Developments in Securities Class Actions. Linda Fuerst and Peter A. Stokes Norton Rose Fulbright September 10, 2015

Transcription

1 Developments in Securities Class Actions Linda Fuerst and Peter A. Stokes Norton Rose Fulbright September 10, 2015

2 Speakers Linda Fuerst (Toronto) Peter A. Stokes (Austin) 2 September 10, 2015

3 Average Annual New Securities Class Actions ( ) 3 Data Source: NERA Economic Consulting

4 % of Securities Class Actions Asserting Statutory Secondary Market Claims ( ) 4 Data Source: NERA Economic Consulting

5 Securities Class Actions Data Source: NERA Economic Consulting

6 Leave Test Pre-Supreme Court of Canada BRITISH COLUMBIA: Round v. MacDonald, Dettwiller and Associates Ltd., 2011 BCSC 1416, aff d 2012 BCCA 456 Test intended to do more than screen out clearly frivolous actions. An action may have some merit, and not be frivolous, without rising to the level of demonstrating that the plaintiff has a reasonable possibility of success QUEBEC: Theratechnologies Inc. v Canada Inc QCCA 1256 More stringent than color of right but less than a preponderance of the evidence Not a mini-trial or an in-depth analysis of the evidence; sufficient to show the existence of coherent and legally defensible arguments ONTARIO: Green v. CIBC, 2014 ONCA 90 a relatively low threshold / preliminary low-level merits based leave test equivalent to plain and obvious test under s. 5(1)(a) certification test 6 September 10, 2015

7 Leave Test: Supreme Court of Canada Theratechnologies v Canada Inc. Courts have an important gatekeeping role more than a speed bump but a robust screening mechanism a plausible analysis of the applicable legislative regime and some credible evidence in support of the claim but leave test should not be treated as a mini-trial and a full analysis of the evidence is unnecessary [T]he evidentiary requirements should not be so onerous as to essentially replicate the demands of a trial. What is required is sufficient evidence to persuade the court that there is a reasonable possibility that the action will be resolved in the claimant s favour Green v. CIBC Will the Supreme Court clarify the application of the test in its reasons? 7 September 10, 2015

8 SUCCESSFULLY OPPOSING LEAVE Canadian Solar Celestica Western Coal Kinross Gold No Evidence Fatally Flawed Evidence Insufficient Evidence Non Plausible Analysis Coffin v. Atlantic Power Corp Goldsmith v. National Bank 8 September 10, 2015

9 LIMITS ON A PLAINTIFF S ACCESS TO EVIDENCE Defendant Not Required to File Evidence Plaintiff Cannot Summons Defendant Motion to Inspect Documents Cross Examinations Access to OSC Productions 9 September 10, 2015

10 Certification of Common Law Claims Certified Not Certified Green v. CIBC Common issues re: common law which advance the litigation claim can be certified alongside statutory claim The trial judge may order individual trials to determine the issues of reliance and damages Celestica (Leave Granted) Statutory claim preferable procedure Kinross (Leave Denied) Denial of leave not automatic bar to certification of common law claim But reliance renders class action not a preferable procedure 10 September 10, 2015

11 Jurisdiction Canadian courts have not taken a bright line approach as to when classes will include foreign purchasers and/or purchases on a foreign exchange. In the 2010 U.S. Supreme Court decision in Morrison v. National Bank Ltd. 130 S.Ct 2869 the Court decided that Section 10(b) and Rule 10b-5 apply only in connection with a purchase or sale of a security listed on an American exchange, and the purchase or sale of any of the security in the United States. 11 September 10, 2015

