Jordan Eth, Morrison Foerster
Jordan is co-chair of Morrison & Foerster’s Securities Litigation, Enforcement, and White Collar Defense Group. He is one of the leading securities litigators in the United States, known for his success in handling complex, high-stakes cases. He has more than 30 years of experience representing public companies and their officers and directors in securities class actions, SEC investigations, derivative suits, M&A litigation, and internal investigations. Based on his and the Group’s recent successes, The Daily Journal named Jordan to its 2021 list of “Top 100 Lawyers” in California. He has also received a “California Lawyer Attorney of the Year Award” for co-leading the successful defense of JDS Uniphase Corp. and its former executives in a securities class action jury trial seeking $20 billion in damages.
Thank you to the PLUS organizers and my fellow panelists on the “Current Developments in D&O Securities Litigation” panel at the 2022 PLUS D&O Symposium. Special thanks to Jim Skarzynski who did a terrific job organizing and moderating our panel. It was great to be live and in person once again in New York City.
Here are the key points from our panel:
The decline in the number of securities litigation in recent years
The panelists agreed that stock market performance, not surprisingly, has been a major reason for this trend. Given recent volatility and declines in the market, we all expect case counts to rise.
We also half-jokingly attributed the decline in cases to “supply chain issues”—perhaps ships filled with securities complaints were stacked up waiting to unload? But with people working from home—many of whom were distracted by Covid—and courts shut down or not moving their dockets, these issues may, in fact, have contributed to the decline. Lifting of most Covid restrictions should also contribute to an increase in cases going forward.
In re Goldman Sachs (Goldman Sachs Grp., Inc. v. Ark. Tchr. Ret. Sys., 141 S. Ct. 1951 (2021))
What are the implications of the Supreme Court’s Goldman Sachs ruling? Well, for one, experts are now guaranteed full employment. Years ago, defendants rarely challenged class certification—let alone base a challenge on expert testimony. Now, it has become de rigueurfor plaintiffs to offer an expert report. Defendants frequently counter with their own expert, and, of course, the experts usually get deposed. No doubt, this drives up the cost of litigation for everyone and can lead to delays in resolution. Goldman Sachs itself is a great example: the case—filed in 2010—is now on its third trip to the Second Circuit. The panel noted that, even with all these efforts, courts still almost always certify a class—at least for now.
In terms of the Court’s precise holding, there really isn’t much to say. It stands for the simple proposition that in assessing whether alleged misstatements caused “price impact,” courts should consider all the evidence before them. Somewhat perplexingly, the Court said that placing the burden of proof on defendants to show no price impact should only affect the rare situation in which the evidence is in “equipoise.” That said, I’m not giving up on holding plaintiffs to their burden of proof on the merits.
There are a few interesting nuggets in the case. The Court specifically declined to take a position on whether Rule 10b-5 permits “price maintenance” cases at all. Panelist John Browne of Bernstein Litowitz Berger & Grossmann LLP acknowledged that the majority of securities cases right now are price-maintenance theory cases; that is, cases in which plaintiffs allege that the stock would have declined (or declined more) if the “truth” had come out at the time of the statement. Some clever defense attorneys will undoubtedly argue that the implied right of action under Rule 10b-5 should not be stretched to include cases in which the stock price did not react to the alleged misstatement. But this is for another program, perhaps years down the road.
More immediately though, this case also says something useful about loss causation. The Court noted that when there is a mismatch between the front-end alleged misstatement and the back-end alleged corrective disclosure, it is less likely that the disclosure “actually corrected” the earlier statement. While this may provide defendants an additional argument against loss causation or damages, defendants should think through the procedural posture in which they raise this issue. Plaintiffs’ motion for class certification may not be the right time.
Section 11 cases
We also discussed two recent Section 11 cases: In re Pivotal Securities Litigation and Pirani v. Slack Techs., Inc., 13 F.4th 940 (9th Cir. 2021). In Pivotal, the Supreme Court granted cert to resolve the issue of whether the PSLRA discovery stay applies to state courts. Notably, plaintiff in that case agreed not to conduct discovery before defendants’ motion to dismiss (known as a demurrer) was decided and argued that their agreement mooted the issue. The Supreme Court nevertheless accepted the case. Given the prevalence of federal forum-selection clauses that require Section 11 litigation to take place in federal court, this issue may not affect many defendants. But, where there is no forum-selection clause, defendants can now more confidently oppose pre-motion to dismiss discovery and litigate all the way to the Supreme Court, if necessary.
Pirani v. Slack concerned a “direct listing,” which occurs when a company goes public by issuing both registered and unregistered shares. The issue before the Ninth Circuit was whether Section 11 required plaintiffs to trace their shares to the registered offering. Despite the general strictness of the tracing requirement, the Ninth Circuit ruled that strict tracing was not required here because the unregistered shares could not have been issued without the registration statement. We don’t expect this to be the last word on this issue—although the Ninth Circuit recently denied Slack’s petition for a rehearing en banc. Other Circuits will undoubtedly weigh in on this issue, too. Depending on the outcome of these rulings, direct listing (and other innovations) may cause Section 11 exposure to diminish in importance.
Remote settlement processes
We also discussed the rise and future of remote mediations. We agreed that remote mediations are here to stay. For one, they can present cost and time savings: if the parties are nowhere near settling, there’s no need for counsel to fly around the country. Same thing if the parties are close to settling. But, in most cases, the parties don’t know where they stand ahead of time. And there is certainly less pressure, and less concentrated effort, in a remote setting, perhaps causing cases to take longer to resolve.
Remote mediations have other drawbacks. During an in-person mediation, insurers and their insureds often address case-specific issues and iron out (or at least surface) any disagreements. They also develop or renew professional relationships. Zoom presents far less opportunity for impromptu discussion and small talk. This is especially harmful to less experienced counsel who are trying to establish relationships of their own.
For these reasons, we hope that in-person mediations—at least for the most part—return in the near future.