Brings Its First Regulation Best Interest Enforcement Action
On June 15, 2022, the Securities and Exchange Commission (“SEC”) filed a complaint in the U.S. District Court for the Central District of California against registered broker-dealer Western International Securities, Inc. (“Western”) and five of its registered representatives (the “Registered Representatives”), alleging that they had violated the Best Interest Obligation under Rule 15l-1(a) of the Securities Exchange Act of 1934 (“Regulation Best Interest” or “Reg BI”) in connection with their recommendations to retail customers to purchase certain unrated debt securities. This is the first action brought by the SEC to enforce Reg BI, and the litigation could lead to important legal rulings clarifying its scope.
M&A AND CORPORATE GOVERNANCE
Delaware Court Of Chancery Issues Post-Trial Judgment In Favor Of Defendant, Rejecting Stockholder’s Section 220 Books And Records Demand
On June 1, 2022, Vice Chancellor Lori W. Will of the Delaware Court of Chancery entered judgment in favor of defendant retail company (the “Corporation”), rejecting a demand for corporate books and records under Delaware General Corporation Law Section 220. Plaintiff, a stockholder, sought the records purportedly to investigate possible mismanagement in connection with the Corporation’s compliance with certain antitrust and tax laws. In response to the demand, the Corporation produced certain board-level materials but declined to comply with plaintiff’s request for a wide array of additional documents. Following a trial on a paper record, the Court found that plaintiff failed to demonstrate the requisite “credible basis” to suspect wrongdoing, and in any event, the demand was “satisfied” because the Corporation “produced all necessary and essential documents related to the alleged wrongdoing discussed in the demand.”
District Judge Tosses States’ Disgorgement Claim Under Section 16 Of Clayton Act In Pricing Fixing Litigation
On June 7, 2022, Judge Cynthia M. Rufe of the United States District Court of the Eastern District of Pennsylvania partially granted and partially denied a motion to dismiss a claim for disgorgement under Section 16 of the Clayton Act brought by state attorney generals against 20 generic drug manufacturers alleging price fixing in generic drugs. In re Generic Pharmaceuticals Pricing Antitrust Litigation, 16-MDL-2724 (E.D. Pa. June 7, 2022). The Court dismissed the state enforcers’ disgorgement claim, holding that Section 16 of the Clayton Act does not allow for relief for past conduct. The Court denied the motion as to plaintiffs’ claims for prospective, non-monetary equitable relief, concluding that plaintiffs had parens patriae standing to pursue injunctive relief on behalf of their citizens, but not damages.
INTELLECTUAL PROPERTY LITIGATION
Federal Circuit Finds That Reliance On An Obvious Minor Clerical Error Is Not A Defense To Willful Infringement
On June 3, 2022, the United States Court of Appeals for the Federal Circuit (“CAFC”) affirmed the correction of an obvious minor clerical error in the asserted claim language and a judgment of willfulness by the United States District Court for the Central District of California (“CDCA”). Pavo Sols. LLC v. Kingston Tech. Co., Inc., No. 2021-1834 (Fed. Cir. June 3, 2022). The CAFC found that the CDCA properly corrected an obvious minor clerical error in the asserted claims and held that defendant’s reliance on such error was not a defense to willful infringement.