12 Jurisdiction / Class Composition Jurisdictional reach of statutory secondary market claims found to include Canadian residents who purchased shares of a responsible issuer on NYSE or European exchanges (see Abdula v. Canadian Solar Inc., 2012 ONCA 211 and Kaynes v. BP, 2013 ONSC 580) Principles of comity, avoiding multiplicity of proceedings and relative volumes of sales on exchanges factors found to favour declining jurisdiction on forum non conveniens grounds for claims of foreign purchasers on foreign exchanges in Kaynes v. BP 2014 ONCA 580 McKenna v Gammon Gold, 2010 ONSC 1591 excluded non-residents who purchased shares outside Canada. See also Excalibur Special Opportunities LP v. Schwartz Levitsky Feldman LLP 2014 ONSC 4118 (leave denied) claims of 56 of 57 non-resident class members lack a real and substantial connection with Ontario Although the Court in IMAX initially certified class to include nonresidents, the Court subsequently amended the class definition to exclude all purchasers of shares on NASDAQ (85% of the class) in favour of U.S. action and settlement: IMAX, 2013 ONSC 1667, leave to appeal denied 2013 ONSC September 10, 2015

13 Other Recent Developments Summary Judgment? Forward Looking Statements Core Documents Circular Misrepresentation Hryniack v. Maudin, 2014 SCC 7 calls for a shift in culture and for summary judgment rules to be interpreted broadly, favouring proportionality and fair access to the affordable, timely and just adjudication of claims. McDonald v. Brookfield Asset Management Inc ABQB action dismissed on summary judgment Trustee of the Millwright Regional Counsel of Ontario Pension Trust Fund v. Celestica Inc., 2014 ONSC 1057 Statutory secondary market liability provisions interpreted to allow for misrepresentation claims based on estimates to be actionable, subject to statutory defence Abdula v. Canadian Solar Inc., 2014 ONSC 5167 (leave denied 2015 ONSC 4322) core document has the same meaning in claims against reporting issuers and responsible issuers and is not restricted to documents required to be issued under Canada securities law. Rooney v. ArcelorMittal S.A., 2015 ONSC 3457 (under appeal) secondary market sellers cannot bring circular misrepresentation claims under s. 131 of the OSA Their only statutory recourse is under Part XXIII.1 Section 131 claimants must elect whether to bring a right of action against offeror or its directors/signatories to bid circular. 13 September 10, 2015

14 Triggers for US Rule 10b-5 class actions 14 September 10, 2015

15 Pleading Hurdles for 10b-5 Class Actions Tellabs, Inc. v. Makor Issues & Rights, Ltd. (scienter) Allegations must support cogent and compelling inference of fraud Inference of fraud must be at least as strong as any competing inference Allegations must be assessed holistically Well-pled allegations taken as true but conclusory allegations discounted Result: About 50% of dismissal motions are granted No discovery until complaint survives motion to dismiss Dura Pharmaceuticals Inc. v. Broudo (loss causation) Complaint must identify corrective disclosure where leakage of truth about prior misstatement caused stock price to fall Subsequent lower-court decisions have held that partial disclosures can suffice and that loss causation need not be pled with particularity 15 September 10, 2015

16 Omissions and Opinions Matrixx Initiatives, Inc. v. Siracusano (materiality) Omissions actionable if company fails to disclose material facts that would render an affirmative statement misleading Materiality judged from standpoint of reasonable investor, not management No bright-line statistical insignificance exception for contrary facts Omnicare Inc. v. Laborers District Council (opinions) No liability for pure opinions that are sincerely held by speaker But Embedded facts in statements of opinion can be actionable if untrue Opinions can trigger Matrixx-style omissions liability If opinion conveys impression that it was based on reasonable inquiry, speaker can be liable if it did not perform such inquiry Mere fact that speaker knew of facts cutting the other way will not create liability unless it would render opinion misleading to reasonable investor 16 September 10, 2015

17 Application to Financial Guidance US case study: In re Aeropostale (S.D.N.Y.) Retailer ordered new clothing line that fared poorly with customers and created inventory backlog Provided guidance without disclosing that it had pre-ordered three additional quarters of poor-selling designs Created impression backlog being cleared faster than it was Dismissal denied because company failed to disclose historical and existing material facts about inventory problem Even puffery actionable if omitted facts render it misleading; executives knew that their half-true expressions of optimism were both overly rosy and highly unlikely Company paid $15 million to settle 17 September 10, 2015

