Thursday, 17 February 2011
Delaware Court Approves a Poison Pill
Posted on 06:54 by Unknown
Wednesday, 16 February 2011
Two Important Securities Cases Accepted by Supreme Court
Posted on 09:37 by Unknown
The U.S. Supreme Court has agreed to hear two significant cases. The first, Matrix Initiatives Siracusano, No. 09-1158 presents a question regarding materiality. The complaint alleges that Matrixx made false statements about its product Zicam, a nasal spray. Product liability suits had been filed against the company.
Matrixx denied press reports discussing complaints about a loss of smell. A report of an FDA investigation was followed by a drop in the share price despite statements by the company that it was not aware of any such inquiry.
A shareholder complaint suit was filed alleging securities fraud based on claims that the denials of the company were false and misleading. The district court dismissed the complaint and held that adverse product reports regarding a loss of smell did not have to be disclosed because they were not material. The court based its decision on In re Carter-Wallace, Inc., 220 F.3d 36 (2nd Cir. 2000). That rule has also been adopted by the First and Third Circuits.
The Ninth Circuit reversed. Siracusano v. Matrixx Initiatives, Inc., 585 F/3d 1167 (9th Cir. 2009) Citing Basic v. Levinson, 485 U.S. 224 (1988) the Court rejected the statistically significant test used by the district court. Materiality, the court stated, is a question generally reserved for the fact finder. The question is whether the allegations are properly pleaded under the Private Securities Litigation Reform Act (“PSLRA”) and state a cause of action under Bell Atlantic Corp. v. Twombly, 550 U.S. 5543 (2007). The question before the Supreme Court is the test for materiality.
The second securities case focuses on the question of primary liability. Janus Capital Group v. First Derivative Traders, No. 09-525. Defendant Janus Capital Group, Inc. (“JCG”) is a publicly traded asset management firm. It sponsors the Janus Funds. Janus Capital Management LLC (“JCM”) is a wholly owned subsidiary of Janus Capital.
Plaintiffs claim that JCG and JCM violated Section 10(b) of the Securities Exchange Act on the ground that the prospectuses for the funds created the misleading impression that steps would be taken to curb market timing. In fact, the complaint claims there were secret agreements which permitted market timing. As a result, plaintiffs claim they purchased their shares at an inflated price. Following the revelation of the truth, the share price dropped.
The district court dismissed the complaint on the ground that the complaint did not contain any allegations that JCG actually made or prepared the prospectuses or that any of the statements were attributable to it. As to JCM, the court held that the investment adviser did not owe any duty to the shareholders of its parent company when they have not purchased shares of the mutual fund.
The 4th Circuit reversed. In re Mutual Funds Investment Litig., 556 F.3d 111 (4th Cir. 2009). The Court held that the defendants adequately alleged that defendants “made” the misleading statements and that they were properly attributed to JCM the court held.
The allegations as to JCG, however, are insufficient to state a claim for primary liability the court concluded. Its limited role here was not sufficient to cause interested investors to believe that JCG had prepared or approved the Janus fund prospectuses. The court did find that plaintiffs had adequately pleaded a claim for control person liability.
The question of primary liability in Janus traces back to the Supreme Court’s decision in Central Bank Of Denver, N.A. v. First Interstate Bank of Denver, N.A., 511 U.S. 164 (1994). There, the Court held that there is no liability for aiding and abetting under Section 10(b) Since that time the courts have struggled with the question of what constitutes primary liability. Congress restored aiding and abetting for the SEC in the Private Securities Litigation Reform Act but not for private actions. A decision in both cases will come by the end of June 2011.
Matrixx denied press reports discussing complaints about a loss of smell. A report of an FDA investigation was followed by a drop in the share price despite statements by the company that it was not aware of any such inquiry.
A shareholder complaint suit was filed alleging securities fraud based on claims that the denials of the company were false and misleading. The district court dismissed the complaint and held that adverse product reports regarding a loss of smell did not have to be disclosed because they were not material. The court based its decision on In re Carter-Wallace, Inc., 220 F.3d 36 (2nd Cir. 2000). That rule has also been adopted by the First and Third Circuits.
The Ninth Circuit reversed. Siracusano v. Matrixx Initiatives, Inc., 585 F/3d 1167 (9th Cir. 2009) Citing Basic v. Levinson, 485 U.S. 224 (1988) the Court rejected the statistically significant test used by the district court. Materiality, the court stated, is a question generally reserved for the fact finder. The question is whether the allegations are properly pleaded under the Private Securities Litigation Reform Act (“PSLRA”) and state a cause of action under Bell Atlantic Corp. v. Twombly, 550 U.S. 5543 (2007). The question before the Supreme Court is the test for materiality.
The second securities case focuses on the question of primary liability. Janus Capital Group v. First Derivative Traders, No. 09-525. Defendant Janus Capital Group, Inc. (“JCG”) is a publicly traded asset management firm. It sponsors the Janus Funds. Janus Capital Management LLC (“JCM”) is a wholly owned subsidiary of Janus Capital.
Plaintiffs claim that JCG and JCM violated Section 10(b) of the Securities Exchange Act on the ground that the prospectuses for the funds created the misleading impression that steps would be taken to curb market timing. In fact, the complaint claims there were secret agreements which permitted market timing. As a result, plaintiffs claim they purchased their shares at an inflated price. Following the revelation of the truth, the share price dropped.
The district court dismissed the complaint on the ground that the complaint did not contain any allegations that JCG actually made or prepared the prospectuses or that any of the statements were attributable to it. As to JCM, the court held that the investment adviser did not owe any duty to the shareholders of its parent company when they have not purchased shares of the mutual fund.
