WHAT TO KNOW:
- Investors can pursue claims on due diligence statements
- Allegations on glyphosate safety, litigation risks fall short
Bayer AG investors adequately alleged the company misled them about the due diligence it conducted ahead of its acquisition of Roundup herbicide maker Monsanto Co., a federal judge in California said.
Investors also accused the pharmaceutical and life sciences firm of making misleading statements about the safety of glyphosate—Roundup’s active ingredient—and how Bayer accounted for post-purchase legal risks, but those allegations aren’t sufficient to move forward, the U.S. District Court for the Northern District of California said.
Bayer’s acquisition of Monsanto closed in 2018. “Before, during, and after the acquisition, Monsanto was, and remains today, embroiled in litigation alleging that the chemical glyphosate, the active ingredient in Monsanto’s Roundup product, causes cancer,” Judge Richard Seeborg’s order said.
The investors adequately pleaded that Bayer made misleading statements and omissions about the due diligence it undertook prior to purchasing Monsanto. The company’s statements could have caused a reasonable investor to think that “Bayer had assessed Monsanto’s litigation risks, and had reviewed non-public information to inform that review,” Seeborg said.
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Cohen Milstein Sellers & Toll PLLC represents the investors as lead counsel.
A California federal judge on Tuesday granted preliminary approval to a class action settlement he had twice rejected as defective, greenlighting a deal that would require Dignity Health to pay over $100 million to workers who claim the health system underfunded its pension plan by $1.8 billion via erroneous use of ERISA’s church-plan exemption.
Nearly nine years after beneficiaries sued Dignity Health claiming it misused an Employee Retirement Income Security Act exemption intended for churches and their affiliates, leading to significant underfunding of its pension plan, U.S. District Judge Jon S. Tigar ruled Tuesday that the court’s previous concerns regarding collusion had been resolved.
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The case, which began in 2013, centered on the use of an ERISA exemption intended for churches and their affiliates. The exemption gives those that qualify the ability to ignore ERISA’s requirements for benefit plans, including its funding rules.
Dignity Health claimed the exemption, saying it was affiliated with the Catholic Church.
Its workers, however, argued that the hospital system was not closely enough associated with the church to qualify, but that Dignity used the exemption anyway and then underfunded its plan by more than $1 billion, according to court documents.
The case spent years traveling all the way to the U.S. Supreme Court before returning to Judge Tigar, who ruled in 2018 that Dignity Health could not beat the claims against it on a motion to dismiss.
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On Tuesday, Judge Tigar said he initially rejected the deal because a previous version of the proposed settlement had contained a clear sailing clause and implied reversion clauses that raised concerns of collusion.
The judge said the court also previously could not evaluate the reasonableness of the amount plaintiffs planned to seek in attorneys’ fees because the class’s total recovery was insufficiently certain. Further, plaintiffs had previously not adequately shown why certification of two subgroups was not required.
But the judge said that in their renewed motion for preliminary approval and revised settlement, the parties had resolved the court’s concerns.
The main settlement class consists of more than 91,000 participants and beneficiaries of the plan, and the vesting subclass includes more than 3,200 former participants in the cash balance portion of the plan who terminated employment between April 1, 2013, and March 27, 2019, and who completed at least three but less than five years of vesting service.
The judge appointed Keller Rohrback LLP and Cohen Milstein Sellers & Toll PLLC as class counsel and appointed Izard, Kindall & Raabe LLP as counsel for the vesting subclass.
A final approval hearing in the case is scheduled for March 3, 2022.
In 2019, investors won $96 million in arbitration awards against firms and advisors that they accused of misconduct. But some of those investors never saw a dime.
Almost a third of the arbitration awards, totaling $19 million, went unpaid, according to data from industry self-regulator Finra.
That dismal statistic underscores a pernicious problem in the wealth management industry: Arbitration is supposed to provide investors with a recourse when they feel they’ve been wronged by their financial advisor. However, too often the remedy turns out to be no such thing.
“When you’re talking about these unpaid awards, we’re typically talking about retail investors who are often seniors,” says Laura Posner, a partner at New York law firm Cohen Milstein and the former bureau chief for the New Jersey Bureau of Securities. “We’ve set up a system that too often fails, whereas the goal should be to protect them.”
Now, an association of securities regulators is seeking to mitigate the problem by harmonizing regulations and toughening consequences for firms and advisors who fail to pay arbitration awards owed to investors.
The proposed model rule would make it an unethical business practice for a broker-dealer, agent, investment advisor or registered representative to fail to pay an arbitration award or fine entered against them. That in turn could tee up enforcement actions, such as revoking a license, by members of the North American Securities Administrators Association (Nasaa), which represents regulators in the United States, Canada and Mexico.