18 Item 303: Disclosure of Known Trends Courts have split over whether Item 303 omission can support Rule 10b-5 liability Item 303 of Reg. S-K requires issuers to disclose any known trends and uncertainties expected to have a material unfavorable impact on revenues or income from continuing operations In re NVIDIA Corp. (9th Cir.) Because plain language of Section 10(b) does not countenance pure omission claims, Stratte-McClure v. Morgan Stanley (2d Cir.) Because Item 303 is obligatory, nondisclosure conveys affirmative representation that the issuer knows of no adverse trends Affirmed dismissal for lack of scienter, but opens door to Item 303 claims 18 September 10, 2015

19 Internal Control Weaknesses as Basis for Liability Accounting restatements and internal control deficiencies are traditionally insufficient to support Rule 10b-5 liability In re Magnum Hunter (2d Cir.): No strong inference of scienter despite auditor dismissal, accounting restatement and 14 material weaknesses But arguments about false SOX and auditor certifications are gaining traction in US courts In re OSG Securities (S.D.N.Y.): Inaccurate auditor opinion on tax liability held to be actionable misstatement under Section 11 In re Symbol Technologies (E.D.N.Y.): Restated SOX certifications found to support 10b-5 fraud claim 19 September 10, 2015

20 Impact of Halliburton Ruling Halliburton v. Erica P. John Fund, Inc., 134 S. Ct Supreme Court preserved fraud-on-the-market presumption (the glue that allows classwide adjudication), but held defendants could contest price impact at class certification stage District court issued mixed certification ruling on remand from Supreme Court 20 September 10, 2015

21 US Merger Litigation: The Delaware Tollbooth 95% of US public company transactions trigger shareholder litigation Most cases are dismissed or settled for disclosures plus attorneys fees Many companies have adopted Delaware exclusive-venue bylaws Delaware courts have criticized strike suit settlements but have issued large awards to plaintiffs challenging majority-shareholder and interested-party transactions In re Dole Food Co.: $148 million award against CEO and GC for alleged misrepresentations to special committee In re Southern Peru Copper: $2 billion award over ineffective special committee 21 September 10, 2015

22 Questions: How to Contact Us Linda Fuerst Toronto, Ontario Peter A. Stokes Austin, Texas September 10, 2015

23

24 Disclaimer Norton Rose Fulbright LLP, Norton Rose Fulbright Australia, Norton Rose Fulbright Canada LLP, Norton Rose Fulbright South Africa (incorporated as Deneys Reitz Inc) and Fulbright & Jaworski LLP, each of which is a separate legal entity, are members ( the Norton Rose Fulbright members ) of Norton Rose Fulbright Verein, a Swiss Verein. Norton Rose Fulbright Verein helps coordinate the activities of the Norton Rose Fulbright members but does not itself provide legal services to clients. References to Norton Rose Fulbright, the law firm, and legal practice are to one or more of the Norton Rose Fulbright members or to one of their respective affiliates (together Norton Rose Fulbright entity/entities ). No individual who is a member, partner, shareholder, director, employee or consultant of, in or to any Norton Rose Fulbright entity (whether or not such individual is described as a partner ) accepts or assumes responsibility, or has any liability, to any person in respect of this communication. Any reference to a partner or director is to a member, employee or consultant with equivalent standing and qualifications of the relevant Norton Rose Fulbright entity. The purpose of this communication is to provide information as to developments in the law. It does not contain a full analysis of the law nor does it constitute an opinion of any Norton Rose Fulbright entity on the points of law discussed. You must take specific legal advice on any particular matter which concerns you. If you require any advice or further information, please speak to your usual contact at Norton Rose Fulbright. 24