Investors in one of the world’s largest gaming companies, a bankrupt energy producer and a drug manufacturer have recently won significant procedural victories in matters in which Cohen Milstein holds court-appointed leadership positions. Here are brief summaries of the cases at issue.
In the In re Wynn Resorts, Ltd. Derivative Litigation, lead plaintiffs scored an important ruling against the Wynn Resorts Board of Directors (“Board”) and certain of its senior executives when the District Court of Clark County, Nevada, denied defendants’ motion to dismiss the case, allowing lead plaintiffs to pursue claims against the Board and executives for failing to prevent founder and director Steve Wynn’s pattern of sexual harassment when the Board had knowledge of his improper conduct, but decided to the look the other way.
Cohen Milstein is representing lead plaintiffs Thomas P. DiNapoli, Comptroller of the State of New York, as Administrative Head of the New York State and Local Retirement System Fund and Trustee of the New York State Common Retirement Fund, and a group of nine New York City public pension funds.
In denying the motion, the court found that it would have been futile for lead plaintiffs to make a pre-suit demand on the Board to pursue their claims because lead plaintiffs’ allegations raised a reasonable doubt as to whether a majority of the Board faced a substantial likelihood of liability for breaching their duty of loyalty to Wynn Resorts for “knowingly failing to take action in the face of credible and corroborated reports that Steve Wynn sexually harassed and abused Wynn Resorts employees” while they “profit[ed] on this information through insider trading that came at the Company’s and shareholders’ expense.”
These days, you don’t have to look beyond the daily headlines to find ethical and fiduciary issues involving social media. Nowhere is this more evident than on Twitter, where a wide variety of users post and share hundreds of millions of messages a day. Today’s scandals on social media are not limited to social gaffes but may include ethical breaches and even cross into the realm of civil or criminal liability.
For example, in August, a tweet by Tesla CEO Elon Musk that he had secured funding to potentially take Tesla private at $420 per share led to lawsuits against Musk claiming that he drove up the value of Tesla shares and materially misled investors. These lawsuits were followed in September by the Securities and Exchange Commission charging Musk with securities fraud and seeking to prohibit him from serving as an officer or director of a public company, and also charging Tesla with failure to have appropriate controls and procedures in place relating to Musk’s tweets. Two days later, Musk and Tesla settled with the SEC; in addition to $40 million in penalties, Musk agreed to step down as Chairman of the board for three years, and Tesla agreed to appoint independent directors to its board and implement additional controls and procedures to oversee Musk’s communications.
By Carol V. Gilden
Elad Roisman has moved one step closer to being sworn in as a U.S. Securities and Exchange Commission member. On Aug. 23, 2018, the Senate Banking Committee approved Roisman as the Republican replacement for former SEC Commissioner Michael Piwowar, who stepped down in July after serving as commissioner since 2013, including a four-month stint in 2017 as acting SEC chairman. Roisman is currently chief counsel to the Senate Banking Committee led by Chairman Mike Crapo; he previously served as counsel for former SEC commissioner Daniel Gallagher, and at one time worked in the legal department at NYSE Euronext and as a corporate and securities attorney with Milbank Tweed Hadley & McCloy LLP. Also stepping down this year is Democrat SEC Commissioner Kara Stein. Stein’s potential replacement likely will be Allison Lee, a Democrat, whose name has been submitted to the president, and who previously served as an aide to Stein and is a former SEC enforcement attorney. Despite these forthcoming changes at the SEC, the balance of power and direction of the SEC is unlikely to change, as the SEC remains in Republican hands which, since Donald Trump took office, has translated to the SEC bringing fewer enforcement actions.
