INSIDE THIS ISSUE
• Scott+Scott Achieves Victory For Shareholder Rights…
• Scott+Scott, Detroit Police & Fire Defeat Motion To Dismiss in Antitrust Case…
Scott+Scott Achieves Victory For Shareholder Rights
Scott+Scott achieved an important
legal victory for shareholder rights last month in a lawsuit against Verifone Holdings,
Inc. The suit was brought on behalf of a
VeriFone shareholder before the Delaware Supreme Court.
The case involved a novel issue under
Delaware corporate law: do shareholders have the right to inspect a
corporation’s books and records under Section 220 of Delaware General
Corporation Law after filing a shareholder derivative action against a corporation’s
board of directors? The Delaware Court
of Chancery had previously ruled that shareholders were not entitled to inspect
a corporation’s books and records under Section 220 once they have filed a
derivative action against members of the board. The Court of Chancery’s ruling barred
shareholders from utilizing these books and record requests to re-plead amended
shareholder derivative complaints, substantially weakening the ability of
shareholders to hold directors accountable for their disloyalty.
The Delaware Supreme Court reversed
the Delaware Court of Chancery decision on Friday, January 28, 2011, in an
opinion entitled King v. VeriFone
Systems, Inc., No. 330, 2010 (Del. Jan. 28, 2011). The Court’s decision made it clear that
shareholders have the right to inspect a corporation’s books and records under
Section 220, even after the shareholders have already filed a shareholder
derivative suit. The Delaware Supreme
Court’s decision in King v. VeriFone
removes barriers that had prevented shareholders from gaining access to a
corporation’s books and records to support claims of misconduct in shareholder
derivative suits.
“The Delaware Supreme Court's
decision is an important victory for shareholder rights,” said the Firm’s
Managing Partner, David Scott. “The
right to inspect a corporation’s books and records is one of the best ways for
a shareholder to determine whether the board has engaged in wrongdoing or has
put its own interests before the interests of the shareholders. It is crucial that shareholders be allowed to
issue books and records requests after filing a shareholder derivative suit.”
With the victory in the Delaware
Supreme Court, Scott+Scott builds on its well-developed shareholder derivative
practice. Among other things,
Scott+Scott frequently represents shareholders in actions seeking to monitor
the actions of corporate fiduciaries, such as officers and directors. The Firm also represents shareholders in
actions seeking to remedy wrongdoing by corporate officers and directors. For more information on Scott+Scott’s
shareholder derivative practice, contact David Scott at drscott@scott-scott.com
or (860) 537-5537.
Scott+Scott and the Detroit Police
& Fire Retirement System of the City of
The judge rejected Apollo’s argument
that the plaintiffs’ allegations of Apollo’s participation in the antitrust
conspiracy did not meet federal pleading standards. The judge also rejected the argument that
certain claims against Apollo were released in another case, In re AMC Entertainment, Inc. S’holder
Litig. Apollo further argued the four-year statute of limitations under the
Sherman Act barred the claims. The judge
deferred the statute of limitations until the close of discovery.
The suit alleges a conspiracy among
private equity firms and investment banks to limit competition by rigging bids,
fixing prices, and allocating the purchase of the stock of public companies as
part of “going private” or leveraged buy-out transactions. Specifically, the
complaint alleges that defendants conspired to depress the stock price in the
very largest going private transactions, including, among others, Aramark,
PanAmStat, Neiman Marcus, HCA, SunGard, Freescale, Michaels Stores, AMC, and
Kinder Morgan. As a result of the
collusion, plaintiffs claim that defendants have reaped huge profits and
enjoyed annualized returns on investments of 20% to 30%, while the shareholders
of the target companies were deprived of the full economic value of their
holdings. The defendants in the case
include Apollo, Bain Capital, Blackstone, Carlyle, Goldman Sachs, JP Morgan
Chase, KKR,
In November 2008, the Court dismissed
Apollo from a prior complaint based on releases obtained in prior litigation,
but the Court allowed plaintiffs to take discovery of other defendants and move
to amend the complaint to add additional facts and defendants at a later stage.
Plaintiffs renamed Apollo in the
Fourth Amended Complaint, filed in October 2010. Plaintiffs also added additional factual
allegations on other deals affected by defendants’ collusion, including Loews,
NXP, Vivendi, Community Health Systems, Nalco, Cablecom, Susquehanna, and
Warner Music.
