SEC Prevails (For Now) in Controversial “Shadow Trading” Case

In a first of its kind trial, the Securities and Exchange Commission (SEC) has convinced a federal jury in San Francisco to find a former executive of a pharmaceutical company liable for illegal insider trading for purchasing stock options in another pharmaceutical company after he allegedly learned that his own company would be acquired, in an example of what has become known as the SEC’s controversial “shadow trading” theory.  Shadow trading is typically defined as when an employee uses confidential information about his own company to purchase stock in another company that is not involved in any transaction with the employee’s company.  

In SEC v. Panuwat, No. 21-cv-06322-WHO, pending before Judge William Orrick III, in the U.S. District Court for the Northern District of California, the SEC alleged that Matthew Panuwat, a senior director of business development at Medivation, Inc., a mid-sized oncology-focused pharmaceutical company headquartered in San Francisco, purchased 578 call option contracts in another mid-sized pharmaceutical company, Incyte Corporation, minutes after Panuwat received an email from Medivation’s CEO stating that Pfizer, Inc. was likely to acquire Medivation.  The SEC asserted that Panuwat made $107,00 in trading profits after Medivation’s acquisition became public.  The jury took only several hours on April 5 to find that the SEC had proved by a preponderance of the evidence that Panuwat had violated the federal securities laws by misappropriating material, nonpublic information in violation of a duty owed to his employer to not profit by the use of confidential information.

Panuwat argued that the SEC had failed to plead and prove that the information at issue was material and nonpublic; that Panuwat breached any duty owed to Medivation; and that he acted with an intent to defraud, or scienter.  But he also contended (supported by many in the defense bar) that the SEC was employing a novel application of the misappropriation theory that improperly expanded the law and violated his rights.  According to Panuwat, information that may have been material to Medivation could not have been material to Incyte. The SEC, by contrast, argued that the action concerned the standard application of the misappropriation theory of insider trading, upheld by the Supreme Court in U.S. v. O’Hagan, 521 U.S. 642 (1997). The SEC asserted that information about the potential acquisition of Medivation was material to both Medivation and Incyte because the information would be viewed by a reasonable investor as significantly altering the total mix of information concerning both companies. Prior to the trial, Judge Orrick denied Panuwat’s motion to dismiss and for summary judgment.  Panuwat may ask Judge Orrick to set aside the verdict.  If such a motion does not succeed and there is no settlement, it is likely that the Ninth Circuit Court of Appeals and even the Supreme Court will be asked to evaluate the outer limits of insider trading liability.

The verdict should alert companies to update their insider trading policies to make clear that employees may not use confidential information to trade in the securities of another company if the information is material to that company’s securities.

There is no provision in the federal securities laws that defines or expressly prohibits insider trading.  Rather, the SEC brings actions under Section 10(b) of the Securities Exchange Act and Rule 10b-5 thereunder, the basic antifraud provisions of the securities laws.  To support a Section 10(b) claim, the SEC must show by a preponderance of the evidence that the person traded while in possession of material, nonpublic information and that the person acted with scienter.

Insider trading generally is divided into two categories.  The so-called “classical” theory occurs when an employee trades in his own company’s stock while in possession of material nonpublic information.  The “misappropriation” theory, sustained in the O’Hagan decision, applies when a person trades in the securities of another company while in possession of material, nonpublic information obtained from a person or entity to whom the person owed a duty of trust and confidentiality. A securities trader is liable if he “knowingly misappropriated confidential, material, and nonpublic information for securities trading purposes, in breach of a duty arising from a relationship of trust and confidence owed to the source of the information.” SEC v. Talbot, 530 F.3d 1085, 1092 (9th Cir. 2008).

The misappropriation theory typically has been used, for example, to charge employees of a company making an acquisition who used confidential information to purchase stock of the target company, or individuals  who misused confidential information obtained from their spouse. SEC Rule 10b5-2 also sets forth when a duty of trust or confidence exists for purposes of the misappropriation theory.  

The SEC alleged that Panuwat was responsible for finding, evaluating and pursuing acquisition possibilities for Medivation, and therefore was aware of developments in the pharmaceutical industry.  In March 2016, Medivation was approached by an unsolicited offer to purchase the company, which resulted in a months-long sales process.  Panuwat purportedly was aware that Incyte was a comparable, mid-sized oncology-focused company.  Panuwat was privy to confidential information about the sales process, and having signed the company’s insider trading policy, knew he could not trade in the securities of another company based on confidential corporate information. On August 18, 2016, Medivation’s CEO sent an email to company executives, including Panuwat, indicating that Pfizer had “overwhelming interest” in acquiring Medivation and would shortly resolve final details concerning the acquisition.  According to the SEC, seven minutes after receiving the email, Panuwat purchased the Incyte call options with a short expiration date, although he never previously had traded in Incyte stock or options. The jury presumably concluded that Panuwat’s actions showed that he believed that the information was material to Incyte; Panuwat testified that he wasn’t even sure that he saw the CEO’s email.  Panuwat profited by selling his stock after Incyte’s stock price rose by 7.7% when the Medivation acquisition was publicly disclosed.

Panuwat argued that information about the Pfizer-Medivation was not material to Incyte and that he had no material nonpublic information concerning Incyte. He also contended that he did not breach any duty owed to Medivation because the insider trading policy did not prohibit him from trading in Incyte securities.  Panuwat also asserted that he did not act with scienter because he did not actually use any material nonpublic information in deciding to purchase Incyte options.  These arguments were rejected by the court and presumably by the jury.

Judge Orrick, in rejecting Panuwat’s motion for summary judgment, held that the SEC’s theory of liability fell within the general framework of insider trading, as well as the “expansive language” of Section 10(b) and corresponding regulations. The court stated that:

“Whether information about an acquisition of Company A is material to Company B (or Company C, D, or E) will depend on any number of factors, as established in [the case law]. If those factors are not met, the information will not be material and the trader will not be liable. And if the information is material, the trader will not be liable unless he acted with the requisite intent to defraud. An ordinary trader understands that buying or selling securities with such an intent is prohibited by law. So long as the trader does not act with scienter, he will not be liable for insider trading.”

Having triumphed in this action, the SEC will be eager to pursue the shadow trading theory in other cases. It remains to be seen whether the result in Panuwat will be sustained by appellate courts and/or followed by other district courts.

For more information regarding Alto Litigation’s litigation practice, please contact one of Alto Litigation’s partners: Bahram Seyedin-Noor, Bryan Ketroser, or Joshua Korr.

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Disclaimer: Materials on this website are for informational purposes only and do not constitute legal advice. Transmission of materials and information on this website is not intended to create, and their receipt does not constitute, an attorney-client relationship. Although you may send us email or call us, we cannot represent you until we have determined that doing so will not create a conflict of interests. Accordingly, if you choose to communicate with us in connection with a matter in which we do not already represent you, you should not send us confidential or sensitive information, because such communication will not be treated as privileged or confidential. We can only serve as your attorney if both you and we agree, in writing, that we will do so.

The materials on this website are not intended to constitute advertising or solicitation. However, portions of this website may be considered attorney advertising in some states.

Unless otherwise specified, the attorneys listed on this website are admitted to practice in the State of California.

Supreme Court Rejects Securities Claims Based on “Pure Omissions”

A unanimous Supreme Court has rejected private stockholder claims based on the antifraud provisions of the federal securities laws for a company’s failure to comply with SEC disclosure requirements, in the absence of an affirmative statement that was rendered materially misleading by the omission.  Reversing and remanding a lower court’s decision, the Court, also resolving a split among the Circuit Courts of Appeal, ruled that a “pure omission” of information – even disclosure mandated by SEC regulations - does not violate SEC Rule 10b-5(b) because the Rule prohibits only affirmative misstatements and omissions that create “half-truths”.  In colorful, if not necessarily illuminating language, the Court observed that the difference between a pure omission and a half-truth “is the difference between a child not telling his parents he ate a whole cake and telling them he had dessert.” 

In Macquarie Infrastructure Corp. v. Moab Partners, L.P., No. 22-1165 (April 12, 2024), Macquarie owned and operated infrastructure-related businesses, including a subsidiary that operated bulk liquid storage terminals, including No. 6 fuel oil, a high-sulfur byproduct of the refining process. In 2016, the United Nations International Maritime Organization formally adopted IMO 2020, a regulation that in four years would limit the sulfur content of fuel oil used in shipping at 0.5% compared to the 3% sulfur content in No. 6 fuel oil.  Macquarie did not discuss the potential impact of IMO 2020 in its public filings. In 2018, however, Macquarie’s disclosure that the amount of storage capacity contracted for by a subsidiary’s customers had sharply declined due to changes in the No. 6 fuel oil market resulted in a 41% stock price drop.

Moab Partners, a stockholder, filed an action alleging that Macquarie and certain officer defendants violated Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 by failing to satisfy the disclosure requirements under Item 303 of SEC Regulation S-K, which sets forth the disclosure obligations of public companies in periodic reports filed with the SEC.  Item 303 requires a public company to provide its Management Discussion and Analysis, which, among other things, requires disclosure of any “known trends . . .  or uncertainties” that were known to or reasonably likely to have material effects on the company’s financial condition and operations. Moab alleged that defendants’ failure to disclose the potential financial impact of IM0 2020 violated Item 303 which in turn provided a basis for the Rule 10b-5 claim.  The district court dismissed the complaint, but the Second Circuit Court of Appeals reversed, citing binding precedent in holding that a violation of Item 303 alone could sustain a Rule 10b-5 claim. By contrast, other Circuit Courts, including the Ninth Circuit, have held that Item 303 by itself does not create a duty of disclosure for purposes of Rule 10b-5.

Justice Sotomayor, writing for the Court, observed that Rule 10b-5(b) makes it unlawful to make any untrue statement of a material fact “or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading.” The Rule prohibits false statements, lies, and half-truths, but not “pure omissions.”

