INSIDE THIS ISSUE
The U.S. Court of Appeals for the Ninth Circuit issued a decision on March 8, 2013 in a consumer fraud class action reversing dismissal of claims concerning Nestlé USA Inc.’s Juicy Juice Brain Development beverage. The Ninth Circuit held that Plaintiffs, represented by Scott+Scott, Attorneys at Law, LLP (“Scott+Scott”), properly stated a claim under California’s unfair and deceptive trade practice and false advertising laws as to the purported cognitive benefits of drinking Juicy Juice Brain Development beverages.
Plaintiffs alleged the Brain Development beverage was deceptively labeled and marketed to improve young children’s cognitive development with “minute quantities” of DHA. Joseph P. Guglielmo of Scott+Scott argued before the Ninth Circuit panel that children would have to consume an impractical and extremely large quantity of the Brain Development beverage in order to obtain the amount of DHA required to purportedly enhance a child’s cognitive function. On this basis, the appeals court determined that the district court improperly dismissed the action and held that Plaintiffs adequately stated a claim that Nestlé’s marketing of the Brain Development beverage created the potential for consumer deception.
Moreover, the panel refused to dismiss Plaintiffs’ claims under the doctrine of primary jurisdiction– which holds that the U.S. Food and Drug Administration is better suited to regulate food and beverage labeling based on scientific policy than private litigants. Nestle had sought to have the Ninth Circuit hold that claims involving deceptive advertising were preempted as a matter of law by the FDA. The Ninth Circuit held that “the FDA has shown virtually no interest in regulating DHA in this context.”
Because the appeals court refused to address Nestlé’s effort to recast Plaintiffs’ claims into a case based on the prior substantiation doctrine, which only the government can bring, this decision has potentially wide ranging implications for consumers’ food labeling claims.
On April 18, 2013, Nestlé’s petition for panel and en banc rehearing of the appeal was rejected. The case now will be remanded back to the district court for further proceedings.
On April 4, 2013, the Delaware Supreme Court held that in shareholder derivative lawsuits, Delaware courts must give preclusive effect to the decisions of other jurisdictions on the issue of demand futility. The case is Pyott v. Louisiana Municipal Police Employees’ Retirement System, No. 5795 (Del. April 4, 2013).
Multiple shareholder derivative actions were filed in the Central District of California and in Delaware state court concerning Allergan, Inc. In the Delaware actions, at least one of the plaintiffs sought to pursue a books and records action against Allergan to obtain further information which was later used to amend its complaint. As a result of this delay, the California cases moved forward more quickly. The California plaintiffs ultimately obtained the same information from the Delaware books and records investigation, and amended their complaint accordingly. The complaints were, therefore, nearly identical.
On February 22, 2012, the California Court dismissed the lawsuit for failure to adequately plead demand futility. The defendants in the Delaware action sought to have the case dismissed, arguing that the California decision had preclusive effect on the issue of demand futility under the doctrine of collateral estoppel.
The Chancery Court held that it was not required to apply the doctrine of collateral estoppel with respect to the California decision for two reasons. First, it held that as a matter of Delaware law, the shareholder plaintiffs in the two different jurisdictions were not in privity with each other. Second, it held that the California shareholders were inadequate representatives of the nominal defendant-corporation. The Chancery Court therefore determined that an out-of-state final judgment denying an individual shareholder’s purported derivative claim has no preclusive effect on other shareholders’ derivative actions.
On appeal, the Delaware Supreme Court reversed and held that the California decision precluded consideration of the issue of demand futility in the Delaware case. The Supreme Court also discarded the Chancery Court’s ruling that the California plaintiffs were inadequate representatives.
Specifically, the Delaware Supreme Court held that the Full Faith and Credit Clause requires Delaware courts to give full force and effect to the judgments of other courts, including decisions by federal courts. Thus, although Delaware has an “undisputed interest” in “governing the internal affairs of its corporations,” its courts “must yield to the stronger national interests that all state and federal courts have in respecting each other’s judgments.”