The president, subject to Senate approval, appoints all five commissioners: two Democrats, two Republicans and the chair, who may be of the president’s own party. Since the chair is both the SEC’s chief executive and the tie-breaking vote, the party that controls the White House also controls the SEC’s agenda and direction. While Chairman Jay Clayton is an independent, as a longtime partner at Sullivan & Cromwell LLP specializing in advising clients on public and private mergers and acquisitions and capital-raising efforts, his ideology is viewed as aligning squarely with that of the Republicans. The commissioners’ terms last five years and are staggered, with one commissioner’s term ending each June 5, although, as with Stein whose term ended June 2017, commissioners may continue to serve an additional 18 months if they are not replaced before then or resign sooner.
Until Piwowar’s seat is filled, the commission is temporarily deadlocked, with Clayton and Republican Commissioner Hester Peirce on one end of the political spectrum, and two Democrat commissioners, Robert Jackson Jr. and Stein, on the other. Once Roisman is confirmed, the balance will tilt toward the Republicans; indeed, it is expected that Roisman will become an ally of Clayton on many issues. The vote on Roisman’s confirmation before the full Senate has not been scheduled, and many believe the Senate is waiting for a Democratic nominee to replace Stein to tee up both nominees for Senate confirmation at the same time, as was done with Peirce and Jackson in 2017. However, there are no guarantees that the Senate will abide by this tradition, particularly given the current political climate.
Read SEC Direction Unlikely To Shift Despite Agency Transitions.
The 2015 Volkswagen emissions scandal, which laid bare European consumers’ difficulties in obtaining monetary compensation for mass harm, is now fueling a continental shift toward group litigation—one that will give defrauded investors new legal options to consider.
In April, the European Commission unveiled a proposed directive that would require all 28 EU member countries to establish representative actions for collective redress. Two months later, the German parliament enacted a new law expanding the use of model proceedings.
While both measures fall far short of offering plaintiffs the advantages of U.S.-style class actions, they are seen by proponents and critics alike as a step in that direction. Under the proposed European Commission directive, the outcome of a representative action in one EU country will be binding on all similarly harmed consumers in that same country, and a finding of infringement will provide a rebuttable presumption for consumers harmed by the same behavior in any other EU country. The directive also would allow entities representing investors in various member states to join forces in a single action.
Of course, it will take years of real-life briefing, arguments, declaratory judgments, settlements, and appeals before the true impact of the new laws can be measured. Still, for institutional investors who purchase securities on international exchanges, the developments suggest legal protections will continue to expand in the European Union. This is important given that investors in non-U.S. markets cannot rely on U.S. federal law for protection since the Supreme Court’s sweeping Morrison ruling in 2010.
In announcing the two measures, both the European Commission and the German government cited the “Dieselgate” scandal that erupted in September 2015 when the U.S. Environmental Protection Agency accused VW of violating clean air laws by rigging diesel-powered vehicles to shut off anti-pollution devices when tested.
Volkswagen eventually admitted it had sold 11 million offending vehicles worldwide, including 8.5 million in Europe, where executives have been jailed and the company has paid billions of euros in fines. But while U.S. consumers benefited from class action settlements providing generous cash compensation and the right to sell their vehicles at pre-scandal prices, VW offered European owners only a free “fix” to reduce emissions to lawful (arguably still dangerous) levels.
While it is good short-term news for plaintiffs, a Ninth Circuit appeals court ruling in favor of a more relaxed standard of proof in merger-related securities lawsuits also has created a circuit split that could lead to a showdown at the Supreme Court, a decidedly less friendly venue for plaintiffs.
The decision comes amid a record increase in the number of shareholder class actions asserting violations of Section 14 of the Securities Exchange Act of 1934 (“Exchange Act”) arising out of alleged false and misleading statements made relating to a proposed merger or other strategic transaction. Most Section 14 cases have been filed in the Ninth Circuit, and in April the appeals court held in the tender offer case Varjabedian v. Emulex Corp., No. 16-55088 (9th Cir. Apr. 20, 2018) (“Emulex”) that Section 14(e) requires a showing of mere negligence, not proof of “scienter,” i.e., an intent to mislead shareholders.
