Delaware Supreme Court Grants Investor Request To Inspect Electronic Corporate Record

ATTORNEY: SAMUEL ADAMS
POMERANTZ MONITOR SEPTEMBER/OCTOBER 2019

A recent decision by the Delaware Supreme Court clarified that shareholders are potentially entitled to receive emails, text messages, and other electronic records in connection with well-founded books and records requests under certain circumstances. Previously there had been some doubt that produceable “books and records” included those stored in electronic form, with courts often limiting production to hard copy documents actually reviewed by the board. In most cases, traditional, non-electronic documents will likely be sufficient to satisfy a plaintiff’s proper purpose in a books and records action.

By way of background, many states, including Delaware, allow shareholders to request access to review corporate books and records provided, in general, that the shareholder can articulate a “proper purpose” and that the documents sought are narrowly-tailored and reasonably related to the shareholder’s proper purpose. A shareholder may inspect a corporation’s books and records for any proper purpose rationally related to the stockholder’s “interest as a stockholder.” Commonly accepted proper purposes include valuing a shareholder’s interest in a company and investigating wrongdoing, mismanagement or corporate waste. Shareholders also commonly request books and records in anticipation of serving a litigation demand on a public company.

A books and records request can be a vital tool for shareholders weighing whether to file a potential shareholder lawsuit. Documents produced in response to a books and records demand can be instrumental in providing additional evidence that allows a plaintiff to prevail on a motion to dismiss, by presenting detailed and specific information detailing the alleged wrongdoing and demonstrating that the directors participated in or known about the wrong-doing or otherwise have a conflict of interest. In recent years shareholder plaintiffs have increasingly made use of books and records demands prior to commencing litigation. In particular, the Delaware courts have admonished shareholders to use the “tools at hand” and request access to critical books and records prior to commencing certain types of shareholder lawsuits, including share-holder derivative actions and lawsuits challenging mergers and acquisitions.

In KT4 Partners LLC v. Palantir Techs., Inc., the Delaware Supreme Court reversed a lower court’s decision denying a request for access to certain electronic books and records. The plaintiff’s books and records demand sought to “investigate fraud, mismanagement, abuse, and breach of fiduciary duty” by officers and directors of Palantir. Although the trial court found that the plaintiff had shown a proper purpose, it nonetheless denied the plaintiff’s requests for the production of emails and other electronic documents related to that proper purpose.

On appeal, the Delaware Supreme Court determined that the Court of Chancery had abused its discretion by “denying wholesale [plaintiff’s] request to inspect emails” related to its proper purpose. In this instance, the plaintiff was able to identify documents that it needed and provided a basis for the court to infer that those documents likely existed in electronic form. The Delaware Supreme Court concluded that Palantir “did not honor traditional corporate formalities … and had acted through email in connection with the same alleged wrongdoing that [plaintiff] was seeking to investigate.” Making matters worse, Palantir, faced with plaintiff’s allegations, failed to present any evidence of its own that more traditional materials, such as board resolutions or minutes, even existed, much less would satisfy plaintiff’s need to investigate its proper purpose. Thus, the court took the unusual step of ordering the production of emails in addition to more traditional corporate books and records.

A clear takeaway from the court’s decision is that, if a company elects to conduct business through electronic communications, it assumes the risk that these electronic communications may be the subject of a books and records demand. To this end, the court noted that a company “cannot use its own choice of medium to keep stock-holders in the dark about the substantive information to which [the Delaware books and records statute] entitles them.” Conversely, where a company is careful to conduct all of its official business through more traditional channels, a plaintiff will likely have more difficulty demonstrating its need to access electronic communications and electronic documents in a books and records action.

Following the reasoning of the KT4 decision, the Delaware Chancery Court recently ordered the production of electronic communication in a books and records action against Facebook involving data privacy breaches. Among other categories of documents, the plaintiffs in that action sought “electronic communications, if coming from, directed to or copied to a member of the Board,” regarding the alleged misconduct. There, the court found that “[p]laintiffs have presented evidence that [Facebook] Board members were not saving their [hardcopy] communications regarding data privacy issues for the boardroom.” Limiting its production to hard copy documents, Facebook produced only a compilation of highly redacted Board minutes that contain “essentially no information regarding the relevant subject.” Accordingly, the court in that instance granted in part plaintiffs’ request to produce electronic communications, even though Facebook ad-hered to many “traditional corporate formalities” which Palantir did not.

Read together, KT4 and Facebook indicate that Delaware courts are beginning to take a more contemporary, real world approach in considering whether the production of electronic communications are necessary to satisfy a plaintiff’s proper purpose in a books and records actions. Where plaintiffs are able to present evidence that a company utilizes electronic communications in conducting official business, they will be able to present stronger arguments in favor of the production of electronic communications in books and records actions and, in the process, potentially secure the production of evidence which may, in turn, be critical in building a case at the early stages of litigation. Given the crucial role played by electronic communications in most business transactions, it is likely that production of such documents will be far more commonplace in future books and records cases.

Second Circuit Again Considers “Price Maintenance Theory” In Securities Class Actions

ATTORNEY: BRIAN CALANDRA
POMERANTZ MONITOR SEPTEMBER/OCTOBER 2019

On June 26, 2019, the Second Circuit heard oral argument on the defendants’ appeal of the district court’s class certification order in Arkansas Teacher Retirement System v. Goldman Sachs Group, Inc. (“ATRS”). The panel’s decision could provide guidance on how district courts should apply the Supreme Court’s decision concerning the “fraud on the market” presumption of reliance in securities fraud class actions involving the so-called price maintenance theory. This theory asserts that defendants’ fraud did not inflate the price of the company’s stock but, rather, prevented it from falling by misrepresenting or concealing bad news.

Demonstrating that the critical issue of investor reliance can be established on a class wide basis has always been a crucial issue in securities litigation. In Basic v. Levinson, the Supreme Court held that in securities class actions involving stock traded on “efficient markets”, courts may presume that investors all relied on “the integrity of the price set by the market,” and that fraudulent statements would have distorted the market price. In Halliburton Co. v. Erica P. John Fund, Inc. (“Halliburton II”), the Supreme Court held that defendants can rebut the presumption by showing “that the asserted misrepresentation (or its correction) “did not affect the market price of the defendant’s stock” because it was not “reflected in the market price at the time of [the investor’s] transaction.”

The simplest and most straightforward evidence of price impact is a misstatement quickly followed by an increase in the market price. Sometimes, however, plaintiffs try to demonstrate price impact by showing that the statement in question “maintain[ed] the inflation that is already present in a security’s price.” In other words, under this “price maintenance” theory, price impact is shown where a misstatement maintains that security’s artificially inflated price.

The Supreme Court’s decision in Halliburton II did not address several issues concerning the fraud-on-the-market presumption, including how defendants can rebut plaintiffs’ showing of price impact in cases alleging price maintenance. The Second Circuit panel in ATRS, however, squarely raises these issues.

ATRS arose out of losses incurred by investors in four collateralized debt obligations issued by Goldman Sachs (the “Goldman CDOs”). The Goldman CDOs in 2006 and 2007, shortly before the 2008 financial crisis, without disclosing that the CDOs were designed so that a Goldman hedge fund client, or Goldman itself, could reap billions in profits when the assets underlying the CDOs failed.

Plaintiffs, purchasers of Goldman common stock, filed a class action against Goldman and certain of its officers and directors alleging that they had made material misstatements and omissions regarding the conflicts of interest attendant to the Goldman CDOs, which harmed investors in Goldman’s stock when the stock price declined after the conflicts of interest were disclosed. According to plaintiffs, while Goldman was marketing the CDOs to its clients, it was filing 10-Ks with the SEC and releasing annual reports assuring investors that the firm had “extensive procedures and controls that are designed to identify and address conflicts of interest.” Plaintiffs alleged that these and other statements were revealed to be false when the press reported that (i) the SEC had filed a civil lawsuit charging Goldman with securities fraud in connection with one CDO, (ii) the United States Department of Justice had opened a criminal investigation into whether Goldman had committed securities fraud in connection with its mortgage trading and (iii) the SEC had opened an investigation into a second CDO.

After the court rejected defendants’ motion to dismiss the complaint, the ATRS plaintiffs then moved to certify a class of all purchasers of Goldman common stock during the relevant period. Defendants opposed class certification on the grounds that plaintiffs had failed to demonstrate “price impact.” Specifically, defendants submitted declarations and affidavits saying that Goldman’s stock did not increase on the dates that the 10-Ks and annual reports containing the alleged misrepresentations were disseminated, nor had the price of Goldman’s stock decreased on 34 days before 2010 when the press had previously reported the conflicts of interest concerning the Goldman CDOs. Goldman’s stock did, however, decline significantly after the disclosures that the government was investigating and suing Goldman over its role in issuing and underwriting these CDOs.

The district court rejected defendants’ arguments and certified the class, holding that defendants had not provided “conclusive evidence that no link exists between the price decline [of Goldman stock] and the misrepresentation[s]” (emphasis added). Among other things, the Court held that it could not consider defendants’ arguments that Goldman’s stock price had not increased on the dates of the alleged misstatements or decreased on dates of press reports regarding Goldman’s alleged conflicts of interest in connection with the Goldman CDOs because, the court said, “truth on the market” and materiality defenses were not appropriate to consider at the class certification stage.

While defendants’ appeal to the Second Circuit was pending, a different Second Circuit panel ruled in Waggoner v. Barclays plc (“Barclays”), where the investor class was represented by Pomerantz LLP. The Barclays panel held that when opposing a motion to certify a class in a securities fraud action, a defendant can rebut a purported showing of price impact by demonstrating by a preponderance of the evidence that an alleged misrepresentation had no effect on the price of the security at issue. While Barclays was a significant victory for investors, the “preponderance of the evidence” burden it seemed to be placing on defendants to rebut price impact was less onerous than the “conclusive evidence” required by the district court in the ATRS case.

Citing Barclays, the Second Circuit reversed the district court’s certification of the ATRS class because it was unclear whether the district court had applied Barclays’ “preponderance of the evidence” standard. On remand, the ATRS Plaintiffs relied on a declaration and testimony from an expert who concluded that the declines in Goldman’s share price after disclosure of the government’s actions against Goldman were at least in part attributable to the revelation that defendants had made misstatements concerning Goldman’s conflicts of interest, commitment to its clients and compliance with governing laws Defendants countered with expert reports and testimony that purported to show that the alleged misrepresentations had no effect on Goldman’s stock price because plaintiffs’ expert testimony was unreliable and incomplete, and Goldman’s stock price did not decline on 36 different days prior to 2010 when the press published articles concerning alleged conflicts of interest with regard to the Goldman CDOs.

The district court rejected defendants’ arguments and re-certified the class. The court first held that plaintiffs’ expert had established a link between the reports of Goldman’s conflicts and the subsequent declines in Goldman’s share price. It then held that defendants’ evidence that Goldman’s stock price had not declined on 36 days prior to 2010 did not rebut plaintiffs’ showing because “[t]he absence of price movement . . . in and of itself, is not sufficient to sever the link between the first corrective disclosure and the subsequent stock price drop.” Finally, the district court held that defendants’ arguments that the alleged misstatements could not have affected Goldman’s stock price because those statements were immaterial was not appropriate to consider at the class certification stage.

Defendants appealed again, arguing, among other things, that the district court had erred in applying price maintenance theory. They argued once again that there was no evidence that Goldman’s stock price was ever “inflated” by defendants’ alleged fraud, and that the district court had never addressed whether there was inflation “already extant” in Goldman’s stock price at the time the alleged misstatements were made. Defendants also argued that the alleged misstatements “were not the types of statements that courts have recognized as capable of maintaining inflation in a public company’s stock price.” Finally, Goldman argued that the alleged misstatements were “so general that a reasonable investor would not rely on” them and thus the statements could not “inflate or maintain a stock price.”

Plaintiffs responded that “[t]his Court and others have repeatedly rejected Goldman’s claim that price-maintenance is limited to cases involving ‘fraud-induced’ inflation” and “[the Second Circuit] rejected [Defendants’] attempt to defeat class certification on materiality grounds in the last appeal.”

The Second Circuit panel hearing this second appeal in ATRS has the opportunity to provide much-needed guidance on plaintiffs’ use of price maintenance theory. The most important issues on the table are whether a plaintiff has to establish that there was fraud-induced price inflation of the company’s stock before the misrepresentations were made. Suppose, for example, that a company’s previous financial disclosures had been accurate, but then profits had declined but the company falsely claimed that profits had not declined, preventing the stock price from falling. Does that pattern of behavior not satisfy the requirements of price maintenance theory? The case also raises the question of whether price declines following disclosures of the negative information are enough to support “price impact” claims even if the price had not declined in other instances following disclosure of similar information.