The case is Dahl v. Bain Capital Partners, LLC, No. 07-CV-12388 (D.
Mass.). For more information, please
contact attorney Christopher M. Burke at cburke@scott-scott.com or (619) 233-4565.
The February 2011 issue of California Lawyer magazine included a
Securities Law Roundtable Panel featuring Scott+Scott’s Mary K. Blasy alongside
six other experts in the securities law field.
Ms. Blasy has prosecuted securities and shareholder derivative actions
since 2000, and has recovered hundreds of millions of dollars for investors in
class actions involving Martha Stewart Omnimedia, Sprint, Coca-Cola, and
Reliance Acceptance, among others.
The Securities Roundtable Panel
discussed a number of high profile class action cases coming before the Supreme
Court—including Erica P. John Fund, Inc.
v. Halliburton Co. (whether plaintiffs in securities fraud class actions
must establish loss causation at the class certification stage) and Janus Capital Group, Inc. v. First
Derivative Traders (whether a service provider who assisted a company in
writing a prospectus that contained misstatements may be held liable under
federal securities laws). The Panel also
discussed the Dodd-Frank Wall Street Consumer Reform and Consumer Protection
Act’s whistleblower program and the impact of Morrison v. National Australia Bank Ltd., 130 S. Ct. 2869 (2010)
(holding transaction must occur in the U.S. for court to have jurisdiction over
federal securities law claims) on securities litigation.
Ms. Blasy argued that the Fifth Circuit’s
decision, Oscar Private Equity Inv. v.
Allegiance Telecom Inc.,
Further, the Panel discussed the
Dodd-Frank Act’s whistleblower program.
The program allows whistleblowers to recover a percentage of funds
recovered when they provide information to the SEC. Some members of the Panel expressed concern
that whistleblowers will skip internal company protocol and go directly to the
government because of the financial incentives.
Ms. Blasy disagreed, stating that the prospect that the SEC may investigate, may prosecute, and may
actually win may not be enough incentive for employees to come forward and risk
their livelihood, as employees fear being blacklisted from their fields for
providing information to the SEC.
Finally, the Panel commented on the
impact of Morrison on securities
litigation. In Morrison the Supreme Court established a “transactional test” to
determine whether or not the U.S. has jurisdiction over securities claims—the
transaction must have occurred within the U.S. Ms. Blasy explained that the
court had before it a classic “F-cubed” situation: a foreigner buying a foreign
issuer’s stock on a foreign exchange. She
explained that Morrison’s application
to F-squared cases (where a U.S. citizen buys a foreign issuer’s stock on a
foreign exchange) is beyond what the Supreme Court contemplated. The bright-line rule should be based on the
citizenship of the investor, not the exchange transacted on.
For more information, Ms. Blasy may be reached at mblasy@scott-scott.com or at (619) 233-4565.
Repeal
of the McCarran-Ferguson Act is once again on the Congressional agenda for
2011. The statute, named after its
framers Senators Pat McCarran (D-NV) and Homer Ferguson (R-MI)
provides a limited exemption to the insurance industry from the operation of
the federal antitrust laws. Passed in
1944, the Act has been recommended for repeal several times. Senator Pat Leahy (D-VT), chairman of the
Senate Judiciary Committee, has most recently stated his recommitment to
achieving a repeal of the exemption.
The McCarran-Ferguson Act was
never intended to fully or permanently exempt the insurance industry from
antitrust enforcement. Prior to 1944, the regulation of the insurance industry
had been limited to state legislation based on the Supreme Court’s
interpretation of the Commerce Clause in the Constitution. In 1944, the Supreme Court handed down a
landmark decision in U.S. v. South-Eastern Underwriters Association, which determined that the business of
insurance was a form of interstate commerce that should be subject to the
federal antitrust laws. The government
charged the Underwriters Association and its insurance company members with
price-fixing and monopolization of the insurance market in the southeastern
U.S. The suit also alleged that the
insurance companies systematically used boycotts and intimidation to maintain
their market dominance. The Supreme
Court held that the insurance industry was interstate in nature, making this
type of anticompetitive behavior capable of regulation by the federal antitrust
laws.
