Newsletters

• Fifth Circuit Rulings – In U.S. v. Constantinescu, the Fifth Circuit reversed the dismissal of a securities fraud indictment because it did more than allege deprivation of valuable economic information; it also alleged that the defendant fraudulently induced investors to sell their property. In the latest ruling in the McDermott International securities fraud class action, the Fifth Circuit upheld lower court decisions creating two subclasses of purchasers, those who purchased McDermott securities directly and those who obtained McDermott shares as part of the acquisition of Chicago Bridge & Iron.
• Federal District Court Rulings – In securities fraud class actions, the American Airlines court dismissed plaintiffs’ claims with prejudice; the Concho Resources court required the corporate defendant to produce a database of well data in native format; and the CS DISCO court recommended denial of class certification because the corrective disclosures alleged in the complaint did not match up with the alleged misstatements. In Kinder Morgan, the district court enjoined the Department of Labor from conducting a hearing into whistleblower allegations about pipeline safety because the two-layer removal requirement for the administrative law judge assigned to the matter violated the Take Care Clause of the Constitution.
• State Court Rulings – In Kreines, the 15th Court of Appeals overturned an injunction in a non-compete case because the language of the injunction prohibited the defendants from contact with entities “known to” them rather than listing the entities by name. In Crain, the Business Court dismissed an action alleging legal malpractice, fraud, breach of fiduciary duty, and other claims because it violated the anti-fracturing rule applicable to legal malpractice claims. In other appellate cases, courts addressed the limitations of the Texas Citizens Participation Act, when a financial advisory agreement does not impose fiduciary duties, whether an embezzler who hoped to open a “pet hotel” defrauded his business partner, and the results of a jury trial involving a Superbowl ticket-reselling scam.

• Fifth Circuit Ruling – In National Ass’n of Private Fund Mgrs. v. SEC, the Fifth Circuit rejected a challenge to the SEC’s Securities Lending Rule and Short Sale Rule under the Administrative Procedures Act. While the Court did not vacate the rules, it remanded them to the SEC for further analysis of their collective economic impact because they were highly related and adopted at the same SEC meeting.
• Federal District Court Rulings – In securities class actions, federal district courts dismissed §§ 11 and 12 claims in two cases and denied motions to dismiss § 10(b) claims in three cases. In Targgart, the court ruled plaintiffs lacked standing to sue because they obtained their shares in an equity distribution after a spinoff rather “acquiring” them in an exchange of value. In agilon health, the court dismissed Securities Act claims because the alleged misstatements in the offering documents were accurate, mere puffery, or accompanied by appropriate warnings, but it allowed § 10(b) claims that were based on post-IPO misstatements to go forward. In Microvast Holdings and Globe Life Insurance, the courts refused to dismiss § 10(b) claims.

Federal district courts also grappled with the Howey test for “investment contracts” in two cases. In Ask America, the court ruled that an agreement to buy and hold securities for a certain period was not an “investment of money in a common enterprise” (the Texas Securities Act equivalent of the Howey test). In Cryptozoo, the magistrate judge recommended that cryptocurrency tokens and NFTs qualified as securities, applying factors from the SDNY’s Coinbase decision rather than the Howey test.

In other federal cases, courts addressed whistleblower retaliation claims, statutes of limitations and repose, the Supreme Court’s Winter factors that are now applicable to SEC requests for injunctive relief, and other issues.

• State Court Rulings – In Reed v. Rook, the Texas Business Court addressed a dispute over lottery winnings, first ruling that it had jurisdiction over a third party’s interpretation of governance documents, then remanding the case after the plaintiff amended and eliminated certain claims. In Riverside, it dismissed claims on limitations grounds because the private equity investor in a healthcare entity was on inquiry notice of corporate fraud more than four years before the case was filed. In Kay v. Yosowitz, Houston’s 14th Court of Appeals reversed a $54 million breach of fiduciary duty award because there was insufficient evidence and plaintiff’s expert improperly assumed that all the profits of a separate business were attributable to the breach.  In Triple G Ventures, Houston’s 1st Court of Appeals dismissed fraud and fiduciary duty claims for lack of personal jurisdiction, ruling that the sale of securities to Texas residents was the fortuitous outflow of unrelated communications, not a purposeful effort to sell securities in Texas.