A pure omission occurs “when a speaker says nothing, in circumstances that do not give any particular meaning to that silence.”  For example, if a company failed entirely to file an MD&A, the omission has no particular significance because nothing was disclosed. Half-truths, however, are representations “that state the truth only so far as it goes, while omitting critical qualifying information.” A classic example would be a seller who discloses that there may be two new roads near a property he is selling but fails to disclose that a third potential road might bisect the property. Or, as noted above, the child who tells his parents only that he had dessert but fails to disclose that he ate the whole cake.

Rule 10b-5(b) by its very text prohibits half-truths, but not pure omissions.  By contrast, Section 11(a) of the Securities Act of 1933 prohibits any registration statement for a public offering that, among other things, omits “to state a material fact required to be stated therein.” Thus, Section 11 creates liability for failure to speak on a subject while Rule 10b-5(b) lacks similar language.  “Silence, absent a duty to disclose, is not misleading under Rule 10b-5.” Basic, Inc. v. Levinson, 485 U.S. 224, 239 n.17 (1988).  But, the Court held, even a duty to disclose does not automatically render silence misleading under Rule 10b-5(b).  “Today, this Court confirms that the failure to disclose information required by Item 303 can support a Rule 10b-5(b) claim only if the omission renders affirmative statements made misleading.”

The Court swatted away the argument by Moab and the U.S. Solicitor General that a plaintiff need not plead any misleading statements rendered misleading by a pure omission because reasonable investors know that Item 303 requires disclosure of all known trends and uncertainties.  Such an interpretation would read the “statements made” language out of Rule 10b-5(b) and shift the focus of the Rule and Section 10(b) from fraud to disclosure, while rendering superfluous Section 11(a)’s pure omission clause.  Nor would eliminating private liability for pure omissions create broad immunity for a company’s fraudulent failure to satisfy Congressional and SEC disclosure requirements. A plaintiff can always bring claims based on violations that create half-truths and the SEC still has the ability to prosecute violations of its own regulations.

One final note: the Court’s analysis centers on the text of Rule 10b-5(b). It remains to be seen whether a pure omission of a material fact still might support liability under the “scheme liability” provisions of Rule 10b-5(a) and (c).  It also remains to be seen whether the identical analysis applies to disclosure requirements for proxies and tender offer filings.

For more information regarding Alto Litigation’s litigation practice, please contact one of Alto Litigation’s partners: Bahram Seyedin-Noor, Bryan Ketroser, or Joshua Korr.

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Disclaimer: Materials on this website are for informational purposes only and do not constitute legal advice. Transmission of materials and information on this website is not intended to create, and their receipt does not constitute, an attorney-client relationship. Although you may send us email or call us, we cannot represent you until we have determined that doing so will not create a conflict of interests. Accordingly, if you choose to communicate with us in connection with a matter in which we do not already represent you, you should not send us confidential or sensitive information, because such communication will not be treated as privileged or confidential. We can only serve as your attorney if both you and we agree, in writing, that we will do so.

The materials on this website are not intended to constitute advertising or solicitation. However, portions of this website may be considered attorney advertising in some states.

Unless otherwise specified, the attorneys listed on this website are admitted to practice in the State of California.

Delaware Chancery Court Examines Special Litigation Committee

The creation of a Special Litigation Committee (“SLC”) is a useful device for a corporation to address and dispose of litigation accusing the corporation and/or corporate insiders of misconduct.  A recent decision by the Delaware Chancery Court provides significant guidance on the requirements for an SLC’s recommendation to dismiss litigation to pass muster with the court.  In particular, the Chancery Court emphasized that an SLC’s investigation and decision-making must be reasonable, not perfect. 

The Chancery Court’s decision in In re Carvana Co. Stockholders Litigation, No. 2020-0415-KSJM (Del. Ch. Mar. 27, 2024), arose from a direct stock offering by Carvana, an online used car retailer, in March 2020. The two controlling stockholders, Ernest Garcia II and Ernest Garcia III, participated in the offering and Garcia II later sold over $1 billion of his shares.  The plaintiff-stockholder filed a derivative action on behalf of the company against the Garcias for breach of fiduciary duty, alleging that they enriched themselves through the offering by acquiring shares at a depressed price. 

After Chancellor Kathaleen St. J. McCormick denied the defendants’ motion to dismiss, the Board of Directors formed a two-person SLC, which conducted a seven-month investigation, reviewing over 100,000 documents and interviewing 16 witnesses. The SLC retained outside counsel and an investment banker to assist the investigation. The SLC concluded in a 170-page report that no wrongdoing occurred and that terminating the lawsuit was in the company’s best interests.  The SLC then moved to dismiss the lawsuit. 

The Court evaluated the SLC’s motion to dismiss under Zapata v. Maldonado, 430 A. 2d 779 (Del. 1981). Under Zapata, the SLC first has the burden of proving its independence and that it acted in good faith in conducting an investigation of reasonable scope that provided a reasonable basis for its conclusion. The court then applies its own business judgment in determining whether the SLC’s recommendation falls within a range of reasonable outcomes that a disinterested and independent decision maker for the corporation could reasonably accept. 

Independence of SLC Members 

Plaintiffs’ opposition to the SLC’s motion to dismiss challenged the independence of the SLC members, Michael Maroone and Neha Parikh.  Plaintiffs asserted that these directors were not independent because they voted to approve the direct offering transaction and discussed the motion to dismiss the underlying lawsuit.  But a director’s approval of a transaction does not establish the director’s inability to impartially consider the merits of the transaction at a later time.  And because the Board did not vote on filing the motion to dismiss, the SLC members did not participate in a substantive manner in the decision to file the motion.  Nor was their independence compromised because they considered management’s recommendation on the choice for outside counsel or because they were named as defendants in lawsuits filed after the direct offering transaction. 

Investigation Was Reasonable and Good Faith 

The  SLC bears the burden of proving that it acted in good faith and conducted a reasonable investigation.  First, plaintiffs argued that the SLC relied too much on the work of outside counsel.  But the court held that reliance on independent, competent outside counsel was typical and reasonable.  A key fact for the court was that the SLC members met formally nine times and informally many times; participated in decisions regarding document collection and other matters; and attended critical witness interviews.  The SLC members’  lack of memory concerning details of the investigation was not relevant because “that is why humans write things down.”  The SLC’s report was exhaustive, well-documented and included the relevant facts.  Although Maroone expressed a lack of enthusiasm about serving on the SLC and described it as a “part-time responsibility,” there was no evidence that such views compromised his diligence.  The failure to collect text messages from some individuals paled in comparison to the extensive document collection.  In summary, the record amply demonstrated the SLC’s good faith efforts to thoroughly investigate the allegations through a reasonable interview process. 

Scope 

The court rejected plaintiffs’ contention that the SLC failed sufficiently to consider Garcia II’s stock sales.  The SLC found that there was no basis for knowing that Carvana’s stock price would increase after the stock offering and the stock that Garcia II sold was not purchased in the offering but came from stock he had owned since Carvana’s initial public offering.  The investment bank retained by the SLC found that there was sufficient liquidity and volume to allow non-participating Carvana stockholders to purchase shares.  The investment bank concluded that the economic dilution suffered by the Garcias far outweighed any benefit they received from the offering and in fact they were diluted more than any other stockholder on an absolute dollar basis.  The SLC investigated the conduct of two directors and found that although neither were independent as a matter of law, they acted properly with respect to the stock offering. Other flaws alleged by plaintiffs were minimal and did not affect the SLC’s conclusions. 

In short, the SLC met its burden and established that its conclusions were the product of a good faith, reasonable investigation.  Plaintiffs failed to raise a genuine question of material fact as to the thoroughness of the investigation, the reasonableness of the scope or the reasonableness of the SLC’s conclusions. 

The Court’s Examination 

The court’s task in exercising its own business judgment was “to determine whether the SLC’s recommended result falls within a range of reasonable outcomes that a disinterested and independent decision maker for the corporation, not acting under any compulsion and with the benefit of the information then available, could reasonably accept.”  The court concluded that based on that standard, it accepted the SLC’s recommendation to dismiss the derivative action.  

Conclusion 

The Carvana decision illustrates how an SLC, if utilized properly, provides a basis for dismissing a derivative action. But it is essential that certain fundamental principles be followed: the SLC members must be independent; competent outside counsel (and an investment bank, if needed) should be retained; the SLC members should actively participate in the investigation; all important issues should be investigated; the findings and conclusions should be well-documented; and the SLC’s conclusions must have a reasonable basis. 

For more information regarding Alto Litigation’s litigation practice, please contact one of Alto Litigation’s partners: Bahram Seyedin-Noor, Bryan Ketroser, or Joshua Korr.

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Disclaimer: Materials on this website are for informational purposes only and do not constitute legal advice. Transmission of materials and information on this website is not intended to create, and their receipt does not constitute, an attorney-client relationship. Although you may send us email or call us, we cannot represent you until we have determined that doing so will not create a conflict of interests. Accordingly, if you choose to communicate with us in connection with a matter in which we do not already represent you, you should not send us confidential or sensitive information, because such communication will not be treated as privileged or confidential. We can only serve as your attorney if both you and we agree, in writing, that we will do so.

The materials on this website are not intended to constitute advertising or solicitation. However, portions of this website may be considered attorney advertising in some states.

Unless otherwise specified, the attorneys listed on this website are admitted to practice in the State of California.

S.D. Cal. Refuses to Dismiss First Prosecution of Insider Trades Pursuant to a 10b5-1 Plan

SEC Rule 10b5-1 provides an affirmative defense to corporate officers, directors, and companies for trading in their company’s stock. To be eligible for the defense, the officer, director or company must establish a public trading plan that sets forth predetermined dates, prices and amounts for buying, selling or hedging stock. Once the plan is created, stock transactions will occur automatically based on the details of the plan, and the plan will provide a defense against accusations of illegal insider trading.   

But there is a catch. The 10b5-1 plan must be adopted at a time when the insider does not have possession of material nonpublic information about the company. The failure to adhere to this essential legal requirement resulted in the first criminal prosecution for insider trading based on the allegedly corrupt use of a 10b5-1 plan – charges that a federal judge recently refused to dismiss. 