Florida’s Workers’ Compensation Act sets up a self-executing system under which an employee injured in a workplace accident can receive medical care and lost wages without filing a civil lawsuit. This system, however, does not provide all the remedies that would be necessary to make an injured worker whole. For instance, noneconomic damages, such as pain and suffering, are not available under Florida’s Workers’ Compensation Act. And, the injured worker is often beholden to the employer’s workers’ compensation carrier when seeking medical treatment as the carrier may not agree with such treatment or find it causally related to the workplace accident. While the employee can seek relief through the administrative workers’ compensation system, in some cases greater relief can be found outside the system. One such situation is when a product is a cause of the worker’s injury, which provides an avenue for the employee to recover in a civil product liability lawsuit. As access to circuit court may be the only means by which the injured worker can make a full recovery of damages, it is important to be aware of opportunities that will open the courthouse doors to injured workers. For this reason, this article focuses on upcoming trends in product liability lawsuits and practice tips for making successful claims on behalf of injured workers outside the workers’ compensation system.
Trending workplace product claims
Saws
There are many different types of saws, e.g., table, horizontal, miter, all of which are common on many construction sites. Accidents are not uncommon. For instance, researchers estimate over 30,000 table saw injuries alone occur annually. From a product liability aspect, table saws have been alleged to be defectively designed for not incorporating flesh-detection safety technology, such as something like Sawstop, which is a safety system that stops a saw within 5 milliseconds of the blades contact with human flesh. Horizontal band saws have been alleged to be defectively designed for not incorporating vises that require two hand-controls to operate, and for not offering pedestal controls to allow the saws to be operated from a remote, safe position. Alternatively miter saws have been alleged to be defectively designed for not incorporating lock washers, cotter pins, c-clips, or other locking mechanisms to keep the saw arm in place when not in use.
Ladders
Among workers, approximately 20% of fall injuries involve ladders. Among construction workers, an estimated 81% of fall injuries treated in U.S. emergency departments involve a ladder. From a product liability perspective, ladders have been found defective for several reasons. For instance, from a warning or instructions perspective, ladders have been found defective for not holding an as advertised weight. These types of ladders fail for larger men or women, even though their body weight does not exceed any maximum weight requirement. From a manufacturing perspective, ladders have been found defective for having out of specification rivets. The rivets are an integral part of the support structure of a ladder and even a minimal misplacement can lead to fatigue fracture or failure. From a design perspective, ladders have been found defective for not including wider, thicker legs or longer gussets, both of which affect stability.
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Conclusion
As Florida’s Workers’ Compensation Act limits the damages available to injured workers, it is important to look for other avenues that may enable an injured worker to recover sufficient damages in order to become whole. Because the Act does not preclude an employee, or his or her family, from seeking restitution from a third party, counsel should determine whether the employee’s injuries were caused by a product and whether a civil product liability action might enable the employee to make a greater recovery than a claim merely under Florida’s Workers’ Compensation Act.
If you have a potential claim against a workers’ compensation insurance carrier, please contact Leslie M. Kroeger, Diana L. Martin or email a member of our Managed Care Abuse Team.
Adopting Commissioner Piwowar’s proposal to permit companies to impose mandatory arbitration provisions in connection with their IPOs would rapidly lead to the end of meaningful securities law remedies for investors.
This proposal in fact presents as great a threat to investor rights as anything I have seen in the past thirty years—ranking with challenges in the Supreme Court to the fraud-on-the-market doctrine underpinning securities class actions. To put it bluntly, Commissioner Piwowar’s proposal is calculated to and would in fact deny investors their rights under the securities laws in almost all situations.
While the proposal by Commissioner Piwowar presently is restricted to use by newly formed public companies, it would inevitably spread over time as companies with such provisions make up an increasing share of listed companies. Further, the scope of forced arbitration provisions would certainly morph beyond companies applying for IPOs, as existing public companies, emboldened by the precedent, will find ways to amend their charters or bylaws to force investors out of court and into arbitration proceedings. The temptation for public companies to avail themselves of what effectively is a “get-out-of-jail-free card” by restricting investors’ ability to use both the court system and the class action mechanism will be irresistible.