This holding is significant to shareholders for at least two reasons. First, it demonstrates that it is not unusual for multiple shareholder derivative lawsuits to be simultaneously pending in different jurisdictions. Thus, a stay of one derivative action in the face of another may well be improper. Second, the Delaware Supreme Court rejected the Chancery Court’s holding that stockholders who file quickly, without bringing a books and records action, are a priori not acting in the best interests of the corporation, or are presumptively inadequate. Thus, Delaware courts will evaluate the adequacy of a plaintiff in derivative litigation on a case-by-case basis, and will not presume a plaintiff to be inadequate simply because the plaintiff filed its lawsuit quickly or without having initiated a books and records request.
On April 2, 2013, the U.S. Securities and Exchange Commission (“SEC”) issued guidance clarifying how companies can use Facebook, Twitter, and other social networks to disseminate information to investors. The SEC has advised that companies may treat social media as legitimate outlets for communication, much like corporate websites, however, in doing so companies identify which particular Twitter feeds, Facebook pages, or other social media hubs will serve as their outlets for announcements.
The guidance came as part of a report detailing its investigation into Netflix Inc., which runs a subscription service for watching television programs and movies. In December, the SEC warned Netflix that it could take action against the company for a message that the company’s chief executive, Reed Hastings, posted in his personal Facebook feed, which had over 200,000 followers at the time, stating that Netflix’s monthly online viewing had exceeded one billion hours for the first time. Netflix did not report this information to investors through a press release or Form 8-K filing, and a subsequent company press release later that day did not include this information. Neither Hastings nor Netflix had previously used his Facebook page to announce company metrics, and they had never before taken steps to alert investors that Hastings’ personal Facebook page might be used as a medium for communicating information about Netflix. Netflix’s stock price had begun rising before the posting, and increased from $70.45 at the time of the Facebook post to $81.72 at the close of the following trading day.
Ultimately, the SEC did not initiate an enforcement action or allege wrongdoing by Hastings or Netflix. It did, however, recognize that there has been market uncertainty about the application of Regulation FD, which requires a company to publish material information to all investors at the same time, to social media. Accordingly, the SEC issued the report of investigation pursuant to Section 21(a) of the Securities Exchange Act of 1934, which is used on certain occasions when the SEC wants to issue broad guidance from a specific investigation.
The SEC’s report clarifies that company communications made through social media channels could constitute selective disclosures and, therefore, require careful Regulation FD analysis. Regulation FD requires companies to distribute material information in a manner reasonably designed to get that information out to the general public broadly and non-exclusively. It is intended to ensure that all investors have the ability to gain access to material information at the same time.
“One set of shareholders should not be able to get a jump on other shareholders just because the company is selectively disclosing important information,” said George Canellos, Acting Director of the SEC’s Division of Enforcement. “Most social media are perfectly suitable methods for communicating with investors, but not if the access is restricted or if investors don’t know that’s where they need to turn to get the latest news.”
The report of investigation explains that although every case must be evaluated on its own facts, disclosure of material, nonpublic information on the personal social media site of an individual corporate officer — without advance notice to investors that the site may be used for this purpose — is unlikely to qualify as an acceptable method of disclosure under the securities laws. Personal social media sites of individuals employees of a public company would not ordinarily be assumed to be channels through which the company would disclose material corporate information.
In a 5-4 decision on March 27, 2013, the Supreme Court ruled in Comcast Corp. v. Behrend that a putative class of more than 2 million Comcast cable subscribers in the Philadelphia area could not be certified under Rule 23 of the Federal Rules of Civil Procedure because the plaintiffs’ expert failed to demonstrate the ability to prove damages on a classwide basis at trial.
The plaintiffs brought Sherman Act claims against Comcast, alleging that the company allocated and monopolized the Philadelphia market by entering into “swap” agreements with other cable providers. Under the swap agreements, Comcast would buy out a local cable service provider’s subscription base in the Philadelphia area and give that provider Comcast subscribers in another region of the country. These agreements allowed Comcast to grow its market share to 60% of the Philadelphia market. Comcast’s swap agreements reduced the level of competition in the market from “overbuilders,” companies that build competing cable networks in areas where an incumbent cable company already operates, thus causing injury to the plaintiffs in the form of higher cable subscription rates. The key issue in the case was whether plaintiffs put forward a reliable methodology for proofing damages at trial— in this case, the amount of price inflation that resulted from the lack of overbuilder competition in the Philadelphia market.
