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Gibbons Law Alert

Tagged: Motions to Dismiss

Second Circuit Holds That a Post-Disclosure Stock Price Rebound Does Not Per Se Preclude Damages for Alleged Federal Securities Fraud

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Posted in Appellate / Securities

On September 6, 2012

Recently, the Second Circuit vacated a District Court’s dismissal of a securities fraud action brought by Acticon AG, shareholder of China North East Petroleum Holdings Ltd. (“NEP”), for failure to plead economic loss—a necessary element to maintain a private damages action under § 10(b) of the Securities Exchange Act of 1934 (“§10(b)”). Acticon had multiple opportunities to, but did not, sell its NEP shares at a profit after NEP’s disclosure of the alleged fraud. The Court held that economic loss is not conclusively negated at the pleadings stage where the price of a security recovers shortly after a disclosure of alleged fraud. Significantly, in drawing all reasonable inferences in favor of the plaintiff under NEP’s 12(b)(6) motion, the Court explained that a rise in the price of a stock following a corrective disclosure requires an inquiry into whether the security rose for “reasons unrelated to [the] initial drop,” and thus introduces factual questions and competing theories of causation that would be inappropriate to resolve on a motion to dismiss.

Second Circuit Finds No Anti-Competitive Conduct in Eatoni v. RIM, Applies “Manifest Disregard of the Law,” Post-Hall Street

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Posted in Antitrust / Appellate

On June 28, 2012

In a summary order issued on June 21, 2012, the Second Circuit in Eatoni Ergonomics, Inc. v. Research in Motion Corp., affirmed the Rule 12(b)(6) dismissal of Eatoni’s monopolization complaint against BlackBerry maker RIM for failure adequately to plead anti-competitive conduct. Significantly, the Court held that individual instances of alleged misconduct that are not anti-competitive on their own do not state a claim under Section 2 of the Sherman Act when considered together.

Third Circuit Affirms Dismissal of Off-Label Marketing Actions Against Schering for Lack of Standing

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Posted in Class Action Defense / General Litigation

On May 31, 2012

In a consolidated appeal pitting a putative class of third-party payors of drugs prescribed for uses not approved by the Food and Drug Administration, and a putative class of individual patients prescribed such drugs, against Schering-Plough and affiliated entities, the Third Circuit in In re Schering-Plough Corp. Intron/Temodar Consumer Class Action affirmed the district courts’ dismissals of both actions for lack of standing. The Third Circuit held that both plaintiffs, who brought federal and state statutory and common law causes of action, failed to allege a plausible nexus between Schering’s allegedly illegal marketing campaign and the doctors’ decisions to prescribe various drugs for unapproved uses.

New Jersey Appellate Division Holds That the Entire Controversy Doctrine Does Not Reach Tangentially-Related Claims Pending in Another Court, Despite Common Facts

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Posted in General Litigation

On April 30, 2012

In Alpha Beauty Distributors, Inc. v. Winn-Dixie Stores, Inc. the New Jersey Appellate Division reversed a trial court’s dismissal of an action under the Entire Controversy Doctrine, finding that the dismissed action was not part of the same “core controversy” as a related federal-court proceeding. Plaintiff Alpha Beauty Distributors is owned by Bebert Azran. After purchasing Alpha from Noel and Reid Kleinman, Azran discovered fraud and breaches of fiduciary duty, and sued the Kleinmans in Federal District Court on behalf of himself and Alpha . The federal action centered on allegations that the Kleinmans had damaged Alpha and Azran “through a course of self-dealing and conversion of corporate assets.” Among other things, the federal complaint alleged that the Kleinman’s had given certain of Alpha’s customers improper credits, but it did not encompass any claims against such customers for the improper credits.

New Jersey Appellate Division Finds That a Demand for Arbitration or Mediation Constitutes the “First-filed” Action for Comity Purposes

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Posted in General Litigation

On March 15, 2012

In CTC Demolition Company, Inc. v. GMH AETC Management / Development, LLC, et al., the Appellate Division recently found in a to-be published opinion that a party’s demand for contractually-mandated arbitration or mediation may constitute the “first filed” action for purposes of a comity analysis. The “first filed rule” typically surfaces where parties have engaged in a “race to the courthouse,” filing similar lawsuits in different jurisdictions that they perceive to be most friendly to their cause. Based on traditional principles of comity, the rule provides that “a New Jersey court should not interfere with a similar, earlier-filed case in another jurisdiction that is capable of affording adequate relief and doing complete justice,” Sensient Colors, Inc. v. Allstate Ins. Co., but allows for certain exceptions, such as where “the presence of special equities may lead a court to disregard the traditional deference paid to the first-filed action.”