The appeal also raises the issue of whether, as defendants contend, the panel should limit price maintenance theory to circumstances “where specific statements . . . (i) offset investor concerns or (ii) confirm[] market expectations, in either case about a material financial metric, product, or event.” If the panel rejects this argument, it would clarify that price maintenance theory applies to misstate-ments that, when corrected, revealed no concrete financial or operational information that had been hidden from the market for the purpose of maintaining the stock price, as well as misstatements whose materiality is in question.

Finally, the panel’s decision could address a potential ambiguity in the Goldman I decision concerning whether the materiality of the alleged misrepresentations should be considered on a class certification motion.

Statements About [The Absence of] Gender Discrimination Can Constitute Securities Fraud

ATTORNEY: EMMA GILMORE
POMERANTZ MONITOR JULY/AUGUST 2019

With the emergence of the #MeToo movement, courts have seen an increasing number of securities fraud class actions based on allegations involving sexual discrimination, harassment and other types of sexual misconduct. Such misconduct by itself does not constitute securities fraud. The added element that makes it a fraud is some public statement by the company to the effect that it does not engage in such conduct.

When securities fraud actions involve allegations of sexual misconduct, the claims asserted typically involve public statements issued by a company about corporate values, integrity, and adherence to ethical standards, which are alleged to be false and misleading in light of actual misconduct known inside the company. That is exactly what happened at Signet Corporation.

The company had gone out of its way to portray itself as harassment-free in its securities filings and other public statements. It highlighted its Code of Conduct, which said that Signet “made employment decisions ‘solely’ on the basis of merit”; that it was “committed to a workplace that is free from sexual, racial, or other unlawful harassment” and does not tolerate “[a]busive, harassing, or other offensive conduct ... whether verbal, physical, or visual”; that it has “[c]onfidential and anonymous mechanisms for reporting concerns”; that it disciplines “[t]hose who violate the standards in this Code”; and that it requires its senior officials to“[e]ngage in and promote honest and ethical conduct.” In its Form 20-F, filed with the SEC, Signet represented that adherence to the Codes, including by senior executives, was of “vital importance.” It represented that, in adopting both the Code of Ethics and the Code of Conduct, the company has “recognized the vital importance to the Company of conducting its business subject to high ethical standards and in full compliance with all applicable laws and, even where not required by law, with integrity and honesty.” It said that it was committed to disciplining misconduct in its ranks and providing employees with a means to report sexual harassment without fear of reprisal.

According to the securities class action complaint, reality was far different. The alleged sexual misconduct at Signet was at the heart of an arbitration proceeding (the “Jock” action) brought by approximately 200 allegedly victimized employees. Although the Jock proceeding was supposed to be confidential, some details about the experiences of these employees became public in February 2017 and were published in the Washington Post. Many female employees had accused the company of discriminatory pay and promotion practices based on their gender. There were also credible accusations in the Jock proceeding that Signet had a culture of rampant sexual harassment – including, but not limited to, conditioning subordinate female employees’ promotions to their acceding to the sexual demands of their male supervisors (even those who held the highest positions in the company), and retaliating against those who reported this misconduct. Women alleged that sexual harassment routinely occurred at the company’s “Managers’ Meetings,” where male executives “sexually prey[ed]” on female subordinates.

As discussed in the previous article in this issue, the recent decision in the Signet securities litigation forcefully rejected defendants’ argument, based on the Second Circuit’s decision in Singh v. Cigna Corp., that descriptions of codes of conduct are always inherently puffery that investors cannot take seriously. Archetypal examples of puffery include “statements [that] are explicitly aspirational,” “general statements about reputation, integrity, and compliance with ethical norms,” “mere[] generalizations regarding [a company’s] business practices,” and generalized expressions of “optimis[m].” As with the general standard governing materiality, determining whether certain statements constitute puffery entails looking at “context,” including the “specific[ity]” of the statements and whether the statements are “clearly designed to distinguish the company” to the investing public in some meaningful way. Finding that Signet’s statements about its code of conduct were very specific and went well beyond vague generalizations, the court in Signet refused to dismiss the action.

Because gender issues involving corporate management have moved center stage, in recent years many companies have adopted codes of conduct prohibiting this kind of misconduct, and have discussed those codes in their securities filings and elsewhere. While that is certainly a step in the right direction, it is now clear that systematic violations of those codes can lead to securities claims.

It is concerning to note that Signet’s egregious misconduct might never have become public, because the employees’ complaints were forced into secret arbitration proceedings. It was only by chance that the claims came to light and were picked up by the Washington Post. Mandatory arbitration clauses, a common business practice requiring workers and customers to waive their right to sue the company in court, have kept sexual harassment complaints (such as those in the Jock action) hidden from the public.

For some time, Democrats have introduced bills to ban or limit arbitration clauses. There now appears to be some bipartisan agreement that such practice raises concerns. Republican Senator Lindsey Graham, the chair of the House Judiciary Committee, recently scheduled a hearing on the topic, saying “in 2019, I want to look long and hard on how the system works; are there any changes we can make?”

Plantiffs' Attorneys and "Blow Provisions": An Uneasy Coexistence

ATTORNEY: LOUIS C. LUDWIG
POMERANTZ MONITOR JULY/AUGUST 2019

During a settlement hearing on June 18 in the matter of In re RH, Inc. Securities Litigation, U.S. District Judge Yvonne Gonzalez Rogers of the Northern District of California took plaintiffs’ and defendants’ counsel to task for failing to disclose the existence of a confidential side deal between the parties. By all indications, the agreement in question related to a so-called “blow” or “blow-up” provision. Blow provisions provide settling defendants with an option to terminate the settlement agreement if a specified threshold of investors elect to exclude themselves (or “opt out”) of the settlement. Opt-out thresholds can be pegged to the dollar amount of the defendants’ potential exposure to opt outs, the percentage of the shares purchased by class members, the percentage of shares outstanding, or the percentage of shares traded. From a settling defendants’ standpoint, the rationale is obvious: if too many class members opt out of the settlement, those same class members are likely to pursue their own cases against the defendants based on the same underlying conduct alleged in the class action. This makes the value of the class action settlement far less attractive to the defendants. No one wants to pay millions to settle a class action, only to be subjected to massive subsequent claims from investors who have opted out of the class. Where a defendant cannot sufficiently minimize its liability exposure in potential post-settlement “opt out” cases, settlement of the class action becomes a significantly less palatable proposition. The catch, as it were, is that the presence of an excessive number of opt-outs cannot and will not be known until the settlement has been inked, preliminarily approved by the court, and notice has gone out, making the blow provision a kind of insurance policy for defendants.

While the blow provision-related side deal in RH was referred to in the parties’ settlement agreement, it went unmentioned in the motion for preliminary approval. In response to the omission, the judge ordered the parties to file the confidential agreement with the court under seal and advised both firms that she had informed the entire Northern District bench of the incident and of the firms’ respective identities.

Given that the RH court characterized the settlement as a good deal for the class, counsels’ decision to bury the confidential agreement, and thereby incur the court’s ire, seems like a major unforced error. Certainly, failing to acknowledge the existence of a blow provision in preliminary approval motion is indefensible; indeed, plaintiffs’ counsel in RH acknowledged their “poor job” of disclosing the agreement at the June 18 hearing. Courts have a duty to assess the fairness, reasonableness, and adequacy of proposed class action settlements, an objective that is thwarted where the settlement is presented in an incomplete or misleading manner. On the other hand, plaintiff’s counsel was correct in noting that such agreements are “standard” in securities cases. Moreover, it is also quite common for the settling parties to request that blow provisions, which are typically memorialized in separate agreements like the one in RH, be subject to confidential treatment, i.e., that they not be publicly disclosed, even to class members. However, the court itself needs to be informed of the provision.

On the surface, this type of secrecy seems antithetical to the informative aims of class action settlements: settlement proponents (plaintiffs and their counsel) are required to provide adequate notice of the settlement’s material terms to the class; in turn, class members are able to make an informed decision on whether to remain part of, opt out of, or object to, the settlement. More generally, absent class members who are not class representatives, and are therefore not directly involved with the litigation, should be kept abreast of critical developments by the plaintiffs and counsel who seek to represent their interests. This is especially true in cases such as RH, where a class had already been certified prior to the parties’ negotiating a settlement, thus creating, arguably, an even stronger presumption in favor of notice than in instances where a class is certified for the settlement purposes only. A previously-certified class has achieved a continuing and ongoing right to all material information about the case, making it difficult to advance the view that the blow provision’s terms have no bearing on individual class members’ decisions on how to proceed with respect to their claims, as has been argued in the settlement-only class certification context.

Still, there are good reasons for both plaintiffs and defendants to resist public dissemination of the details of the blow provisions. Most prominently, publishing the number or percentage of opt-outs necessary to “blow up” a settlement may give excessive leverage to opt-out activists and threaten the stability of the settlement. Specifically, a group of class members with knowledge of the terms of the blow provision (and holding the requisite number of shares to trigger it) could band together for the purpose of preventing the settlement, or simply extracting special concessions from the settlement proponents. Even if the group did not initially have enough shares to trigger the termination provision, it could seek to recruit enough additional class members to do so. In cases where the claimed damages per share differ significantly among class members, tying the opt-out threshold to a specified dollar value could serve to impede this type of opt-out activism by making it more difficult to assemble the right mix of class members to trigger the blow provision.

Some courts have found these concerns sufficiently persuasive to warrant non-disclosure of supplemental agreements containing the opt-out threshold. Such courts will typically permit counsel to submit the supplemental agreement to the court through confidential means, so that the court’s mandate to review the settlement’s fairness is not impeded. Other courts have required that the supplemental agreement be publicly filed, reasoning that class members are entitled to review all aspects of the deal, even where that entails the possibility of a concerted effort to upend the settlement. Regardless, it does not appear that counsel risk any prejudice by not filing supplemental agreements memorializing blow provisions so long as they (a) refer to the existence of any such agreement in their motion papers and (b) file a timely request for confidential review of the agreement, e.g., a motion to file under seal. Alternately, the settling parties might elect simply to inform the court about the existence of the agreement and their non-intention to submit it in any form, confidential or otherwise, absent a specific order to do so. This course of action is not recommended, not only because it is likely to raise the court’s suspicions about the content of the agreement, but also because the court is then forced to issue a request for information in order to carry out its duty to evaluate the settlement’s fairness.

Plaintiffs and their counsel have no real interest in ensuring that a blow provision or appurtenant side agreement be included as part of a settlement – it is inevitably a condition imposed by defendants for purposes of limiting their own exposure to future cases brought by opt-out class members. Nevertheless, these agreements have become standard practice. This is unsurprising in light of research demonstrating that the number of opt-outs – and the potential for separate opt-out litigation – has increased in recent years. Large class action settlements represent a disproportionate percentage of cases that ultimately face an opt-out: between 2012 and 2014, three of four settlements of $500 million or greater involved opt-outs. Consequently, members of the securities plaintiffs’ bar must learn to effectively balance the informational risk posed by opt-out thresholds with both the notice due to class members and the court’s independent obligation to fully review the terms of class-wide settlements.

Statements About Corporate Legal and Regulatory Compliance Can Constitute Securities Fraud

ATTORNEY: JONATHAN LINDENFELD
POMERANTZ MONITOR JULY/AUGUST 2019

In the wake of the financial crisis of 2008, investors have become more attuned to and concerned about the risks companies face, yet may fail to disclose to the market. Consequently, when previously undisclosed news of, for example, a company’s legal liability is revealed to the market or actually materializes, the company’s stock price may well drop sharply, damaging investors. Over the last few years, investors have increasingly brought securities claims over such conduct, sometimes referred to as “event-driven” litigation.

In March of this year, the Second Circuit issued a decision in Singh v. Cigna Corp., which had one such event-driven claim which turned on whether the company’s public statements concerning its legal compliance were “material” to investors.

Singh arose from Cigna Corp.’s acquisition of HealthSpring, Inc. for $3.8 billion in early 2012. Cigna, a health insurance and services company, acquired HealthSpring in order to grow its Seniors and Medicare business segment. At the time of the acquisition, HealthSpring was one of the largest private Medicare insurers in the United States. Accordingly, HealthSpring was heavily regulated by the Center for Medicare and Medicaid Services (“CMS”).

Prior to the acquisition, HealthSpring had a spotless compliance track record—having never been cited for non-compliance by the CMS. That changed following the acquisition. Although Cigna’s acquisition first appeared to be successful, with HealthSpring becoming Cigna’s largest source of revenue within one year, shortly after the acquisition was completed Cigna began to receive CMS notices for non-compliance in its HealthSpring operations.