The 4th Circuit reversed. In re Mutual Funds Investment Litig., 556 F.3d 111 (4th Cir. 2009). The Court held that the defendants adequately alleged that defendants “made” the misleading statements and that they were properly attributed to JCM the court held.
The allegations as to JCG, however, are insufficient to state a claim for primary liability the court concluded. Its limited role here was not sufficient to cause interested investors to believe that JCG had prepared or approved the Janus fund prospectuses. The court did find that plaintiffs had adequately pleaded a claim for control person liability.
The question of primary liability in Janus traces back to the Supreme Court’s decision in Central Bank Of Denver, N.A. v. First Interstate Bank of Denver, N.A., 511 U.S. 164 (1994). There, the Court held that there is no liability for aiding and abetting under Section 10(b) Since that time the courts have struggled with the question of what constitutes primary liability. Congress restored aiding and abetting for the SEC in the Private Securities Litigation Reform Act but not for private actions. A decision in both cases will come by the end of June 2011.
Wednesday, 2 February 2011
Contract Law - Cryptic Promissory Note Is A Written Contract
Posted on 11:32 by Unknown
The case was captioned Kranzler v. Saltzman, 07 L 6809.
Kranzler loaned Saltman $100,000 on March 10, 1997. Saltzman signed a written "memo" that stated, "Loaned, to Lewis Saltzman $100,000 to be paid back with interest." Saltzman made partial payments, but did not pay the entire balance of the loan. Saltzman's last payment was dated July 5, 2005.
In November 2007, Kranzler sued Saltzman for breach of contract. The trial court found in favor of Kranzler and entered a judgment in his favor in the amount of $81,344.12.
Saltzman appealed on several grounds. Saltzman argued that the lawsuit was governed by the five year statute that applies to unwritten contracts (735 ILCS 5/13-205). Kranzler argued that the applicable statute of limitation was the ten year statute which applies to written contracts (735 ILCS 5/13-206).
The Court concluded that the promissory note was a written contract. Under Illinois law, "where the writings attached to the complaint do not contain the essential terms of the contract, even if the essential terms may be easily ascertained elsewhere, the contract is not written but oral." Clark v. Western Union Telegraph Co., 141 Ill. App. 3d 174, 176 (1986). A writing is considered "complete" "when the language of the instrument may fairly be construed to contain a promise to pay money or contains facts from which the law implies a promise to pay, so long as parol evidence is not necessary to establish any essential elements." Toth v. Mansell, 207 Ill. App. 3d 665, 670 (1990).
The required elements to prove a promise to pay are "(1) the parties to the agreement, (2) the nature of the transaction, (3) the amount in question, and (4) at least a reasonable implication of an intention to repay the debt." In re Estate of Garrett, 24 Ill. App. 895 (1975).
The Court found the instrument contained all of the required elements to establish a promise to pay under Illinois law.
The Court also held that the statute of limitations began to run on the date of the last payment made on the debt. The statute began to run when a payment is due but remains unpaid. Thus, the lawsuit was timely.
Comment: the defendant's position was unsympathetic. The defendant wanted to be excused from the obligation based on the statute of limitations. Furthermore, the case shows that even crude and simple documentation can be sufficient to provide a creditor with legally enforceable rights. Plaintiff would have been better to hire a lawyer, but his own simple note was enforceable.
Edward X. Clinton, Jr.
Kranzler loaned Saltman $100,000 on March 10, 1997. Saltzman signed a written "memo" that stated, "Loaned, to Lewis Saltzman $100,000 to be paid back with interest." Saltzman made partial payments, but did not pay the entire balance of the loan. Saltzman's last payment was dated July 5, 2005.
In November 2007, Kranzler sued Saltzman for breach of contract. The trial court found in favor of Kranzler and entered a judgment in his favor in the amount of $81,344.12.
Saltzman appealed on several grounds. Saltzman argued that the lawsuit was governed by the five year statute that applies to unwritten contracts (735 ILCS 5/13-205). Kranzler argued that the applicable statute of limitation was the ten year statute which applies to written contracts (735 ILCS 5/13-206).
The Court concluded that the promissory note was a written contract. Under Illinois law, "where the writings attached to the complaint do not contain the essential terms of the contract, even if the essential terms may be easily ascertained elsewhere, the contract is not written but oral." Clark v. Western Union Telegraph Co., 141 Ill. App. 3d 174, 176 (1986). A writing is considered "complete" "when the language of the instrument may fairly be construed to contain a promise to pay money or contains facts from which the law implies a promise to pay, so long as parol evidence is not necessary to establish any essential elements." Toth v. Mansell, 207 Ill. App. 3d 665, 670 (1990).
The required elements to prove a promise to pay are "(1) the parties to the agreement, (2) the nature of the transaction, (3) the amount in question, and (4) at least a reasonable implication of an intention to repay the debt." In re Estate of Garrett, 24 Ill. App. 895 (1975).
The Court found the instrument contained all of the required elements to establish a promise to pay under Illinois law.
The Court also held that the statute of limitations began to run on the date of the last payment made on the debt. The statute began to run when a payment is due but remains unpaid. Thus, the lawsuit was timely.
Comment: the defendant's position was unsympathetic. The defendant wanted to be excused from the obligation based on the statute of limitations. Furthermore, the case shows that even crude and simple documentation can be sufficient to provide a creditor with legally enforceable rights. Plaintiff would have been better to hire a lawyer, but his own simple note was enforceable.
Edward X. Clinton, Jr.
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