Justia U.S. 2nd Circuit Court of Appeals Opinion Summaries

A nonprofit organization that publishes content critical of United States immigration policy was issued a subpoena by the New York Attorney General’s office seeking documents related to its governance, finances, and relationships with vendors and contractors. The organization alleged that the subpoena was motivated by a desire to suppress its viewpoints and thus violated its rights under the First Amendment and the New York State Constitution. The Attorney General, however, maintained that the investigation was prompted by concerns about possible self-dealing and regulatory noncompliance.After the subpoena was issued, the nonprofit partially responded but maintained objections. It then filed a federal lawsuit seeking damages and an injunction against enforcement of the subpoena, claiming the subpoena was retaliatory and unconstitutional. Shortly thereafter, the Attorney General initiated a special proceeding in New York State Supreme Court to compel compliance. The organization moved to dismiss or stay the state proceeding, raising constitutional arguments. The state court ruled against the nonprofit, ordering compliance with the subpoena (with some redactions allowed), and the New York Appellate Division, First Department affirmed. The New York Court of Appeals dismissed a further appeal.The United States District Court for the Northern District of New York denied the nonprofit’s request for a preliminary injunction and dismissed the federal claims, holding that they were precluded by the earlier state court judgment under the doctrine of res judicata. The United States Court of Appeals for the Second Circuit affirmed the district court’s judgment, holding that the state court’s decision was final and on the merits, involved the same parties and subject matter, and therefore barred the federal claims. The court also dismissed as moot the appeal of the denial of preliminary injunctive relief. View "VDARE Foundation, Inc. v. James" on Justia Law

A distributor of television programming alleged that three groups of broadcasters, including two that were so-called “sidecar” entities of a larger broadcaster, engaged in a horizontal price-fixing conspiracy. The distributor claimed that the broadcasters coordinated through a common negotiator to demand supracompetitive retransmission fees during contract renewal talks. When the distributor declined to pay the demanded rates, it lost access to the broadcasters’ stations in certain markets, resulting in blackouts for subscribers and subsequent lost profits.Prior to this appeal, the United States District Court for the Southern District of New York reviewed the case. The district court granted the broadcasters’ motion to dismiss the federal antitrust claims, concluding that the distributor lacked antitrust standing. Specifically, the district court found that there was no antitrust injury because the distributor did not actually pay the alleged supracompetitive prices, and that the distributor was not an efficient enforcer since its injuries were indirect and speculative. Consequently, the district court declined to exercise supplemental jurisdiction over the distributor’s remaining state law claims.On appeal, the United States Court of Appeals for the Second Circuit reviewed the district court’s judgment. The Second Circuit held that the distributor plausibly alleged an antitrust injury, as lost profits from a reduction in output (subscriber losses caused by blackouts resulting from price fixing) are a cognizable form of antitrust injury. The court further held that the distributor is an efficient enforcer because it was the direct target of the alleged conspiracy and had a preexisting course of dealing with the broadcasters. The Second Circuit reversed the district court’s dismissal of the federal antitrust claims, vacated the decision to decline supplemental jurisdiction over the state law claims, and remanded the case for further proceedings. View "DirecTV, LLC v. Nexstar Media Group, Inc." on Justia Law

A Malaysian national who worked as a managing director for Goldman Sachs in Malaysia was prosecuted for his role in a large-scale financial scheme involving 1Malaysia Development Berhad (1MDB), a Malaysian state-owned investment fund. The government presented evidence showing that, along with other conspirators, he participated in three major bond offerings raising $6.5 billion, from which more than $2.5 billion was diverted for bribes and kickbacks to officials and participants, including himself. The funds were laundered through shell companies, and the defendant received $35.1 million that was deposited in an account controlled by his family members. The defendant’s wife asserted at trial that these funds were legitimate investment returns, not criminal proceeds.Prior to this appeal, the United States District Court for the Eastern District of New York denied several motions by the defendant. The court rejected his arguments that the indictment should be dismissed for lack of venue, concluding that acts in furtherance of the conspiracy passed through the Eastern District of New York. The court also found that the government did not breach an agreement regarding his extradition from Malaysia, since the superseding indictments did not charge new offenses. The district court excluded a video recording offered by the defense as inadmissible hearsay, and ultimately, a jury found him guilty on all counts. He was sentenced to 120 months’ imprisonment and ordered to forfeit $35.1 million.On appeal to the United States Court of Appeals for the Second Circuit, the defendant argued improper venue, breach of extradition agreement, erroneous exclusion of evidence, and that the forfeiture was an excessive fine under the Eighth Amendment. The Second Circuit held that the district court had not erred in any respect. Venue was proper, the extradition agreement was not breached, the evidentiary ruling was not an abuse of discretion, and the forfeiture was not grossly disproportionate to the offense. Accordingly, the judgment of conviction and forfeiture order were affirmed. View "USA v. NG CHONG HWA" on Justia Law