In March 2023, the U.S. Department of Justice brought criminal charges against Terren Peizer, the former Chief Executive Officer and Chairman of Ontrak, Inc., a Los Angeles-based company that uses artificial intelligence and telehealth to treat behavioral health conditions. The first-of-its kind indictment charged Peizer with entering into two 10b5-1 plans and then selling 600,000 shares of stock while knowing that Cigna Group, Ontrak’s leading customer, planned to terminate a major contract to provide health care for chronically ill patients. Peizer’s stock sales allegedly enabled him to avoid $12.7 million in market losses after the stock price fell by 44% after the announcement of the contract termination. In bringing the indictment, Assistant Attorney General Kenneth A. Polite, Jr., stated that “Today’s groundbreaking insider trading indictment demonstrates that the Department of Justice, together with our law enforcement partners, will not allow corrupt executives to misuse 10b5-1 plans as a shield for insider trading.”  

After a superseding indictment was filed in January 2024, Peizer moved to dismiss, asserting that the government had not sufficiently alleged that he possessed and used nonpublic information. But U.S. District Judge Dale S. Fischer in Los Angeles held in a March 7, 2024, ruling that the indictment specified numerous nonpublic facts that a “reasonable investor would consider important in deciding whether or not to trade in Ontrak securities.” 

The prosecution charged that in March 2021, Peizer stepped down as CEO of Ontrak and became the Executive Chairman and Chairman of the Board of Directors. But despite the change in title, Peizer still received nonpublic information about customer relationships, including the fact that Cigna was raising numerous issues concerning its relationship with Ontrak and that the Cigna contract was at serious risk of being terminated. Peizer allegedly knew that losing Cigna would seriously affect Ontrak’s stock price, particularly after the price plummeted by 46% in February 2021 when Ontrak announced the loss of Aetna, its then-largest customer. At a May 18, 2021meeting, Cigna informed Ontrak of its intent to terminate its contract by year-end. 

On May 4, 2021, eight days before the meeting with Cigna, and when he allegedly had been expressing concern to Ontrak’s CEO and a consultant that the Cigna contract would be terminated, Peizer contacted a broker to establish a 10b5-1 plan to sell $19 million in stock, although he had sold stock only twice since 2003. After learning that the broker would require a “cooling-off period” before he could sell stock, Peizer allegedly went to a different broker, who although not requiring a cooling-off period, recommended that Peizer refrain from selling stock for 30 days, a proposal that Peizer rejected.  

To enter into the 10b5-1 plan, Peizer allegedly falsely certified that he did not possess material nonpublic information. After the 10b5-1 plan was adopted on May 11, 2021, Peizer exercised 686,000 stock warrants and began selling those shares. 

On August 13, 2021, Peizer allegedly learned from a senior executive that Cigna appeared ready to terminate its contract. One hour after this call, Peizer allegedly entered into a second 10b5-1 plan, again falsely stating that he did not possess material nonpublic information. Peizer sold approximately 45,000 shares of Ontrak stock over the next three days before Ontrak announced on August 19, 2021, that Cigna had terminated its contract, resulting in the steep stock price decline. 

Peizer’s motion to dismiss argued that he did not enter into the 10b5-1 plans while possessing material nonpublic information about Cigna. He asserted that on May 6, 2021, and on August 5, 2021, prior to the implementation of his trading plans, Ontrak made filings with the SEC that disclosed all material information about the Cigna relationship. Peizer argued that these filings – a quarterly report and a Form 8-K report – publicly disclosed that Ontrak might not be able to keep key customers, that losing these customers would materially harm the company, and that it expected a smaller budget and more limited expansion. The August disclosure, Peizer argued, disclosed a reduced forecasted gross margin because the company had made a revised proposal to Cigna that would negatively impact Ontrak’s margins. Peizer also argued that Ontrak’s compliance professionals reviewed and approved his 10b5-1 plans. 

Judge Fischer rejected these arguments. First, the court held that it could not take judicial notice of SEC filings and that only the face of the indictment could be considered (unlike in a civil case, where SEC filings might be incorporated by reference into the complaint). Second, the court held that the indictment “clearly and directly” alleged an intent to defraud, despite Peizer’s argument that intent was inadequately pled. Finally, in response to Peizer’s argument that the government had not showed how he “used” any nonpublic information, the court that “[T]his is obviously not true, as the [indictment] provided extensive detail regarding Defendant’s trades that were allegedly made based on his knowledge of nonpublic information.” 

Peizer contended that the government had not clearly stated its theory of liability because its description of the material nonpublic information that he allegedly possessed was “ambiguous.” But the court held that “it should go without saying that [the information] is not ambiguous in context” and the government’s theory of liability was based on the specific information described in the indictment. 

In December 2022, the SEC adopted amendments to Rule 10b5-1 that could have prevented Peizer’s trading. The most important amendment was to require a cooling-off period for officers and directors of the later of 90 days following the modification or adoption of the 10b5-1 plan or two days following disclosure in periodic reports for the quarter in which the plan was adopted or modified. Under the revised rule, if Peizer filed his 10b5-1 plan on May 11, 2021, he would have been able to sell stock prior to the August 19, 2021 announcement of the Cigna contract termination—but not until August 9, 2021, after the cooling-off period. In addition, because a cooling-off period would still be in place, he would not have been able to sell immediately after filing his August 13, 2021 10b5-1 plan. Of course, he could have still sold stock outside of a 10b5-1 plan, but that still would have been illegal insider trading if he was aware of Cigna’s plans.  Also, the amendments restrict the use of multiple overlapping trading plans and limit the ability to rely on the affirmative defense for a single-trade plan to one single trade plan for all persons other than the company.  

The SEC’s revised rule was intended to prevent the kind of abuse of 10b5-1 plans for which Peizer is being prosecuted. Nonetheless, officers and directors, and a company’s inside and outside counsel, must carefully monitor trading under 10b5-1 plans to ensure compliance with legal requirements and to avoid potential liability. 

For more information regarding Alto Litigation’s litigation practice, please contact one of Alto Litigation’s partners: Bahram Seyedin-Noor, Bryan Ketroser, or Joshua Korr.

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Disclaimer: Materials on this website are for informational purposes only and do not constitute legal advice. Transmission of materials and information on this website is not intended to create, and their receipt does not constitute, an attorney-client relationship. Although you may send us email or call us, we cannot represent you until we have determined that doing so will not create a conflict of interests. Accordingly, if you choose to communicate with us in connection with a matter in which we do not already represent you, you should not send us confidential or sensitive information, because such communication will not be treated as privileged or confidential. We can only serve as your attorney if both you and we agree, in writing, that we will do so.

The materials on this website are not intended to constitute advertising or solicitation. However, portions of this website may be considered attorney advertising in some states.

Unless otherwise specified, the attorneys listed on this website are admitted to practice in the State of California.

Negligent Misrepresentation Claims Can’t Be Based on Opinions – Or Can They?

We all “know” that statements of opinion are not actionable … right?

Not so fast.  It is true that claims for defamation and intentional misrepresentation require misstatements of fact, and an opinion need not be supported by facts.  But not all opinions are equal, and certain classes of speakers must exercise due care to prevent their conclusions from harming to reasonably foreseeable audiences.    

California’s Negligent Misrepresentation Law

In California, negligent misrepresentation is a form of deceit: “The assertion, as a fact, of that which is not true, by one who has no reasonable ground for believing it to be true.”  Cal. Civ. Code § 1710(2).

Generally, an actionable statement must be an assertion of fact.  “A representation is an opinion “‘if it expresses only (a) the belief of the maker, without certainty, as to the existence of a fact; or (b) his judgment as to quality, value … or other matters of judgment.’” “ Graham v. Bank of America, N.A., 226 Cal. App. 4th 594, 606-607 (2014) (internal citations omitted).  An opinion of property value, for example, is “quintessentially a matter of opinion, not a statement of fact.”  Neu-Visions Sports, Inc. v. Soren/McAdam/Bartells, 86 Cal. App. 4th 303, 310 (2000).  

Opinions may be actionable misstatements of fact in three circumstances: “(1) where a party holds himself out to be specially qualified and the other party is so situated that he may reasonably rely upon the former’s superior knowledge; (2) where the opinion is by a fiduciary or other trusted person; (3) where a party states his opinion as an existing fact or as implying facts which justify a belief in the truth of the opinion.’” Borba v. Thomas, 70 Cal. App. 3d 144, 152 (1977) (internal citations omitted).  

“Whether a statement is nonactionable opinion or actionable misrepresentation of a fact is a question of fact for the jury.”  Furla v. Jon Douglas Co., 65 Cal. App. 4th 1069, 1080-1081 (1998).  

The Speaker’s Superior Knowledge

In Cohen v. S & S Construction Co., 151 Cal. App. 3d 941 (1983), plaintiffs paid a premium to purchase their property lots upon the sales agent’s assurances that the applicable Declaration of Covenants, Conditions and Restrictions protected the view and prevented the neighbors from building obstructions of plaintiffs’ view (spoiler alert: it did not).  The tract developer authored the Declaration, controlled the governing Association’s board of directors, and employed the sales agent who made the misrepresentation to plaintiffs.  

Although the defendants argued the sales agent’s statements were nonactionable opinion, the Court of Appeal for the Fourth District reversed the trial court’s dismissal of plaintiffs’ cause of action for negligent misrepresentation for two reasons relating to the first Borba factor: (1) the developer held themselves out to the public as “experts in establishing and administering homeowner associations and maintaining the aesthetic integrity of their developments,” and (2) the sales agent who worked for the developer was in a position to know facts accessible only to him or his principal.  151 Cal. App. 3d at 946.

The Negligence in Negligent Misrepresentation

A corporation commissioned its attorneys and an accounting firm to prepare confidential offering memoranda (COM) to share with prospective investors in the corporation’s limited partnerships.  The COMs included financial forecasts and projected a return of 16 to 19 percent over a six-year period.  The reports summarized the assumptions and accounting policies supporting the forecasts and warned that the investment “involved a high degree of risk and should be made only by investors who could afford a total loss of their contributions.”  Anderson v. Deloitte & Touche, 56 Cal. App. 4th 1468, 1472 (1997).  