Congress did not
disagree that the insurers’ actions were anticompetitive. Historically, however, the states had largely
regulated the insurance industry prior to South-Eastern Underwriters. This included antitrust enforcement under
state laws, the provisions of which largely mirror federal antitrust law. Thus, Congress designed the McCarran-Ferguson
Act to bolster state antitrust enforcement, by allowing the states to regulate
the insurance industry without interference from federal antitrust law, unless
federal law provided otherwise. To
ensure that no anticompetitive behavior by insurers “slips through the cracks”
of state antitrust enforcement, the McCarran-Ferguson Act exempts from the
federal antitrust laws activities that constitute the “business of insurance,”
but only when a state law specifically regulates the conduct, and where the
conduct does not amount to “boycotts, intimidation and coercion.” Taking its cue from the legislative history
of the statute, the Supreme Court has narrowly interpreted the “business of
insurance,” as used in the Act, to mean conduct that involves the underwriting
of risk that is integral to the policy relationship between the insurer and the
insured, and is limited to entities wholly within the insurance industry.
Even so, the
McCarran-Ferguson Act has been considered by legislators and politicians on
both sides of the aisle to be damaging to antitrust enforcement and consumers
of insurance across the nation. The
deterrent effect of antitrust regulation is eliminated if insurers believe they
are exempt from federal antitrust laws.
Additionally, the McCarran-Ferguson Act is predicated on full and effective
antitrust enforcement by state regulators.
Where states lack the resources or political will for this undertaking,
the Act prevents federal enforcers from plugging this gap.
For these reasons, repeal of the Act has been
recommended multiple times throughout the statutes’ 60 year history. The Department of Justice under President
Ford and the Federal Trade Commission under President Regan both advocated the
exemption’s repeal. In 2006, the American
Bar Association recommended to the Senate Judiciary Committee that the Act be
repealed. Senator Leahy lobbied for
repeal of the act several times in recent years. In 2010, the Senator urged legislators to
consider repeal of the Act as it applied to health insurance and medical
malpractice insurance. Once again on
January 11,
+ March 14-15, 2011
Public Funds Summit–IMN
Hyatt Regency
Huntington Beach, CA
This 16th annual
conference promises to provide an educational experience and networking
opportunities for the public pension plan community involving trustees and
public funds officers alike.
+March 26-30, 2011
TEXPERS
Sheraton Austin Hotel at the Capital
Austin, TX
The Texas Association of
Public Employee Retirement Systems is sponsoring their 22nd annual
conference in Austin this year. The
primary goal of this event is to promote quality fund management. Don Broggi,
ESQ. will be participating on a panel of five securities litigation firms to
discuss securities fraud, trustee fiduciary responsibilities, and portfolio
monitoring.
Government Finance
Officers Association Conferences
+March 2-4, 2011
North Carolina GFOA
Research Triangle Park, N.C.
+March 6-9, 2011
Oregon MFOA
Gleneden Beach, OR
+March 24-25, 2011
Wisconsin GFOA
Madison, WI
Scott + Scott LLP is a nationally recognized law firm headquartered in Connecticut with offices in New York City, Ohio and California. The firm represents individual as well as institutional investors who have suffered from corporate stock fraud. Scott+Scott has participated in recovering billions of dollars and achieved precedent-setting reforms in corporate governance on behalf of its clients. In addition to being involved in complex shareholder securities and corporate governance actions, Scott+Scott also has a significant national practice in antitrust, ERISA, consumer, civil rights and human rights litigation. Through its efforts, Scott+Scott promotes corporate social responsibility.
Scott+Scott’s PT+SM System is the firm’s proprietary investment portfolio tracking service. Carefully combining the firm’s proprietary computer-based portfolio monitoring software with Scott+Scott’s hands-on approach to client relations is a proven method for institutional investors and their trustees to successfully
- Monitor their investment portfolios
- Identify losses arising from corporate fraud
- Consider what level of participation any given situation requires
- Recover funds obtained on their behalf through investor litigation action
To obtain more information about Scott+Scott’s PT+SM services or to schedulea presentation to fund trustees, fund advisors or asset managers, please
contact: David R. Scott + Toll Free: 800.404.7770 email: drscott@scott-scott.com
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