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Showing 26 posts in Securities.

District Court Denies Motion to Dismiss Fiduciary Duty Claims Under ERISA

Posted In Class Actions, Fiduciary Duty, Securities

Cannon v. MBNA Corp., 2007 WL 2009672 (D. Del. July 6, 2007)

In this class action lawsuit brought by former MBNA employees, Plaintiffs asserted various breaches of fiduciary duty arising under ERISA in connection with administration of their 401(k) plan. Plaintiffs’ claims arose out of MBNA’s 2005 announcement of expected 10% annual growth for several years. Plaintiffs’ 401(k) plan contained MBNA stock. Several months later MBNA announced lower-than-expected earnings and MBNA stock fell nearly 35%. Plaintiffs alleged that the Defendants breached various fiduciary duties that resulted in this loss. Defendants were MBNA, the former CEO of MBNA, the committee responsible for the administration of the 401(k), and the individual committee members. Defendants moved to dismiss the various claims under F.R.C.P. 12(b)(6). The District Court found that dismissal as to all counts in the complaint was inappropriate at the pleading stage, and denied the motion. More ›

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District Court Grants in Part, Denies in Part Motion to Dismiss Exchange Act Claims

Posted In Class Actions, Securities

Baker v. MBNA Corp., 2007 WL 2009673 (D. Del. July 6, 2007)

This case is a consolidated class action against MBNA and certain officers for violations of §§ 10(b) and 20(a) of the Exchange Act, as wells as regulations promulgated thereunder. Plaintiffs alleged that the Defendants violated the Act in connection with allegedly false statements made in announcements and public filings regarding restructuring charges incurred and anticipated growth. Plaintiffs further alleged that the Defendants engaged in insider trading. Defendants moved to dismiss the complaint under F.R.C.P. Rules 9(b) and 12(b)(6). The District Court granted the motion with respect to the 10(b) claims again two of the officers, but denied it in all other respects. More ›

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Court of Chancery Decides When Stock Is Void

Posted In Securities

MBKS Company Limited v. Reddy, C.A. 1853-VCL (May 1, 2007).

It is occasionally important to distinguish between stock that is voidable and stock that is void. One reason is that voidable stock may be voted while it is still outstanding. In this decision, the Court of Chancery did an exhaustive review of the case law, applied the new statutory standard for consideration of  "any benefit to the corporation" and concluded the stock in question was void.

On MArch 3, 2008, the Delaware Supreme Court affirmed this decision in an opinion that is worth reading as well.

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District Court Applies SEC Rules Amendments to Transaction, Grants Summary Judgment

Posted In Derivative Claims, Directors, Securities

Levy v. Sterling Holding Co., LLC, 2007 WL 582555 (D.Del. Feb. 13, 2007).

In this shareholder derivative action, the plaintiff shareholder sued two defendants, both of whom occupied board positions with the corporation, for allegedly purchasing stock in the corporation and then selling it at a profit within six months, in violation of Section 16(b) of the Securities and Exchange Act of 1934. After each side filed cross-motions for summary judgment, the SEC adopted Amendments to SEC Rules 16b-3 and 16b-7, which exempt certain transactions from the prohibitions of Section 16(b). Defendants argued that the transaction that formed the basis of Plaintiff’s complaint, whereby Defendant’s preferred stock in the corporation was “automatically” converted to common stock upon completion of an IPO, was an exempt “reclassification” transaction under the SEC Rules. Conversely, Plaintiff argued that the exemption did not apply. The Court found that the SEC had acted within its power in exempting reclassification transactions from Section 16(b), and that as a result of that exemption, Defendants were entitled to judgment as a matter of law.  More ›

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Court of Chancery Resolves Conflict With SEC Rule

Esopus Creek Value LP v. Hauf, C.A. No. 2487-N (Del. Ch. November 29, 2006).

