/cloudfront-us-east-2.images.arcpublishing.com/reuters/OMBSGBTD75L4ZDH2XAR4XNNIXQ.jpg)
The United States Supreme Court Building in Washington, D.C., May 13, 2021. REUTERS/Andrew Kelly
(Reuters) - It’s hardly a secret that there are securities class action skeptics among the justices of the U.S. Supreme Court. Last term, after all, Justices Neil Gorsuch, Clarence Thomas and Samuel Alito said in a dissent by Gorsuch in Goldman Sachs v. Arkansas Teacher Retirement System that defendants ought to be able to defeat class certification simply by producing evidence – not necessarily persuasive evidence – that their alleged misstatements didn’t impact the price of their shares. Shareholder litigation would have been gutted if they’d been in the majority.
In the Supreme Court’s upcoming term, the justices will hear yet another securities class action case – but I don’t think shareholder lawyers have as much to worry about as they did in the Goldman case. Pivotal Software, Inc v. Superior Court of California, which is scheduled for oral argument on Nov. 9, presents the question of whether the stay on early-stage discovery imposed by the Private Securities Litigation Reform Act applies to Securities Act class actions in state court as well as federal court. Based on the latest data from Cornerstone Research, it looks like the Supreme Court is taking up the question amid a drastic drop in the very cases in which the answer matters.
A bit of necessary context: As you probably recall, the Supreme Court ruled in 2018’s Cyan v. Beaver County Employees Retirement Fund that the Securities Act entitles shareholders to sue in either state or federal court. State courts, of course, are generally more lenient than federal court in their pleading standards for fraud. In addition, as law professor Michael Klausner and other Stanford Law School researchers reported in a 2020 study, shareholders might benefit from a disparity in discovery rules in state and federal court. In federal court, the PSLRA bars shareholders from obtaining discovery from defendants until they have survived a dismissal motion. But state courts frequently allow shareholders to assert discovery demands before judges have ruled on dismissal motions. So, according to the Stanford paper, state-court plaintiffs might be able to leverage the cost of complying with their discovery demands to pressure defendants to settle.
Plaintiffs' lawyers -- no dummies -- flocked to state court after the Supreme Court's Cyan decision in March 2018. That year, shareholders filed 35 Securities Act class actions in state court, according to Cornerstone. In 2019, the first full year post-Cyan, there were 52 Securities Act class actions filed in state court.
But last year the number fell precipitously, to only 23 state-court class action filings. And in the first half of 2021, according to Cornerstone’s mid-year report last month, only five Securities Act class actions were filed in state court.
Cornerstone theorized that the drastic drop reflects the Delaware Supreme Court’s 2020 ruling in Salzberg v. Sciabacucchi that companies can adopt forum selection provisions requiring shareholders to bring Securities Act claims in federal court. Courts in other states have to enforce those forum selection provisions, but Cornerstone said its data suggest that Delaware’s Sciabacucchi ruling has significantly depressed state-court Securities Act filings.
If state-court class actions were a problem, in other words, companies may have already solved it – as least prospectively -- through federal-court forum selection provisions.
To be sure, Pivotal’s lawyers at Morrison & Foerster offered quite a different view in the merits brief they filed on Monday. Pivotal, a cloud computing company that is now part of VMWare, described facing parallel shareholder class actions in San Francisco Superior Court and in federal court in San Francisco. The state case was stayed while Pivotal sought – and won – dismissal of the federal-court class action. But when the federal case was tossed, Pivotal said, the state-court plaintiffs asserted sweeping discovery requests from Pivotal and its underwriters. “Those requests were as broad and burdensome as they come,” Pivotal said.
Pivotal’s brief said underwriters have been swamped with state court securities suits since Cyan. “In the past three years alone, the underwriter petitioners cumulatively have been named as defendants in individual and consolidated actions under the Securities Act in state court at least 287 times," the brief said, "or, counting the number of complaints filed within each individual and consolidated action, cumulatively at least 640 times.”
I’m not entirely sure how to reconcile Pivotal’s number with the Cornerstone data. Pivotal’s lawyers at MoFo declined to comment. I didn’t get a response to my email query to counsel for the shareholders suing Pivotal, Thomas Goldstein of Goldstein & Russell, Steve Berman of Hagens Berman Sobol Shapiro and Thomas Laughlin of Scott + Scott.
It could be simply that a single class action may name more than a dozen underwriter defendants, as the Pivotal class action did. It's possible that the 100 or so state-court Securities Act class actions filed after Cyan name hundreds of defendants amongst them. On the other hand, Pivotal said that the 287 cumulative claims it cited include claims in individual suits. Those, of course, would not be affected by a Supreme Court ruling on the application of the PSLRA discovery stay to state-court class actions.
I should point out that I’ve been completely wrong before about the Pivotal case. I didn’t think the Supreme Court would grant review, considering that shareholders in the California state-court class action ditched their early discovery demands after Pivotal filed its petition for certiorari. Pivotal’s new brief called that abandonment “a transparent attempt to moot the controversy.”
Obviously, the attempt failed -- and it's worth wondering why shareholder lawyers were so eager to avoid Supreme Court consideration of the issue.
I expect that Pivotal will attract amicus backing from the U.S. Chamber and the Securities Industry and Financial Markets Association, which previously filed a brief backing Pivotal's petition for Supreme Court review. It will be interesting to see if those groups have more to add to the discussion of the case’s potential impact.
(This story has been updated to note that Pivotal's counsel declined to comment.)
Read more:
New securities class action issue at SCOTUS: Does PSLRA discovery stay apply in state court?
Our Standards: The Thomson Reuters Trust Principles.
Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias.
"lose" - Google News
August 21, 2021 at 03:15AM
https://ift.tt/37ZtCqP
What do shareholders have to lose in new SCOTUS securities class action showdown? - Reuters
"lose" - Google News
https://ift.tt/3fa3ADu https://ift.tt/2VWImBB
Bagikan Berita Ini
0 Response to "What do shareholders have to lose in new SCOTUS securities class action showdown? - Reuters"
Post a Comment