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A new guideline. The proposal would create a template that state securities regulators could adopt and modify as a new regulation. It would also harmonize rules for broker-dealers and registered investment advisors, or RIAs. That’s an important issue since a broker can in theory rack up unpaid arbitration awards and then register as an RIA elsewhere.
Nasaa is soliciting public feedback on its proposal. After the public comment period concludes, the proposal can be presented to Nasaa members for approval and adopted as new regulations by regulators.
“In making this rule, we hope more awards will be paid because people want to be registered and if they aren’t paying awards, then they will only get one bite at the apple. They won’t be able to reincarnate elsewhere,” Standifer says.
The reforms are especially needed because going to state or federal court isn’t an option for many investors since firms often require customers opening accounts to agree to arbitrate any disputes. Customer complaints are typically heard in arbitration proceedings run by Finra, though they can be heard in privately run meditation forums.
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Recovery pool? Piaba, an association of attorneys who represent investors in arbitration, has called upon Finra and other regulators to create a national investor recovery pool that could make wronged investors whole in instances when arbitration awards go unpaid. The pool could potentially be funded by Finra or brokerage firms, which are members of Finra.
“If the goal is to protect people from suffering devastating injuries, would it be best to install seat belts before the car accident, or after?” Piaba asked in a report on unpaid arbitration awards, its third, issued last month.
A representative for Finra says it is working to reduce the number of unpaid awards, which typically result from firms and brokers declaring bankruptcy or going out of business.
“Finra appreciates that Piaba recognizes that customer recovery can be a challenge across the financial services industry and dispute resolution forums, and we remain committed to working with all stakeholders on this important issue,” the representative said.
Finra maintains a public database of brokers who have unpaid arbitration awards. Its statistics also show that firms with unpaid arbitration awards tend to be small, employing a median number of 61 registered representatives.
Finra has the power to suspend or bar from the industry individuals or firms that fail to pay arbitration awards. The regulator adds that many unpaid arbitration awards are against firms or individuals whose registration has been terminated, suspended, canceled, or revoked, or who have been expelled.
The regulator’s website notes that just as in federal and state court systems, its arbitration forum does not ensure payment of damages awarded. “Arbitration claimants have access to the same collection tools as in a court judgment: if a respondent fails to pay an arbitration award, the claimant may take the award to court and have it converted to a judgment. The claimant may then attempt to collect on the judgment using the court’s collection procedures,” the website states.
But that may be small comfort to investors who’ve lost money, particularly as it would entail having to hire an attorney for both the arbitration and court processes, all to collect an award for money they’ve already lost.
“I hope that Finra makes some real changes in this space so we don’t have this problem going forward,” Posner, the attorney, says. “This isn’t a new problem. It was an issue when I was a regulator in 2015. You’re talking about another $20 million or $25 million [in unpaid awards] every year.”
Whistleblowing is a critical component of corporate integrity and economic stability in the United States. It is unsurprising, then, that policy makers and observers have directed considerable attention to the improvement of whistleblower laws. This article assesses potential improvements to the most visible recent addition to the federal whistleblower regime—the Dodd-Frank Act, passed in the wake of the Great Recession to combat securities fraud. The article makes two overarching claims. First, the Securities and Exchange Commission’s (SEC) recently adopted changes to the administrative rules governing the Dodd-Frank whistleblower program (WBP) are incomplete since they were formulated without reference to the experiences of whistleblowers and their counsel. Moreover, at least three of the SEC’s adopted changes will undermine the WBP and should be repealed. Second, the time is right to experiment with improvements to the WBP. If the SEC’s new rules are not the optimal path forward, the question remains what alternative changes should be adopted. To that end, the article utilizes an original qualitative data set consisting of in-depth interviews with two dozen whistleblower counsel, two whistleblowers, a former SEC commissioner, and a former chief of the SEC’s Office of the Whistleblower to propose its own set of changes. Congress and the SEC should embrace these changes to reform Dodd-Frank from the whistleblower’s vantage and to move the WBP closer to its full potential as a deterrent and remedy for securities fraud.