Several nonprofit, faith-based organizations that provide pregnancy-related services and oppose abortion initiated an action against the New York State Attorney General. These organizations had made statements regarding abortion pill reversal (“APR”), a protocol intended to counteract the effects of medication-induced abortion. After the Attorney General commenced a civil enforcement action in New York state court against other entities (not parties to this case) for making similar APR-related statements, the plaintiffs alleged they faced a credible threat of sanctions if they continued such speech. As a result, they stopped making APR-related statements and sought declaratory and injunctive relief in federal court, arguing that the regulation of their APR-related speech violated their First and Fourteenth Amendment rights.The United States District Court for the Western District of New York addressed the Attorney General’s argument that the federal court should abstain under the Younger v. Harris doctrine due to the parallel state enforcement action. The district court found abstention unwarranted, noting the federal claims were not inextricably intertwined with the state action and would not interfere with it. On the merits, the district court determined that the plaintiffs were likely to succeed on their First Amendment claim because the APR-related speech was noncommercial, religiously and morally motivated, involved no financial benefit or remuneration, and did not directly offer APR but instead provided information and referrals. Since the Attorney General did not show the state’s restrictions would survive strict scrutiny, the district court granted a preliminary injunction.On appeal, the United States Court of Appeals for the Second Circuit affirmed the district court’s order. The Second Circuit held abstention under Younger was not required, as the plaintiffs’ claims were independent of the state enforcement action. The court found no abuse of discretion in the grant of the preliminary injunction, agreeing that the plaintiffs’ APR-related speech was noncommercial and protected, and the Attorney General failed to meet the strict scrutiny standard. View "Nat'l Inst. of Fam. & Life Advocs. v. James" on Justia Law

The case concerns a former CEO of a brand-management company who was prosecuted for allegedly orchestrating a scheme to inflate company revenues through secret “overpayments-for-givebacks” deals with a business partner. The government alleged that the CEO arranged for the partner to pay inflated prices for joint ventures, with a secret understanding that the excess would be returned later, thereby allowing the company to report higher revenues to investors. The CEO was also accused of making false filings with the SEC and improperly influencing audits. The central factual dispute was whether the CEO actually made these undisclosed agreements.In 2021, the United States District Court for the Southern District of New York held a jury trial. The jury acquitted the CEO of conspiracy to commit securities fraud, make false SEC filings, and interfere with audits, but could not reach a verdict on the substantive charges, resulting in a mistrial on those counts. The government retried the CEO in 2022 on the substantive counts, and the second jury convicted him on all charges. The CEO moved to bar the retrial, arguing that the Double Jeopardy Clause precluded it because the first jury’s acquittal necessarily decided factual issues essential to the government’s case.The United States Court of Appeals for the Second Circuit reviewed the case. It held that the first jury’s acquittal on the conspiracy charge necessarily decided that the CEO did not make the alleged secret agreements, which was a factual issue essential to the substantive charges. Because the government’s case at the second trial depended on proving those same secret agreements, the Double Jeopardy Clause’s issue-preclusion doctrine barred the retrial. The Second Circuit reversed the district court’s judgment, vacated the CEO’s convictions, and ordered dismissal of the indictment. View "United States v. Cole" on Justia Law