The Court took the opportunity to reiterate its holding in the 2011 class certification decision in Wal-Mart Stores, Inc. v. Dukes, stating that a court considering a class certification motion must engage in a rigorous analysis of all the requirements of Rule 23(a) and (b). Rule 23(a) requires the plaintiff to come forward with proof that there are (1) sufficiently numerous parties, (2) common questions of law or fact, (3) typicality of claims or defenses, and (4) adequacy of representation. In addition, the plaintiff must satisfy through evidentiary proof at least one provision of Rule 23(b). The plaintiffs in Comcast sought certification under Rule 23(b)(3). That provision permits certification only if “the court finds that the questions of law or fact common to class members predominate over any questions affecting only individual members.”
To meet the Rule 23(b)(3) requirement, the district court held that the plaintiff was required to show (1) the existence of individual injury resulting from the alleged antitrust violation, was capable of being proved at trial through evidence common to the class rather than individual to its members and (2) that the damages resulting from the injury were measurable on a classwide basis through the use of a common methodology. The Supreme Court expressly stated that the district court’s holding that Rule 23(b)(3) requires proof of damages on a classwide basis was uncontested and, therefore, was not briefed or argued by the parties or addressed in the Court’s decision. This limitation on the Court’s opinion is important, as the Supreme Court has long-held that the predominance standard is generally satisfied even if damages are not provable in the aggregate.
The question the opinion addresses is not whether proving damages on a classwide basis is a prerequisite to winning certification. Rather, the key issue is whether the plaintiffs’ damages model in this case fell short of establishing that damages are capable of measurement on a classwide basis. The Court held there were flaws in the damages model put forward by plaintiffs’ economist because the model measured cable rate inflation due not only to a lack of overbuilder competition, but also a host of other unchallenged business conduct. For example, the damages model also measured inflated cable rates due to a lack of competition in the Philadelphia area from direct broadcast satellite providers. Further, the model did not disaggregate price inflation due to a lack of overbuilder competition from the price inflation due to a lack of satellite competition. Accordingly, the Court held that the plaintiffs did not put forward proof of a methodology for properly measuring the damages solely from the exclusion of the overbuilder companies from the market.
“I do not underrate the yearning for mechanical and formal tests. They are possible and useful in zones upon the legal sphere. The pain of choosing is the pain of marking off such zones from others. It is a pain we must endure, for uniformity of method will carry us upon the rocks. The curse of this fluidity, of an ever shifting approximation, is one the law must bear, or other curses yet more dreadful will be invited in exchange.”
The Growth of Law 67-68 (1924)
Benjamin N. Cardozo, Supreme Court Justice
Born: May 24, 1870
National and International Conferences and Educational Seminars
+May 13, 2013
Grange Tower Bridge Hotel
The conference will focus on securities class actions in the UK, Continental Europe, US and worldwide. Fund Managers and Trustees have become proactive in monitoring securities class actions since they recognize the potential for meaningful asset recovery. Globally, investors are looking to recoup their losses through various jurisdictions. Due to the advent of third party litigation funding as well as conditional fee agreements, the UK is becoming an emerging venue for class actions; creating more complex fiduciary duties.
+May 14-17, 2013
State Association of County Retirement Systems (SACRS)
Marriott Napa Valley Hotel
An association of 20 California county retirement systems that have made education and legislation their principle focus, particularly education in the investment and fiduciary responsibility area. SACRS was organized under the County Retirement Act of 1937 and has 2 main conferences annually; one in the fall and one in the spring as well as various symposiums throughout the year.
+May 14-17, 2013
National Association of State Treasurers (NAST): Treasury Management Training Symposium
The Westin Hotel
Presented in a series of multiple issue tracks, these in-depth educational workshops provide tools, resources, experiences and contacts to move forward and boost efficiency in spite of current and future challenges. Best practices for managing public finance programs will be offered and geared to those new on the job as well as seasoned public finance professionals.