INTRODUCTION
When Darren Sewell died nearly destitute in 2014, he had been a whistleblower and plaintiff in a False Claims Act (FCA) qui tam action for more than five years.1 The E.R. doctor turned health insurance executive had worked extensively with the FBI as it investigated his employer for Medicare fraud. Company executives became aware of the investigation two and a half years after Sewell had filed a complaint under seal, and he soon thereafter submitted his “involuntary resignation.”2 He then found it impossible to obtain work in the Medicare insurance industry and heard that his former employer was telling others to avoid him.3 In desperation, Sewell began to tap his retirement accounts; when he died, little was left for his daughter.4 His lawsuit continued only when the executor of his estate agreed to stand in.5 Seven years after Sewell filed suit and two years after he passed, the U.S. Department of Justice joined the claim; only then did his former employer settle.6 Sewell’s protracted struggle suggests that fraudsters can wield even the passage of time to the decided detriment of whistleblowers and the public alike.
Yet Sewell’s case also illustrates the promise of whistleblowing as an integral element of corporate accountability in the United States and abroad. In recognition of its significance, numerous federal and state statutes have been enacted to protect and encourage those who report corporate misdeeds. Perhaps the most prominent recent addition to the federal whistleblower regime is the program directed by the Securities and Exchange Commission (SEC), created by the Dodd-Frank Act8 to combat securities fraud following the Great Recession—the whistleblower program, or WBP.9 Whistleblowing is especially crucial in the securities context since “[i]n the absence of a whistleblower or luck, most fraud would go undetected.” Despite the law’s development, however, perpetrators continue to commit fraud, and stories of hardship and ruin for whistleblowers like Darren Sewell continue to multiply.
Melissa Nelson was 20 years old when she was hired to work as a dental assistant for James Knight. Nelson had worked in his Fort Dodge, Iowa, office for more than a decade before he fired her in 2010. The problems began a year and a half earlier. On several occasions, Knight complained to Nelson that her clothing was too tight, too revealing and “distracting.” To mollify Knight, Nelson occasionally wore a lab coat over her clothes, which he viewed as necessary because, he said, “I don’t think it’s good for me to see her wearing things that accentuate her body.” According to Nelson, her clothes were not tight or in any way inappropriate for the workplace.
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Sexual-harassment law reinforces our cultural fixation on women who invite their abuse. The leading case on “unwelcomeness” is Meritor Savings Bank v. Vinson, which the U.S. Supreme Court decided in 1986. The story begins more than a decade earlier, when 19-year-old Mechelle Vinson was hired to work as a teller trainee at a small bank in Washington, D.C. Vinson had grown up poor and surrounded by violence. Her previous employment experience was limited to temporary work in an exercise club, a grocery and a shoe store, which made the steady bank job even more appealing.
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Vinson’s case eventually made its way to the Supreme Court, posing the question whether sexual harassment in the workplace violates federal antidiscrimination law. In a landmark victory for victims, the Court held for the first time that sexual advances constitute a form of unlawful discrimination when they create a “hostile work environment.” The Court wrote: “The gravamen of any sexual harassment claim is that the alleged sexual advances were ‘unwelcome,’” instructing that the “correct inquiry” is whether Vinson “by her conduct indicated that the alleged sexual advances were unwelcome.”
The creation of the unwelcomeness test tempered Vinson’s win. The focus would now be trained on her and on all accusers going forward. What mattered was how Vinson showed Taylor that his sexual overtures were not welcome. To this end, the Court blessed a searching inquiry into the victim’s conduct and appearance. Vinson’s “sexually provocative speech or dress” was said to be “obviously relevant” to whether she found the sexual advances unwelcome. This legal framework—which the Supreme Court handed down to the lower court resolving Vinson’s claim—remains in place today.
Joseph Sellers is the D.C. lawyer who represented Vinson after the Supreme Court remanded her case and before the parties ultimately settled in 1991, 13 years after Vinson sued. This final phase of the litigation was shaped by the Court’s newly announced unwelcomeness standard, which Sellers immediately realized would impose an unfair burden on Vinson and countless victims going forward. Vinson was a young “single mom and terrified at the prospect of disappointing or upsetting Taylor,” who had enormous control over her ability to make a living. But in that motel room, “Nobody locked the door. Nobody put a gun to her head,” Sellers says. This could have been held against his client, who submitted to intercourse with Taylor that day. “The question was whether she had shown—and it was viewed as a burden on her to show—that the conduct was unwelcome.” If Vinson didn’t do enough in this regard, the blame was on her.
Since handling Vinson’s case, Sellers has spent many decades representing victims of sex discrimination. He views the unwelcomeness test as a poor fit for the workplace with its myriad power imbalances. “In my experience,” Sellers relates, “it’s very rare that, where an overture is made by somebody with considerable power over the woman’s future, the person says something as direct as, ‘Please don’t do that. That makes me uncomfortable.’ Instead, they make excuses. ‘Well, I’m sorry, I’m busy tonight. I’m busy tomorrow night.’”