• Supreme Court Ruling – In the Medical Marijuana case, the U.S. Supreme Court held that a plaintiff is not categorically barred from seeking treble damages for business or property loss if the loss resulted from personal injury, adopting the Second Circuit’s minority view among circuit courts. The dissent criticized the majority for not deciding “whether lost wages and medical expenses (which are among the most common economic damages in personal-injury cases) qualified as business or property losses” and predicted confusion as lower courts grapple with RICO personal-injury cases and what losses qualify as business or property losses.
• Fifth Circuit Rulings – In Ezell, the Fifth Circuit affirmed the dismissal of derivative claims against the officers and directors of Cabot Oil & Gas. In Vuoncino v. Forterra, the Court reversed the dismissal of a whistleblower retaliation complaint against one of three corporate defendants because it plausibly alleged a claim against the company but ruled an amendment naming other corporate defendants was untimely. In the second appeal of an SEC receivership case, Barton v. SEC, the Fifth Circuit affirmed the imposition of a receivership over multiple entities that received or benefitted from assets traceable to defendant’s alleged fraudulent activities and affirmed the district court’s decision to freeze the assets of other defendantcontrolled entities until additional tracing could be completed.
• Federal District Court Rulings – In securities fraud cases, federal district courts (1) dismissed a putative securities fraud class action against AT&T without prejudice, giving plaintiffs thirty days to file an amended complaint; (2) certified a class action against Concho with two subclasses of stock purchasers; and (3) granted the motion to amend a complaint against Cassava Sciences to add allegations about an indictment and SEC charges that occurred after the amendment deadline passed. In other cases, federal district courts addressed the elements for a Dodd-Frank whistleblower retaliation claim, a cryptocurrency investment scheme, judicial notice of bankruptcy pleadings, and an attempt to enjoin a FINRA arbitration.
• State Court Rulings – In First Sabrepoint, the Texas Supreme Court partially reversed rulings relating to a “short and distort” scheme. In Westlake Longview, the Texas Business Court addressed what information qualifies for “attorney’s eyes only” protection under a protective order. In other cases, Texas appellate courts addressed a partnership books and records request, and whether fiduciary duty claims are preempted in a trade-secret-misappropriation case.

• Fifth Circuit Rulings – In a short, per curiam ruling, United States v. Clark, the Fifth Circuit rejected constitutional vagueness, separation of powers, and nondelegation challenges to certain provisions of the Commodities Exchange Act.
• Federal District Court Rulings – In Gambrill v. CS DISCO, Inc., the district court denied in part and granted in part without prejudice a motion to dismiss a class action alleging the company and its officers overstated revenue projections and failed to disclose sexual harassment allegations. In Schneider v. Natera, Inc., the district court certified a securities class action alleging false and misleading statements about the accuracy of a pre-natal test and the company’s growth prospects. In SEC v. Stanford Int’l Bank Ltd., the district court issued final judgments against Alan Stanford and others with eye-popping disgorgement and penalty amounts. In Edwards v. First Trust Portfolios, LP., the district court denied the company’s motion for summary judgment on whistleblower retaliation claims.
• State Court Rulings – In Bertucci v. Watkins, the Texas Supreme Court sidestepped the question whether a limited partner could be liable as a general partner if he acted as such but ruled the facts in that case did not support such a claim. In addition to various rulings regarding removal jurisdiction, the Texas Business Court issued a number of substantive decisions, including Primexx Energy (addressing fiduciary duty claims against a controlling partner) and C Ten (addressing the court’s jurisdiction over injunctive and declaratory relief cases and the burden-shifting framework for amount-in-controversy pleadings). In Eichner v. Ocwen Finan. Corp., the Dallas Court of Appeals confirmed that plaintiff’s claims of fraudulent and inducement and breach of contract raised a non-disparagement dispute that was exempt from dismissal under the Texas Citizens Participation Act.