Plaintiffs brought suit after the limited partnerships filed chapter 11 bankruptcy petitions.  Plaintiffs’ expert opined that the accounting firm failed to conduct its examination of the corporation’s forecasts according to applicable accounting guidelines.  Anderson, 56 Cal. App. at 1475.  The trial court granted summary judgment in favor of the defendant accounting firm.  

In reversing the trial court, the Court of Appeal for the First District  emphasized that ostensible statements of opinion may be actionable assertions of fact where the speaker does not speak with due care: “If the acts or conduct of a professional accountant performed in preparation for an audit or representation fall below the applicable standard of care for the profession, in that the accountant failed to examine or acquire the necessary information required to support the accountant's professional opinion disseminated to potential investors, the opinion is made without a reasonable ground for believing it to be true … When a statement, although in the form of an opinion, constitutes “ ‘a deliberate affirmation of the matters stated’ ” … as occurred here, “it may be regarded as a positive assertion of fact.”  Anderson v. Deloitte & Touche 56 Cal.App.4th 1468, 1477 (1997) (internal citations omitted).  

Know Your (Foreseeable) Audience

Accountants are regularly hired by clients to prepare independent audits and reports on the client’s businesses.  But who is the intended audience of those reports: the clients who commissioned them, or third parties who may rely on the reports to their detriment?  As to the third parties: It Depends.

In Bily v. Arthur Young & Co., 3 Cal. 4th 370 (1992) the California Supreme Court affirmed that “Under certain circumstances, expressions of professional opinion are treated as representations of fact.  When a statement, although in the form of an opinion, is ‘not a casual expression of belief’ but ‘a deliberate affirmation of the matters stated,’ it may be regarded as a positive assertion of fact.”  Bily, 3 Cal. 4th at 408, quoting Gagne v. Bertran, 43 Cal. 2d 481, 489 (1954).  

The Bily court next considered whether third parties may rely on such opinions, and whether the speaker could be liable to those third parties.  The “‘class of persons entitled to reply upon the representation is restricted to those to whom or for whom the misrepresentations were made.  Even though the defendant should have anticipated that the misinformation might reach others, he is not liable to them.’”  Bily v. Arthur Young & Co., 3 Cal. 4th 370, 408 (1992) (internal citations omitted).  The Court endorsed the approach of Restatement Second of Torts section 552(b), which “creates an objective standard that looks to the specific circumstances…to ascertain whether a supplier has undertaken to inform and guide a third party with respect to an identified transaction or type of transaction.”  Bily, 3 Cal. 4th at 410.  “If such a specific undertaking has been made, liability is imposed on the supplier.  If, on the other hand, the supplier ‘merely knows of the ever-present possibility of repetition to anyone, and the possibility of action in reliance upon [the information] on the part of anyone to whom it may be repeated,’ the supplier bears no legal responsibility.”  Id. (internal citations omitted).

Conclusion

Opinions can be complicated things – a combination of beliefs, impressions, judgments … and a suggestion of the facts that support these.  While an opinion may not expose its speaker to liability for intentional fraud, speakers should exercise due care to ensure their audience is not harmed by their statements, even if couched as an opinion.  And this care should extend not only to the immediate audience, but also to those who will foreseeably rely on the speaker’s representation.

For more information regarding Alto Litigation’s litigation practice, please contact one of Alto Litigation’s partners: Bahram Seyedin-Noor, Bryan Ketroser, or Joshua Korr.

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Disclaimer: Materials on this website are for informational purposes only and do not constitute legal advice. Transmission of materials and information on this website is not intended to create, and their receipt does not constitute, an attorney-client relationship. Although you may send us email or call us, we cannot represent you until we have determined that doing so will not create a conflict of interests. Accordingly, if you choose to communicate with us in connection with a matter in which we do not already represent you, you should not send us confidential or sensitive information, because such communication will not be treated as privileged or confidential. We can only serve as your attorney if both you and we agree, in writing, that we will do so.

The materials on this website are not intended to constitute advertising or solicitation. However, portions of this website may be considered attorney advertising in some states.

Unless otherwise specified, the attorneys listed on this website are admitted to practice in the State of California.

New Developments in Crypto Litigation

In the unpredictable world of cryptocurrency, there is one thing you can almost certainly count on: new and notable developments in crypto litigation and SEC enforcement.

Coinbase and the SEC Continue to Slug it Out in Court

In June 2023, the Securities Exchange Commission (“SEC”) filed a lawsuit in the U.S. District Court for the Southern District of New York alleging that Coinbase evaded securities regulations by failing to register with the SEC as an exchange, clearing agency, or broker.

The parties in January 2024 had oral argument over the central issue in the case: are crypto assets securities?

The SEC contends that they are and therefore that there are securities transactions that are taking place on Coinbase. As a result, the SEC argues, Coinbase is operating as an unregistered exchange. 

During oral argument, Coinbase countered with an argument by analogy, stating that buying cryptocurrency is akin to buying collectibles like Beanie Babies, as opposed to a stake in a company.

The judge’s ruling on this issue is pending. As we have stated previously, the question of whether crypto tokens are securities has divided courts, with a ruling this past summer that exchange sales of Ripple Labs XRP token weren’t subject to SEC jurisdiction, while another judge reached the opposite conclusion in a case against Terraform Labs Pte.

Crypto Company Goes on Offense to Make an “Impact”

A crypto trading platform called Lejilex is attempting to turn the tables on the SEC by filing its own lawsuit against the agency. The lawsuit, with the Crypto Freedom Alliance of Texas as a co-plaintiff, contends that the sale of digital assets on secondary markets does not qualify as securities transactions, thereby exempting them from the regulatory purview of the SEC. In other words, they’re fighting the same battle as Coinbase, but doing so as a plaintiff versus as a defendant.

This sort of litigation is often called “impact litigation” (or “strategic litigation”), which refers to the practice of using legal action to bring about significant changes in the law, practice, or public awareness through precedent-setting court cases. These lawsuits are typically aimed at creating broad changes affecting large groups of people rather than just resolving the specific legal issues faced by the plaintiffs involved in the case.

New York Seeks Billions from Digital Currency Group

It’s not just the federal government that is cracking down on crypto. 

In October, New York Attorney General Letitia James filed a lawsuit alleging that Digital Currency Group, Genesis Global Capital, and Gemini Trust (run by Cameron and Tyler Winklevoss), defrauded investors out of more than $1 billion. The allegations focus on the Gemini Earn program, through which customers lend crypto assets to Genesis Global Capital in exchange for a high rate of return. The attorney general alleges that Gemini lied to investors by assuring them that investing with Genesis through their Gemini Earn program was a low-risk investment. In February, the lawsuit was expanded, and now alleges that damages stemming from fraud exceed $3 billion.

Conclusion

There is still considerable uncertainty about how the securities laws apply to the cryptocurrency industry. One thing that seems certain is that litigation, initiated by governments as well as between private parties, will continue to rage in the crypto domain. We will keep you updated with new developments.

For more information regarding Alto Litigation’s litigation practice, please contact one of Alto Litigation’s partners: Bahram Seyedin-Noor, Bryan Ketroser, or Joshua Korr.

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Disclaimer: Materials on this website are for informational purposes only and do not constitute legal advice. Transmission of materials and information on this website is not intended to create, and their receipt does not constitute, an attorney-client relationship. Although you may send us email or call us, we cannot represent you until we have determined that doing so will not create a conflict of interests. Accordingly, if you choose to communicate with us in connection with a matter in which we do not already represent you, you should not send us confidential or sensitive information, because such communication will not be treated as privileged or confidential. We can only serve as your attorney if both you and we agree, in writing, that we will do so.

The materials on this website are not intended to constitute advertising or solicitation. However, portions of this website may be considered attorney advertising in some states.

Unless otherwise specified, the attorneys listed on this website are admitted to practice in the State of California.

Alto Litigation Supports Lawyers' Committee for Civil Rights

Giving back to our communities and causes we care about is core to our mission at Alto Litigation. We’re therefore proud to share that we recently supported the Lawyers' Committee for Civil Rights of the San Francisco Bay Area’s (LCCRSF) Annual Dr. Martin Luther King Jr. awards dinner as a Visionary sponsor.

The LCCRSF is a longstanding civil rights institution on the West Coast that does important work to build an equitable and just society. The Annual Dr. Martin Luther King Jr. awards dinner is an opportunity to celebrate the success of LCCRSF and our pro bono community partners in solving intractable local problems with national significance around racial, economic and economic justice.  

Three Alto Litigation attorneys, Bahram Seyedin-Noor, Josh Korr and Anthony Basile, attended the dinner.

Please join us in celebrating and supporting the excellent work of the LCCRSF so that it can continue to make a positive impact in our communities. You can learn more about the LCCRSF and it mission here: https://lccrsf.org/

Supreme Court Protects Whistleblower Claims

What does a plaintiff have to prove to sustain a whistleblowing claim under the Sarbanes-Oxley Act? Must whistleblowers show that the employer who fired them acted with the intent to retaliate because of protected whistleblower activity? Or is it sufficient for the employee only to show that the whistleblower activity was a “contributing factor” in the employer’s action, shifting the burden to the employer to show that the employee still would have been fired in the absence of the whistleblowing?

On this important question, the U.S. Supreme Court ruled unanimously that an employee fired by an investment bank need prove only that his whistleblower conduct contributed to his dismissal but “he is not required to make some further showing that his employer acted with “’retaliatory intent.’”  In Murray v. UBS Securities, Inc., No. 22-660 (Feb. 8, 2024), the Court reversed and remanded a holding by the Second Circuit Court of Appeals that overturned a jury verdict in favor of Trevor Murray, a former UBS research strategist who alleged that he was fired after telling his supervisor that he was being pressured to “skew” required reports in violation of Securities and Exchange Commission (“SEC”) rules.  The Court’s ruling demonstrates that Sarbanes-Oxley is a powerful pro-employee statute and that employers risk substantial liability by punishing whistleblowers.

