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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Eastern District Of New York Dismisses Putative Class Action Against Pharmaceutical Company For Failure To Adequately Allege Misstatements And Scienter
On August 6, 2019, Judge Edward R. Korman of the United States District Court for the Eastern District of New York dismissed a putative securities class action asserting claims against a pharmaceutical company and certain of its officers under Section 10(b) of the Securities Exchange Act of 1934. In re Aceto Corp. Sec. Litig., No. 18-CV-2425 (ERK-AYS) (E.D.N.Y. Aug. 6, 2019). Plaintiff alleged that defendants made misrepresentations in connection with disclosures concerning the company’s compliance with internal controls, earnings forecasts, and regarding the valuation of goodwill and intangible assets. The Court held that the complaint failed to plead an actionable misstatement or scienter, but granted leave to replead.
New York State Court Holds PSLRA Bars Discovery In State Securities Act Cases Pending A Motion To Dismiss
On August 7, 2019, New York State Supreme Court Justice Andrew Borrok issued a stay of discovery, pending resolution of a motion to dismiss, in a putative class action asserting claims under the Securities Act of 1933. In re Everquote, Inc. Sec. Litig., Index No. 651177/2019, 2019 WL 3686065 (Sup. Ct. N.Y. Cnty. Aug. 7, 2019). Justice Borrok held that the automatic discovery stay under the Private Securities Litigation Reform Act of 1995 (“PSLRA”) applied to Securities Act claims brought in state court.
District Of New Jersey Allows Class Action Based On Alleged Price-Fixing To Proceed Against Pharmaceutical Company
On August 6, 2019, Judge Katherine S. Hayden of the United States District Court for the District of New Jersey denied a motion to dismiss a putative securities class action asserting claims under Sections 10(b) and 14(a) of the Securities Exchange Act of 1934, and Rules 10b-5 and 14a-9 promulgated thereunder. In re Allergan Generic Drug Pricing Sec. Litig., No. 16- CV-9449, 2019 WL 3562134 (D.N.J. Aug. 6, 2019). Plaintiffs alleged that a pharmaceutical company and several of its executives participated in a price-fixing conspiracy that caused the prices of six generic drugs sold by the company to increase dramatically during the alleged class period—as ultimately revealed through a U.S. Department of Justice investigation—and that defendants made material misstatements and omissions regarding the alleged conspiracy. The Court held that plaintiffs adequately pleaded their claims, including with respect to material misstatements, scienter and loss causation.
Second Circuit Limits The Application Of McDonnell v. United States And Declines To Extend The Potential Scope Of Liability In FCPA Cases
On August 9, 2019, the United States Court of Appeals for the Second Circuit denied the appeal by a Chinese real estate developer of his 2017 conviction arising from the alleged bribery of United Nations (“UN”) officials. U.S. v. Ng Lap Seng, No. 18-1725 (2d Cir. 2019). In affirming the conviction, the Second Circuit ruled that the holding in McDonnell v. United States—in which the Supreme Court held that prosecutors must prove that a bribe is paid in exchange for an “official act” in cases involving the federal anti-bribery statute (18 U.S.C. § 201)—does not apply to prosecutions under the Foreign Corrupt Practices Act (“FCPA”). The Second Circuit clarified in its ruling that the FCPA and the anti-corruption law aimed at protecting federal funding, known as Section 666, are written differently and target a broader set of bribery goals than the federal anti-bribery statute that was at issue in McDonnell.
Delaware Supreme Court Clarifies That Section 220 Books And Records Demands Are Not Subject To A Presumption Of Confidentiality
On August 7, 2019, in a decision authored by Justice Gary F. Traynor, the Delaware Supreme Court concluded that books and records produced to a stockholder under Section 220 of the Delaware General Corporation Law are not subject to a presumption of confidentiality. Tiger v. Boast Apparel, Inc., C.A. No. 23, 2019 (Del. Aug. 7, 2019). In this case, the Delaware Court of Chancery referenced such a presumption when it issued an order requiring the stockholder to keep such records confidential indefinitely. The Delaware Supreme Court affirmed the indefinite confidentiality order as “within the range of reasonableness … given the facts and circumstances of this case.” But the Court expressly clarified that there is no such presumption of confidentiality and the Court of Chancery must instead “assess and compare benefits and harms when determining the initial degree and duration of confidentiality” in connection with a Section 220 demand.
D.C. Circuit Grounds Competition Challenge To FAA Regulations For Lack Of Standing
On August 2, 2019, the United States Court of Appeals for the District of Columbia Circuit dismissed an airline technology company’s petitions for review of regulations that petitioner alleged both restricted competition for airport flight slots and limited petitioner’s market opportunity for lack of standing. Exhaustless Inc. v. FAA, Case No. 18-1304 (D.C. Cir. 2019). The panel—Judges Karen Henderson, Sri Srinivasan and Cornelia Pillard—ruled that petitioner failed to show that it was injured or would incur injury from the Federal Aviation Association’s regulations limiting the number of flights out of LaGuardia and JFK Airports.
PTAB Designates Precedential Two Additional Opinions Regarding Discretionary Denials Of IPR Institution Under Sections 314(a) And 325(d)
On August 2, 2019, the Patent Trial and Appeal Board (“PTAB”) of the United States Patent and Trademark Office designated as precedential two Decisions on Institution. Valve Corp. v. Elecs. Scripts Prods. Inc., IPR Case Nos. IPR2019-00064, -00065, -00085, Paper 10 (PTAB May 1, 2019) (designated: Aug. 2, 2019); Becton, Dickinson & Co. v. B Braun Melsungen AG, Case No. IPR2017-01586, Paper 8 (PTAB Dec. 15, 2017) (designated: Aug. 2, 2019). In Valve, the PTAB held that General Plastic factor 1—concerning discretionary denials under 35 U.S.C. § 314(a) for “follow-on” petitions—applied to a joined petitioner. In Becton, Dickinson, the PTAB delineated a list of factors to consider when determining whether to exercise its discretion to deny a petition under 35 U.S.C. § 325(d) where “the same or substantially the same prior art or arguments previously were presented to the Board.”