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Need-to-Know Litigation Weekly

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.


By clicking on the title of any case writeup, you can expand beyond the introductory paragraph to read the entire summary and analysis, and you also can access the underlying material. Clicking on the title of any case writeup also automatically will take you to our Need-To-Know Litigation Weekly microsite, which provides separate links to the four substantive areas (Securities Litigation, M&A Litigation, Government/Regulatory Enforcement, Antitrust Litigation and IP Litigation), each of which contains filters that are searchable both by substantive topic and by time period that will enable you to search and access our existing case summaries and analyses.

Please feel free to contact us at litigation_weekly@shearman.com if you would like us to add any of your colleagues to the weekly distribution list.

SECURITIES LITIGATION

 

New York State Trial Courts Remove COVID-19 Emergency Restriction On Filing New Commercial Actions
 

On May 20, 2020, in light of evolving circumstances with respect to the COVID-19 health emergency, the Chief Administrative Judge of the New York State Courts issued a Memorandum lifting some of the restrictions previously put in place concerning court filings and other activities in New York State trial courts.  The most significant change is that certain electronic filings will now be permitted again.

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Second Circuit Affirms Dismissal Of Actions Seeking Disgorgement Of “Short-Swing” Profits From Investment Advisors’ Clients, Holding That Clients’ Delegation Of Discretionary Investment Authority Did Not Render Them Members Of A “Group” With Their Investment Advisors

 
On May 20, 2020, the United States Court of Appeals for the Second Circuit issued two decisions affirming, on substantially similar grounds, the dismissal of two actions asserting claims under Section 16(b) of the Securities Exchange Act against clients of investment advisors.  Rubenstein v. International Value Advisers, LLC, No. 19-560-cv (2d Cir. May 20, 2020) (“IVA”); Rubenstein v. Rofam Inv. LLC, No. 19‑796‑cv (2d Cir. May 20, 2020).  Plaintiff alleged that certain investment advisors’ clients earned improper “short-swing” profits from equity trades because the advisors, who were statutory insiders of the issuers of the stock, bought and sold securities on their clients’ behalf within a six-month period; plaintiff, a shareholder of the issuers in question, thus sought disgorgement of the clients’ profits.  Affirming the lower courts’ decisions, the Second Circuit held that plaintiff failed to establish that the clients formed a “group” with their investment advisors such as to impute insider status on the clients, and therefore failed to show that the trades were prohibited under the Exchange Act.

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Southern District Of New York Holds Syndicated Term Loan Notes Sold To Buyers Are Not “Securities”


On May 22, 2020, Judge Paul G. Gardephe of the United States District Court for the Southern District of New York dismissed a complaint asserting claims under state blue-sky laws as well as common-law claims against financial institutions that acted as arrangers on syndicated Term Loan B notes (“TLBs”), holding that the notes at issue are not “securities.”  See Kirschner v. JPMorgan Chase Bank, N.A., No. 17-cv-6334 (PGG) (May 22, 2020).  This is an important decision in that it is the first case of which we are aware to address whether TLBs are securities.  Plaintiff was granted leave to amend, although the basis for an amendment is not apparent.

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District Of New Jersey Largely Upholds Claims In Putative Class Action Alleging Misleading Asbestos-Related Liability Projections


On May 18, 2020, Judge William J. Martini of the United States District Court for the District of New Jersey denied a motion to dismiss a putative class action asserting claims under Section 10(b) of the Securities Exchange Act and Rule 10b-5 promulgated thereunder against a consumer and industrial products company and certain of its executives.  Kanefsky v. Honeywell Int’l Inc., No. 18-cv-15536, slip op. (D.N.J. May 18, 2020), ECF No. 106.  Plaintiff alleged that the company made misrepresentations in SEC filings and public statements regarding the projected asbestos liability arising from its acquisition of a manufacturer of automobile brakes.  The Court held that plaintiff adequately alleged falsity, scienter, and loss causation as to certain alleged misstatements.

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GOVERNMENT/REGULATORY ENFORCEMENT

 

Supreme Court Overturns Third Circuit, Throws Out Bridgegate Convictions


On May 7, 2020, the U.S. Supreme Court unanimously overturned a ruling from the United States Court of Appeals for the Third Circuit that upheld the convictions of two former New Jersey officials who were part of the 2013 “Bridgegate” scandal to realign lanes to the George Washington Bridge (“GWB”).  Kelly v. United States, No. 18-1059, 588 U.S. __, 2020 WL 2200833 (2020).  Writing for a unanimous court, Justice Kagan wrote that while the conduct at issue may have constituted an abuse of power, it did not amount to a violation of either the federal wire fraud statute or a violation of the federal program fraud statute because the object of the scheme was the implementation of a regulatory object, rather than to obtain money or property.

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M&A

 

Delaware Court Of Chancery Finds Controlling Investor’s Cash-Accumulation Strategy In Advance Of Preferred Stock Redemption Payments Satisfied Entire Fairness 


On May 4, 2020, Vice Chancellor J. Travis Laster of the Delaware Court of Chancery ruled in a post-trial opinion that a controlling investor’s efforts to accumulate cash in anticipation of its preferred stock redemptions were entirely fair.  Frederick Hsu Living Trust v. ODN Holding Corp., No. 12108-VCL (Del. Ch. May 4, 2020).  Plaintiff, a common stockholder of ODN Holding Corporation, alleged that the private equity firm that held a controlling interest—including a majority of the common stock and a series of preferred stock—along with the company’s directors and officers, breached their fiduciary duties by engaging in a cash accumulation strategy, rather than seeking to enhance the company’s long-term growth.  Having previously sustained plaintiff’s claims at the pleadings stage, the Court held that defendants proved at trial that their conduct was entirely fair and entered judgment in favor of defendants.

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ANTITRUST

 

Important Procedural Developments In Litigation Over Two-Sided Markets


There were two developments in litigation involving the treatment of two-sided markets that, while not groundbreaking themselves, could portend significant implications for future litigation involving two-sided markets.  

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INTELLECTUAL PROPERTY

 

Federal Circuit Affirms PTAB’s Obviousness Decision And Finds Challenge To “Real Party In Interest” Requirement Non-Appealable
 

On May 19, 2020, the Court of Appeals for the Federal Circuit (CAFC) issued an opinion affirming the obviousness decision of the U.S. Patent and Trademark Office’s Patent Trial and Appeal Board (PTAB), and finding non-appealable the PTAB’s decision to institute inter partes review (IPR) notwithstanding a challenge that Petitioner-Appellee failed to identify “all real parties in interest.”  ESIP Series 2, LLC v. Puzhen Life USA, LLC, __ F.3d __ (Fed. Cir. May 19, 2020).  The CAFC found that substantial evidence supported the PTAB’s finding that a skilled artisan would have been motivated to combine the teachings of each prior art reference to arrive at the claimed invention, and that Patent Owner-Appellant’s challenge to the PTAB’s “real parties in interest” determination was not appealable.

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