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Sept. 26 — With the resolution last term of a controversial 1934 Securities Exchange Act class securities fraud dispute, 1933 Securities Act pleading issues will be at the forefront of the U.S. Supreme Court's securities docket upon its Oct. 6 return.
One closely followed case on tolling, Pub. Emps.' Ret. Sys. of Miss. v. IndyMac MBS Inc., No. 13-640, however, will not face scrutiny by the Justices. As anticipated, the Supreme Court Sept. 29 dropped from its docket a dispute over whether American Pipe tolling applies to the three-year statute of repose set out in 1933 Securities Act Section 13 (Pub. Emps' Ret. Sys. of Miss. v. IndyMac MBS Inc., U.S., No. 13-460, 9/29/14).
Nonetheless, the Justices will weigh in on at least one '33 Act issue during the coming session. On Nov. 3, in Omnicare Inc. v. Laborers District Council Construction Industry Pension Fund, No. 13-435, the Court will consider whether knowledge of falsity is required to state a Section 11 claim (29 CCW 188, 6/18/14).
Although neither case commands the attention focused on last term's decision in Halliburton Co. v. Erica P. John Fund Inc. (29 CCW 193, 6/25/14), lawyers say this year's docket also could have significant consequences for securities litigation.
In fact, according to Washington lawyer Daniel Sommers, Cohen Milstein Sellers & Toll PLLC, in Omnicare, the justices “will decide one of the most important cases governing civil liability under the Securities Act in recent memory.”
Washington attorney Stephen Crimmins, K&L Gates LLP, agreed that Halliburton “was certainly not the final word,” saying the standards for securities litigation “will always be a work in progress.” This is especially true,” he added, “where federal appeals courts disagree with each other, as in Omnicare, where courts differ over whether opinion statements must be shown to be subjectively false.”
In Omnicare,a federal district court early last year dismissed claims that the defendant healthcare-services provider—which allegedly submitted fraudulent reimbursement claims to Medicare and Medicaid—falsely stated that its billing practices complied with state and federal requirements. Among other specifics, it said the plaintiffs failed to show that the defendants knew their statements about legal compliance were false at the time they were made.
Shortly thereafter, however, the U.S. Court of Appeals for the Sixth Circuit reversed. It agreed with the plaintiffs that '33 Act Section 11 provides for strict liability; as such, the lower court erred when it required them to plead knowledge in connection with their Section 11 claim.
“Section 11 provides a remedy for investors who have acquired securities pursuant to a registration statement that was materially misleading or omitted material information.” It does not require a plaintiff to plead the defendant's state of mind, the appeals court held.
In March, the Justices agreed to review the controversy.
“In view of the heavy burden securities litigation imposes on the courts and litigants, the Supreme Court realizes that it's important to continually fine-tune the ground rules for these cases,” Crimmins told Bloomberg BNA.
In an e-mail, he said Omnicare will give the court “another opportunity to limit the cases that make it through the gate into the expensive litigation process.”
“The Supreme Court will never be done with its work of pruning these cases to ease the burden on the courts while allowing legitimate claims to be heard.”
Government lawyers largely support the Omnicareplaintiffs' position (29 CCW 188, 6/18/14). In an amicus curiae brief, Justice Department and Securities and Exchange Commission attorneys told the Justices that a statement of opinion or belief is actionable “if it lacked a basis that was reasonable under the circumstances, even if it was sincerely held.”
In addition to pending cases, a number of certiorari petitions raising securities law issues also await the Justices' Oct. 6 return.
In a noteworthy certiorari petition, two former telecommunications executives convicted over their alleged roles in a foreign bribery scheme are seeking high court review of a federal appeals court's first-impression definition of “instrumentality” for Foreign Corrupt Practices Act purposes (Esquenazi v. United States, No. 14-189)(29 CCW 260, 8/20/14).
In the '34 Act Section 10(b) arena, hedge fund founder Doug Whitman wants the high court to review a U.S. Court of Appeals for the Second Circuit decision affirming his conviction on insider trading charges (Whitman v. United States, No. 14-29) (29 CCW 138, 4/30/14).
In other securities fraud matters, the parameters of the high court's 2010 decision in Morrison v. National Australia Bank Ltd., 561 U.S. 247) continue to unfold.
In Morrison, the Justices took a relatively narrow view of the federal securities laws' extraterritorial reach, concluding that Section 10(b) applies only to securities listed on a U.S. exchange or to securities transactions that take place in the U.S. (25 CCW 198, 6/30/10).
This year, a group of overseas investors in allegedly fraudulent Texas joint ventures contended in a certiorari petition that the U.S. Court of Appeals for the Fifth Circuit misapplied Morrison when it affirmed dismissal of their securities fraud claims on the ground that the challenged transactions occurred overseas (Aaes v. 4G Cos., No. 14-183).
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