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Scott+Scott recently won a major victory on behalf of a class of stock holders in a suit alleging that some of the largest private equity firms in the country conspired with each other in violation of the antitrust laws. The suit, Dahl, et al. v. Bain Capital Partners, LLC, et al., No. 1:07-cv-12388, which began in 2007, is proceeding in the United States District Court for the District of Massachusetts.
The suit alleges that such defendants as Apollo Global Management, Goldman Sachs Group, Bain Capital, and the Blackstone Group, among others, conspired to dominate and allocate the market for the largest leveraged buyouts. A leveraged buyout occurs when a purchaser acquires a controlling majority of the shares of the “target company,” then withdrawals the shares of the company from public stock exchanges, thereby taking the company private. Private equity firms finance their acquisitions of target public companies through a combination of equity and borrowed funds. The debt portion of the funding is collateralized using the target company’s own assets, hence the name leveraged buyout. In this suit, the plaintiffs allege that the defendants agreed not to compete against each other for certain leveraged buyouts, or to fix the prices of leveraged buyouts, so that they could purchase companies at artificially low prices. This conduct damaged stock holders of the companies that the defendants purchased because, as a result of the suppression of competition, stock holders did not receive the full value of the shares that they sold to the defendants.
In 2008, the plaintiffs survived the defendants’ motion to dismiss the suit, and presiding Judge Edward Harrington ordered a phased discovery process. The first phase involved discovery into nine leveraged buyouts that were specifically pled in the then prevailing complaint. It included, among other leveraged buyouts, certain defendants’ purchase of Kinder Morgan for $27.5 billion, which at the time was the third-largest leveraged buyout in history. Based on information the plaintiffs received during the first phase of discovery in 2010, they sought permission for a second phase of discovery, which the court granted.
Over this past summer, the plaintiffs filed a motion for a final phase of discovery, which would cover 10 additional leveraged buyouts–the final leveraged buyouts that were subject to the defendants’ conspiracy. The defendants opposed that motion, arguing that if the plaintiffs wanted discovery regarding those leveraged buyouts, they should have sought it at an earlier point in time. The plaintiffs responded that they had uncovered information tying those leveraged buyouts to the defendants’ conspiracy, and that they were entitled to follow the phased discovery process that the defendants themselves had advocated and that the court had adopted. In September 2011, Judge Harrington granted the plaintiffs’ motion for a final phase of discovery regarding the 10 additional leveraged buyouts, extended the discovery deadline in the suit from October 17, 2011, to April 17, 2012, and allowed the plaintiffs to take an additional 35 depositions in addition to the 40 already taken.
This decision will have a significant impact on the suit. It enables the plaintiffs to take discovery of every leveraged buyout affected by the defendants’ conspiracy and to fully map out the contours and impact of their conspiracy. Further, it ensures that all stock holders who were affected by the conspiracy will have an opportunity to recover damages. Scott+Scott looks forward to completing the final phase of discovery, and to continuing the successful prosecution of this suit on behalf of its clients and all class members.
On September 2, 2011, a California judge denied CardioNet Inc.’s motion to dismiss a putative securities class action filed by a pension fund represented by Scott+Scott, alleging the heart monitor maker made false statements about its reimbursement rate in the run-up to its 2008 initial public offering and secondary stock offering.
Judge Joan M. Lewis of the California Superior Court in San Diego County denied CardioNet's motion for demurrer—the equivalent of a motion to dismiss under California state law—finding that “at the pleading stage plaintiff has sufficiently pled a material misrepresentation or omission in the registration statements.”
The complaint, originally filed in March 2010, alleges that CardioNet made materially false statements about the rate at which Medicare and other health insurance providers reimbursed the company and physicians for the use of its Mobile Cardiac Outpatient Telemetry heart monitors.
The heart monitors are implanted into a patient's heart, allowing physicians and other medical professionals to observe heart arrhythmia remotely.
CardioNet’s stock began to sink in spring 2009 after analysts reported that Centers for Medicare and Medicaid Services contractor Highmark Medicare Services Inc. planned to reduce the reimbursement rate for the company’s monitors. The stock then tanked later in summer 2009 when CardioNet confirmed the lower reimbursement rates despite earlier denials.
Meanwhile, CardioNet priced an $83 million initial public offering in March 2008 at $18.00 per share. A $152 million secondary stock offering in August 2008 was priced at $26.50 per share. Millions of dollars of the stock sold in the secondary stock offering was sold by CardioNet executives and directors.
By July 13, 2009, CardioNet stock closed at $5.87 per share.
The complaint, which seeks to represent all investors who purchased shares in the initial and secondary offerings, names former CardioNet CEO Randy Thurman and Chief Financial Officer Martin Galvan, as well as members of the company’s board of directors. At the request of Scott+Scott, counsel to plaintiff, Judge Lewis set a June 2012 trial date. Judge Lewis also ordered the parties to mediation within 120 days.
In the modern office, occasional personal use of the internet is commonplace. Yet the simple act of sending a personal email through an employer’s email account, or checking one’s personal email account from the office computer, can raise complex issues about an employer’s monitoring of the workplace and an employee’s reasonable expectation of privacy.
