Q&A with Murielle Steven Walsh

INTERVIEW WITH ATTORNEY: MURIELLE STEVEN WALSH | POMERANTZ MONITOR | MARCH/APRIL 2020

From class actions involving #MeToo misconduct (Ferris v. Wynn Resorts Ltd.), wearable health technology (Robb v. Fitbit Inc.), and digital games that create real-world nuisances (Pokémon Go), Pomerantz partner Murielle Steven Walsh has been at the forefront of many cutting-edge issues that are not only challenging society and shareholder values, but also challenging the scope of securities law with novel and untested legal theories. Since joining the Firm in 1998, she has prosecuted numerous high-profile, highly successful securities class action and corporate governance cases. Murielle was recently honored as a 2020 Plaintiffs’ Lawyer Trailblazer by the National Law Journal.

The ground-breaking litigation that you pursued as lead counsel in the Pokémon Go case involved gameplay in the digital world that crossed over to actions taken in the real world. Can you tell us more about that case?

MSW: Pokémon Go is an “augmented reality” game in which players use their smartphones to “catch” Pokémon in real-world surroundings. Niantic, the game’s creator, placed Pokémon and other game items on private property using GPS coordinates, thereby encouraging players to trespass onto those properties so that they could advance in the game. This naturally resulted in mass trespass and nuisance. We filed a case against Niantic alleging that it committed trespass by putting its game items on private property without permission. This case was a true trailblazer because the body of law on trespass to date had not addressed trespass by virtual objects. The court recognized that our claims were novel but denied the defendants’ motion to dismiss because “novel and open issues cut strongly against dismissal.”

We secured a very favorable settlement with defendants in which they agreed to quickly remove game items from private single-family properties upon request, and to take proactive measures to avoid placing game items on private property in the future. The defendants will also pay for an independent audit to make sure they are complying with all the settlement requirements.

As #MeToo-related litigation accelerates, what should companies be taking away when it comes to the actionability of their statements about their Code of Conduct? And should a Code of Conduct be held as a statement in its own right?

MSW: Recently, as a result of the #MeToo movement, investors have filed cases alleging that companies misled them by claiming to have a Code of Conduct to ensure legal compliance and a high standard of ethics, while at the same time their executives were engaging in sexual harassment and/or discrimination. A few courts have upheld these complaints and permitted the cases to proceed, showing that corporations must be more vigilant about their executives’ misconduct because this information is increasingly very important to investors.

Pomerantz is representing investors in a class action against Wynn Resorts. The case alleges that Wynn’s founder and CEO, Steve Wynn, had been engaging in egregious sexual misconduct against the company’s female employees, that Wynn’s senior management was actively covering up his conduct, and that the Company failed to report the misconduct to gaming regulators as legally required. While all this was happening, the company was falsely assuring investors that it was committed to enforcing legal and ethical conduct, and at one point outright publicly denied that it had withheld information from regulators. On May 27, 2020, the court granted the defendants’ motion to dismiss, but granted us leave to amend, which we will certainly do, and we are hopeful that the court will sustain our amended pleadings. We feel strongly about this case and we always believe in fighting the good fight.

With the Allergan litigation, you successfully prevailed against a motion to dismiss based on the claim that a statement was literally true but actually misleading. Can you elaborate on the nuance of that position in this case?

MSW: The case against Allergan, which manufactures textured breast implants, challenges the defendant’s statements during the class period about a “possible link” between breast implants generally and the development of a rare but potentially fatal lymphoma, ALCL. But they didn’t disclose that their products had actually been associated with a higher risk of ALCL than other manufacturers. So, even though Allergen’s statement disclosing “a possible link” between ALCL and implants was a literally true statement, it was nonetheless misleading because it conveniently omitted the fact that their products specifically were linked to a higher incidence risk. Thus, the defendants took a literally true statement and softened it to the point that it was misleading. Courts have gone both ways on this issue, but in this case the court sided with us.

Your work on EBC I v. Goldman Sachs led to a landmark ruling involving the fiduciary duty that underwriters owe to IPO issuers. What was the biggest challenge that you faced in making this case?

MSW: We represented a bankrupt issuer, eToys, in a case against the lead underwriter of its IPO, alleging that it breached its fiduciary duty by underpricing the IPO. The underwriter had an incentive to underprice because it allocated the shares to its favored clients, who reaped huge profits by immediately flipping the shares. At the time, this was quite a novel claim. Goldman Sachs argued that the lead underwriter-issuer relationship is an arm’s length transaction, and no more. But we were able to convince the Court that a fiduciary duty can arise where the issuer relies on the underwriter and its superior expertise to price the IPO with the client’s best interests in mind.

The typical compensation structure in an IPO further supports a fiduciary duty claim. The lead underwriter earns its fee as a certain percentage of the IPO price - which would give the issuer even more reason to believe that the underwriter’s interests were aligned with the issuer in pricing the stock as high as possible.

The trial court agreed with us and upheld the fiduciary duty claim, and Goldman Sachs appealed the issue up to the New York Court of Appeals. We prevailed there as well and obtained a landmark decision.

Can you speak about your work as a member and Secretary of the Board of Trustees of CASA (Court Appointed Special Advocates of Monmouth County)?

MSW: I serve on the executive committee of the Board of Trustees for CASA in Monmouth County. At CASA, volunteers are trained to work on cases that involve children who were removed from their homes because of abuse or neglect. After removal, the court has to step in to determine the long-term placement of the child. Before CASA was founded, courts didn’t have enough factual information about a child’s specific situation in order to make this very critical decision. CASA volunteers work with the child, gather facts about the child’s family and specific situation, and identify what other supportive individuals the child has in her or his life. With this information, they make a recommendation to the judge regarding long-term placement. In many cases, CASA volunteers are the only consistent adult presence for the child during this very traumatic time. CASA’s work is so important, and I’m proud to be part of it.

Learn more about Murielle in her Lawyer Limelight on Lawdragon and in her Pomerantz bio.