Rejecting the argument that Murray had to prove that UBS acted with retaliatory intent in firing him, the Court significantly held that the whistleblower protection provisions of  Sarbanes-Oxley are violated whenever an employer treats someone worse – whether by firing or demoting them or imposing some other unfavorable change in the terms or conditions of employment – because of protected whistleblower activity.

Although Murray’s claim concerned the whistle-blowing protections under Sarbanes-Oxley, the Court’s ruling will affect the analysis of burden-shifting provisions in other federal statutes.  A ruling affirming the Second Circuit would have significantly impaired whistleblowing claims because it is often difficult to prove that an employer’s intent to retaliate was the exclusive reason for an employee’s dismissal.  Further, the Court resolved a conflict among the Circuit Courts, since the Second Circuit’s requirement that whistleblowers must prove retaliatory intent was in direct conflict with the Fifth and Ninth Circuits. See Coppinger-Martin v. Solis, 627 F. 3d 745 (9th Cir. 2010).

Murray’s responsibilities at UBS included reporting on CMBS markets to current and future customers. SEC rules required him to certify that his reports were prepared independently and accurately reflected his own views. Murray allegedly told his direct supervisor that two leaders on the CMBS trading desk improperly pressured him to make his reports more supportive of their trading strategies and to clear his reports with the trading desk. When he again complained, the supervisor, who previously had given Murray a strong performance report, recommended that Murray be fired.

Murray filed a lawsuit under 18 U.S.C. § 1514A, which was added by Sarbanes-Oxley, and prohibits publicly traded companies from retaliating against employees who report what they reasonably believe to be instances of criminal fraud or securities laws violations. §1514A references other federal law that requires a plaintiff to show that his whistleblowing was a contributing factor in any adverse personnel action but allows the employer to still prevail by demonstrating by clear and convincing evidence that the employer would have taken the same action even in the absence of the whistleblowing.

After a trial, the jury awarded Murray approximately $900,000 in damages while the court added $1.769 million in attorney’s fees and costs.  But the Second Circuit reversed, holding that the trial court erred in instructing the jury that  Murray need not prove that UBS acted with retaliatory intent. Murray v. UBS Securities, LLC, 43 F. 4th 254 (2d Cir. 2022).

Justice Sotomayor, writing for the Court, held that the text of § 1541A does not reference or include a retaliatory intent requirement nor does the burden-shifting framework support such a requirement.  Further, the text provides that an employer may not “discharge, demote, suspend, threaten, harass, or in any other manner discriminate against an employee in the terms and conditions of employment because of” protected whistleblowing conduct. The Second Circuit and UBS argued that the company had not discriminated against Murray.  But the Court stated that the term “discriminate” applied to conduct not covered by the other terms, and there was no doubt that Murray was discharged. Also, an animus-like retaliatory intent is absent from the definition of discriminate.  “Showing that an employer acted with retaliatory animus is one way of proving that the protected activity was a contributing factor in the adverse employment action, but it is not the only way.”  The jury had found that Murray’s protected activity was a contributing factor in his firing while UBS failed to show that it would have taken the same action anyways. To the extent that the contributing-factor framework is not as protective of employers as other federal statutes, that was a policy decision made by Congress.

For more information regarding Alto Litigation’s litigation practice, please contact one of Alto Litigation’s partners: Bahram Seyedin-Noor, Bryan Ketroser, or Joshua Korr.

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Disclaimer: Materials on this website are for informational purposes only and do not constitute legal advice. Transmission of materials and information on this website is not intended to create, and their receipt does not constitute, an attorney-client relationship. Although you may send us email or call us, we cannot represent you until we have determined that doing so will not create a conflict of interests. Accordingly, if you choose to communicate with us in connection with a matter in which we do not already represent you, you should not send us confidential or sensitive information, because such communication will not be treated as privileged or confidential. We can only serve as your attorney if both you and we agree, in writing, that we will do so.

The materials on this website are not intended to constitute advertising or solicitation. However, portions of this website may be considered attorney advertising in some states.

Unless otherwise specified, the attorneys listed on this website are admitted to practice in the State of California.

The Digital Age of Investing: How Social Media Posts Can Trigger Securities Law Liability

What do you get when you combine the Depression-era U.S. securities laws with today’s social media environment? A circuit split, of course. 

The digital transformation in communication has brought to the forefront a pressing legal issue: the extent to which social media posts can lead to liability under Section 12 of the Securities Act of 1933. One of the key issues is whether individuals or entities that use social media to promote securities can be considered “sellers,” making them liable for potential misstatements or omissions in their posts.

This matter gained significant attention with the Ninth Circuit’s decision in Pino v. Cardone Capital LLC, 55 F. 4th 1253 (9th Cir. 2022). In Pino, the Ninth Circuit held that promoting securities through social media could indeed constitute “selling,” subjecting the promoters to potential liability under Section 12(a)(2). This decision not only highlights the evolving nature of securities promotion in the digital age but also underscores a growing disparity among various judicial circuits on how to interpret these laws in the context of modern technology.

Background on Securities Promotion and Social Media

Social media has dramatically transformed securities promotion. Platforms like Twitter, Instagram, and YouTube are now powerful tools for individuals and entities to discuss, endorse, and promote various investment opportunities. Such promotion is more accessible and reaches a far wider audience than traditional methods. It allows for direct, real-time engagement with potential investors, making it an attractive avenue for companies and influencers alike.

But social media also entails unique challenges and risks. The potential dissemination of false or misleading information, whether intentional or not, is amplified by the broad reach of social media. That can create significant market impact in a short time.  A related risk is less checks and balances since the informality and immediacy of social media can lead to less rigorous information vetting compared to traditional investment disclosures. Regulators, not to mention plaintiffs’ lawyers, are taking notice.

For example, in December 2022, the SEC charged eight social media influencers with securities fraud in a $100 million scheme. These individuals allegedly used Twitter and Discord to manipulate exchange-traded stocks. They cultivated a substantial following on these platforms, promoting certain stocks, and then sold their shares for profit (i.e., “pump and dump”) when the prices rose, all without disclosing their plans to their followers. 

In the context of U.S. securities law, Section 12 of the Securities Act of 1933 is particularly relevant to the issue of social media and securities promotion. This section addresses the liability associated with false or misleading statements in the context of selling or offering to sell securities. Sections 12(a)(1) and (2) permit a private right of action based on the failure to register securities with the SEC without a proper exemption (12(a)(1)) and for the offer or sale of securities by means of a prospectus or an oral or communication that contained material misstatements or omissions (12(a)(2)). But the Supreme Court has held that a statutory seller under Section 12 is limited only to those who passed title to the securities or who solicited the purchase.

The application of Section 12 to social media posts is a developing area of law, as demonstrated by cases like Pino v. Cardone Capital LLC, which grapple with the definition of “selling” in the context of online promotions.

The Pino Decision

The Pino v. Cardone Capital LLC case revolved around the promotion of securities on social media platforms Instagram and YouTube, by Grant Cardone and his company, Cardone Capital, LLC.

The plaintiff, Luis Pino, invested in funds managed by Cardone Capital and later filed a class action lawsuit, alleging that the defendants violated Section 12(a)(2) of the Securities Act by making materially misleading statements and omissions in their social media posts promoting the investment in these funds.

The core legal question was whether Cardone and his company could be considered as "sellers" under Section 12(a)(2), even though they did not directly solicit Pino’s investment. The federal district court ruled that Cardone was not a “seller.” However, the Ninth Circuit reversed, concluding that indirect, mass communications to potential investors through social media posts and online videos can qualify as “solicitations” sufficient to impose liability under Section 12(a)(2). The court explained that: “§ 12 of the Securities Act contains no requirement that a solicitation be directed or targeted to a particular plaintiff . . . [and] that a person can solicit a purchase, within the meaning of the Securities Act, by promoting the sale of a security in a mass communication.”

The Circuit Split

The Ninth Circuit’s ruling follows the reasoning of the Eleventh Circuit in the case Wildes v. BitConnect Int’l PLC, No. 20-11675 (11th Cir. Feb. 18, 2022), which also held that videos posted on YouTube and other platforms can constitute solicitation under Section 12, even if not targeted toward any individual purchasers.

However, these decisions are at odds with previous rulings in other courts, such as the Second and Third Circuits, which interpreted the criteria for what constitutes a “seller” under Section 12 more narrowly. These circuits generally require a more direct relationship between the buyer and the seller, focusing on the proximity of the parties involved in the transaction. The emphasis is on the direct solicitation of the sale by the person deemed a seller, a standard that may not easily encompass indirect or mass communications like social media posts. For example, the Second Circuit, in Capri v. Murphy, 856 F.2d 473, 479 (2d Cir. 1988), held that a plaintiff must demonstrate the defendant “actually solicited” the plaintiff's specific investment in order for the defendant to qualify as a seller under Section 12.

This circuit split reflects the ongoing challenge of applying traditional securities law to the modern, digital landscape. Understanding these differing interpretations is crucial for anyone involved in promoting securities, whether through traditional channels or modern platforms like social media. The evolving legal landscape underscores the importance of being aware of the specific legal standards in each jurisdiction to avoid potential liabilities.

For more information regarding Alto Litigation’s litigation practice, please contact one of Alto Litigation’s partners: Bahram Seyedin-Noor, Bryan Ketroser, or Joshua Korr.

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Disclaimer: Materials on this website are for informational purposes only and do not constitute legal advice. Transmission of materials and information on this website is not intended to create, and their receipt does not constitute, an attorney-client relationship. Although you may send us email or call us, we cannot represent you until we have determined that doing so will not create a conflict of interests. Accordingly, if you choose to communicate with us in connection with a matter in which we do not already represent you, you should not send us confidential or sensitive information, because such communication will not be treated as privileged or confidential. We can only serve as your attorney if both you and we agree, in writing, that we will do so.

The materials on this website are not intended to constitute advertising or solicitation. However, portions of this website may be considered attorney advertising in some states.

Unless otherwise specified, the attorneys listed on this website are admitted to practice in the State of California.