Between October 2013 and January 2016, Cigna received a total of 75 Notices of Non-Compliance from CMS, culminating in January 2016, when the regulator imposed severe sanctions on the company. On January 21, 2016, CMS notified Cigna that it would be imposing immediate sanctions which would prohibit it from writing any new Medicare policies, a significant blow to its most profitable business segment. Notably, CMS specifically concluded that “Cigna substantially failed to comply with CMS requirements” and that it “had a longstanding history of non-compliance with CMS requirements” as demonstrated by the receipt of numerous prior notices.

By November 2016, Cigna had spent $100 million to remedy the problems identified by CMS, and was not yet finished. The sanctions were finally lifted on June 16, 2017.

Plaintiff, representing a class of investors who purchased Cigna stock after the acquisition, alleged four sets of misrepresentations concerning Cigna’s track record of legal compliance. First, Cigna stated in an annual report on Form 10-K filed with the SEC that it had “established policies and procedures to comply with applicable requirements.” Second, the Company repeatedly stated in its annual reports that it “allocate[s] significant resources to [its] compliance, ethics and fraud, waste and abuse programs to comply with the laws and regulations[.]” Third, Cigna acknowledged in its annual reports that failure to comply with state and federal health care laws and regulations can result in “fines, limits on expansion, restrictions or exclusions from programs or other agreements with federal or state governmental agencies that could adversely impact [Cigna’s] business, cash flows, financial condition and results of operation.” Finally, the Plaintiff alleged that Cigna’s Code of Ethics and Principles of Conduct included a quote by one of the officer defendants which stated that it is important for Cigna to do things “the right way,” which includes reporting financial results fairly and accurately. Moreover, the quote continued that “it’s so important for every employee on the global Cigna team to handle[,] maintain, and report on this information in compliance with all laws and regulations.”

The district court dismissed the action, holding that Cigna’s statements about compliance were so vague and conclusory that they amounted to mere “puffery,” and were so immaterial that investors could not reasonably rely on them. After plaintiff appealed the district court’s decision to dismiss his claims, the Second Circuit reviewed the materiality of the alleged misstatements. A misrepresentation is material if “there is a substantial likelihood that a reasonable person would consider it important in deciding whether to buy or sell shares of stock.” The statement must also be “mislead[ing],” which is evaluated not only by “literal truth,” but by “context and manner of presentation.”

The plaintiff in Singh argued that the each of the three sets of alleged misrepresentations were material and misleading because “a reasonable stockholder would rely on these statements as representations of satisfactory legal compliance by Cigna.” The Second Circuit disagreed, affirming the dismissal.

First, the Second Circuit characterized the Code of Ethics statement as “a textbook example of puffery,” as it expressed “general declarations about the importance of acting lawfully and with integrity.” Accordingly, the Court found that no investor would rely on such statements.

Similarly, the Court categorized Cigna’s statements in its annual reports concerning its “established policies” and its “significant”’ allocation of resources to compliance programs as mere “representations of satisfactory compliance,” which again, the Court found that no investor would reply upon. In making this determination, the Court distinguished Cigna’s statements in its annual reports from the “descriptions of compliance efforts [which] amounted to actionable assurances of actual compliance” made by defendants in Meyer v. JinkoSolar Holding Co., which were found to be actionable.

Finally, the Second Circuit found that each of Cigna’s statements in its annual reports were “framed” by acknowledgements of the complexity of applicable regulations. As a result, the Court found that Cigna sufficiently “caution[ed] (rather than [instill] confidence) regarding the extent of Cigna’s compliance,” and therefore, “these statements seem to reflect Cigna’s uncertainty as to the very possibility of maintaining adequate compliance mechanism in light of complex and shifting government regulations.”

The defense bar has already hailed this decision as a lethal arrow in their quiver, claiming that it “will likely increase the dismissal rate of [event-driven securities] claims” and instructing defendants to “rely aggressively on Singh in seeking to have such suits dismissed.” Adam Hakki and Agnès Dunogué, “2nd Circ.’s Logical Take On ‘Event-Driven’ Securities Claims,” LAW360, May 13, 2019.

Singh, however, is far from the decisive victory the defense bar promotes it to be. In the short time since it was handed down, district courts have continued to uphold securities claims concerning statements of legal compliance. In a recent decision following Singh, Signet Jewelers Limited argued that the Second Circuit’s opinion demanded that the plaintiff’s pleadings concerning Signet’s harassment protections in its Code of Conduct and Code of Ethics did not amount to material misrepresentations, and must be dismissed. Judge Colleen McMahon of the Southern District of New York found otherwise. Judge McMahon explicitly held that “Cigna did not purport to change the well-established law regarding materiality. It did not announce a new legal rule, let alone one deeming an entire category of statements — those contained in a company’s code of conduct — per se inactionable.”

Signet is not an outlier. In March of 2019, two months after Singh was decided, Judge Louis L. Stanton was presented with alleged misrepresentations in the Code of Ethics of Grupo Televisa, S.A.B., a multinational media conglomerate, following criminal charges that the company illegally paid bribes to obtain television rights to the FIFA world cup. Just as in Signet, defendants argued that the statements contained in the company’s code of ethics were mere puffery. Judge Stanton disagreed and found that the broad statements in the code of ethics (affirming the company’s commitment to legal compliance and prohibition of bribery) were actionable because they “were made repeatedly in an effort to reassure the investing [public] about the Company’s integrity, a reasonable investor could rely on them as reflective of the true state of affairs at the Company.”

The Second Circuit’s decision in Singh demonstrates the importance and challenges of bringing securities claims over legal and regulatory failures by public corporations. The take-away of Singh for securities plaintiffs is that they must be evermore diligent in their pleadings, ensuring that judges are presented with specific and detailed representations concerning a company’s compliance such that investors would be justified in taking them seriously. Signet and Grupo Telavisia demonstrate that Singh certainly does not ring the death knell for similar types of event-driven litigation. Nevertheless, as the defense bar continues to rely upon this decision, it is critical for securities plaintiffs to monitor the decision’s precedential value.

The Supreme Court Closes Another Door to Class Arbitration

ATTORNEY: AATIF IQBAL
POMERANTZ MONITOR: JULY/AUGUST 2019

In Lamps Plus, Inc. v. Varela, the Supreme Court issued the latest in a series of recent 5-4 decisions that have transformed arbitration law so as to make it much more difficult for plaintiffs to pursue claims as a class, whether in court or before an arbitrator. Following this decision, if an arbitration agreement is ambiguous about class arbitration, courts cannot rely on state contract law to interpret it in a way that best effectuates the contracting parties’ bargain. Instead, courts are now required to adopt a heavy presumption that arbitration agreements always prohibit class actions unless they include explicit authorization for class arbitration.

These cases involved the Federal Arbitration Act (the “FAA”), a 1925 law intended “to enable merchants of roughly equal bargaining power to enter into binding agreements to arbitrate commercial disputes.” Arbitration offers contracting parties procedural flexibility to tailor a dispute resolution process to their specific commercial needs, which may include the efficient resolution of simpler disputes as well as expert resolution of technical disputes using procedural and evidentiary rules tailored to the industry. The FAA sought to overcome judicial hostility to arbitration by requiring courts to interpret and enforce arbitration agreements the same as any other contract—i.e., to apply the same state law governing all other contracts and to effectuate the bargain of the parties instead of imposing courts’ own views of pro-cedural fairness and efficiency.

However, commercial contracts are very different from most consumer and employment contracts. Procedural flexibility is less likely to be abused in commercial contracts because both parties have a shared incentive to structure a neutral process that can efficiently provide real relief. But in consumer and employment contexts, companies know they will be defendants and so have strong incentives to design and impose arbitral procedures that are one-sided at best and sometimes even deliberately inefficient in order to deter plaintiffs from bringing claims. (For example, prohibiting class actions essentially mandates individualized proceedings, which can be prohibitively costly and inefficient for many employee and consumer claims.) And in the past decade, the Supreme Court’s conservative wing—driven by its own hostility towards class actions—has not only approved of this practice but has increasingly used the FAA to create its own special rules for arbitration agreements, overriding state laws governing every other type of contract.

Lamps Plus, Inc. v. Varela illustrates this perfectly. The arbitration agreement in that case was part of an employment contract. Unlike commercial contracts, employment and consumer contracts are usually written entirely by the company and then offered on a take-it-or-leave-it basis. Ordinarily, under the law of all 50 states, any ambiguities in a contract written entirely by a company are interpreted against the company and in favor of the employee or consumer. The rationale is that the company had every opportunity to protect its interests by writing clearer contractual language and so should not be able to benefit from any ambiguities it created.

But the Supreme Court did not apply this rule. The arbitration agreement did not explicitly authorize or waive class arbitration, but it did suggest in several places that class arbitration was available. First, it stated that “arbitration shall be in lieu of any and all lawsuits or other civil legal proceedings”—and “any and all lawsuits” plainly includes class actions. Second, it allowed the arbitrator to “award any remedy allowed by applicable law”—which plainly includes a judgment on behalf of a class. Third and most importantly, the agreement provided for arbitration “‘in accordance with’” the rules of a specific arbitral forum whose rules allowed for class arbitration. As Justices Kagan and Sotomayor pointed out in their dissents, an employee reading the contract would have little reason to think they were waiving the right to proceed as a class. Thus, under ordinary contract law, an ambiguous contract like this should be interpreted in favor of the employee. If the employer cared about avoiding class arbitration, it had every opportunity to be clearer.

Nevertheless, the Supreme Court held that arbitration agreements did not have to be clear in order to prohibit class arbitration. The majority’s stated rationale was that “shifting from individual to class arbitration is a ‘fundamental’ change … that ‘sacrifices the principal advantage of arbitration’ and ‘greatly increases risks to defendants” and therefore was so “markedly different from the traditional individualized arbitration contemplated by the FAA” that ambiguity was not enough. However, this rationale had no basis in the FAA, which never specifies any primary “advantage” of arbitration nor favors any particular kind of arbitral proceeding. (If anything, the whole point of the FAA was that contracting parties get to decide what they consider the “principal advantage” of arbitration for themselves, and courts can’t use their own procedural views as excuses to treat arbitration agreements differently from other contracts.) Rather, as Justice Kagan pointed out in dissent, the Court simply used its “policy view … about class litigation” to “justify displacing generally applicable state law about how to interpret ambiguous contracts.” Moreover, while the conservative majority took great pains to protect corporate defendants from “increased risk,” it ignored the risks that its ruling will create for the other contracting parties, i.e., consumers and employees, who will have no practical remedy to vindicate their contractual rights.

Notably, class-action waivers outside arbitration agreements rarely receive such special treatment, and their enforceability is much less clear. So after Lamps Plus, an arbitration agreement that is silent or deliberately vague about class arbitration is more reliable at blocking class claims than an explicit class-action waiver in a normal non-arbitration contract. This creates some strange incentives for companies that might otherwise have no interest at all in arbitration.

SEC Trims Public Company Disclosure Rules

ATTORNEY: BRENDA SZYDLO
POMERANTZ MONITOR: MAY/JUNE 2019

After the stock market crash in October 1929 that led to the Great Depression, public confidence in the markets was at an all-time low. The Securities Act of 1933 and the Securities Exchange Act of 1934 were designed to restore confidence in public markets by providing investors with more reliable information.

On March 20, 2019, without an open meeting, the Securities Exchange Commission (“SEC”) voted to trim certain disclosure requirements for public companies. The only dissenting Commissioner was Robert Jackson. According to the SEC’s March 20, 2019 press release, “[t]he amendments are intended to improve the readability and navigability of company disclosures, and to discourage repetition and disclosure of immaterial information.”

The final amendments are consistent with the SEC’s mandate under the Fixing America’s Surface Transportation (“FAST”) Act. In 2015, Congress mandated the SEC to review Regulation S-K, the rules that describe what public companies must report in public disclosures, and to streamline where possible. The amendments are also based on recommendations in the SEC staff’s FAST Act Report as well as an overall review of the SEC’s disclosure rules. The amendments span a number of topics; the more significant amendments are discussed below.

ELIMINATION OF CONFIDENTIAL TREATMENT REQUEST PROCESS

Specifically, the amendments provide that in regulatory filings, public companies can redact confidential information in material contracts and certain other exhibits without submitting a confidential treatment request. Regulation S-K has been amended to provide that a public company can make this decision on its own, as long as the information is not material and would likely cause competitive harm to the company if publicly disclosed. While issuers will surely find this amendment to be one of the most welcome changes in the new rules, investors will clearly be left with less information, which is troubling.