Delaware law requires an annual stockholder meeting. The SEC rules prohibit calling a stockholder meeting when the company is delinquent in its SEC filings. In this case and in its decision in Newcastle Partners LP v. Vesta Insurance Group, Inc., 887 A.2d 975 (Del. Ch. 2005), aff'd., 906 A.2d 807 (Del. Ch. 2005) the Delaware Court of Chancery has resolved this apparent conflict. Here, the Court held that a stockholder meeting should go forward with adequate disclosures to the stockholders entitled to vote on the proposed sale of substantially all of the company's assets. The Court ordered the company to apply to the SEC for an exemption from the rules prohibiting the calling of a meeting. More ›

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Federal Court Permits Motion To Transfer Using Multi-Factor Balancing Test

Weisler v. Barrows, C.A. No. 06-362 GMS, 2006 WL 3201882 (D. Del. Nov. 6, 2006).

Plaintiff, a shareholder of Sycamore Networks, Inc. (“Sycamore”), a Delaware corporation with its principal place of business in Massachusetts, brought this derivative action against several of its directors and officers, including its chairman, CEO and CFO. The complaint alleged six counts: (1) a count against each director for section 14(a) violations of the Securities and Exchange Act of 1934 (“Exchange Act”); (2) one count of disgorgement against four directors under section 304 of the Sarbanes-Oxley Act of 2002 (“Oxley Act”); (3) one count of breach of fiduciary duty against all directors; (4) one count of unjust enrichment against five directors; (5) one count of gross mismanagement against all defendants; and (6) one count of waste of corporate assets against all defendants.

The defendants moved to transfer the matter pursuant to 28 U.S.C. § 1404(a) and the Court granted the motion because it would convenience the parties and witnesses and serve the interests of justice.

The plaintiff alleged that the defendants had jointly and severally breached their fiduciary duties of care, loyalty, good faith, and candor by failing to: (1) discover or prevent the intentional manipulation of stock option grants between 1999 and 2004; (2) prevent the misreporting of earnings that was caused by the manipulation of the option grants; (3) oversee the administration of Sycamore’s stock-based compensation plans; (4) ensure Sycamore operated in compliance with applicable state and federal laws pertaining to dissemination of financial statements; (5) ensure the company did not engage in any improper or illegal practices; and (6) ensure that the company’s financial statements were compliant with GAAP. The conduct is alleged to have violated section 14(a) of the Exchange Act and section 304 of the Oxley Act.

The Court permitted the transfer of the matter on its individualized consideration of the motion under section 1404(a) and on whether it would convenience the parties and witnesses and serve the interests of justice. The Court also held that it was the defendants’ burden to establish the need for transfer. The Court observed that the standard for transfer did not demand a demonstration of compelling circumstances; rather, the defendants only needed to show that the case would be better off if transferred to the other jurisdiction. That inquiry required a “multi-factor balancing test” that consisted of not only the convenience of the parties and the witnesses but also the examination of certain public and private interests. The Court listed the private interests as: (1) a plaintiff’s choice of forum; (2) the defendant’s preference; (3) where the claim arose; (4) the convenience of the parties and witnesses; and (5) the location of the books and records. The Court listed the public interests as: (1) the judgment’s enforceability; (2) practical trial considerations making it easy, expeditious or inexpensive; (3) the administrative difficulty presented in the two fora; (4) local interest in deciding the controversy at home; and (5) the public policies of the fora under consideration. The Court found that the private and public factors weighed in favor of transfer and therefore permitted the defendants’ motion.

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District Court Retroactively Applies the SEC's 2005 Amendment to Rule 16b-3 Instead of Applying Levy

Posted In Securities

Tinney v. Geneseo Communications, Inc., C.A. No. 03-1126-SLR (D. Del. Oct. 10, 2006). In this securities action, the shareholder of a parent company, Airgate, brought a claim against the principal shareholders (the defendants) of a wholly owned subsidiary called iPCS for "short-swing trading" under Section 16(b) of the Exchange Act. Airgate purchased iPCS in a stock deal, in which the defendants received .1594 shares of Airgate common stock per iPCS share. Within six months of the transaction, though, the defendants sold nearly 4 million of their newly issued shares. Plaintiff argued that these sales constituted "short-swing trades" and sought damages in the amount of any profits realized. Defendants, in turn, brought a motion for judgment on the pleadings. The Court ended up denying defendants' motion on the ground that a number of material issues of fact remained in the case. Nonetheless, in route to this holding based on the facts, the Court did resolve an interesting legal question involving federal securities law and Third Circuit precedent. More ›