Private employers can lawfully review employee email communications and internet usage when the employer has provided notice of such monitoring, typically through an electronic resources policy. Such policies typically warn employees that company email is to be used for company business, not personal matters, that email is not private and can be read by administrators, and that the company will periodically monitor email accounts to ensure compliance. Some companies also monitor internet usage by logging users’ network activities, including logins, sites visited, and the duration of visits.
Further, the hard disk of a computer makes a screen shot of all it sees, which the computer then stores in the cache folder of temporary internet files, including email retrieved from a private, password protected email account (such as a Yahoo! or Gmail account). Though not readily accessible by the average user, these temporary files may be located and retrieved by a forensic computer expert.
Lawyers and clients often communicate with each other using email. The confidentiality of these communications may be jeopardized when the client uses an employer’s email account or employer-provided computer or phone to send or receive email with counsel. Under varying facts, courts have determined that a client waives the attorney-client privilege when the client’s email is located on a workplace computer or system.
The best practice is for clients to avoid sending email communications to counsel using an employer-provided email address. Clients should use only their personal email addresses to communicate with counsel. Further, clients should be careful about which computers they use to send email to counsel. Clients should not use employer-provided computers or laptops to communicate with counsel via email. In addition, clients should not use public computers, such as computers at a library or hotel, because the email may be retrieved from the cache folders using forensic software. For highly sensitive information, the client should avoid email communication altogether and request a telephone conference or in-person meeting.
As international commerce continues to grow, so too has the difficulty of applying domestic laws to international conduct. Several courts have recently responded to this difficulty and made it clear to international companies that they are subject to the laws of the United States.
Antitrust law is one particular area where the relationship between the law and international conduct has long-been mired with confusion and inconsistent court rulings. In an attempt to quell the uncertainty, Congress enacted the Foreign Trade Antitrust Improvements Act in 1982, (the “FTAIA”). Generally, the FTAIA mandates that the Sherman Antitrust Act will not apply to conduct involving trade or commerce with foreign nations, provided that the conduct does not have a direct and substantial impact on the U.S. market. While attempting to reduce the ambiguity surrounding international conduct and the antitrust laws, the FTAIA has instead been criticized for only adding to the ambiguity as the law has been inconsistently interpreted by federal courts.
Recently, the Third Circuit Court of Appeals clarified the scope of the FTAIA, in Animal Science Products, Inc. v. China Minmetals Corp., No. 10-2288, 2011 WL 3606995. The court, in that case, rejected the prevailing view that the FTAIA requires plaintiffs to establish that their chosen court has jurisdiction. Because the court rejected the prevailing theory, several commentators quickly announced that the ruling may make it easier for plaintiffs to apply U.S. antitrust laws to foreign conduct.
International firms have faced more scrutiny in recent weeks. In In re Vitamin C Antitrust Litigation, Master Case No. 1:06-md-1738-DGT (E.D.N.Y.), the Chinese defendant company accused of price fixing argued that Chinese law–no U.S. antitrust law–governed the matter. In fact, the Chinese government submitted a brief on behalf of the defendants declaring that Chinese laws required the defendants to coordinate prices. This brief was the first time that the Chinese government had made an official appearance in a U.S. court. China’s argument was not accepted by the court. Judge Brian Cogan, U.S. District Court for the Eastern District of New York, rejected the defendants’ claims stating, “Although defendants and the Chinese government argue to the contrary, the provisions of Chinese law before me do not support their position, which is belied by the factual record.” The court also rejected other similar international-based arguments by the defendants, and ruled that the case can indeed go forward in the United States.
Similarly, federal securities law has also been difficult to apply to international conduct. The Securities and Exchange Commission (the “SEC”) recently asked a federal court in Washington, D.C., to force the Chinese operating unit of Deloitte & Touche to turn over documents relating to a fraud investigation. Deloitte has refused to turn over documents arguing that China’s “foreign secrecy laws may prohibit it,” placing Deloitte “in the middle of conflicting demands by two government regulators.”
The SEC argued that it is not clear what Chinese laws would be violated by turning over the documents. “The secrecy interests of China here are impossibly vague,” the SEC said in its court filing. Whatever the outcome of this case, the action taken by the SEC demonstrates a willingness to seek answers to difficult legal questions involving international business. Government enforcement alone, however, will not fully redress the injury felt by private parties. “Investors cannot rely solely on government regulators. Private litigation is necessary to prevent international companies from skirting their obligations under the U.S. securities laws by pointing to the law of foreign nations,” stated Walter W. Noss, a Scott+Scott Partner involved in the firm’s securities practice.
+ October 3-5, 2011
Change to Win - Take Back the American Dream Conference
Hilton Washington & Towers
Through innovative organizing campaigns in the private-sector economy, CtW works every day to ensure that working and middle class Americans can use strength in numbers to reclaim the American Dream–a good American job with good American benefits for everyone who wants it.
