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

After NASDAQ encountered a variety of technical difficulties in executing Facebook, Inc.'s initial public offering (IPO), retail investors filed suit against NASDAQ. After those claims were eventually settled, NASDAQ filed suit against insurance companies for coverage under both errors and omissions (E&O) and directors' and officers' (D&O) insurance policies. The district court granted ACE and Illinois National summary judgment. The Second Circuit held that federal securities law makes clear that retail investors in company stock are "customers" of NASDAQ within the meaning of the insurance policies at issue; the claims in the underlying complaint arose out of the provision of "professional services" as plaintiffs could not prevail without demonstrating that their losses flowed from NASDAQ's failure to properly process their trades; and thus the court affirmed the district court's grant of summary judgment on the issue of indemnification. View "Beazley Insurance Co. v. Ace American Insurance Co." on Justia Law

Goldman Sachs appealed the district court's order certifying a class of plaintiffs who purchased shares of common stock in Goldman Sachs. Plaintiffs alleged that Goldman Sachs made material misstatements about its efforts to avoid conflicts of interest, and those misstatements caused the value of their shares to decline. In light of the Second Circuit's recent pronouncement that defendants bear the burden of persuasion to rebut the presumption in Basic Inc. v. Levinson, 485 U.S. 224 (1988), by a preponderance of the evidence, and for additional reasons, the court vacated plaintiffs' motion for class certification and remanded for further proceedings. The court explained that it was unclear whether the district court applied the correct standard in this case. View "Arkansas Teachers Retirement System v. Goldman Sachs Group, Inc." on Justia Law

The Second Circuit vacated the district court's judgment in favor of defendants in a class action alleging that several national securities exchanges mislead them about certain products and services that the exchanges sold to high-frequency trading firms. The court held that it had subject matter jurisdiction over the case; the exchanges were not entitled to absolute immunity; and the district court erred in dismissing the complaint. In this case, plaintiffs have sufficiently pleaded that the exchanges engaged in manipulative or deceptive conduct in violation of the Securities Exchange Act of 1934, 15 U.S.C. 78j(b), and Securities and Exchange Commission Rule 10b‐5, 17 C.F.R. 240.10b‐5. View "City of Providence v. BATS Global Markets, Inc." on Justia Law

The Second Circuit affirmed the district court's order granting plaintiffs' motion for class certification in an action asserting violations of section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. 78j(b). The court held that the Affiliated Ute Citizens of Utah v. United States, 406 U.S. 128 (1972), presumption did not apply because plaintiffs' claims were primarily based on misstatements, not omissions; direct evidence of price impact was not always necessary to demonstrate market efficiency, as required to invoke the Basic Inc. v. Levinson, 485 U.S. 224 (1988), presumption of reliance, and was not required here; defendants seeking to rebut the Basic presumption must do so by a preponderance of the evidence, which defendants failed to do; and the district court's conclusion regarding plaintiffs' classwide damages methodology was not erroneous. View "Waggoner v. Barclays PLC" on Justia Law

FHFA, as conservator for government-sponsored enterprises (GSEs), filed suit against defendants, alleging violations of the Securities Act of 1933 and analogous "Blue Sky laws," the Virginia Securities Act, and the D.C. Securities Act. The FHFA alleged that representations regarding underwriting criteria for certificates tied to private-label securitizations (PLLs) was a material misstatement. The district court rendered judgment in favor of the FHFA under Sections 12(a)(2) and 15 of the Securities Act, and analogous provisions of the Virginia and D.C. Blue Sky laws. The district court also awarded rescission and ordered defendants to refund the FHFA a total adjusted purchase price of approximately $806 million in exchange for the certificates. The Second Circuit found no merit in defendants' argument and held that defendants failed to discharge their duty under the Securities Act to disclose fully and fairly all of the information necessary for investors to make an informed decision whether to purchase the certificates at issue. Accordingly, the court affirmed the judgment. View "Federal Housing Finance Agency v. Nomura Holding America, Inc." on Justia Law