Commissioner Jackson is also troubled by the new rule. In a March 26, 2019 public statement on the final rules, Commissioner Jackson stated:

The rule . . . removes our Staff’s role as gatekeepers when companies redact information from disclosures – despite evidence that redactions already deprive investors of important information.
***
Historically, we’ve required firms to work with our Staff when sensitive information is redacted from exhibits to registration statements. There are often good reasons for our Staff to permit redactions. But recent research shows that redactions already include information that insiders or the market deem material – showing how important careful review of these requests can be for investors.
Today’s rule removes both the requirement that firms seek Staff review before redacting their filings and the requirement that companies give our Staff the materials they intend to redact. The release doesn’t grapple with the effects of that decision for the marketplace. But one thing is clear: in a world where redactions already rob the market of information investors need, firms will now feel more free to redact as they wish. And investors, without the assurance that redactions have been reviewed by our Staff, will face more uncertainty.

ONLY TWO-YEAR DISCUSSION NEEDED IN MANAGEMENT’S DISCUSSION AND ANALYSIS

The SEC also amended the rules to provide that public companies may disclose less information in the Management Discussion and Analysis (“MD&A”) section of their filings. MD&As, which are the opinions of management, provide an overview of how the company performed in prior periods, its current financial condition, and projected results. This is one of the most closely reviewed parts of a company’s financial statements. Historically, in an annual report on Form 10-K or Form 20-F, a public company was required to address the three-year period covered by the financial statements included in the filing. In the final amendments as adopted, where companies provide financial statements covering three years in the filing, companies will generally be able to exclude discussion of the earliest of three years in the MD&A if they have already included the discussion in a prior filing.

DESCRIPTION OF PROPERTY HOLDINGS

Prior to amendment, the rules provided that public companies must disclose the location and general character of the principal plants, mines and other materially important physical properties of the registrant and its subsidiaries. Because the rule created ambiguity and elicited information that may not have been consistently material, the rules were amended to provide that public companies are required to disclose information about their physical properties only to the extent that it is material to the companies.

TWO-YEAR LOOK-BACK FOR MATERIAL CONTRACTS

Prior to amendment, the rules required companies to file every contract not made in the ordinary course of business if the contract is material and (i) to be performed after the filing of the registration statement or report, or (ii) was entered into not more than two years before the filing. The amended rules limit the application of the two-year look-back requirement for material contracts only to newly reporting registrants.

THE SEC ABANDONS A PROPOSED AMENDMENT REGARDING LEGAL ENTITY IDENTIFIERS

The SEC also decided not to adopt a proposed amendment that would have required companies to include legal entity identifiers (“LEIs”) of the registrant and each subsidiary listed in financial transactions. The LEI is a 20-digit, alphanumeric code that identifies legal entities participating in financial transactions. Given the increasingly complex organizational structures of companies, LEIs provide a precise standard for identifying legal entities responsible for risk-taking. Commissioner Jackson was troubled that this proposed amendment was abandoned. He was particularly concerned that “the financial crisis taught regulators that firms’ complex structures made it impossible to identify the corporate entities responsible for risk taking,” and that the Commission majority had provided “little evidence or reasoning” for eliminating that requirement. He concluded that, overall, the proposed new rules would “rob the market of information investors need to price decisions.”

THE TAKE-AWAY

Pomerantz echoes Commissioner Jackson’s concerns that abandoning a proposed amendment regarding LEIs and trimming certain disclosure rules for public companies rob the market of information investors need to price decisions.

SEC Issues Expanded "Test-the-Waters" Communication Rules

ATTORNEY: ROXANNA TALAIE
POMERANTZ MONITOR: MAY/JUNE 2019

On February 19, 2019, the U.S. Securities and Exchange Commission (the “SEC”) proposed a rule under the Securities Act of 1933, Rule 163B, that would relax regulatory burdens for all issuers, including investment company issuers. Specifically, the new rule would permit all issuers to solicit investor views about potential offerings and to consider these views at an earlier stage than currently is permissible. Such a rule would expand the “test-thewaters” accommodation that is currently available to emerging growth companies (“ECGs”). If adopted, this rule would result in earlier communications with potential investors to assist in evaluating the market and developing relationships with them.

The notion of test-the-waters was originally introduced when Congress passed the Jumpstart Our Business Startups Act (the “JOBS Act”) in 2012. Under the JOBS Act, ECGs are allowed to assess the interest of qualified institutional buyers and institutional accredited investors in connection with proposed securities offerings.

The proposed Rule 163B would allow issuers to engage in oral or written communications with potential investors that are, or that the issuer reasonably believes to be, qualified institutional buyers or institutional accredited investors. A qualified institutional buyer is a specified institution that owns and invests on a discretionary basis at least $100 million in securities of unaffiliated issuers. Institutional investors, including organizations not formed for the purpose of acquiring the securities offered and with assets in excess of $5 million, are considered accredited investors and must meet the criteria of SEC Rule 501(a)(1), (a)(2), (a)(3), (a)(7), or (a)(8), The SEC thus believes that these types of entities do not need the protection of the Securities Act’s registration process as they are more financially sophisticated than an average investor.

An issuer or person authorized to act on the issuer’s behalf would be required only to reasonably believe that a potential investor is a qualified institutional buyer or institutional accredited investor. The SEC failed to provide specific steps that an issuer could or must take to establish a reasonable belief that the intended recipient of the communications is qualified. Instead, the SEC is apparently assuming that issuers can and should continue to rely on current and previous methods used to assess an investor’s status.

SEC chairman Jay Clayton issued a press release announcing the proposed rule with the goal that “[e]xtending the test-the-waters reform to a broader range of issuers is designed to enhance [the issuer’s] ability to conduct successful public securities offerings and lower their cost of capital, and ultimately to provide investors with more opportunities to invest in public companies.”

Proponents of this new rule argue that in allowing more issuers to engage with a set of financially sophisticated institutional investors while the company is in the process of preparing for a securities offering could help issuers assess the demand for and value of their securities. Further, issuers would be able to discern which terms and structural components of the offering would be important to investors before the company incurs costs associated with the launch of an offering.

Ultimately, it appears that the SEC’s goal is to increase registered offerings in the United States. In doing so, the SEC believes that it can “have long-term benefits for investors and [the U.S.] markets, including issuer disclosures, increased transparency in the marketplace, better informed investors, and a broader pool of issuers in which any investor may invest.” According to the Wall Street Journal, the number of public companies has declined by about 50% since the mid-1990s. The JOBS Act failed to substantially increase the number of initial public offerings (“IPOs”) that occurred in the past few years. Close to 40% of eligible ECGs that conducted IPOs took advantage of the JOBS Act test-the-waters provision in 2015, but that percentage fell to less than 25% in 2016. It is difficult to ascertain at this time whether Rule 163B will increase IPOs. If that is the case, one can only hope that the SEC’s goal of providing issuers and investors flexibility and transparency alike does not lead to increased litigation regarding fraudulent claims as we have previously seen in IPOs filed and a company’s related subsequent stock drop.

Taking the potential benefits of Rule 163B into consideration, the next logical question that follows would be how these expanded rules play into the protection that investors would be afforded. Although the new rule would exempt test-the-waters communications and would need not be filed with the SEC, that is not to say that investors are left without any type of protection. The proposed rule provides that such communications would still be considered “offers” as defined under the Securities Act, thereby allowing liability and anti-fraud provisions to continue to be applicable. Further, the information disclosed during communications must not conflict with material information in the related registration statement and, as is the practice of the SEC when reviewing offerings conducted by EGCs, the SEC or its staff can “request that an issuer furnish the staff any test-the-waters communication used in connection with an offering.” Lastly, the SEC cautioned public companies that certain test-the-water communications could trigger disclosure under Regulation FD, which requires public companies to make public disclosure of any material non-public information that has been selectively disclosed to certain securities market professionals or shareholders. To avoid the application of Regulation FD, the SEC recommended having the recipient of the communication enter into a non-disclosure agreement to mitigate the need for public disclosure.

Flexibility and efficiency continue to be touted as reasons why this proposed rule is beneficial. The SEC argues that it will increase access to public capital markets by providing flexibility to issuers regarding their communications and determining which investors qualify under Rule 163B as intended recipients of such communications. As such, companies are in a better position to evaluate market interest and have discussions regarding the transaction terms required to address the most important concerns institutional investors may have, thereby providing a more efficient and effective capital-raising process. By the same token, the goal for investors will be transparency and obtaining information that may allow for more sound, confident financial decisions. Ultimately, investor protection must be at the forefront of any regulation created or amended by the SEC, without which interest in capital markets would greatly decrease.

Proposed Rule 163B was subject to a 60-day public comment period following its publication in the Federal Register. That period ended on April 29, 2019.

Can Shareholders Propose Bylaws Requiring Mandatory Arbitration of Securities Fraud Claims?

ATTORNEY: MARC I. GROSS AND MICHAEL GRUNFELD
POMERANTZ MONITOR: MAY/JUNE 2019

Last year it was revealed that Johnson & Johnson (“J&J”) had knowingly marketed talcum powder containing asbestos, which may have caused ovarian cancer in consumers. This revelation caused J&J’s stock price to plummet and triggered a securities fraud class action on behalf of investors. In an effort to thwart that class action and others, Professor Hal S. Scott, the Director of the Program on International Financial Systems at Harvard Law School, representing a small J&J shareholder, submitted a proxy proposal to the Company for a shareholder vote to approve a corporate bylaw that would require all securities fraud claims against the company be pursued through mandatory arbitration, and would waive class action rights.

Such a proposal, if adopted, would sound the death knell for all securities claims against the company. In particular, prohibiting class actions would make it economically unfeasible, in almost all cases, for anyone but the largest shareholders to bring such an action.

J&J decided to reject this proposal because it would violate state law, and obtained a No Action Letter from the SEC, indicating that the agency would not object to exclusion of the proposal. Undeterred, Professor Scott filed an action in Federal District Court in New Jersey contesting the rejection, in an action called The Doris Behr 2012 Irrevocable Trust v. Johnson & Johnson. The court denied Professor Scott’s motion for an order compelling J&J to include the Proxy Proposal for the shareholder meeting that recently took place, on grounds that the motion was too late for this year. Nonetheless, the case will continue on the merits and there is little doubt that Professor Scott will pursue the proposal next year. While to date J&J has excluded the proposal from its proxy materials, there is no certainty that it will do so in the future. Pomerantz has been retained by the Colorado Public Employees’ Retirement Association (“Colorado PERA”) to intervene in the Proxy Litigation to ensure that investors’ rights are protected. We believe that Colorado PERA, a large J&J investor that is also a putative class member in the pending class action arising from underlying securities fraud claims, is ideally suited to represent shareholders’ interests—including their appellate rights—in the Proxy Litigation.

Historically, the Securities and Exchange Commission (“SEC”) has opposed proposals to mandate arbitration of claims brought by IPO and open market purchasers. More recently, in response to questions posed at Congressional hearings in early 2018, SEC Chairman Jay Clayton committed to hold public hearings if the Commission rethought its position. Pomerantz and institutional investors such as Colorado PERA have been at the forefront of explaining to the SEC why such proposals are contrary to law and public policy supporting shareholder rights.

Our objection is based on the proposition that corporate bylaw provisions, such as the proposal here, violate the “internal affairs” doctrine that is a fundamental principle of state corporate law. As then-Chancellor Leo Strine (who is now Chief Justice of the Delaware Supreme Court) set out in Boilermakers Local 154 Ret. Fund v. Chevron Corp., under Delaware law, the “internal affairs” doctrine limits corporate bylaws to regulation of intra corporate disputes between management and shareholders, such as breaches of fiduciary duty and waste. Bylaws cannot govern “external relationships” between third-party contractors and investors whose claims arise from deception when they purchased their shares. Consistent with that rule, on December 11, 2018, in Sciabacucchi v. Salzberg, the Delaware Court of Chancery rejected Blue Apron’s adoption of a bylaw mandating that Securities Act claims be filed only in federal court. The court based this decision on the “internal affairs” doctrine, explaining that “there is no reason to believe that corporate governance documents, regulated by the law of the state of incorporation, can dictate mechanisms for bringing claims that do not concern corporate internal affairs, such as claims alleging fraud in connection with a securities sale.” For these reasons, the New Jersey Attorney General issued an opinion on January 29, 2019 stating unequivocally that “the Proposal, if adopted, would cause Johnson & Johnson to violate New Jersey state law [where Johnson & Johnson is incorporated], [and] in the opinion of my office, the Proposal should be excluded” from the Company’s proxy materials. The Attorney General based this determination on the text of the New Jersey Business Corporations Act (including recent amendments to the statute), New Jersey case law, and the Delaware cases described above.

While efforts to date have thwarted imposition of mandatory arbitration on federal securities law claims, continued vigilance is necessary. Professor Scott no doubt hopes to ultimately bring this matter to the U.S. Supreme Court for a ruling on whether the Federal Arbitration Act pre-empts state law restrictions on mandatory arbitration agreements. Starting with AT&T Mobility v. Concepcion, 563 U.S. 333 (2011), the Supreme Court has held that brokerage clients, consumers, employees and others can be compelled by “contract” to arbitrate any disputes. Investors will argue, though, that aside from the Supreme Court’s prior deference to state law for corporate governance matters, there is no “contract” between investors and companies when securities are purchased in the open market. The “contract” is only with the direct seller, and there is certainly no “consent” to the arbitration.