The question at trial, if a case makes it that far, is whether the victim’s conduct is sufficient to demonstrate unwelcomeness. This inquiry readily lends itself to blame-shifting. Particularly when the relationship between the harasser and his target is hierarchical, an accuser may not be positioned to do enough to be seen as a victim rather than an enabler. When victims are especially vulnerable, they are unlikely to satisfy the legal burden imposed on them. Without power in the workplace, a woman will find it difficult to directly confront her abuser about the unwelcomeness of his behaviors, leaving her a prime target for whatever comes her way.
Blame-shifting gives a gigantic pass to abusers—and it’s a dominant feature of our culture and our law. A primary function of what I call the credibility complex is to hold accusers responsible for their abuse while absolving the offender of responsibility. This preserves familiar structures—however hierarchical—in which the collective, particularly its most powerful members, is deeply invested.
Three companies accused of colluding to inflate the cost of calls made from inside U.S. prisons will still face antitrust claims after a Maryland federal judge decided that the racketeering claims of prisoners’ families fell apart.
U.S. District Judge Lydia Kay Griggsby dismissed the Racketeer Influenced and Corrupt Organizations Act — better known as RICO — claims Thursday in an 18-page opinion that ultimately found the suit’s antitrust claims were strong enough to proceed.
“In sum, when read in the light most favorable to plaintiffs, the court is satisfied that the complaint contains plausible Sherman Antitrust Act claims that plaintiffs should be allowed to further develop through the discovery process,” Judge Griggsby said.
The judge said she wasn’t going to be dismissing the antitrust claims because the proposed class — which seeks to represent friends and family members of incarcerated people who pay for collect calls from prisons across the country — does properly and plausibly allege an agreement between the companies it’s suing to fix the price of calls.
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The family members of prisoners and the proposed class are represented by Handley Farah & Anderson PLLC, Cohen Milstein Sellers & Toll PLLC, Justice Catalyst Law Inc., the Human Rights Defense Center and the Washington Lawyers’ Committee for Civil Rights and Urban Affairs.
Centene Corp. has agreed to pay more than $71 million to resolve investigations in two states into the health insurer’s billing practices.
The settlements, announced on Thursday in statements from the attorneys general in Illinois and Arkansas, are related to claims that Centene’s pharmacy-benefit management business inflated drug costs. The company has resolved similar disputes with Ohio and Mississippi and has reserved $1.1 billion to cover the claims, it said in June.
Centene is the largest provider of Medicaid managed-care health plans in the U.S. It contracted with Illinois and Arkansas to manage pharmacy benefits for state programs.
“This no-fault agreement reflects the significance we place on addressing their concerns and our ongoing commitment to making the delivery of health care local, simple and transparent,” Centene said in a statement provided by a spokesperson.
Shares of the St. Louis-based company declined 1.5% on Thursday in New York.
Pharmacy-benefit managers, or PBMs, negotiate discounts with drug suppliers on behalf of health plans and process prescriptions. The business has come under greater scrutiny in recent years because of the complexity of the arrangements and the potential for PBMs to pocket a share of the discounts or fees they receive.
Some states including Ohio have restructured how they contract for pharmacy benefits in programs like Medicaid, the safety net insurance for low-income Americans, to add more transparency.
Illinois Attorney General Kwame Raoul’s office said that Centene “allegedly submitted inaccurate pharmaceutical reimbursement requests that failed to accurately disclose the cost of pharmacy services,” and inflated other fees. He said in a statement that his office is still looking into PBMs operating in Illinois. Centene will pay more than $56 million to resolve the Illinois claims, Raoul said.
Arkansas Attorney General Leslie Rutledge said “this settlement with Centene is a big step in repairing the damage it did by taking advantage of Arkansans” in a statement. The company will pay more than $15 million to resolve the Arkansas claims, which covered conduct by Centene subsidiary Envolve in 2017 and 2018, Rutledge’s office said.
The U.S. Environmental Protection Agency’s pending requirement that companies report their use of so-called forever chemicals could impose a tough burden on businesses across many industry sectors, and environmental attorneys say it’s crucial that companies act now to prepare.
The proposed new rule, currently being finalized by the Biden administration, would require businesses that have manufactured, processed or imported per- and polyfluoroalkyl substances, or PFAS, to submit a comprehensive report detailing all of those uses for a 10-year period. It contains few exceptions like those often found in other chemical data reporting requirements under the Toxic Substances Control Act and will apply to both major corporations and small businesses.