Telling Investors that a Lawsuit is “Without Merit” Comes With Risks

When faced with a lawsuit, it’s common for a public company to argue in the court of public opinion that the claims asserted against it are "without merit." However, as a recent U.S. District Court of the District of Massachusetts ruling in the case of City of Fort Lauderdale Police & Firefighters’ Retirement System v. Pegasystems Inc. demonstrates, such an approach is not without risk. The ruling illustrates the potential pitfalls of language such as “without merit” to describe litigation risks in SEC disclosures, particularly when internal evidence suggests a different story. In an environment where every corporate statement can be put under the judicial microscope, this case serves as a stark reminder of the need for careful, accurate communication when litigation is pending.

Background and Case Overview

Pegasystems Inc., a software company, found itself at the center of a legal maelstrom that began with a lawsuit filed in Virginia state court in 2020. The root of the dispute lay in allegations that Pegasystems had willfully and maliciously misappropriated trade secrets from its competitor, Appian Corporation. This corporate espionage saga unfolded over several years, involving allegations that Pegasystems employees posed as customers to access Appian’s proprietary information. In February, 2022, Appian filed an amended complaint for $3 billion, after which Pegasystems filed its Form 10-K in which it described the claims it faced as ”without merit,” and alleging that it had “strong defenses to these claims,” and that “any alleged damages claimed by Appian are not supported by the necessary legal standard.” Ultimately, a jury found Pegasystems liable for misappropriation of trade secrets, and the company was ordered to pay over $2 billion in damages.

The repercussions of this case extended beyond the Virginia courtroom. Following the verdict in Virginia, Pegasystems faced a precipitous drop in its stock price of approximately 28%. This drop set the stage for a new legal battle: a securities fraud class action filed against Pegasystems and its key executives, including its CEO and CFO. The crux of this lawsuit hinged on the company's earlier statements in its SEC filings, including the assertion that the Appian lawsuit was "without merit." This claim, made when internal evidence allegedly suggested otherwise, became a focal point of the securities lawsuit.

Pegasystems moved to dismiss the complaint for “failure to state a claim alleging that Fort Lauderdale has not pled facts with particularity establishing (1) that any of the challenged statements are false or misleading, (2) a strong inference of scienter, and (3) loss causation.”

The Court’s Analysis

The court denied the motion to dismiss as to Pegasystems and its CEO. The court found that Pegasystems assertion that the claims were “without merit” was an actionable statement of opinion, explaining that Pegasystems had “categorically denied that Appian’s claims had any merit—despite possessing substantial information about the viability of those claims.” Therefore, the statement did not “fairly align” with its knowledge at the time it made it. The court also found that Pegasystems’ reference in its SEC filing to a code of conduct in which it promised that it would “never use illegal or questionable means to acquire a competitor’s trade secrets” was also an actionable misrepresentation. 

As to the CEO, the court found that, given his alleged involvement in misappropriating trade secrets, he would have known that his statement about the merits of the trade secret litigation "posed a substantial likelihood of misleading a reasonable investor." The court further noted that the "false denial of Appian's claims' merit posed an obvious danger to mislead investors as to the substantial financial risk Pega was facing" in connection with the misappropriation lawsuit. The shareholder class action lawsuit was allowed to proceed.

So what is a company to do when making a public disclosure about litigation in similar circumstances? The judge in this case provides some potentially safer alternatives to asserting that such claims are “without merit.” According to the court, a company may “assert its intention to oppose the lawsuit,” or “state that it has ‘substantial defenses” against it,” provided  “it reasonably believes that to be true.”

The bottom line is that companies must take great care, and consult with experienced legal counsel, before making any statements or disclosures to investors regarding pending litigation. As the court explained, an “issuer may legitimately oppose a claim against it, even when it possesses subjective knowledge that the facts underlying the claims against it are true. When it decides to do so, however, it must do so with exceptional care, so as not to mislead investors.”

In many cases, the best approach is to tread lightly in the court of public opinion while vigorously advocating in the court of law. Voltaire has a good rule of thumb here: “Everything you say should be true, but not everything true should be said.”

For more information regarding Alto Litigation’s litigation practice, please contact one of Alto Litigation’s partners: Bahram Seyedin-Noor, Bryan Ketroser, or Joshua Korr.

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Disclaimer: Materials on this website are for informational purposes only and do not constitute legal advice. Transmission of materials and information on this website is not intended to create, and their receipt does not constitute, an attorney-client relationship. Although you may send us email or call us, we cannot represent you until we have determined that doing so will not create a conflict of interests. Accordingly, if you choose to communicate with us in connection with a matter in which we do not already represent you, you should not send us confidential or sensitive information, because such communication will not be treated as privileged or confidential. We can only serve as your attorney if both you and we agree, in writing, that we will do so.

The materials on this website are not intended to constitute advertising or solicitation. However, portions of this website may be considered attorney advertising in some states.

Unless otherwise specified, the attorneys listed on this website are admitted to practice in the State of California.

Three Alto Litigation Attorneys Contribute Chapter to Chambers and Partners’ Prestigious 2024 Litigation Global Practice Guide

We are thrilled to announce that three Alto Litigation attorneys contributed a chapter on trends in California litigation for Chambers and Partners’ prestigious 2024 Litigation Global Practice Guide. The contributing attorneys, whose insights on trends in California securities litigation are featured, are Bahram Seyedin-Noor, Bryan Ketroser, and Jared Kopel.

The 2024 Litigation Global Practice Guide features 70 jurisdictions. It provides the latest legal information on litigation trends, funding, initiating a lawsuit, pre-trial proceedings, discovery, injunctive relief, trials and hearings, settlement, damages and judgment, appeals, costs, and alternative dispute resolution (ADR), including arbitration.

The topics that Bahram, Bryan, and Jared address and analyze include: 

1. California courts adopt Delaware’s Caremark standard of liability for directors asleep at the wheel

2. Bank failures and down rounds precipitate shareholder actions

3. Plaintiffs include state securities fraud claims in federal complaints

4. California continues to be a hotbed of litigation concerning cybersecurity breaches

5. New climate disclosure laws may lead to new disclosure claims

6. The SEC continues to go after California crypto-companies

As they say, knowledge is power, so if you’re looking to stay abreast of trends and developments in California securities litigation, we encourage you to read this chapter, which can be found here. Many of the insights shared are based on real-world experience and expertise gained by our attorneys working at the forefront of important securities litigation cases in California. 

We appreciate Chambers and Partners calling upon us to address these important issues!

The U.S. Supreme Court to Rule on Item 303’s Role in Section 10(b) Claims

Can an alleged failure to meet the disclosure requirements under Item 303 of Regulation S-K constitute a claim for securities fraud under Section 10(b)? That’s the key question the U.S. Supreme Court will consider in Macquarie Infrastructure Corporation v. Moab Partners, L.P., No. 22-1165, which will be argued and decided this year. One way or the other, the Court’s decision will resolve a circuit court split, and either expand or restrict the scope for Rule 10(b) to be used as a tool for private securities plaintiffs.

Case Background

The controversy in Macquarie centers on Item 303 of Regulation S-K. Item 303 requires publicly traded companies to provide a Management’s Discussion and Analysis (MD&A) of their financial condition and results of operations. The MD&A is a critical section in a company’s annual report (Form 10-K) and other periodic reports. It offers investors a narrative, through the eyes of management, about the company’s financial performance, including its liquidity, capital resources, and operating results.

A central requirement of Item 303 is that companies must disclose any known trends, demands, commitments, events, or uncertainties that are reasonably likely to have a material effect on the company’s financial condition or operating performance. This is not just a backward-looking requirement; companies must also assess and disclose expected future events or conditions that could have a significant impact.

In this case, Moab Partners LP filed suit under Section 10(b) of the Securities Exchange Act, alleging that Macquarie Infrastructure Corporation had failed to disclose its analysis, as required by Item 303, of the potentially negative impact that new international oil regulations were anticipated to have on the company. The district court dismissed the plaintiff’s complaint, but the U.S. Court of Appeals for the Second Circuit disagreed and held that the alleged omission could constitute a violation of Item 303 and serve as the basis for a claim under Section 10(b).

The Second Circuit decision is at odds with rulings of the Third, Ninth, and Eleventh Circuits, which have previously rejected the contention that a failure to comply with Item 303 can underpin a Section 10(b) claim. The Supreme Court’s ruling, therefore, will resolve this circuit split.

Implications of the Court’s Ruling

A decision by the Supreme Court to affirm the Second Circuit’s ruling would likely result in increased scrutiny of the Management Discussion and Analysis section in corporate filings, and open the door to more Rule 10(b) lawsuits alleging violations of Item 303. If that happens, companies might adopt more cautious and detailed approaches to their disclosures, including becoming more proactive in identifying and disclosing material risks and uncertainties, to mitigate the risk of litigation.

However, this increased scrutiny could lead to a dilemma between achieving clarity and avoiding information overload in SEC reporting. The SEC has generally encouraged clarity and materiality in disclosures, and including more information doesn’t necessarily serve this purpose. It’s easy to envision a scenario where, due to fear of litigation, companies might opt to pack reports with excessive details. This could increase transparency—or, on the other hand, it could make it challenging for investors to discern critical information, potentially diluting the effectiveness of these disclosures.

Conclusion

The Supreme Court’s decision in Macquarie is poised to have broad implications in securities law and corporate disclosures. It will likely influence how companies approach their disclosure obligations and could expand the scope of securities litigation to the extent the Court adopts the Second Circuit’s approach. We will watch this case closely and report back once the Court has issued its ruling.

For more information regarding Alto Litigation’s litigation practice, please contact one of Alto Litigation’s partners: Bahram Seyedin-Noor, Bryan Ketroser, or Joshua Korr.

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Disclaimer: Materials on this website are for informational purposes only and do not constitute legal advice. Transmission of materials and information on this website is not intended to create, and their receipt does not constitute, an attorney-client relationship. Although you may send us email or call us, we cannot represent you until we have determined that doing so will not create a conflict of interests. Accordingly, if you choose to communicate with us in connection with a matter in which we do not already represent you, you should not send us confidential or sensitive information, because such communication will not be treated as privileged or confidential. We can only serve as your attorney if both you and we agree, in writing, that we will do so.