Pomerantz expects challenges will nonetheless arise in this area over the next few years and intends to continue its efforts to protect investor rights.

Supremes: Distributing False Statement Can Be Securities Fraud

ATTORNEY: OMAR JAFRI
POMERANTZ MONITOR: MAY/JUNE 2019

In a case called Stoneridge brought by Pomerantz a decade ago, the Supreme Court approved the doctrine of “scheme liability,” holding that a defendant can be liable for securities fraud even if he never made a misleading statement to investors, so long as he participated in an “act, practice, or course of business which operates or would operate as a fraud or deceit.” Later, in Janus, the Court held that a defendant cannot be liable for a misleading statement made to investors unless he made the misstatement itself or had ultimate authority over the contents of that statement. Any lesser involvement, such as drafting the contents of the statement, could at most be considered “aiding and abetting,” which, under yet another Supreme Court decision, is not a violation.

These doctrines have now intersected in a recent Supreme Court decision in Lorenzo v. SEC. In this case, a false statement was made to investors, but the defendant was not the “maker” of the statement. The Supreme Court held that the defendant, who merely forwarded his boss’s false statement to his clients, was liable for securities fraud under the theory of scheme liability.

Scheme liability is based on the language of SEC Rule 10b-5, which makes it unlawful to (a) “employ any device, scheme, or artifice to defraud,” … or (c) “engage in any act, practice, or course of business which operates or would operate as a fraud or deceit … in connection with the purchase or sale of any security.” The question before the Court in Lorenzo was whether those who do not “make” the misleading statements, but who disseminate them to investors with the intent to defraud, can be found to have violated subsections (a) and (c) and other related provisions of the securities laws. Defendant Lorenzo argued that scheme liability applies only when there are no false statements; otherwise, someone could be held liable for a false statement even if he did not make the statement himself. The Supreme Court rejected that argument.

Lorenzo was a director of investment banking at Charles Vista, LLC (“Charles Vista”). Lorenzo’s client, Waste2Energy, publicly touted that its assets were worth about $14 million, but Lorenzo knew that this figure included intellectual property claimed to be valued at $10 million that, as he later testified, was a “dead asset” that “didn’t really work.” In 2009, Waste2Energy hired Charles Vista to sell debentures to investors. In the fall of 2009, Waste2Energy told Lorenzo that the company had written off all its intellectual property as “worthless,” which left the company with a net worth of $370,552. Still, Lorenzo sent two emails to potential investors that described the debentures as having “multiple layers of protection,” including “$10 million in confirmed assets.” Lorenzo testified that he had not composed the emails himself but had merely forwarded them to clients at the direction of his boss. But he did know they were false.

The Supreme Court held that Lorenzo’s dissemination of false or misleading statements fell within the scope of subsections (a) and (c) and subjected him to scheme liability. The Court held that because Lorenzo sent emails that he knew contained material untruths, he had “employed” a “device,” “scheme,” and “artifice” to “defraud” and had violated subsection (c) because he “engage[d] in a[n] act, practice, or course of business” that “operate[d] … as a fraud or deceit.” The Court, repeatedly noting that Lorenzo’s conduct easily fell within the ambit of both subsections (a) and (c), relied on dictionary definitions of the words contained in those subsections to emphasize that they apply to a wide range of misconduct.

The Court also repeatedly emphasized that its conclusion is consistent with the purpose of the securities laws. For example, the Court noted that the application of subsections (a) and (c) to a broad range of misconduct is consistent with the principle established in the Court’s decision in SEC v W.J. Howey & Company over seventy years ago: “to substitute a philosophy of full disclosure for the philosophy of caveat emptor in the securities industry.” Similarly, the Court noted that its broad interpretation of subsections (a) and (c) was consistent with the principle highlighted in an earlier decision in Central Bank of Denver, N.A. v. First Interstate Bank of Denver, N.A.: that even a “bit participant in the securities market … may be liable as a primary violator under Rule 10b-5,” so long as all of the other requirements are met.

It rejected Lorenzo’s argument that subsections (a) and (c) apply only to conduct that did not involve misstatements, and since he was not the “maker” of an untrue statement under subsection (b), none of the provisions of Rule 10(b)-5 applied to him. The Court held that this argument was irreconcilable with the plain and expansive language of subsections (a) and (c), and further held that sustaining Lorenzo’s argument would allow those who disseminate, but do not make, statements to escape liability altogether. The Court also rejected Lorenzo’s and the dissent’s claim that an application of subsections (a) and (c) to his conduct would render the Court’s decision in Janus a “dead letter.” It noted that Janus remains relevant where an individual neither makes nor disseminates false or misleading statements. Because Lorenzo clearly disseminated false statements and, in fact, did not contest that he did so intentionally, the Court held that he violated subsections (a) and (c) of Rule 10b-5 even if he was not the “maker” of the statements under subsection (b).

The distinction between aiding and abetting, which is not actionable, and engaging in a scheme to defraud, which is, will doubtless continue to pose perplexing issues for courts well into the future. It is hard to understand why drafting a misstatement is OK, while sending that misstatement to someone else is not.

Pomerantz Achieves $110 Million Class Action Settlement in Fiat Chrysler Litigation

ATTORNEY: MICHAEL J. WERNKE
POMERANTZ MONITOR: MAY/JUNE 2019

In a significant victory for investors, Pomerantz, as lead counsel for the class, has achieved a $110 million settlement with Fiat Chrysler Automobiles N.V. as well as certain of Fiat Chrysler’s former executives. Judge Jesse Furman in the district court of the Southern District of New York granted preliminary approval of the settlement on April 10, 2019 and set the final approval hearing for September 5, 2019.

The litigation against one of the world’s largest car manufacturers involved accusations that the defendants misled investors when they asserted that the company was complying with its obligations to conduct safety recalls under regulations promulgated by the National Highway Traffic Safety Administration (“NHTSA”) as well as with emissions regulations, promulgated by the Environmental Protection Agency (“EPA”) and the European Union, designed to control emissions of Nitrogen Oxide (“NOx”). In truth, Fiat Chrysler had a widespread pattern of violations dating back to 2013, in which the company would purposefully delay notifying vehicle owners of defects and failing to repair the defects for months or years. The company also improperly outfitted its diesel vehicles in the U.S. and Europe (including Jeep Grand Cherokee and Ram 1500) with “defeat device” software designed to cheat NOx emissions regulations. The defeat device software, which was similar to that employed by Volkswagen in the highly publicized “Dieselgate” scandal, was able to detect when the vehicle was being tested by a regulator (such as the EPA). When testing conditions were detected, the vehicle would perform in a compliant manner, limiting emissions of NOx. When testing conditions were not detected, such as during real-world driving conditions, the emissions controls were disabled, and the vehicles would spew illegal and dangerous levels of NOx.

The truth concerning Fiat Chrysler’s violations was revealed in a series of disclosures that caused the company’s stock price to plummet. On July 26, 2015, NHTSA announced a Consent Order against Fiat Chrysler, fining the company a record-high $105 million and requiring a substantial number of recalls and repairs. On October 28, 2015, the company announced a $900 million charge to earnings for an increase in estimated future recalls. The company’s stock price also declined in 2016 and 2017, when the EPA and other US and European regulators publicly accused Fiat Chrysler of using defeat devices to cheat NOx emissions regulations.

The settlement was achieved after three and a half years of hard-fought litigation. Discovery was wide-ranging. It involved analyzing millions of pages of documents concerning highly complex issues of emissions software programming and resulted in the exchange of reports by eleven experts on issues implicating U.S. as well as European regulations. The claims ultimately survived multiple rounds of motions to dismiss. Initially the emissions allegations were dismissed because the court determined that the complaint did not plead facts sufficient to demonstrate that the defendants knew that their statements of compliance were misleading. We were given leave to replead, and Pomerantz then filed Freedom of Information Act requests with the EPA. Its response included emails from Fiat Chrysler executives showing that they knew that the EPA had discovered certain defeat devices on the company’s vehicles. The defendants nevertheless continued to falsely assure investors that the company’s vehicles were compliant and did not contain any such defeat devices. When we filed an amended complaint that included those facts, these additional allegations revived the emissions claims.

Ultimately Pomerantz secured class certification on behalf of investors, which was followed by summary judgment proceedings. As the prospect of trial loomed, defendants finally agreed to the settlement.

In addition to creating precedent-setting case law in successfully defending the various motions to dismiss, Pomerantz also significantly advanced investors’ ability to obtain critically important discovery from regulators that are often at the center of securities actions. During the course of the litigation, Pomerantz sought the deposition of a former employee of NHTSA. The United States Department of Transportation (“USDOT”), like most federal agencies, has enacted a set of regulations — known as “Touhy regulations” — governing when its employees may be called by private parties to testify in court. On their face, USDOT’s regulations apply to both current and former employees. In response to Pomerantz’s request to depose a former NHTSA employee that interacted with Fiat Chrysler, NHTSA denied the request, citing the Touhy regulation. Despite the widespread application, and assumed appropriateness, of applying these regulations to former employees throughout the case law, Pomerantz filed an action against USDOT and NHTSA, arguing that the statute pursuant to which the Touhy regulations were enacted speaks only of “employees,” which should be interpreted to apply only to current employees. The court granted summary judgment in favor of Pomerantz’s clients, holding that “USDOT’s Touhy regulations are unlawful to the extent that they apply to former employees.” This victory will greatly shift the discovery tools available, so that investor plaintiffs in securities class actions against highly-regulated entities (for example, companies subject to FDA regulations) will now be able to depose former employees of the regulators that interacted with the defendants during the class period to get critical testimony concerning the company’s violations and misdeeds.

The firm’s perseverance resulted in a recovery that provides the class of investors with as much as 20% of recoverable damages—an excellent result when compared to historical statistics in class action settlements, where typical recoveries for cases of this size are between 1.6% and 3.3%.

The Institute For Legal Reform's Latest Attack on Shareholders

ATTORNEY: JOSHUA B. SILVERMAN
POMERANTZ MONITOR: MARCH/APRIL 2019

Each year around this time, corporate-backed lobbyists issue reports in order to reinvigorate their endless crusade against investor protections. Most recently, the U.S. Chamber of Commerce’s Institute for Legal Reform published a paper urging Congress to consider further limits on securities litigation, including an unprecedented damages cap that would severely curtail the ability of institutional investors to recover losses. Titled “Containing the Contagion,” the paper places ideology above fact, ignoring the actual statistics regarding securities litigation and its beneficial impact on holding perpetrators of fraud responsible to their victims.

Even a cursory review of the Institute’s arguments shows their fallacy. First, the Institute claims securities fraud cases have “exploded.” The data cited tells a different story. Last year, 221 non-M&A securities fraud class actions were filed, only slightly more than 214 in the prior year, and somewhat above an average of 182 cases over the past 20 years. Higher, yes, but well below the prior high of 242.

More importantly, the Institute does not address the rise in corporate fraud driving the uptick in securities fraud litigation. Each month brings new revelations of corporate misconduct, suggesting that Congress needs to increase, not cut, investor remedies. From LIBOR-rigging to Petrobras to the Billion Dollar Whale to Theranos, fraud has become more frequent and brazen in recent years. Startups and life sciences companies have hit investors especially hard. Embracing Silicon Valley’s “fake it until you make it” culture, many of these companies show little hesitation to tell investors whatever is necessary to raise capital, whether truthful or not.

While the Institute would prefer to blame lawyers rather than fraud perpetrators for the uptick in filings, facts do not support that conclusion. Dismissal rates for securities fraud cases have dropped substantially since 2015, reflecting the strong factual underpinning for recent cases. Further, securities fraud cases are filed in only a tiny minority of statistically significant stock drops, not indiscriminately. Once filed, courts apply one of the highest pleading standards under federal law, ensuring that only meritorious cases proceed. Courts also assess whether each pleading is frivolous, and must impose sanctions for those that are. The fact that courts have assessed thousands of complaints but only imposed a handful of sanctions demonstrates that current standards are working.

The Institute’s conclusions about M&A filings also defy logic. The paper cites an increase in federal M&A filings, the result of an ongoing shift in M&A lawsuits from Delaware state court to federal court. But, as Cornerstone Research confirmed in its most recent tally, the overall rate of M&A lawsuits has declined in recent years, slipping 11% below the average annual rate.

The Institute next takes aim at what it calls “eventdriven” litigation—a securities fraud lawsuit brought after an issuer has misrepresented a risk that comes to fruition. For example, if a medical device company misrepresented known safety defects, and patients later died, triggering investor losses, the Institute would call ensuing shareholder litigation “event-driven.” Any concerns about such litigation are overblown. Shareholders will only be able to sustain securities cases, however labeled, if they have a factual basis to properly allege scienter, falsity and loss causation. As a result, courts will quickly weed out any lawsuits based only on an unforeseen triggering event.

