INSIDE THIS ISSUE

•   Scott+Scott Achieves Victory For Shareholder Rights…

•   Scott+Scott, Detroit Police & Fire Defeat Motion To Dismiss in Antitrust Case…

•   Scott+Scott Attorney Mary K. Blasy Featured In California Lawyer‘s Securities Law Roundtable Discussion…

•   McCarran Ferguson Back On The Table: Senator Seeks Repeal Of The Insurance Industry’s Antitrust Exemption

•   Conferences And Events...

(Flashlit version)

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.

Table of Contents

Scott+Scott, Detroit Police & Fire Defeat Motion To Dismiss in Antitrust Case Against Private Equity Firms

Scott+Scott and the Detroit Police & Fire Retirement System of the City of Detroit recently achieved a positive ruling on a motion to dismiss their allegations of antitrust violations among private equity firms.  On February 17, 2011, U.S. District Judge Edward Harrington of the District of Massachusetts entered an order denying Apollo Global Management’s motion to dismiss a complaint brought by Detroit Police & Fire and other investors.  This was the tenth motion to dismiss the plaintiffs’ antitrust claims brought by defendants in this case and the fourth brought or joined by Apollo.

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, Providence, Silver Lake, TPG, and Thomas H. Lee.

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.

Table of Contents

Scott+Scott Attorney Mary K. Blasy Featured In California Lawyer‘s Securities Law Roundtable Discussion Of Breaking Securities Law Developments

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., 487 F.3d 261 (5th Cir. 2007), which the Supreme Court is reviewing in Halliburton, should be overturned.  The Fifth Circuit, unlike other circuits, allows defendants to factually rebut a plaintiff’s fraud-on-the-market presumption of reliance at class certification by making them prove loss causation.  She argued that Oscar is problematic because defendants can use facts known only to them to defeat class certification before plaintiffs are afforded discovery and because some judges want a mirror disclosure—a revelation that the false statement caused the price to decline instantaneously.  Ms. Blasy noted that without discovery it is difficult for an expert to align all or part of a price decline to a particular revelation. 

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.

Table of Contents

McCarran-Ferguson Back On The Table: Senator Seeks Repeal Of The Insurance Industry’s Antitrust Exemption

                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, 2011, in a speech setting out his agenda for the Judiciary Committee, Senator Leahy reiterated his commitment to repeal the McCarran-Ferguson Act.  The Senator argued that “there is no place in our health insurance market for anticompetitive abuses, and repealing this exemption is an important step toward bringing competition to the health insurance market.”

Table of Contents

Conferences And Events...

+  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

Table of Contents

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 + UK Tel: 0808.234.1396     

  • Privacy Statement

    Legal

    Scott + Scott LLP, Attorneys at Law Copyright © 201

    Attorney Advertising: Results depend on a number of factors unique to each matter. Prior results do not guarantee a similar outcome.