+May 15, 2013
Connecticut Public Pension Forum (CPPF)
Sheraton Conference Center
Rocky Hill, CT
The Connecticut Public Pension Forum (CPPF) is a not-for-profit association created to provide a formal setting of educational and related programs for all public retirement systems within the State of Connecticut. The CPPF's primary objective is to provide continuing educational programs to public retirement systems through scheduled seminars and written and verbal communications. The purpose of the seminars will be to provide objective research on specific issues of common interest and create resources for public retirement systems. Additionally, the seminars will provide a forum for discussion on national and state issues of interest to public retirement systems.
+May 17-21, 2013
American Alliance Conference
Ritz Carlton Conference Complex
Key Biscayne, FL
This four day Union Conference provides several sessions of education, roundtable discussions and networking events. Taft-Hartley and Union fund trustees, administrators, business managers and association leaders as well as service providers to the funds will be in attendance to learn the latest cost-saving ideas, legislative and legal developments in the pension fund and financial areas. Fiduciary roles are growing in complexity as more legislation such as pension and health reform which directly affect plan fiduciaries. The American Alliance presents objective information as it is a nonlobbying and nonpartisan organization.
+May 18-23, 2013
National Council for Public Employees Retirement System (NCPERS)
Hawaii Village Resort and Convention Center
Founded in 1941, the National Conference on Public Employee Retirement Systems is the largest trade association for public sector pension funds, representing more than 550 funds throughout the United States and Canada. More than 1,000 trustees, administrators, state and local officials, investment, financial and union officers from across the nation attend this annual conference. NCPERS works to promote and protect pensions by focusing on advocacy, research and education for the benefit of public pension shareholders.
+May 20-21, 2013
International Foundation of Employee Benefit Plans-Legislative Update
The Capital Hilton
The Washington Legislative Update is designed to keep trustees abreast of the latest legislative and regulatory changes. Learn from Washington insiders on how the events in Washingon will impact your plans. The Washington Legislative Update is a must-attend program in 2013. Following the landmark Supreme Court decision on health care and the presidential election, this program will help you understand the current environment and future direction of the benefits world. From policy initiatives to recent and proposed regulations, this conference will provide invaluable information.
+May 22-24, 2013
Police Officers Association of Michigan (POAM)
Amway Grand Hotel
Grand Rapids, MI
POAM is a full service labor organization formed to provide labor related service and representation. This highly attended conference promises to deliver comprehensive legislative updates. This year’s conference will have an emphasis on how to handle budget cuts without losing efficiency.
+May 23-24, 2013
Pennsylvania Association of Public Employees Retirement System (PAPERS)
Hilton Hotel and Convention Center
This is PAPERS 9th Annual Spring Forum and is expected to be have the largest attendance since the organization was founded. PAPERS primary purpose in conducting an annual educational forum is to provide the basis for improved financial and operational performance of the public employee retirement systems in the state. PAPERS acts as a central resource for educational purposes and networking agent.
+May 29-31, 2013
Pennsylvania County Administration Conference(CCAP)
Toftrees Golf Resort and Conference Center
State College, PA
Government Finance Officers’ Association Conferences
+May 1-3, 2013
GFOA of Missouri
Country Club Hotel and Conference Center
Lake Ozark, MO
+May 2-3, 2013
New Hampshire GFOA
The Red Jacket Mountain View Inn
North Conway, NH
+May 5-8, 2013
Canada Alberta GFOA
Jasper Park Lodge and Conference Center
+May 7, 2013
Oregon State Fiscal Association (OSFA)
Chemeketa Winema Place
+May 8-9, 2013
Great Plains GFOA
College of Public Administration and Community Services
University of Nebraska
+May 8-10, 2013
New Orleans Marriott
New Orleans, LA
+May 22-24, 2013
Hilton Oceanfront Hotel
Virginia Beach, VA
+May 29-31, 2013
Canada British Columbia GFOA
Whistler Conference Center
+May 30, 2013
Government Finance Officers’ Association of CT (GFOACT)
Scott + Scott LLP is a nationally recognized law firm headquartered inConnecticut with offices in New York City, Ohio and California. The firmrepresents 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: email@example.com + UK Tel: 0808.234.1396