None of the Institute’s arguments supports the most drastic remedy it urges Congress to consider: a damages cap that would deprive institutional investors of compensation for injuries suffered as a result of securities fraud. Specifically, the Institute proposes that the damages payable by securities fraudsters be capped at an arbitrary, unspecified amount for all cases other than those arising from initial public offerings, and that small investors be prioritized in the allocation of those damages. To justify this proposal, the paper repeats the discredited claim that securities fraud litigation is just “pocket shifting” for large, diversified investors, supposing that the investors gain on securities litigation settlements but also lose when other companies in which they invest have to pay out settlements. No academic research has shown this to be the case. In fact, a recent study found a statistically significant rise in share prices when a corporate securities fraud defendant announces a settlement. As a result, institutional investors benefit both from receiving settlement proceeds, and from the boost in valuation when portfolio companies come clean with investors.

While unpopular among some special interests, private securities litigation has returned tens of billions of dollars to defrauded investors. Even after fees and expenses, private securities fraud litigation remains the most important source of recovery for defrauded investors, far outpacing the SEC. The Institute’s latest anti-investor positions may satisfy its backers, but they do not justify any rollback of investor protections.

The Supreme Court's Unanimous Decision in Tims V. Indiana Represents A Decisive Victory for Criminal Justice Reform

ATTORNEY: VERONICA V. MONTENEGRO
POMERANTZ MONITOR: MARCH/APRIL 2019

In an era where many states and localities are trying to plug their budget deficits by imposing draconian “civil forfeitures” on alleged criminals, the Supreme Court’s unanimous decision in February in Tims v. Indiana is a decisive victory against some of the most egregious abuses stemming from this practice. In this case, defendant Tims argued that the state of Indiana imposed an excessive fine on him when it seized his sports utility vehicle, valued at $42,000, after he was arrested for selling heroin. The value of this SUV was more than four times the maximum $10,000 monetary fine assessable against Tims for his drug conviction. The Supreme Court, in an opinion authored by Justice Ruth Bader Ginsburg, overturned the forfeiture and, in the process, held that the Eighth Amendment’s Excessive Fines Clause applies to the states under the Fourteenth Amendment’s due process clause, because it is a safeguard “fundamental to our scheme of ordered liberty” with “deep roots in our history and tradition.”

Tims pleaded guilty in Indiana Court to selling heroin to undercover officers. In addition to sentencing Tims to a year of house arrest, five years’ probation, and assessing reasonable fines and fees, Indiana sought civil forfeiture of a $42,000 SUV Tims had purchased with the proceeds of an insurance policy he received when his father died. The trial court denied Indiana’s request, noting that the vehicle had been recently purchased (and was therefore not likely part of the proceeds of his crime) and was valued at more than four times the maximum fine. Therefore, the trial court determined that the seizure of the SUV would be grossly disproportionate to Tims’ crime and unconstitutional under the Eighth Amendment’s Excessive Fines Clause. The Court of Appeals affirmed, but the Indiana Supreme Court reversed, holding that the Excessive Fines Clause did not apply to state action. Tims appealed.

As Justice Ginsburg remarked, the Supreme Court has held, with only a handful of exceptions, that the Fourteenth Amendment’s Due Process Clause “incorporates” many of the protections in the Bill of Rights, thus rendering them applicable to the states. A Bill of Rights protection is incorporated if it is “fundamental to our scheme of ordered liberty.” In holding that the Excessive Fines Clause is “fundamental to our scheme of ordered liberty,” Justice Ginsburg traced the adoption of the prohibition against excessive fines back to the Magna Carta, the Virginia Declaration of Rights, and similar colonial-era provisions. Justice Ginsburg also noted that by the time the Fourteenth Amendment was ratified, 35 of the 37 states expressly prohibited excessive fines in order to guard against such fines being used to subjugate the newly freed slaves “and maintain the prewar racial hierarchy.” Justice Ginsburg further noted that historically, excessive fines were used to undermine other constitutional liberties.

Indiana argued that the Clause, as applied to in rem forfeitures (i.e. seizure of specific property), is neither “fundamental” nor “deeply rooted.” In Austin v. United States, the Court held that civil in rem forfeitures fall within the Excessive Fines Clause protection when they are at least partially punitive. While Austin arose in the federal context, the Court noted that when a Bill of Rights protection is incorporated, the protection applies identically to the federal government and the states.

The Court held that the proper question in determining whether the Fourteenth Amendment incorporates a protection contained in the Bill of Rights is whether the right guaranteed – rather than each and every particular application of that right – is fundamental or deeply rooted. Thus, regardless of whether application of the Excessive Fines Clause to civil in rem forfeitures is itself fundamental or deeply rooted, the conclusion that the Clause is incorporated remains unchanged. The Court remanded the case to the Indiana Supreme Court for determination of whether the seizure of Tims’ SUV was excessive under this standard.

The Tims decision was cheered by advocates of criminal justice reform who have argued that civil asset forfeiture laws create an incentive for abuse. In many places, such laws facilitate the seizing of assets from individuals who have not been convicted of or even charged with a crime, and require only a tenuous connection between the crime and the seized asset. For example, in January 2019 an investigation conducted by The Greenville News and Anderson Independent Mail uncovered that the South Carolina police seized more than $17 million over a three year period through civil asset forfeiture. The investigation concluded that a review of the cases demonstrates that the “police are systematically seizing cash and property—many times from people who aren’t guilty of a crime— netting millions of dollars each year” and that “nearly a fifth of the 4,000 people who had their property seized by South Carolina police between 2014 and 2016 were never arrested nor even charged with a related crime.”

Additionally, critics of civil asset forfeiture laws contend that they are disproportionally harmful to lower-income communities and communities of color. For example, an investigation conducted by The Washington Post concluded that “of the 400 court cases examined where people challenged seizures and received money back, the majority were Black, Hispanic or another minority.” Another investigation found that Philadelphia cash forfeitures disproportionally target African-Americans who, while making up 44% of the population, are subject to an astounding 71% of forfeitures without conviction.

Critics of the Tims decision argue that the ruling will create financial challenges to police departments that have come to rely on civil forfeitures as a way to finance police operations. After Tims, they will have to look elsewhere for their funds.

Section 14(a) And Inadequate Risk Disclosures

ATTORNEY: MICHAEL GRUNFELD
POMERANTZ MONITOR: MARCH/APRIL 2019

In Jaroslawicz v. M&T Bank Corporation, the Third Circuit Court of Appeals recently held that allegations that defendants failed to disclose M&T Bank Corporation’s (“M&T”) compliance violations in a proxy statement issued in connection with M&T’s merger with Hudson City Bancorp (“Hudson”) could be a violation of Section 14(a) of the Exchange Act, which prohibits proxy fraud. The Court explained that the omission of information from a proxy statement violates Section 14(a) and the Securities and Exchange Commission (“SEC”) Rule 14a-9 if, among other reasons, “the SEC regulations specifically require disclosure of the omitted information.” The parties therefore agreed that Section 14(a) required the Joint Proxy to comply with Item 503(c) of SEC Regulation S-K. Item 503(c), in turn, requires issuers to “provide under the caption ‘Risk Factors’ a discussion of the most significant factors that make the offering speculative or risky.”

The parties disagreed, however, over whether M&T’s alleged past consumer violations posed a risk to regulatory approval of the merger and whether M&T had adequately disclosed the risk of M&T’s Bank Secrecy Act/Anti-Money Laundering (“BSA/AML”) deficiencies. The Third Circuit concluded that the complaint plausibly alleged that M&T’s consumer violations “made the upcoming merger vulnerable to regulatory delay” and that the defendants did not adequately disclose the risk of M&T’s BSA/AML compliance violations. The Court’s decision thus emphasizes the breadth of factors that must be disclosed under Item 503(c) and the highly specific level at which defendants must disclose that information or be subject to liability under the federal securities laws.

According to the District Court, Item 503(c) did not require the defendants to disclose M&T’s consumer violations because the complaint did not adequately allege that those past violations posed a significant risk to the merger at the time the Joint Proxy was issued. In addition, the District Court held that M&T adequately disclosed the risk that its BSA/AML deficiencies posed to the merger by describing the general risk of regulatory oversight related to BSA/AML compliance issues. The Third Circuit disagreed with both of these conclusions.

First, the Third Circuit held that Item 503(c) required disclosure of M&T’s consumer rights violations because “[d]espite the fact that M&T had ceased [those violations], it is plausible that the allegedly high volume of past violations made the upcoming merger vulnerable to regulatory delay.” The Court then assessed whether the proxy materials adequately disclosed this risk factor as required by Item 503(c). As the Third Circuit explained, “generic disclosures which could apply across an industry are insufficient. Rather, adequate disclosures are companyspecific. They include facts particular to a company, such as its financial status, its products, any ongoing investigations, and its relationships with other entities.” The Court concluded that the plaintiffs plausibly alleged that the Joint Proxy’s disclosures concerning consumer violations, which “discussed the regulatory framework facing consumer banks” in general—but did not mention M&T’s fraudulent practices or the Consumer Financial Protection Bureau’s investigation into them—“were too generic to be adequate.”

As for M&T’s BSA/AML deficiencies, the Court held that “it is plausible that the[] boilerplate disclosures were too generic to communicate anything meaningful about this specific risk to the merger.” For example, although the Joint Proxy mentioned AML compliance requirements at a general level, it did not describe M&T’s “Know Your Customer” program, the bank’s alleged deficiencies, or the Federal Reserve Board’s investigation into them. Fur - thermore, because M&T’s supplemental disclosure of the Federal Reserve Board’s identification of these deficien - cies, which M&T noted would likely delay the merger, was made, at most, six days before the shareholder vote on the merger, the adequacy of these supplemental disclosures “raise[d] a fact issue, which preclude[d] dismissal of the BSA/AML allegations.”

The Court therefore concluded that the complaint ad - equately alleged a violation of Item 503(c)—and, by extension, Section 14(a)—and vacated the District Court’s dismissal of the mandatory-disclosure claims relating to M&T’s consumer rights violations and its BSA/AML deficiencies.

The Court, however, rejected claims that the defendants had failed to disclose information that might have contradicted their expressed opinions of confidence that the merger would be approved expeditiously. Plaintiffs alleged that defendants violated their duty to disclose facts that allegedly would have shown that they had little or no basis for these opinions. In its decision in Omnicare, Inc. v. Laborers District Council Construction Industry Pension Fund, the Supreme Court held that defendants have a duty to disclose information that forms the basis for their opinions when the omission of that information makes the opinion statements at issue misleading to a reasonable person. The Court here determined that the complaint did not allege specific undisclosed facts about the defendants’ knowledge of, or investigation into, M&T’s compliance violations that would have belied their stated opinion that the merger should obtain regulatory approvals in a timely manner.

Although this case dealt specifically with a claim brought under Section 14(a) of the Exchange Act, the Court applied the same standard that other circuits have applied to determine what disclosures Item 503(c) requires under the Securities Act. While these separate statutory provi - sions might cover different securities filings or participants, the Court explained that those distinctions are immaterial for purposes of determining the content of the disclosures required by Item 503(c). The Third Circuit’s decision in M&T helpfully sets out the standard for the duty to dis - close risk factors under Item 503(c), the violation of which gives rise to liability in connection with covered securities filings, including under Section 14(a) of the Exchange Act and Sections 11 and 12 of the Securities Act. In particular, the Court made clear the SEC’s concern that “inadequate disclosure—particularly in the form of disclosing only generic risk factors—presents a persistent problem.” Defen - dants must therefore disclose all of the most significant risk factors in a company-specific way, rather than relying on the common—but insufficient—practice of providing generic warnings that could apply to any company or an industry as a whole.

Courts Tackle Merger Proxy Rules Supremes To Determine Fate of Merger Litigation

ATTORNEY: AUSTIN P. VAN
POMERANTZ MONITOR: MARCH/APRIL 2019

Section 14(e) of the Exchange Act prohibits fraudulent, deceptive, and manipulative acts in connection with a tender offer. Mergers are often implemented through tender offers, which are accompanied by offering statements and recommendations from the target corporation.

On January 4, 2019, the Supreme Court granted certiorari in Varjabedian v. Emulex Corp., to review the Ninth Circuit’s holding that to state a claim under Section 14(e), shareholders need allege only that a misrepresentation or omission in connection with a tender offer was negligent. This case is of critical importance to the future of securities litigation relating to mergers. The Court could significantly expand Section 14(e) claims by siding with the Ninth Circuit (and against five other circuit courts) by holding that Section 14(e) requires only allegations of negligence, rather than proof of scienter (i.e., the intent to defraud). Alternatively, the Court might decide that no private right of action exists under Section 14(e) at all, and so significantly curtail merger-related securities litigation.