The materials on this website are not intended to constitute advertising or solicitation. However, portions of this website may be considered attorney advertising in some states.

Unless otherwise specified, the attorneys listed on this website are admitted to practice in the State of California.

A Friend of the Court is a Friend of Mine: Amicus Briefs in District Court

All litigators have at least some familiarity with amicus briefs in the federal appellate courts.  Such briefs give interested third parties—“friends of the court”—a say in important appeals that may result in binding precedent affecting the world at large.  

What many litigators don’t know is that amicus briefs are also often allowed at the district court level.  Yet well-read subject matter experts often spot impending appellate disputes while they are still at the trial court stage, giving them an opportunity to weigh in on a dispute before it even reaches the appellate court.

Unlike the federal appellate courts, many district courts—including the Northern District of California—do not have defined procedures for filing an amicus brief.  Yet the district courts nonetheless have the discretion to allow amicus filings—and will often do so in the right case. See, e.g., United States v. Gotti, 755 F.Supp. 1157, 1158 (E.D.N.Y. 1991); NGV Gaming, Ltd. v. Upstream Point Molate, LLC, 355 F.Supp.2d 1061, 1067 (N.D. Cal. 2005); N. Carolina State Conf. of NAACP v. Cooper, 332 F.R.D. 161, 173 (M.D.N.C. 2019); Alexander v. Hall, 64 F.R.D. 152, 155 (D.S.C. 1974).  

If you seek to file an amicus brief, you will need to seek leave of the district court.  The motion for leave should state your client’s interest, explain how the amicus brief will assist the court, and should (of course) attach the amicus brief itself.

In addition, the following tips will help ensure that your amicus brief is accepted and considered by a district court:

• Make sure the amicus brief is timely.  It must give the opposing side an opportunity to respond.  We have seen district courts reject amicus briefs filed too far along in the process.

• Make sure to establish exactly why your client’s voice should be heard.  Emphasize the personal or institutional expertise that your client has in the matter, or the potential negative consequences that your client may feel if the district court goes the wrong way.

• Make sure your client’s amicus brief does in fact offer a unique perspective.  If the brief simply repeats arguments made by a named party, the court may reject the brief as cumulative.

• Make sure not to frame the amicus brief in overly argumentative terms.  The role of amicus curiae should be limited to suggesting a different legal perspective or offering unique information to the court.  Amicus filings phrased as “oppositions” or in other adversarial terms may be rejected as exceeding the role of an amicus curiae.

• Make sure the amicus brief filed in district court otherwise adheres to the same procedural requirements of the applicable appellate court.  Although not expressly required, this will give the district court assurance that fair procedures have been applied. 

If you follow these tips, a blossoming friendship with the court may follow.  

For more information regarding Alto Litigation’s litigation practice, please contact one of Alto Litigation’s partners: Bahram Seyedin-Noor, Bryan Ketroser, or Joshua Korr.

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Disclaimer: Materials on this website are for informational purposes only and do not constitute legal advice. Transmission of materials and information on this website is not intended to create, and their receipt does not constitute, an attorney-client relationship. Although you may send us email or call us, we cannot represent you until we have determined that doing so will not create a conflict of interests. Accordingly, if you choose to communicate with us in connection with a matter in which we do not already represent you, you should not send us confidential or sensitive information, because such communication will not be treated as privileged or confidential. We can only serve as your attorney if both you and we agree, in writing, that we will do so.

The materials on this website are not intended to constitute advertising or solicitation. However, portions of this website may be considered attorney advertising in some states.

Unless otherwise specified, the attorneys listed on this website are admitted to practice in the State of California.

Anthony Basile Joins Alto Litigation as Attorney

We are pleased to announce that attorney Anthony Basile has joined our growing team of talented legal professionals. Anthony has experience representing clients in a variety of litigation and transactional matters, including commercial disputes, real property litigation and transactions, employment litigation and counseling, and intellectual property litigation and counseling.  

Anthony’s hiring exemplifies a core value of our firm, which is to provide opportunities for attorneys and other professionals who have pursued non-traditional, alternative career paths. In the case of Anthony, who is a graduate of Stanford University and Santa Clara University School of Law, this hiring marks his re-entry into the practice of law after spending a few years caring for his children full-time while his wife pursued her career goals. 

“We’re delighted to welcome Anthony to Alto Litigation,” said firm founder Bahram Seyedin-Noor. “He will be a key contributor in serving the complex and sophisticated litigation needs of our clients as part of the largest and most talented team we’ve had since our inception.”

Please join us in welcoming Anthony to Alto Litigation!

Recent Developments in SEC Crypto Enforcement

On November 14, 2023, the Securities Exchange Commission (SEC) issued its enforcement recap for its fiscal year 2023. It was a busy year, indeed, with the SEC filing 784 enforcement actions, obtaining orders for nearly $5 billion in financial remedies, and distributing nearly $1 billion to harmed investors. The crypto industry was among the SEC’s targets for enforcement actions. In its report, the SEC called 2023 a "highly productive and impactful year" for crypto-related enforcement efforts. However, the SEC also suffered several crypto-litigation setbacks during the year, which may force it to rethink its approach to enforcement in this burgeoning industry. 

In an effort to keep you apprised of the latest trends in SEC crypto enforcement, here are some recent notable developments.

Coinbase Receives and Responds to Wells Notice; SEC Brings Suit

In March, 2023, the SEC issued a Wells notice to crypto exchange Coinbase, warning the company that it had identified potential violations of U.S. securities laws. A Wells notice is often a final step prior to the SEC bringing formal charges against a company. It generally lays out the SEC’s argument and offers the accused an opportunity to rebut the claims. In this case, the SEC was looking at Coinbase’s crypto staking business, its  investment and custody services, and part of its spot trading business.

In April, Coinbase filed its response to the notice, and made it publicly available. In its response, the company asserted that “Coinbase does not list, clear, or effect trading in securities.”

In June, the SEC charged Coinbase with operating its trading platform as an unregistered national securities exchange, broker, and clearing agency, in a complaint filed in the U.S. District Court for the Southern District of New York. The SEC also charged Coinbase for failing to register the offer and sale of its crypto asset staking-as-a-service program. In August, Coinbase sought the dismissal of the charges, arguing the SEC is stepping outside of its jurisdiction in suing the crypto exchange. The SEC filed its response in early October, and Coinbase filed a Reply Memorandum later that month. As of the date this post was published, no decision on Coinbase’s Motion to Dismiss was issued.

Coinbase Seeks to Compel SEC to Establish Crypto Rules and Regulations

While defending itself against the SEC, Coinbase has also gone on the attack, filing a Writ for Petition of Mandamus to the SEC with the United States Court of Appeals for the Third Circuit in April, 2023.

Coinbase is asking the court to order the SEC to respond to its July 2022 petition urging the agency to “propose and adopt rules to govern the regulation of securities that are offered and traded via digitally native methods.” This action is still pending. On October 11, the SEC filed a pleading explaining, in regard to Coinbase’s request for crypto rules and regulations, that “Commission staff provided a recommendation to the Commission” on October 10. In response, Coinbase asserted that the SEC’s “laconic” update “ducks this Court’s critical questions.”

The SEC Drops its Case Against Two Ripple Labs Executives

In 2020, the SEC sued Ripple Labs Inc., accusing the company and its executives of conducting a $1.3 billion securities fraud via sales of XRP to retail investors. 

In July, a federal judge granted partial victories to both the SEC and Ripple in ruling on cross-motions for summary judgment regarding whether sales of Ripple's digital token XRP violated the federal securities laws. The court held that sales of XRP to institutional investors involved securities under the test articulated by the Supreme Court in SEC v. W.J. Howey Co., 328 U.S. 293 (1946).

However, the court ruled that so-called Programmatic Sales on crypto exchanges did not involve securities because the purchasers were not buying directly from Ripple, and therefore could not reasonably expect a profit derived from Ripple's efforts (the third prong of the Howey test). The court also found that other distributions of XRP were not securities (read our comprehensive analysis here). 

In a more recent development, in October 2023 the SEC dropped civil charges of aiding and abetting against Ripple executives Christian Larsen and Brad Garlinghouse, who, the SEC had alleged, had aided and abetted Ripple’s violations of the securities laws. However, the SEC will continue pursuing its claims against Ripple, according to the SEC’s filing.

SEC Brings Charges Against Kraken

On November 20, 2023, the SEC charged Payward Inc. and Payward Ventures Inc., known as “Kraken,” with operating a crypto trading platform as an unregistered securities exchange, broker, dealer, and clearing agency.

The SEC alleges that Kraken provides the traditional services of an exchange, broker, dealer, and clearing agency without having registered any of those functions with the SEC as required by law.

Conclusion

There continues to be a great deal of uncertainty about how the securities laws apply to the cryptocurrency industry. One thing that seems certain is that the SEC will continue aggressive enforcement of this space. We will continue to update you with new developments.

For more information regarding Alto Litigation’s litigation practice, please contact one of Alto Litigation’s partners: Bahram Seyedin-Noor, Bryan Ketroser, or Joshua Korr.

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Disclaimer: Materials on this website are for informational purposes only and do not constitute legal advice. Transmission of materials and information on this website is not intended to create, and their receipt does not constitute, an attorney-client relationship. Although you may send us email or call us, we cannot represent you until we have determined that doing so will not create a conflict of interests. Accordingly, if you choose to communicate with us in connection with a matter in which we do not already represent you, you should not send us confidential or sensitive information, because such communication will not be treated as privileged or confidential. We can only serve as your attorney if both you and we agree, in writing, that we will do so.

The materials on this website are not intended to constitute advertising or solicitation. However, portions of this website may be considered attorney advertising in some states.

Unless otherwise specified, the attorneys listed on this website are admitted to practice in the State of California.