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Federal Court Dismisses "Covered Class Action" Involving Covered Securities" Action That Did Not Trigger The Delaware Carve-Out Under SLUSA

Posted In Securities
Golub v. Hilb, Rogal & Hobbs Co., 379 F.Supp.2d 639 (D.Del. 2005). Ninety-Nine shareholders represented by members of Hobb Group, L.L.C., and Hobbs IRA Corporation ("Sellers") entered into an agreement with defendant to sell its outstanding membership interest units for $270,000,000. Sellers alleged that the defendant company had not disclosed information that it knew before the closing. The defendant company moved to dismiss the Complaint. The Court granted the motion because the Complaint did not fall into the Delaware carve-out and therefore required dismissal. More › Share

Federal Court Decides Start and End Dates Of Class Certification Are The Registration Statement Date And The Date Typicality Of Claims End

Posted In Securities
Shockley v. Adams Golf, Inc., No. Civ.A. 99-371-KAJ, 2005 WL 3654346 (D.Del. June 27, 2005). This is a securities class action. The background to this case is provided in In re Adams Golf, Inc. Securities Litigation, 176 F.Supp.2d 216, 219-22 (D.Del. 2001), aff'd in part, rev 'd in part, 381 F.3d 267, 270-72 (3d Cir. 2004). In the present opinion, the Court resolved two remaining issues related to class certification. Pursuant to oral arguments on plaintiff's motion for class certification on May 17, 2005, the Court granted the motion but reserved its decision as to both: the appropriate time period applicable for defining the class of securities holders bringing an action under Section 11 of the Securities Act of 1933, 15 U.S.C. § 77l(a)(2); and the "nature of a subclass with respect to any liability under section 12(a)(2)" of the Securities Act of 1933, "including the appropriate time period for defining the subclass." The Court held that July 10, 1998, the date when the Registration Statement became effective was the start date of the class. Similarly, October 22, 1998, signifying the last date when the class had typical claims was the end-date for the class. More › Share

Federal Court Denies Motions To Dismiss Finding Plaintiff Sufficiently Alleged Insider Trading And Group Liability

Posted In Securities
Segen v. Comvest Venture Partners, LP., C.A. No. 04-822 JJF, 2005 WL 1320875 (D.Del. June 2, 2005). This opinion decided two motions to dismiss the Complaint. The motions were filed by two sub-groups of defendants, referred to as the "ComVest Defendants" and the "Priddy Defendants" for convenience. The Court denied both motions because they relied upon the same grounds and arguments. More › Share

Federal Court Dismisses Fraud And All Securities Claims Against Defendants In DaimlerChrysler AG Merger

Posted In Securities
Tracinda Corp. v. DaimlerChrysler AG, 364 F.Supp.2d 362 (D.Del. 2005). Tracinda Corporation ("Tracinda"), a Nevada entity with its principal place of business in California and engaged in investing in companies and then Chrysler's largest shareholder, brought this action against defendants comprising DaimlerChrysler AG, Daimler-Benz AG ("Daimler"), Jurgen Schrempp and Manfred Gentz (collectively "Defendants") and citizens of Germany alleging: (1) violations of securities laws; (2) common law fraud; and (3) conspiracy in connection with the 1998 merger between Chrysler Corporation ("Chrysler") and Daimler-Benz AG ("Daimler-Benz"). After a thirteen day bench trial, the Court held that: (1) personal jurisdiction did not exist over the German corporation; (2) the German company and its CEO were subject to the proxy solicitation statute although the American manufacturer solicited proxies; (3) pre-merger oral statements of the CEO did not attract liability; and (4) the documents memorializing the merger did not misrepresent that it was a merger between equals. More › Share
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