In Emulex, a shareholder of Emulex Corp. brought a Section 14(e) class action against the company following the merger of Emulex and Avago Technologies Wireless Manufacturing, Inc., two companies that sold storage adapters, network interface cards, and related products. Pursuant to the terms of a merger agreement, the Avago merger sub had initiated a tender offer for Emulex’s outstanding stock to obtain control of Emulex. In connection with this tender offer, Emulex issued a statement to shareholders recommending that they accept the offer. This statement included a summary of a non-public analysis Emulex had commissioned from Goldman Sachs of the fairness of the proposed merger. Goldman Sachs’s original fairness analysis included a comparison of the premium shareholders would receive in the tender offer and the premium of previous offers for similarly situated companies, and concluded that the premium, while below average, was within the normal range. Emulex omitted this analysis of premiums from its summary of Goldman Sachs’s fairness analysis. The complaint alleged that this omission rendered Emulex’s tender offer statement misleading, in violation of Section 14(e). The district court dismissed the complaint on the ground that it failed adequately to allege scienter.

The Ninth Circuit reversed the district court’s decision and held that only negligence, rather than scienter, need be pleaded to state a claim under Section 14(e). The Court noted that Section 14(e) contains two clauses, each prohibiting different conduct: the first clause prohibits “mak[ing] any untrue statement of material fact” and misleading omissions, while the second clause prohibits “engag[ing] in any fraudulent, deceptive, or manipulative acts or practices, in connection with any tender offer. ...” Each clause proscribes different conduct, as otherwise one clause would be superfluous. The Court then noted that the Supreme Court, in Aaron v. SEC, in interpreting the wording of Section 17(a)(2) of the Securities Act— which is nearly identical to the wording in the first clause of Section 14(e) —had held that that language did not require a showing of scienter.

The Ninth Circuit also addressed the Supreme Court’s holding, in Ernst & Ernst v. Hochfelder, that claims under Section 10(b) of the Exchange Act and Rule 10b-5 must allege scienter. The Court in Ernst expressly held that language nearly identical to that in the first clause of Section 14(e) could be read as proscribing negligent conduct, not merely intentional conduct. Nevertheless, the Ernst Court concluded that SEC Rule 10b-5 requires a showing of scienter because the enabling statute, Section 10(b) of the Exchange Act, permits the SEC to regulate only “manipulative or deceptive device[s],” and manipulation and deception are intentional acts. 15 U.S.C. § 78j(b). As the SEC cannot proscribe a broader range of conduct than permitted by the enabling statute, the Court interpreted Rule 10b-5 to prohibit only intentional conduct.

In concluding that Section 14(e) requires only negligent conduct, the Ninth Circuit broke with the Second, Third, Fifth, Sixth, and Eleventh Circuits, all of which previously had held that Section 14(e) required scienter. The Ninth Circuit disagreed with the analysis of those other circuits and held that they had failed to apply the holdings in Aaron and Ernst. The other circuits each had interpreted the language of Section 14(e) with reference to Rule 10b-5 and had concluded that because language in the latter had been found to require scienter, the former should as well. Yet these cases, the Ninth Circuit found, failed to recognize that the language in Rule 10b-5 required scienter only because the enabling statute limited scope of the Rule to intentional conduct. Circuit cases decided after Aaron and Ernst failed to recognize that the Supreme Court twice had interpreted language nearly identical to that in Section 14(e) to encompass negligent conduct.

Following the Delaware Court of Chancery’s 2016 ruling in Trulia that required greater scrutiny of cases alleging insufficient disclosures relating to a merger, shareholders increasingly have chosen to bring their merger-related claims in federal rather than state court. If the Supreme Court adopts the Ninth Circuit’s reasoning in Emulex and permits Section 14(e) cases to proceed based merely on allegations of negligence, federal merger-related securities litigation likely will increase even more significantly. However, the Court, with its additional conservative members, may be loath to endorse such a result and may simply adopt the holdings of the five circuits that have found that Section 14(e) requires scienter. However, the Court may take this case as an opportunity to address whether there is an implied private cause of action under Section 14(e) at all. If the Court finds that no implied private cause of action exists under Section 14(e), the holding may result in a significant curtailment of merger-related securities litigation. Moreover, this holding may encourage companies to use the tender offer more often for business combinations (in place of traditional mergers with board approval) so as to avoid private litigation, and so may curtail merger-related litigation even further.

Pomerantz Achieves Settlement with Barclays plc

ATTORNEY: TAMAR A. WEINRIB
POMERANTZ MONITOR JANUARY/FEBRUARY 2019

As this issue of the Monitor was going to press, Pomerantz, as sole Lead Counsel, achieved a $27 million settlement on behalf of the Class in Strougo v. Barclays PLC, which is pending court approval. In this high-profile securities litigation, plaintiffs alleged that defendants Barclays PLC, Barclays Capital US, and former head of equities electronic trading William White, concealed information and misled investors regarding its management of its Liquidity Cross, or LX, dark pool -- a private off-exchange trading platform where the size and price of orders are not revealed to other participants.

Specifically, during the Class Period, Barclays touted its Liquidity Profiling tool, describing it as “a sophisticated surveillance framework that protects clients from predatory trading activity in LX,” while promoting LX as “built on transparency” and featuring “built-in safeguards to manage toxicity [of aggressive traders].” However, the suit alleges that rather than banning “predatory” traders, Barclays actively encouraged them to enter the pool, applied manual overrides to re-categorize “aggressive” clients as “passive” in the Liquidity Profiling system, failed to police LX to prevent and punish toxic trading, intentionally altered marketing materials to omit reference to the largest predatory high frequency trader in LX, and preferentially routed dark orders to LX where those orders rested for two seconds seeking a “fill” vulnerable to toxic traders. This preferential treatment to high-frequency traders allowed them to victimize other dark pool investors by trading ahead of anticipated purchase and sell orders, thereby rapidly capitalizing on proprietary information regarding trading patterns.

In certifying the Class in February 2016, Judge Shira S. Scheindlin of the federal district court in the Southern District of New York held that even though the dark pool was just a tiny part of Barclays’ overall operations, defendants’ fraud was qualitatively material to investors because it reflected directly on the integrity of management. Defendants appealed Judge Scheindlin’s ruling in the Second Circuit Court of Appeals.

Pomerantz, in successfully opposing the appeal, achieved a precedent-setting decision in November 2017, when the Second Circuit affirmed Judge Scheindlin’s class certification ruling. The Court held that direct evidence of market efficiency is not always necessary to invoke the Basic presumption of reliance, and was not required here. The Court further held that Defendants seeking to rebut the presumption must do so by a preponderance of the evidence. This ruling will form the bedrock of class action securities litigation for decades to come.

Pomerantz Managing Partner Jeremy Lieberman stated, “We are extremely pleased with this settlement, which represents more than 28 percent of plaintiffs’ alleged recoverable damages,” he said, “well above the norm in securities class actions.”

Pomerantz Partner Tamar A. Weinrib led the litigation with Managing Partner Jeremy Lieberman and Pomerantz Senior Partner Patrick V. Dahlstrom.

Delaware Chancery Court Threatens the Future of Mandatory Arbitration Provisions

ATTORNEY: ANDREA FARAH
POMERANTZ MONITOR JANUARY/FEBRUARY 2019

In March 2018, the United States Supreme Court in Cyan, Inc. et al. v. Beaver County Employees Retirement Fund (“Cyan”) held that state courts continue to have concurrent jurisdiction (along with federal courts) over claims alleging violations of the Securities Act of 1933 (the “1933 Act”). The 1933 Act most notably provides claims based on misrepresentations in initial public offering materials. The holding in Cyan raised the prospect that such claims could be filed by different shareholders in different state and federal courts.

In response, many companies going public adopted provisions in their bylaws or charters designating federal courts as the exclusive forum for the resolution of claims against them under the 1933 Act. For example, twenty of the 241 companies that went public with offering sizes of at least $10 million that began trading between Jan. 1, 2017 and May 3, 2018, had provisions designating federal courts as the only forum for securities law complaints. By doing so, companies hoped to avoid state court litigation of 1933 Act claims, or to prevent concurrent litigation of identical cases in state and federal court. If all the claims were in federal courts, it would be possible to consolidate them in a single multi-district litigation.

In a recent, significant decision in Sciabacucchi v. Salzburg (“Blue Apron”), the Delaware Chancery Court refused to dismiss the action, and in the process refused to enforce three company charters mandating that federal district courts be the sole and exclusive forum for the resolution of complaints asserting violations of the 1933 Act.

Plaintiff, a shareholder of meal delivery service Blue Apron, Inc., streaming device maker Roku Inc., and online personal shopping service Stitch Fix. Inc., filed a complaint seeking declaratory judgment under the 1933 Act against twenty individuals who signed the allegedly misleading registration statements for the companies and who have served as the companies’ directors since their respective public offerings.

The case came before the Chancery Court, a state court, on cross motions for summary judgment. The charters of the three companies, incorporated under the laws of Delaware, contained substantially the same federal forum provisions, which provided, in relevant part, that “the federal district courts of the United States of America shall be the exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act of 1933.”

Defendants argued that the Delaware General Corporation Law, which allows certain provisions for the “management of the business and for the conduct of the affairs of the corporation,” was intended to provide great flexibility in a corporation’s ordering of its affairs, including the adoption of forum selection provisions, so long as the provisions were not unreasonable or contrary to public policy. Additionally, defendants argued that the law’s provision precluding corporations from adopting provisions that prohibit bringing internal corporate claims in the State of Delaware did not apply, since claims arising under the 1933 Act were not based upon a violation of a duty by a current or former officer, director or stockholder in such capacity.

Relying, in part, on the 2013 Chancery Court’s landmark decision in Boilermakers Local 154 Ret. Fund v. Chevron Corp. (“Boilermakers”), plaintiff argued that exclusive forum provisions must be limited to internal corporate governance claims, which — by definition — excluded claims brought under the 1933 Act. Those, according to plaintiff, “ha[d] nothing to do with the corporation’s internal governance” and nearly always involve false statements made even before the plaintiff became a stockholder.

In a 56-page opinion, Vice Chancellor Laster sided with plaintiff, holding that the companies’ federal forum provisions were “ineffective and invalid,” on the grounds that “constitutive documents of a Delaware corporation cannot bind a plaintiff to a particular forum when the claim does not involve rights or relationships that were established by or under Delaware’s corporate law.” In so holding, Vice Chancellor Laster reasoned that although the state of incorporation has the power to regulate the corporation’s internal affairs — including the rights and privileges of shares of stock, the composition and structure of the board of directors, and what powers the board can exercise — the state cannot use corporate law to regulate the corporation’s external relationships. Consequently, since a claim brought under the 1933 Act is external to the corporate contract, “corporate governance documents, regulated by the law of the state of incorporation, can[not] dictate mechanisms for bringing … claims alleging fraud in connection with a securities sale.”

The Chancery Court’s decision in Blue Apron is one in a series of critical judicial pronouncements relating to the state courts’ jurisdiction over class actions alleging only 1933 Act violations by private plaintiffs.

If companies cannot force certain types of claims into federal court, can they force them into arbitration instead? A critical implication arising from the Chancery Court’s reasoning in Blue Apron is that provisions mandating arbitration of 1933 Act claims could also be deemed invalid. As partner Jennifer Pafiti wrote in the previous issue of The Pomerantz Monitor, “When it came to our attention that the United States Securities and Exchange Commission (the “SEC”) hinted that it might consider allowing companies to include mandatory arbitration clauses in their bylaws, Pomerantz acted quickly to express its concern that such clauses could eviscerate a shareholder’s ability to hold to account a corporate wrongdoer.” Pomerantz organized a coalition of large institutional investors from around the globe to meet with SEC Chairman Jay Clayton in D.C. in October 2018, and also met with a number of both Republican and Democratic Senate staffers. Two weeks after these meetings, ten Republican State Treasurers, in a letter co-authored by the State Financial Officers Foundation, urged the SEC to maintain their existing stance against forced arbitration. Pomerantz has been credited by the American Association for Justice for our dedication to this effort.

On the other hand, proponents of mandatory arbitration clauses argue that such provisions are consistent with other litigation management tools that Delaware’s courts have recognized in the past, particularly in the Boilermakers case where the Chancery Court characterized company bylaw as a “flexible contract.” If the courts side with the consumers — a hypothesis that undoubtedly will be tested in litigation — corporations would be deprived of another vehicle by which they control the forum for resolution of claims arising under the 1933 Act. Most critically, it usually follows that if certain claims must be arbitrated, they cannot proceed as class actions.