Empowering Refugees, Reflecting Our Values: Alto Litigation Supports Asylum Access

Imagine a world where over 26 million people are compelled to flee their homes, not out of choice but necessity, driven by violence and persecution. This daunting reality is what Asylum Access confronts head-on, day after day. Their mission is monumental: to empower refugees, influence policy for lasting change, and foster leadership within refugee communities. Asylum Access's policy change efforts have positively impacted over 1.08 million refugees, and its legal empowerment services provide a path to dignity and hope.

The work that Asylum Access does for refugees and asylum seekers hits particularly close to home for Alto Litigation founder Bahram Seyedin-Noor, himself a first-generation immigrant, whose family escaped from Iran after the revolution in 1979. He and his family were smuggled through the desert in Afghanistan, and ultimately settled in America.

These and other reasons inspire us at Alto Litigation to support Asylum Access and other worthy causes in communities in which we work and live—in this season of giving and all year round. We recently made a financial contribution to Asylum Access to support its work, and if you’re interested in doing the same, or learning more about the organization, we encourage you to visit www.asylumaccess.org.

As we continue our partnership with Asylum Access, we're reminded of the broader impact of our profession. Law isn't just about complex statutes and courtroom battles; it's a powerful tool for change for people in our community, our country, around the world. Together, through support of organizations like Asylum Access, we can help shape a world where every individual, regardless of their circumstances, has the opportunity to live a life of dignity and purpose.

5 Things We're Thankful for this Holiday Season

With Thanksgiving upon us, we’re taking a moment to reflect and express our gratitude. While this has been a challenging year for many in our community, our country, and around the world, we are mindful of the resilience and strength demonstrated in the face of adversity. These times have reminded us of the importance of coming together, supporting each other, and finding strength in our collective spirit. At Alto Litigation, we recognize the blessings we have received this year. In the spirit of Thanksgiving, here are five things we are especially thankful for:

1. Our Valued Clients: First and foremost, we are deeply thankful for our clients. Your trust in us to handle your most pressing and consequential legal matters is not taken lightly. We are grateful for your continued support and the opportunity to serve you.

2. Our Dedicated Team: We are thankful for the dedication, talent, and hard work of each member of our firm. From our attorneys to our professional staff, each person plays a crucial role in our ability to serve clients. And we’d also like to acknowledge the families of our team members, who play an integral role in enabling us to do the demanding work that a busy litigation practice requires.

3. The San Francisco/Bay Area Community: Our roots in this dynamic and resilient community fill us with pride. Your entrepreneurial spirit and dedication to critical causes are a constant source of inspiration. We are proud to contribute to the community that has given us so much.

4. The Legal Community's Collegiality: The camaraderie and professionalism within the legal community have been fundamental to our growth. This collegial spirit has been a cornerstone in our firm's decade-long journey.

5. The Spirit of Giving Back: Lastly, we are thankful for the good fortune we’ve had, which has provided the opportunity to give back. Whether it's through pro bono work, community service, or supporting local causes, we are grateful for the chance to make a positive impact in the lives of others. This week we’re making a meaningful contribution to Asylum Access, an organization aiding refugees through legal and policy initiatives.

This Thanksgiving, we extend our heartfelt thanks to everyone who has been part of our journey. We look forward to continuing to serve and grow with you in the coming year.

Happy Thanksgiving from all of us at Alto Litigation.

Snap Removal: Unfair Gamesmanship or Fair Play?

Oh, snap!  What’s that sound?  It may be the “snap removal” of your state court complaint to the federal courthouse.   Here are the basics of “snap removal” with tips to avoid it—or invoke it.  

Generally speaking, where complete diversity of citizenship exists between plaintiffs on the one hand and defendants on the other hand, defendants can remove a case filed in state court to federal court.  28 U.S.C. § 1441.  An exception is the so-called forum defendant rule, which states that a defendant sued in state court typically cannot remove to federal court based on diversity jurisdiction where at least one defendant is a citizen of the forum state.  But there’s an exception to this exception: removal may be allowed so long as a defendant files the notice of removal before a forum defendant is “properly joined and served.” 28 U.S.C. § 1441(b)(2) (emphasis added).  This means that the swift defendant who learns of the state court complaint–and then files a notice of removal—before formal service of any local defendant may escape to federal court.  

Not all courts agree that “snap removal” is legitimate.  Even in the Northern District of California, judges are split.  Some view “snap removal” as an absurd outcome: it rewards gamesmanship while undermining the plaintiff’s choice of forum, the limited nature of diversity jurisdiction, and presumptions against removal.  Yet others endorse “snap removal” as compelled by the statutory language that conditions removal on a local defendant having been “served.”  28 § U.S.C. § 1441(b)(2).  

With this backdrop, both plaintiffs and defendants should be prepared to deal with “snap removal.”  

For plaintiffs and their counsel hoping to lessen the risk of “snap removal”: craft a plan for a quick service of at least one forum defendant before filing the complaint.  This could mean scouting the agent of service for a corporate defendant, and/or the home addresses for an individual.  And then, once the complaint is filed and the summons is issued, complete service as fast as possible.  If a defendant receives informal notice of the lawsuit—whether through a courtesy copy, word of mouth, or otherwise—then the greater the length of time between such informal notice and actual service, the greater the risk of “snap removal.” 

For defendants and their counsel hoping to take advantage of “snap removal”: be on your toes.  You will need to react quickly to remove any state court complaint before it is served.  You can get instant notice of any complaint cheaply by subscribing to an automated tracker of public court dockets.  It may take a few days for the state court to issue the summons needed for the plaintiff to formalize service, and a notice of removal is a simple pleading.  You may snap yourself into a more favorable forum with stricter pleading standards and less onerous discovery rules.

For more information regarding Alto Litigation’s litigation practice, please contact one of Alto Litigation’s partners: Bahram Seyedin-Noor, Bryan Ketroser, or Joshua Korr.

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Disclaimer: Materials on this website are for informational purposes only and do not constitute legal advice. Transmission of materials and information on this website is not intended to create, and their receipt does not constitute, an attorney-client relationship. Although you may send us email or call us, we cannot represent you until we have determined that doing so will not create a conflict of interests. Accordingly, if you choose to communicate with us in connection with a matter in which we do not already represent you, you should not send us confidential or sensitive information, because such communication will not be treated as privileged or confidential. We can only serve as your attorney if both you and we agree, in writing, that we will do so.

The materials on this website are not intended to constitute advertising or solicitation. However, portions of this website may be considered attorney advertising in some states.

Unless otherwise specified, the attorneys listed on this website are admitted to practice in the State of California.

Bahram Seyedin-Noor Co-Authors Latest Edition of LexisNexis’ Book “Litigating and Judging California Business Entity Governance Disputes”

Corporate governance is a critical function of any corporation—and commonly the subject of litigation disputes. New trends and new legal developments are continually arising in the realm of corporate governance, so it’s critical for corporate leaders and legal practitioners to stay on top of what’s happening.

One of the best ways to stay abreast of trends and developments, in California, in particular, is to check out LexisNexis’ latest edition of “Litigating and Judging California Business Entity Governance Disputes” – a seminal treatise that guides practitioners through a variety of complex business matters involving management, ownership and control of California corporations, LLCs, and general and limited partnerships.

Alto Litigation’s Bahram Seyedin-Noor is the author of Chapter 2 of “Litigating and Judging California Business Entity Governance Disputes,” covering disputes between and among a corporation’s shareholders and its managers relating to the management of the corporation itself.  Alto partners Bryan Ketroser and Josh Korr also contributed to the chapter which provides relevant citations to statutes and court decisions, together with insights, helpful tips and creative solutions for arbitrators, attorneys and judges, who are dealing with disputes regarding the management of a corporation. 

For more information and to purchase the new edition visit LexisNexis.

A Welcome Change: Ninth Circuit Will Require In-Person Appearances in 2024

When COVID-19 struck, lawyers had to adapt in many different ways. One of the most significant changes, for litigators, in particular, was engaging in courtroom advocacy remotely. This posed many challenges—and not merely technical difficulties. As litigators who relish opportunities to advocate on behalf of our clients live and in person, we were pleased to see the U.S. Court of Appeals for the Ninth Circuit’s recent announcement that in-person appearances will be required as of January 2024.

The Ninth Circuit currently uses a hybrid approach to oral argument, allowing remote or in-person appearance. Moving forward, according to the Ninth Circuit, “As of January 2024, all counsel and parties invited to argue before the court are expected to appear in person.”

It will still be possible for a lawyer to appear remotely. However, in order to do so, a lawyer must file a motion requesting such relief, demonstrating that an in-person appearance would pose a hardship. Such a motion is to be filed within seven days of the calendaring notice.

Despite the Ninth Circuit’s move back to in person appearances, many courts across the country continue to allow lawyers to appear remotely. A Bloomberg article earlier this year reported that Alaska, Arizona, Illinois, Minnesota, Maryland, Michigan, North Carolina, and Texas “have all integrated remote operations into their state courts’ permanent playbooks.”

There are undoubtedly benefits to be gained, in terms of time- and cost-savings, for certain pre-trial, non-evidentiary hearings to be held remotely. But when it comes to trial work and appeals, the ability to look in people’s eyes, gauge the mood of the room, and immerse oneself fully in the moment—free from the inevitable technical glitches, is essential for effective advocacy.

We welcome more time spent in the halls and courtrooms of the Ninth Circuit in the year ahead!

For more information regarding Alto Litigation’s litigation practice, please contact one of Alto Litigation’s partners: Bahram Seyedin-Noor, Bryan Ketroser, or Joshua Korr.

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Disclaimer: Materials on this website are for informational purposes only and do not constitute legal advice. Transmission of materials and information on this website is not intended to create, and their receipt does not constitute, an attorney-client relationship. Although you may send us email or call us, we cannot represent you until we have determined that doing so will not create a conflict of interests. Accordingly, if you choose to communicate with us in connection with a matter in which we do not already represent you, you should not send us confidential or sensitive information, because such communication will not be treated as privileged or confidential. We can only serve as your attorney if both you and we agree, in writing, that we will do so.

The materials on this website are not intended to constitute advertising or solicitation. However, portions of this website may be considered attorney advertising in some states.

Unless otherwise specified, the attorneys listed on this website are admitted to practice in the State of California.