The broad scope of the proposed rule is intended to help the agency better understand the potential risks and scope of the chemicals. The rule would be a one-time requirement, but the reporting could pose significant challenges for clients that haven’t kept detailed records of their past decade of using PFAS, experts say.
Thousands of businesses that may have never interacted with the TSCA may now suddenly find themselves needing to navigate its complex reporting framework. Attorneys are counseling their clients to prepare now to submit the required documentation or be able to establish they deployed their best efforts to pull it together.
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And as PFAS-related litigation becomes more commonplace, reporting rules for the chemicals could provide an important tool for plaintiffs, especially in communities impacted by industrial processes, said Ted Leopold of Cohen Milstein Sellers & Toll PLLC.
Leopold is a co-lead counsel in one of the most prominent PFAS-related suits to date, targeting the alleged failure of DuPont Co. and Chemours Co. to stop toxic chemicals like PFAS from being dumped into the Cape Fear River in North Carolina. He said the transparency of the reporting requirement will help everyone from affected communities to regulators to better understand what the impacts of PFAS are.
“These chemicals are so highly toxic and dangerous for surrounding communities. Whoever is using these chemicals needs to act appropriately, put into place proper safeguards and document it appropriately,” he said. “That’s whether it’s DuPont, Chemours or a local company.”
A federal judge on Thursday rejected Wells Fargo & Co’s (WFC.N) bid to dismiss a lawsuit claiming it defrauded shareholders about its ability to rebound from five years of scandals over its treatment of customers.
The fourth-largest U.S. bank has operated since 2018 under consent orders from the Federal Reserve and two other U.S. financial regulators to improve governance and oversight, with the Fed also capping Wells Fargo’s assets.
Shareholders said bank officials falsely claimed in TV interviews, analyst calls and congressional testimony that the bank was mending its ways, when regulators actually viewed its progress as “deficient” and “unacceptable.”
U.S. District Judge Gregory Woods in Manhattan said the shareholders plausibly alleged that some statements by various bank officials, including former Chief Executive Tim Sloan, were “deliberately or recklessly false or misleading.”
According to shareholders, San Francisco-based Wells Fargo lost more than $54 billion of market value as the truth was gradually revealed over a two-year period ending in March 2020.
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The shareholders are led by the state of Rhode Island, and pension funds in Louisiana, Mississippi and Sweden.
Their lawyer Steven Toll said he was pleased they can sue over the “vast majority of the alleged fraudulent statements.”
Read Wells Fargo Must Face Shareholder Fraud Claims over Its Recovery from Scandals.
The Seventh Circuit rejected a St. Louis manufacturing company’s push to send a would-be class action from workers who say they were overcharged for company stock to individual arbitration, saying a “rare” exception to federal law applied.
The three-judge panel issued a unanimous opinion Friday backing a district court’s decision not to send the Triad Manufacturing Co. workers’ suit into arbitration, citing an exception to the Federal Arbitration Act that permits a court to overrule an arbitration agreement if it blocks a party from being able to bring claims under federal law.
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The proposed class of current and former Triad workers led by James Smith had accused the company’s board of directors and three board members in April 2020 of violating the Employee Retirement Income Security Act by selling Triad stock to the company’s employee stock ownership plan, or ESOP, at an inflated price, giving board members “a hefty profit at their employees’ expense.”
In Friday’s decision, the Seventh Circuit cited the 1985 Supreme Court case Mitsubishi v. Soler Chrysler-Plymouth , which first presented the “effective vindication” exception in the opinion as a side observation, as well as the 2013 high court case American Express Co. v. Italian Colors Restaurant .
While the Supreme Court decided against invalidating the arbitration agreements at the heart of both cases, the Seventh Circuit panel noted that the court in Italian Colors left the door open for the exception in cases where an arbitration provision prevented a party from exercising a statutory right.
The appeals court judges concluded Friday that ERISA suits in general could be sent to arbitration, but the arbitration provision in question was not valid under the effective vindication doctrine because it prevents plan participants from being able to seek relief and obtain remedies under ERISA.
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Counsel for the proposed class told Law360 on Monday that they are “thrilled with the 7th Circuit decision recognizing that ERISA allows our client to seek remedies on behalf of all participants in his retirement plan.”
“The decision confirmed that certain plan-wide remedies cannot be taken away through an arbitration clause. We look forward to prosecuting this case in district court,” the statement continued.
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The proposed class is represented by Karen L. Handorf, Michelle C. Yau and Jamie L. Bowers of Cohen Milstein Sellers & Toll PLLC and Peter K. Stris, Radha A. Pathak, Douglas D. Geyser and John Stokes of Stris & Maher LLP.