A group of investors who purchased American Depository Shares in a Spanish engineering and construction company alleged that the company manipulated its financial records to conceal a liquidity crisis, which ultimately led to its bankruptcy. The investors claimed that the company’s registration statement for its U.S. offering contained false statements about its accounting practices, specifically regarding the use of the percentage-of-completion method for recognizing revenue. They also alleged that company executives and underwriters were involved in or responsible for these misrepresentations. The complaint relied on information from confidential witnesses and findings from Spanish criminal proceedings and regulatory investigations, which described widespread accounting fraud and the deliberate inflation of project revenues.The United States District Court for the Southern District of New York dismissed the investors’ claims under both the Securities Act of 1933 and the Securities Exchange Act of 1934. The district court found the Securities Act claims untimely under the one-year statute of limitations and concluded that the complaint failed to state a claim under either statute. The court also denied leave to amend the Exchange Act claims against the company’s former CEO, finding that such amendment would be futile.The United States Court of Appeals for the Second Circuit reviewed the case and held that the Securities Act claims were timely because the relevant “storm warning” triggering the statute of limitations occurred later than the district court had found. The appellate court also held that the complaint adequately stated claims under both the Securities Act and the Exchange Act against the company, crediting the detailed allegations from confidential witnesses and Spanish proceedings. However, the court affirmed the denial of leave to amend the Exchange Act claims against the former CEO, finding insufficient allegations of scienter. The judgment of the district court was affirmed in part, reversed in part, and vacated in part. View "Sherman v. Abengoa, S.A." on Justia Law

The case concerns allegations by investors against a company that markets and sells organic and natural products, as well as several of its current and former executives. The investors claim that, during a specified period, the company engaged in “channel stuffing”—offering distributors significant incentives to purchase more product than they could sell, in order to meet financial projections. The investors allege that these practices were not adequately disclosed to the public or properly accounted for, and that the company made misleading statements about its financial health, internal controls, and compliance with accounting standards. The company later restated its financial results, admitted to deficiencies in its internal controls, and settled with the Securities and Exchange Commission, which did not bring charges but found violations of recordkeeping and internal control requirements.The United States District Court for the Eastern District of New York initially dismissed the investors’ complaint, finding that they had not sufficiently alleged that the defendants acted with scienter, or wrongful intent. After a prior appeal resulted in a remand for further consideration, the district court again dismissed the complaint, concluding that the plaintiffs failed to adequately plead scienter and actionable misstatements or omissions.The United States Court of Appeals for the Second Circuit reviewed the case and determined that the plaintiffs had adequately alleged that the defendants made actionable misstatements and omissions regarding the company’s financial results, internal controls, and the use of channel stuffing. The court also found that the plaintiffs sufficiently alleged scienter, loss causation, and control-person liability under the relevant securities laws. The Second Circuit vacated the district court’s dismissal and remanded the case for further proceedings. The main holding is that the plaintiffs’ allegations were sufficient to survive a motion to dismiss and that the case should proceed. View "Gimpel v. Hain Celestial Group, Inc." on Justia Law

A group of shareholders in seven small-to-mid cap companies brought coordinated class actions against two major financial institutions, alleging that these institutions enabled Archegos Capital Management to amass large, nonpublic, and highly leveraged positions in the companies’ stocks through total return swaps and margin lending. When the value of these stocks declined and Archegos was unable to meet margin calls, the financial institutions quickly sold off their related positions before the public became aware of Archegos’ impending collapse. The shareholders claimed that this conduct constituted insider trading, arguing that the institutions used confidential information to avoid losses at the expense of ordinary investors.The United States District Court for the Southern District of New York first dismissed the shareholders’ complaints, finding insufficient factual allegations to support claims under both the classical and misappropriation theories of insider trading. The court allowed the shareholders to amend their complaint, but after a second amended complaint was filed, the court again dismissed the claims with prejudice. The district court concluded that the complaint did not plausibly allege that Archegos was a corporate insider or that the financial institutions owed a fiduciary duty to Archegos. It also found the allegations of tipping preferred clients to be unsupported by sufficient facts. The court dismissed the related claims under Sections 20A and 20(a) of the Securities Exchange Act for lack of an underlying securities violation.On appeal, the United States Court of Appeals for the Second Circuit affirmed the district court’s judgment. The Second Circuit held that the shareholders failed to plausibly allege that the financial institutions engaged in insider trading under either the classical or misappropriation theories. The court found no fiduciary or similar duty owed by Archegos to the issuers or by the financial institutions to Archegos, and determined that the complaint lacked sufficient factual allegations to support a tipping theory. The court also affirmed dismissal of the Section 20A and 20(a) claims. View "In Re: Archegos 20A Litigation" on Justia Law