Plaintiffs, retired officers of Booz Allen, filed suit alleging that they were improperly denied compensation when, after their retirement, Booz Allen sold one of its divisions in the Carlyle Transaction. The Second Circuit affirmed the district court's dismissal of the Employee Retirement Income Security Act (ERISA), 29 U.S.C. 1001 et seq., claims on the ground that Booz Allen's stock-distribution program was not a pension plan within the meaning of ERISA, and denial as futile leave to amend to "augment" the ERISA claims with new allegations; affirmed the dismissal of the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. 1961 et seq., claims on the ground that they were barred by the Private Securities Litigation Reform Act of 1995 (PSLRA), 18 U.S.C. 1964(c); but vacated the district court's judgment to the extent it denied Plaintiff Kocourek leave to amend to add securities-fraud causes of action. The court remanded for the district court to consider his claims. View "Pasternack v. Shrader" on Justia Law

Plaintiffs, holders of Petrobras equity, filed a class action against various defendants after the multinational oil and gas company was involved in money-laundering and kickback schemes. The district court certified two classes: the first asserting claims under the Securities Exchange Act of 1934, 15 U.S.C. 78a et seq.; and the second asserting claims under the Securities Act of 1933,15 U.S.C. 77a et seq. The Second Circuit clarified the scope of the contested ascertainability doctrine and held that a class is ascertainable if it is defined using objective criteria that establish a membership with definite boundaries. That threshold requirement was met in this case. The court held that the district court committed legal error by finding that Federal Rule of Civil Procedure 23(b)(3)'s predominance requirement was satisfied without considering the need for individual Morrison v. National Australia Bank Ltd., 561 U.S. 247 (2010), inquiries regarding domestic transactions. Therefore, the court vacated this portion of the Certification Order. The court also held that the district court did not abuse its discretion by determining that the Exchange Act class met their burden under Basic Inc. v. Levinson, 485 U.S. 224 (1988), with a combination of direct and indirect evidence of market efficiency.  Accordingly, the court affirmed as to this issue. View "In re Petrobras Securities" on Justia Law

Benjamin Ashmore appealed the district court's order dismissing him as the plaintiff in a whistleblower action under the Sarbanes-Oxley Act, 18 U.S.C. 1514A. Instead, the trustee of Ashmore's bankruptcy estate was substituted as plaintiff. The Second Circuit dismissed the appeal for lack of jurisdiction because the district court's dismissal of the case as to Ashmore and the substitution of the trustee as plaintiff were interlocutory orders that were not immediately appealable. The court vacated the temporary stay of the district court proceedings and denied Ashmore's pending motion to stay as moot. View "Ashmore v. CGI Group, Inc." on Justia Law

Plaintiff filed a securities class action alleging claims arising out of the Initial Public Offering (IPO) shares for Vivint Solar. The Second Circuit affirmed the district court's dismissal of the complaint, holding that the "extreme departure" test in Shaw v. Digital Equipment Corp., 82 F.3d 1194 (1st Cir. 1996), is not the law of this circuit and that Vivint's omissions were not material under the test set forth in DeMaria v. Andersen, 318 F.3d 170 (2d Cir. 19 2003), to which the court adhered. The court also held that Vivint did not mislead shareholders regarding the company's prospects in Hawaii. View "Stadnick v. Vivint Solar, Inc." on Justia Law

After Lehman Brothers filed for Chapter 11 bankruptcy, thousands of its employees were holding restricted stock units (RSUs) that had been awarded over the preceding five years, but that had not yet vested and had thus been rendered worthless by the bankruptcy filing. The employees filed proofs of claim in the Chapter 11 proceeding and Lehman Brothers filed omnibus objections to the claims. The Second Circuit noted that it need not determine whether an RSU is an "equity security" under 11 U.S.C. 101(16), because, even if it is, RSU holders are not barred from asserting proofs of claim—such as the breach‐of‐contract claims asserted here—inasmuch as at least some of their claims are not duplicative of proofs of interest. However, the Second Circuit affirmed and concluded that Lehman Brothers' omnibus objections must nonetheless be sustained on the alternative ground that, pursuant to section 510(b) of the Bankruptcy Code, 11 U.S.C. 510(b), the claims must be subordinated to the claims of general creditors because, for purposes of this statute, (1) RSUs are securities, (2) the claimants acquired them in a purchase, and (3) the claims for damages arise from those purchases or the asserted rescissions thereof. View "In re: Lehman Bros." on Justia Law