Here we go again. H.R. 985 places a bulls’ eye squarely on the back of every securities class action. It does so under the guise of attempting to fix a supposedly broken litigation system for class actions, which the bill’s proponents allege is rife with abuse. But in fact this bill is designed to eliminate all class actions — including securities class actions. Not only is the “abuse” the bill’s proponents claim exists illusory; they ignore the critical role securities class actions play in maintaining the integrity of our financial markets and providing recourse to investors, retirees, pension funds, health and welfare funds, states and municipalities invested in the market when fraud is committed.
H.R. 985 shot out of the House at record speed. In fact, the bill was introduced on a Thursday and voted out of committee the following Wednesday without so much as a hearing. The House voted along mainly party lines, with fourteen Republican members joining all Democratic members in opposing the legislation. H.R. 984 is now in the Senate, before the Judiciary Committee, where one can only hope that Senators will reject this brazen attempt to close the courthouse doors.
There is much to say about the H.R. 985. It shamelessly seeks to erect hurdles where none should exist, complicates class certification proceedings, buries the judiciary with class certification appeals and data collection and seeks to tie up the payment of attorneys’ fees and require funding disclosures. This is all with a view to make cases much more difficult to litigate and take far longer to resolve than they do now, and disincentivize plaintiffs’ firms from taking on these cases, thereby denying investors their ability to hold those who defraud them accountable.
This paper was presented at the 2017 NELA Spring Seminar “Litigating Wage & Hour Cases: Challenges & Opportunities.”
This paper, presented at the American Bar Association EEO Committee Mid-Winter Meeting, addresses the process of obtaining and analyzing data in class action litigation.
The Numbers Game: Demystifying the Use of Data in Class Actions
On March 11, 2016, Florida legislators voted unanimously to approve House Bill 7027. When that bill was signed on April 4, 2016, and went into effect on July 1, 2016, Florida became the nation’s first state to legalize fully autonomous vehicles on public roads without a driver behind the wheel.
If the vehicle can drive itself without input from a driver, then Florida statute 316.003(2) considers it to be an autonomous vehicle:
Any vehicle equipped with autonomous technology [is an autonomous vehicle]. The term “autonomous technology means technology installed on a motor vehicle that has the capability to drive the vehicle on which the technology is installed without the active control or monitoring by a human operator. The term excludes a motor vehicle enabled with active safety systems or driver assistance systems, including, without limitation, a system to provide electronic blind spot assistance, crash avoidance, emergency braking, parking assistance, adaptive cruise control, lane keep assistance, lane departure warning, or traffic jam and queuing assistant, unless any such system alone or in combination with other systems enables the vehicle on which the technology is installed to drive without the active control or monitoring by a human operator.
Florida law also allows any person that possesses a valid driver’s license to operate an autonomous vehicle in autonomous mode. No specialized safety education is required before a person is legally permitted to operate an autonomous vehicle on Florida’s roadways. Furthermore, the person operating the autonomous vehicle does not even have to be in the vehicle when it is driving in Florida autonomously.
Under the law, it appears to follow that an operator and/or owner of an autonomous vehicle could be liable for a crash despite not being in or near his or her vehicle at the time it occurred.
A year ago, the U.S. Supreme Court issued a per curiam order in Amgen Inc. v. Harris 136 S. Ct. 758 (2016). The Amgen decision came in the wake of the Supreme Court’s determination that there is no special presumption of prudence for employee stock ownership plan fiduciaries. Fifth Third Bancorp v. Dudenhoeffer, 134 S. Ct. 2459, 2467 (2014). In Dudenhoeffer, the Supreme Court also defined what plaintiffs must plead to pass muster for a fiduciary breach claim under the Employee Retirement Income Security Act. Although very few circuit courts even had a chance to consider Dudenhoeffer, the Supreme Court followed less than two years later with a three-page admonishment of the Ninth Circuit’s purported application of that decision. Amgen, 136 S. Ct. 758.
Amgen warned practitioners and courts alike that complaints must be carefully pled and will be closely scrutinized at the motion to dismiss stage. In particular, the Supreme Court rejected the Ninth Circuit’s inference that, because a complaint adequately stated a claim under the federal securities laws, it also must state a claim for a fiduciary breach under ERISA. Despite some initial setbacks since Amgen was decided, plaintiffs are beginning to tackle this strict pleading requirement head-on. In the future, we expect complaints can survive motions to dismiss if they allege precisely why a prudent fiduciary could not have concluded that taking an alternative action (such as refraining from purchasing or disclosing the truth) would do more harm than good. This will entail relying on financial experts to demonstrate the amount of losses that could have been avoided had alternative actions been taken.