+ October 9-12, 2011
National Council on Teacher Retirement (NCTR) 89th Annual Convention
The NCTR is a national alliance of teachers, paraprofessionals, and service provider members created to meet the needs of its membership. The annual convention is dedicated to serve as the–legislation, curriculum, and benefits—particularly pension issues related to investments and actuarial studies to economic policy analyses, healthcare and political affiliations. The National Teacher of the Year Award dinner and address is celebrated mid-conference.
+ October 9-12, 2011
The Public Safety Employees Pension & Benefits Conference (PSEP&BC)
Rancho Las Palmas Hotel
Rancho Mirage, CA
The Public Safety Employees Pensions & Benefits Conference is dedicated to providing quality education that is specifically tailored for the unique needs and demands of public safety pensions. Since 1985, the Conference has educated hundreds of public safety pension trustees, administrators and staff, union officials, and local elected officials by featuring presentations from recognized leaders in the worlds of finance, law, and politics, providing news on the latest developments, and offering attendees the opportunity to network with fellow trustees.
+ October 11-12, 2011
Institutional Shareholder Services (ISS) 2011 Corporate Governance Conference
For more than 25 years ISS has been advising institutional investors on corporate governance issues, fiduciary accountability, and financial management. Distinguished speakers will share their expertise about recent corporate governance, proxy voting, and regulatory developments. This year’s annual shareholder conference offers valuable information on addressing “Say on Pay”, Dodd-Frank, and director election topics.
+ October 12-13, 2011
Native American Finance Officers Association (NAFOA) Fall Finance Conference
NAFOA’s mission is to improve the quality of financial and business management of tribal governments and their business entities. The conference agenda developed by elected board members covers two full days of financial planning. Renowned economist, Wall Street Journal editorial board member, and frequent CNBC and MSNBC contributor, Stephen Moore will be a featured speaker at the conference.
+ October 16-19, 2011
Massachusetts Association of Contributory Retirement Systems (MACRS) Fall 2011 Conference
MACRS was established in 1937 to preserve and strengthen the 106 public retirement systems of the Commonwealth. MACRS semiannual meeting features speakers, small group presentations, and roundtable discussions, providing an important opportunity for an informal exchange of ideas and information about retirement benefits.
+ October 19, 2011
Bloomberg LINK’s Investor Strategies: Cities & Debt Briefing (by invitation only)
Bloomberg LINK hosts in-person executive conferences with peer-to-peer networking where financial professionals engage in open discussion with participants. Attendance is limited in order to ensure a meaningful learning experience and provide as much interaction as possible.
+ October 22-26, 2011
National Pension Education Association (NPEA) 2011 Conference
Naples Beach Hotel
NPEA’s “Guiding Members to Retirement Security” conference will provide information to participants that empowers them to make better fiduciary decisions, and encourage its members to work together to maximize opportunities in retirement investments. Actuarial perspectives, legislative outlooks, and administrative requirements are topics of this year’s featured presenters.
+ October 23-26, 2011
American Society of Pension Professionals & Actuaries (ASPPA) 2011 Annual Conference
Gaylord National Resort & Convention Center
National Harbor, MD
ASPPA’s conference will host pension professionals from all aspects of the pension industry to provide knowledge and leadership for retirement plan professionals. This year’s conference will include a “March on the Hill” on Tuesday, October 25th, so attendees can visit their members of Congress and let their voices be heard first-hand. ASPPA will assist in providing preparation to those who choose to visit Congress.
+October 26, 2011
Connecticut Public Pension Forum (CPPF) Conference
Water’s Edge Resort and Spa
CPPF is a not-for-profit association created to provide a formal setting of educational and related programs for all public retirement systems within Connecticut. The conference will provide objective research on specific issues of common interest, and create resources for public retirement systems. Additionally, a forum for discussion on national and state issues of interest to public retirement systems will be provided.
+ October 30 - November 2, 2011
International Foundation of Employee Benefit Plans (IFEBP) 57th Annual Employee Benefits Conference
New Orleans Morial Convention Center
New Orleans, LA
The annual conference provides four days of education, roundtable discussions, and networking events. Taft-Hartley and Public Sector 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, and legislative and legal developments in the pension fund and financial areas.
Government Finance Officers’ Association Conferences
+ October 4-7, 2011
South Dakota Municipal League
Ramkota Hotel and Conference Center
Sioux Falls, SD
+ October 5-7, 2011
Montana Municipal Clerks, Treasurers & Finance Officers Association
Crowne Plaza Hotel
+ October 9-12, 2011
South Carolina GFOA
Marriott at Grande Dunes
Myrtle Beach, SC
+ October 11-14, 2011
Texas Municipal League
George R. Brown Convention Center
+ October 16-18, 2011
Oregon GFOA: Northwest Government Finance Institute
Hilton Portland & Executive Tower
+ October 19-21, 2011
Holiday Inn Airport
Des Moines, IA
+ October 19-21, 2011
Stonewall Jackson Hotel & Conference Center
Table of Contents
“No man is above the law and no man is below it; nor do we ask any man’s permission when we require him to obey it.”
-- Theodore Roosevelt, U.S. President, born October 27, 1858
[State of the Union Address, December 7, 1903]
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
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