If the Delaware Supreme Court affirms the Blue Apron decision, it could become a landmark.

In the Beginning...

ATTORNEY: GUSTAVO F. BRUCKNER
POMERANTZ MONITOR JANUARY/FEBRUARY 2019

In its landmark 2014 decision, Kahn v. M&F Worldwide, known colloquially as MFW, the Delaware Supreme Court held that the deferential business judgment standard of review will apply to going private mergers with a controlling stockholder and its subsidiary if and only if the merger is conditioned “ab initio” —Latin for “from the beginning” — on two specific minority stockholder protective measures. Once a transaction has business judgment rule review, the Court will not inquire further as to sufficiency of price or terms absent egregious or reckless conduct by a Special Committee. Deals subject to the “entire fairness” standard of review have a significantly tougher time getting judicial approval than those subject to review under the business judgment rule.

These two conditions, which the controlling stockholder must agree to at the outset, are that the merger receive the approval of (1) an attentive Special Committee comprised of directors who are independent of the controlling stockholder, fully empowered to decline the transaction and retain its own financial and legal advisors, and satisfies its duty of care in negotiating fair price, and (2) a majority of the unaffiliated stockholders, who are uncoerced in their vote and fully informed. Delaware courts require that these conditions be agreed to “at the outset” to ensure that controlling shareholders not use the MFW conditions as “bargaining chips” during economic negotiations, essentially trading price for protection. Controllers are thus motivated to maximize their initial offer if they want the immediate benefit of business judgment review.

Until the MFW decision, transactions that involved a controlling stockholder were always subject to the heightened, entire fairness level of review, which shifts to the controlling stockholder the burden to show that the transaction is fair to the minority stockholders and functionally precluded dismissal of a complaint at the pleadings stage.

An interesting question arose in Flood v. Synutra: what constitutes the beginning? In January 2016, Liang Zhang, who controlled 63.5% of Synutra’s stock, wrote a letter to the Synutra board proposing to take the company private, but failed to include the MFW procedural prerequisites of Special Committee and majority of the minority approvals in the initial bid. One week after Zhang’s first letter, the Synutra board formed a Special Committee to evaluate the proposal and, one week after that, Zhang submitted a revised bid letter that included the MFW protections. The Special Committee declined to engage in any price negotiations until it had retained and received financial projections from its own investment bank, and such negotiations did not begin until seven months after Zhang’s second offer. Ultimately the board agreed to a deal.

Plaintiff Flood brought a lawsuit challenging the fairness of the price and asserting breach of fiduciary duties. Flood argued that because controller Zhang, who held 63.5% of the company’s stock, failed to propose inclusion of the MFW protections in his first offer (even though he did so shortly thereafter, before negotiations commenced), the transaction did not comply with MFW and still had to meet the “entire fairness” test.

The Delaware Supreme Court declined to adopt a “bright line” rule that the MFW procedures had to be a condition of the controller’s “first offer” or other initial communication with the target about a potential transaction. Rejecting this narrow reading of MFW, the Court clarified that the conditions need not be included in the initial overture but must be in place “at the beginning stage of the process of considering a going private proposal and before any negotiations commence between the Special Committee and the controller over the economic terms of the offer.” Thus, even if those protections were not included in the “first offer,” the key concern of MFW — “ensuring that controllers could not use the conditions as bargaining chips during economic negotiations”—would still be addressed if the protections were in place before any economic negotiations commenced. This more flexible approach incentivizes controlling stockholders to pre-commit to these conditions, which in turn benefits minority stockholders.

Pomerantz: Securities Practice Group of 2018

\Pomerantz earned a place on Law360’s coveted list of Securities Practice Groups of the Year for 2018. In its announcement, Law360 credited the firm’s stunning $3 billion win for investors in Petrobras securities as one of the reasons for this accolade. According to Law360, which interviewed Managing Partner Jeremy Lieberman pursuant to the award:

Pomerantz attorneys were able to achieve this result, as well as an $80 million settlement resolving investor allegations involving Yahoo data breaches, by focusing much of their efforts on proving damages, said managing partner Jeremy Lieberman. For the Petrobras case, investors ultimately alleged what they called an “unprecedented” 21 corrective disclosures revealing the fraud, and Lieberman said he personally spent about 500 hours with their damages expert.
“It was really understanding the damages and … putting defendants on the defensive and saying: Listen if you don’t pay us large settlements, you’re going to be in front of a jury and they’re not going to like to hear about some company involved in a massive fraud and kickback scheme,” Lieberman said.
The Petrobras deal represented the biggest securities class action settlement in a decade and the biggest-ever in a class action involving a foreign issuer, according to Pomerantz. … The class action settlement represented a 65 percent premium to the recoveries the individual plaintiffs secured, according to court documents.
“That’s really a unique, once-in-a-generation result where you’ll have the class do better than the opt-outs,” Lieberman said. “And it wasn’t by accident.”

Law360 further ascribed Pomerantz’s top standing to the precedent-setting rulings in Petrobras that the firm achieved in the Second Circuit Court of Appeals. The three-judge panel rejected Petrobras’ bid for a heightened standard when determining whether a class is ascertainable, or identifiable, and also rejected Petrobras’ argument that the investors should have been required to show that the stock increased in response to positive news and declined in response to negative news. As Jeremy Lieberman has stated, “These favorable decisions will form the bedrock of securities class action litigation for decades to come.”

Pomerantz Seeks Redress in Denmark for Danske Bank A/S Investors

ATTORNEY: JEREMY A. LIEBERMAN
POMERANTZ MONITOR JANUARY/FEBRUARY 2019

Pomerantz has formed a coalition to seek redress in Denmark on behalf of investors who lost billions of dollars in the fallout from a €200bn money laundering scandal at Danske Bank A/S (“Danske” or the “Bank”). The coalition consists of the International Securities Associations & Foundations Management Company for Damaged Danske Investors, LLC and Danish law firm, Németh Sigetty Advockater (“Németh Sigetty”). Németh Sigetty has a well-deserved reputation for handling major, complex, and high-stakes disputes against both private party litigants and government authorities and has vast experience with investor group litigations in Denmark.

Danske, Denmark’s largest bank and a major retail bank in Scandinavia and Northern Europe, had until recently enjoyed a reputation as one of Europe’s most respected financial institutions. Last year, Danske’s star swiftly fell, as media reports placed it at the center of one of the world’s largest and most egregious money laundering schemes.

On February 27, 2018, several newspapers revealed that Danske’s upper management had known about an extensive money laundering scheme and falsification of records at Danske’s Estonia branch since December of 2013, but had first concealed the misconduct and then misrepresented the extent of its participation in the money laundering scheme—all while touting Danske’s purported commitment to anti-money laundering policies and practices. The revelations emerged after a whistleblower had informed Danske that relatives of Russian President Vladimir Putin and high-ranking members of Russia’s Federal Security Service (the FSB, formerly the KGB) were behind one of the companies that were laundering money through the Bank’s Estonia branch. An internal audit at Danske had confirmed the accuracy of the whistleblower’s allegations as early as February 2014, and that Danske’s Board of Directors and Executive Board had been made aware of the audit’s conclusions. The Estonia Financial Supervisory Authority (“EFSA”) immediately announced an investigation to determine the Bank’s culpability in knowingly withholding this information during prior EFSA inspections at the Estonia branch in 2014.

On April 5, 2018, Danske announced that Lars Morch, Danske’s Head of Business Banking, would be released from his ordinary work duties “as soon as possible,” but would remain formally employed at the Bank until October 2019. In announcing Morch’s release, Danske’s Board Chairman, Ole Andersen, stated that “the bank should have undertaken more thorough investigations at an earlier point,” which would have “prompted swifter actions.” On May 3, 2018, the Danish Financial Super-isory Authority (“DFSA”) issued its investigative report, which provided additional detail of stonewalling by the Bank’s central management.

On July 3, 2018, it was reported that the alleged money laundering volume at issue was approximately $8.3 billion, much larger than the earlier estimate of $1.5 billion. Two weeks later, Danske announced that it had made an estimated profit as high as $234 million in connection with the suspicious transactions, and that it would forego the illicit profit.

On September 7, 2018, The Wall Street Journal reported that Danske was conducting a probe of transactions subject to money laundering concerns and that the value of the suspicious transactions under review might be as high as $150 billion. Then, on September 19, 2018, Danske issued a report documenting the results of its internal investigation, which confirmed the knowledge and complicity of Danske’s senior management in covering up the money laundering scheme at the Bank’s Estonia branch. The report added key details to previous news reports, and also disclosed that the cash flows through the Estonia branch’s Non-Resident Portfolio were much higher than previous estimates, amounting to approximately $234 billion worth of transactions bearing the suspicious hallmarks of money laundering activity.

Since the initial disclosure of the money laundering scheme and Danske’s management’s role in concealing it, Danske’s stock price has fallen from 250.10 DKK 122.00 DKK at the time of this writing, representing a total loss of more than 86 billion DKK, or nearly $13 billion, in market capitalization. Criminal investigations are currently proceeding against Danske and members of its management in France, Denmark, the United Kingdom, the United States, and Estonia. In November 2018, Danske was formally charged by the Danish Prosecutor for money laundering-related violations.

Generally speaking, Danish group actions proceed on an opt-in basis, in which a group representative is appointed by the court to represent the group’s interest. Under Denmark’s legal regime, the “loser” is typically required to pay the legal costs of the prevailing party. However, Pomerantz has organized to bring a group action in Denmark in which all legal fees and any adverse costs for which an investor could otherwise become liable be borne by litigation funders and/or other parties. This means that there is no downside financial risk for any investor with respect to costs by participating. Pomerantz will work in conjunction with Danish counsel with respect to its clients, overseeing and operating in a supervisory role with respect to their claims.

The process to recover losses requires damaged investors to proactively join an organized litigation “group” which will aggregate each investor’s loss into a collective loss in a single claim and action before the Danish Court. Németh Sigetty will file this group litigation on behalf of eligible investors organized via Pomerantz’s coalition in the second quarter of 2019. Only those investors who are named as participants will be able to benefit from any settlement or judgment.

ATTORNEY: SAMUEL ADAMSPOMERANTZ MONITOR SEPTEMBER/OCTOBER 2019

ATTORNEY: BRIAN CALANDRAPOMERANTZ MONITOR SEPTEMBER/OCTOBER 2019

ATTORNEY: EMMA GILMOREPOMERANTZ MONITOR JULY/AUGUST 2019

ATTORNEY: LOUIS C. LUDWIGPOMERANTZ MONITOR JULY/AUGUST 2019

ATTORNEY: JONATHAN LINDENFELDPOMERANTZ MONITOR JULY/AUGUST 2019

ATTORNEY: AATIF IQBALPOMERANTZ MONITOR: JULY/AUGUST 2019

ATTORNEY: BRENDA SZYDLOPOMERANTZ MONITOR: MAY/JUNE 2019

ELIMINATION OF CONFIDENTIAL TREATMENT REQUEST PROCESS

ONLY TWO-YEAR DISCUSSION NEEDED IN MANAGEMENT’S DISCUSSION AND ANALYSIS

DESCRIPTION OF PROPERTY HOLDINGS

TWO-YEAR LOOK-BACK FOR MATERIAL CONTRACTS

THE SEC ABANDONS A PROPOSED AMENDMENT REGARDING LEGAL ENTITY IDENTIFIERS

THE TAKE-AWAY

ATTORNEY: ROXANNA TALAIEPOMERANTZ MONITOR: MAY/JUNE 2019

ATTORNEY: MARC I. GROSS AND MICHAEL GRUNFELDPOMERANTZ MONITOR: MAY/JUNE 2019

ATTORNEY: OMAR JAFRIPOMERANTZ MONITOR: MAY/JUNE 2019

ATTORNEY: MICHAEL J. WERNKEPOMERANTZ MONITOR: MAY/JUNE 2019

ATTORNEY: JOSHUA B. SILVERMANPOMERANTZ MONITOR: MARCH/APRIL 2019

ATTORNEY: VERONICA V. MONTENEGROPOMERANTZ MONITOR: MARCH/APRIL 2019

ATTORNEY: MICHAEL GRUNFELDPOMERANTZ MONITOR: MARCH/APRIL 2019

ATTORNEY: AUSTIN P. VANPOMERANTZ MONITOR: MARCH/APRIL 2019

ATTORNEY: TAMAR A. WEINRIBPOMERANTZ MONITOR JANUARY/FEBRUARY 2019

ATTORNEY: ANDREA FARAHPOMERANTZ MONITOR JANUARY/FEBRUARY 2019

ATTORNEY: GUSTAVO F. BRUCKNERPOMERANTZ MONITOR JANUARY/FEBRUARY 2019

ATTORNEY: JEREMY A. LIEBERMANPOMERANTZ MONITOR JANUARY/FEBRUARY 2019