Grappling with the credibility of witnesses has been a focal point of legal systems for thousands of years.[1] Despite all this practice, however, our legal system has not yet established a uniform approach to dealing with a witness credibility issue in a somewhat new context — a securities class action complaint governed by the Private Securities Litigation Reform Act, Pub. L. No. 104-67, 109 Stat. 737, codified at 15 U.S.C. § 78u-4. This article explores why this issue has arisen since the passage of the PSLRA, enumerates the different approaches taken by a number of courts and defense counsel grappling with this issue, and explains why the approach taken recently in Union Asset Management Holding AG v. SanDisk LLC, Civ. No. 15-01455, 2017 U.S. Dist. LEXIS 977 (N.D. Cal. Jan. 4, 2017) makes sense.
The PSLRA simultaneously raised the pleading standards for surviving a motion to dismiss to a very high level and forbids discovery in most cases until and unless a complaint survives a motion to dismiss.[2] As courts have recognized, the “combined effect of the high scienter standard in securities fraud litigation and the strict PSLRA discovery stay is to place great weight at the pleading stage on the statements of confidential witnesses.” Union Asset, 2017 U.S. Dist. LEXIS 977, at *6. In the absence of discovery, these confidential witnesses or whistleblowers, often former employees of the defendant companies, are often the only sources of information as to what the defendants knew and when they knew it — normally key pieces of information for a securities fraud complaint to move past the motion to dismiss. Plaintiffs counsel, working with investigators or otherwise, locate and interview these witnesses and then include allegations based on the information gleaned from the interviews in their complaints. Generally, in an attempt to protect the witness from retaliation, unwanted publicity, and other potential negative repercussions stemming from whistleblowing on their former employees, these whistleblower witnesses are listed as confidential witnesses along with descriptions (usually of title, dates of employment, and scope of responsibilities) of the past employment that gave them access to the information that is being used as the basis for allegations in the complaint.
Last month, in U.S. ex rel. Hayward v. SavaSeniorCare LLC, the Tennessee district court emphatically rejected the efforts made by defendant operators of a large nursing home chain to dismiss the U.S. Department of Justice’s False Claims Act complaint alleging a chainwide pattern of administering unnecessary skilled therapy to inflate Medicare reimbursement amounts. This opinion should help to inform the course of the multitude of FCA cases that involve large volumes of claims and many different patients.
In recent years, the skilled nursing facility industry has become a major focus of the federal health care programs and the DOJ’s enforcement efforts under the False Claims Act. The reasons are clear — Medicare pays over $30 billion each year to skilled nursing facilities, which along with Medicaid covers millions of mostly elderly and infirm Americans residing in nursing homes.[1]
In Carriuolo v. General Motors Corp., the Eleventh Circuit affirmed class certification for consumers alleging that inaccurate safety ratings on Cadillacs permitted General Motors to obtain “a price premium” or “overcharge,” thereby establishing the causation element of Florida’s consumer fraud statute. Under an overcharge theory, the consumers claim that because the fraud permitted the seller to artificially inflate a purchase price, the fraud caused harm to all buyers, regardless of whether any individual class member actually saw and relied on the misrepresentation.
Having diversified their portfolios beyond U.S. stocks and bonds, today’s institutional investors are now diversifying the legal tools they use to protect those investments. In cases where markets were manipulated, some pension funds are suing under antitrust laws and the Commodity Exchange Act to recover losses and make rigged markets more efficient.
While many of these alternative investment cases are still in their nascent stages, early results offer investors hope. An antitrust case involving the market for credit default swaps recently settled for $1.9 billion and injunctive relief that should make it easier for credit default swaps to be traded on exchanges. Another case, focused on manipulation of the foreign exchange markets, has yielded $2 billion in partial settlements thus far.
So what caused this increase in claims under the antitrust laws and the Commodity Exchange Act? And what should pension funds and other institutional investors do to make sure they are identifying and managing potential claims that are, after all, assets of their trust?
The rise in private lawsuits by investors alleging antitrust and Commodity Exchange Act violations is primarily linked to two factors. First, the courts and Congress have whittled away at U.S. securities laws, narrowing the circumstances under which investors can sue and making it tougher for them to prevail when they do. Second, institutional investors have expanded their portfolios to include a variety of alternative investments.
North Carolina has justifiably been pilloried in recent weeks for enacting legislation that requires public school students and state employees to use the bathrooms reserved for their biological sex, regardless of the gender with which they identify. In many ways, this legislation resurrects memories of racially segregated restrooms that were mandated by law until the middle of the last century. Motivated by the same kind of fear and unjustified stereotypes as before, the segregation this time is directed at transgender people.
The bill’s requirement that state employees and public school students use restrooms designated for their sex at birth, regardless of the gender with which they identify, is bad enough. But the bill also limits protections against sex discrimination to one’s “biological sex,” which further reinforces state-sponsored hostility to transgender people. Although such a limitation may not impose the same daily inconvenience or humiliation as the restroom restriction, it wholly exempts transgender people from the state’s legal protection.