Third Circuit Holds That Plaintiffs Lack Standing to Sue for Data Breach Where Alleged Harm is Only Speculation That Personal and Financial Information May Be Misused

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Posted in General Litigation

On January 3, 2012

The Third Circuit in Reilly v. Ceridian Corp. affirmed the district court’s dismissal of a putative class action against payroll processing company Ceridian for a data breach, holding that the plaintiffs lacked standing because their alleged injuries were too speculative. In December 2009, an unidentified hacker breached Ceridian’s Powerpay system and potentially gained access to personal and financial information belonging to approximately 27,000 employees at 1,900 companies. It was unknown, however, whether the hacker read, copied, or understood the data. Two individual plaintiffs filed suit on behalf of all individuals whose information was exposed in the security breach, alleging that they (1) had an increased risk of identity theft, (2) incurred costs to monitor credit activity, and (3) suffered emotional distress.

Southern District of New York Implements Pilot Program to Govern Pretrial Procedures in Complex Civil Cases

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Posted in General Litigation

On December 22, 2011

The Judicial Improvements Committee of the Southern District of New York issued a report for a Pilot Project Regarding Case Management Techniques for Complex Civil Cases (the “JIC Report”) in October 2011. The pilot project is designed to run for 18 months and apply to certain matters designated as complex civil cases. The “complex civil case” designation applies to class action lawsuits, multi-district litigation actions, stockholder suits, most product liability cases, antitrust suits, patent and trademark suits, securities cases, environmental matters and cases involving the constitutionality of state statutes. Although many Southern District of New York judges already had individual procedures in place similar to those implemented by the JIC, some of the more novel aspects of this pilot project are described below.

Lack of Standing and Choice-of-Law Rules Doom Nationwide Consumer Fraud Class Action Against BMW

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Posted in General Litigation

On November 23, 2011

On October 31, 2011, in Nirmul v. BMW, the District Court for the District of New Jersey dismissed a nationwide class action against BMW asserting claims under the New Jersey Consumer Fraud Act (“NJ CFA”), concluding, essentially, that none of the three plaintiffs had a standing to sue. The complaint alleged that the high pressure fuel pump in BMW’s N54 turbo engines had a known defect and that BMW failed to disclose this fact to purchasers throughout the country.

Minority Shareholders Not Precluded From Seeking Damages for Majority Shareholders’ Post-Merger Breaches of Fiduciary Duty

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Posted in General Litigation

On September 30, 2011

In Mitchell Partners, L.P. v. Irex Corporation, et al., the Third Circuit concluded that Pennsylvania’s appraisal statute does not preclude dissenting minority shareholders who are “squeezed out” in a merger from seeking remedies beyond the appraisal remedies provided in the statute. In the precedential ruling, the Third Circuit predicted that the Supreme Court of Pennsylvania would “permit a post-merger suit for damages based on the majority shareholders’ breach of their fiduciary duties.”

Delaware Supreme Court Endorses Reasonable “Conceivability” on Motion to Dismiss Over Twombly-Iqbal’s “Plausibility” Standard

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Posted in General Litigation

On September 23, 2011

Since the U.S. Supreme Court’s decisions in Bell Atlantic Corp. v. Twombly in 2007 and Ashcroft v. Iqbal in 2009, many Delaware Court of Chancery decisions have applied the Twombly-Iqbal “plausibility” standard in ruling on motions to dismiss. In its recent decision in Central Mortgage Company v. Morgan Stanley Mortgage Capital Holdings LLC, however, the Delaware Supreme Court refused to apply the Twombly-Iqbal “plausibility” standard and, instead, held that — at least for now — Delaware’s less stringent reasonable “conceivability” standard is what governs motions to dismiss in Delaware courts.

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