Several plaintiffs, including an individual, an investment fund, and a limited partnership, engaged in trading derivatives tied to the Sterling London Interbank Offered Rate (Sterling LIBOR). They alleged that a group of major banks conspired to manipulate Sterling LIBOR for their own trading advantage. The plaintiffs claimed that the banks coordinated false submissions to the rate-setting process, sometimes inflating and sometimes deflating the benchmark, which in turn affected the value of Sterling LIBOR-based derivatives. The plaintiffs asserted that this manipulation was orchestrated through internal and external communications among banks and with the help of inter-dealer brokers.The United States District Court for the Southern District of New York reviewed the case and dismissed the plaintiffs’ claims under the Sherman Act and the Commodity Exchange Act (CEA). The district court found that two plaintiffs lacked antitrust standing because they were not “efficient enforcers” and had not transacted directly with the defendants, resulting in only indirect and remote damages. The court also determined that the third plaintiff, a limited partnership, lacked the capacity to sue and had not properly assigned its claims to a substitute entity. Additionally, the court found that one plaintiff failed to adequately plead specific intent for the CEA claims.On appeal, the United States Court of Appeals for the Second Circuit affirmed the district court’s dismissal, but on a narrower ground. The Second Circuit held that none of the plaintiffs plausibly alleged actual injury under either the Sherman Act or the CEA. The court explained that because the alleged manipulation was multidirectional—sometimes raising and sometimes lowering Sterling LIBOR—the plaintiffs did not show that they suffered net harm as a result of the defendants’ conduct. Without specific allegations of transactions where they were harmed by the manipulation, the plaintiffs’ claims could not proceed. The judgment of dismissal was affirmed, and the cross-appeal was dismissed as moot. View "Sonterra Cap. Master Fund, Ltd. v. UBS AG" on Justia Law

Armistice Capital, LLC and its client fund held warrants to purchase shares in Vaxart, Inc., a biotech company developing an oral COVID-19 vaccine. Stephen J. Boyd, Armistice’s Chief Investment Officer, served on Vaxart’s board. The warrants included “blocker provisions” limiting Armistice’s ownership to 4.99% and 9.99% of Vaxart’s shares. Boyd requested that Vaxart’s board amend these provisions to allow Armistice to own up to 19.99%. The board, with full knowledge that Boyd and another director were Armistice representatives, unanimously approved the amendment. Shortly after Vaxart announced its vaccine’s selection for a federal study, Armistice exercised the warrants and sold its shares, allegedly realizing an $87 million profit.Andrew E. Roth, a Vaxart shareholder, filed suit in the United States District Court for the Southern District of New York, alleging that Armistice and Boyd, as statutory insiders, violated Section 16(b) of the Securities Exchange Act by engaging in a prohibited short-swing transaction. Roth sought disgorgement of the profits to Vaxart. The defendants moved for summary judgment, arguing that even if a short-swing transaction occurred, they were exempt from liability under SEC Rule 16b-3(d) because the Vaxart board had approved the transaction with knowledge of all material facts. The District Court granted summary judgment for the defendants, finding the exemption applied.On appeal, the United States Court of Appeals for the Second Circuit reviewed the District Court’s decision de novo. The Second Circuit held that the exemption under SEC Rule 16b-3(d) applied because the transaction involved the acquisition of issuer equity securities by insiders, those insiders were directors at the time, and the transaction was approved in advance by the issuer’s board with full knowledge of the relevant relationships. The court affirmed the District Court’s judgment, holding that the defendants were exempt from Section 16(b) liability under Rule 16b-3(d). View "Roth v. Armistice Capital, LLC" on Justia Law