So why would this mark the beginning of the end of effective remedies for investors? The answer is that forced arbitration would compel investors to participate in a process that undermines all of the critical elements of current securities litigation that makes that process a fair and economically rational option for investors.So why would this mark the beginning of the end of effective remedies for investors? The answer is that forced arbitration would compel investors to participate in a process that undermines all of the critical elements of current securities litigation that makes that process a fair and economically rational option for investors.
Debate is sharpening over the value of dual-class stock, the controversial governance structure that multiplies the voting power of founders and other insiders—often forever—at the expense of ordinary shareholders.
The number of publicly traded U.S. companies with multi-class stock increased 44% from 2005 to 2015, and nearly one in five IPOs now feature the structure, according to a recent report presented to the Securities and Exchange Commission’s Investment Advisory Committee (IAC).
In March, the IAC recommended that the Commission require additional disclosures from dual-class companies. Others want to go further, including one of the SEC’s own Commissioners, who suggested U.S. stock exchanges should only allow dual-class shares that automatically convert to ordinary ones over time.
The issue of continuing to allow companies with “perpetual” dual-class stock to list on U.S. markets may be too ripe for the SEC to ignore, despite Chair Jay Clayton’s insistence in March that revisiting rules on the topic is “not on my list of near-term priorities.”
Since last summer, three major stock index providers have taken steps to remove dual-class companies from their indices or reduce their weighting, potentially leaving legions of index-fund investors without an interest in some of the world’s most important companies.
The full article can be accessed here.
In Janus v. AFSCME Council 31, et al., the Supreme Court heard oral argument recently on whether an Illinois law requiring nonunion public employees to pay partial fees to unions that negotiate on their behalf violates their constitutional right to free speech. A decision against the unions would undo forty years of precedent and financially devastate organized labor in its last stronghold, the public sector.
In bringing this case, state employee Mark Janus has asked the Court to overrule the 1977 decision Abood v. Detroit Board of Education. Under Abood, non-members can opt out of paying for a public employee union’s political activities but may be required to pay “fair share” fees to support services a union is statutorily required to provide all employees, such as negotiating collective bargaining agreements.
Mr. Janus argues that a union’s bargaining against the government is not government speech expressed through employees but rather advocacy or political speech expressed through an independent interest group. As such, to require non-member employees to pay fees that subsidize the union’s bargaining infringes the non-member employees’ First Amendment rights to choose which political speech is worthy of their support.
This position appeared to resonate with conservative justices during the February 26 hearing. Justice Samuel Alito was particularly vocal, asking at one point: “When you compel somebody to speak, don’t you infringe that person’s dignity and conscience in a way that you do not when you restrict what the person says?”
A recent survey revealed some startling news about the lack of fiduciary awareness. In the survey conducted by AllianceBernstein L.P., more than 1,000 defined-contribution plan executives were asked if they were fiduciaries. While all in fact were fiduciaries, nearly half said they were not, and another 6 percent didn’t know or weren’t sure. Worse, the survey suggested that fiduciary awareness is steadily decreasing over time. In 2011, 61 percent of interviewees correctly identified themselves as fiduciaries; by 2014, the percentage had dropped to 58 percent; and now we are at a low of 45 percent.
Despite the need for fiduciary education made so painfully clear by the study, only about two-thirds of the plans surveyed offered any fiduciary training at all. And of those respondents who were offered fiduciary training, about 50 percent reported that the training program was not comprehensive. The results dovetail with a 2014 survey of multiemployer trustees conducted by the International Foundation of Employee Benefit Plans (IFEBP), which found that only 15 percent of funds surveyed had formal orientation, mentoring, or knowledge transfer programs for new trustees. The majority of trustees surveyed by the IFEBP opined that it takes 3 to 5 years to develop a competent trustee, and 93 percent found the trustee role more challenging than in the past.
The full article can be accessed here.