Securities Litigation Update: Courts of Appeal Address the Exchange Act’s Exclusive-Jurisdiction and Non-Waiver Provisions, the Duty to Disclose, and Scienter

In the first quarter of 2022, federal appellate courts issued a quantity of thought-provoking (albeit not monumental) choices addressing the attain of the federal securities legal guidelines and, in some circumstances, highlighting probably highly effective defenses for litigants.  On this memorandum, we focus on the following developments:

The Exchange Act’s exclusive-jurisdiction and non-waiver provisions.  In Seafarers Pension Plan v. Bradway,1 a divided panel of the U.S. Courtroom of Appeals for the Seventh Circuit reinstated a declare introduced in federal courtroom beneath Part 14(a) of the Securities Exchange Act of 1934 (the “Exchange Act”), asserted derivatively by a stockholder of the Boeing Firm, based mostly on allegedly false and deceptive statements in proxy solicitation supplies.  The Courtroom declined to implement a Boeing bylaw that, on its face, would have restricted all by-product claims (together with these based mostly on alleged violations of Part 14(a)) to the Delaware Courtroom of Chancery.  As a result of federal courts have unique jurisdiction over Exchange Act claims like these asserted beneath Part 14(a), the sensible import of a opposite determination would have been to preclude the assertion of any Exchange Act claims by way of a by-product motion.  The bulk based mostly its ruling on interpretations of Delaware legislation and the Exchange Act, holding that the former didn’t allow a company bylaw that might “foreclose suit in a federal court based on federal jurisdiction,” and that the latter disallowed “waiver” of federal unique jurisdiction in order to “close all courthouse doors” to a by-product Part 14(a) declare.  The choice prompted a vigorous dissent from Choose Frank Easterbrook.  Choose Easterbrook would have enforced the bylaw as a result of (i) it didn’t forestall a plaintiff from bringing “direct” Part 14(a) claims (as to which the bylaw wouldn’t have utilized), (ii) it didn’t preclude adjudication of procedural elements of a Part 14(a) by-product declare in state courtroom (that’s, whether or not, beneath relevant state legislation, a pre-suit demand is required, and the plaintiff might correctly prosecute by-product claims on the company’s behalf), and (iii) the bylaw must be considered as an abnormal contractual forum-selection clause that permissibly waived unique federal jurisdiction.

Seafarers forecloses a selected software of an exclusive-forum bylaw, i.e., one which, by limiting federal claims to state courtroom, deprives the litigant of the proper to assert the declare in any discussion board.  The choice, nevertheless, leaves intact the holdings of the majority of courts that, in any other case, exclusive-forum bylaws are (a minimum of beneath Delaware legislation) a permissible and efficient approach to restrict multi-forum litigation and forestall inconsistent judgments.  Whereas the query is resolved for now in the Seventh Circuit, Seafarers rests on interpretations of state and federal legislation that could possibly be upended by future Delaware and/or federal choices, and leaves room for courts exterior the Seventh Circuit to attain completely different conclusions.

Limits on issuers’ disclosure obligations beneath Part 10(b).  The U.S. Courts of Appeal for the Ninth and Second Circuits lately affirmed dismissal of putative class actions asserting claims beneath Part 10(b) of the Exchange Act and Rule 10b-5, in each circumstances invoking the precept that, beneath Part 10(b), issuers wouldn’t have a generalized obligation to disclose any and all data regarding their enterprise or prospects, even when the data could possibly be deemed materials to traders.  Fairly, absent an unbiased obligation to disclose (equivalent to by statute or regulation), an issuer sometimes is required to disclose data that’s solely “necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading.”2  Making use of this idea, in Weston Household Partnership LLLP v. Twitter, Inc.,3 the Ninth Circuit affirmed dismissal of Part 10(b) claims towards Twitter, Inc. based mostly on its alleged failure to disclose software program bugs in public statements about an promoting program, reasoning that, by not particularly addressing the existence or non-existence of the software program bugs in different statements, it had no unbiased obligation to make such disclosure.  Likewise, in Arkansas Public Workers Retirement System v. Bristol-Myers Squibb Co.,4 the Second Circuit rejected claims towards Bristol-Meyers Squibb Co., holding that it didn’t mislead traders by failing to publicly disclose a key metric utilized in a most cancers drug trial, because it explicitly knowledgeable the public that it was withholding the data all through the course of its trial.

Twitter and Bristol-Myers are apt illustrations of how issuers can decrease the danger of Part 10(b) legal responsibility by cautious decision-making concerning topics that the issuer chooses to tackle, and being upfront with traders about what they’re—and aren’t—selecting to disclose.  Nonetheless, issuers ought to train warning in studying an excessive amount of into the choices.  Whether or not or not the omission of a truth renders different statements materially “misleading” is very fact-dependent, and typically a judgment name for the courtroom at the movement stage.  Nonetheless, the choices might deter plaintiff overreach in borderline circumstances, and ought to function a precious precedent for defendants in circumstances the place the issuer has by no means affirmatively addressed the allegedly omitted data, and there is no such thing as a unbiased obligation to disclose.

Pleading a “strong inference” of scienter.  The U.S. Courtroom of Appeals for the Second Circuit issued two different choices—Malik v. Community 1 Monetary Companies, Inc.5 and KBC Asset Administration NV v. Metlife, Inc.6each affirming dismissal of putative class actions beneath Part 10(b) based mostly on plaintiffs’ failure to plead a “strong inference” of “scienter” (an intent to deceive or defraud).  Any evaluation of scienter is inherently fact-dependent and will range on a case-by-case foundation.  These choices, nevertheless, present that the Second Circuit continues to take the excessive bar set in the Non-public Securities Litigation Reform Act to plead scienter significantly, and won’t hesitate to short-circuit a declare the place the inference of fraudulent intent is just not “cogent and at least as compelling” as a non-fraudulent inference. 

  1. Seafarers Pension Plan v. Bradway:  Seventh Circuit Permits Spinoff Part 14(a) Declare to Proceed in Federal Courtroom, Declines to Implement Delaware Unique-Discussion board Bylaw


  1. Background

SEC Rule 14a-9, promulgated beneath Part 14(a),7 prohibits solicitation of proxies by means of materially false or deceptive statements.8  Virtually 60 years in the past, in J.I. Case Co. v. Borak, the Supreme Courtroom acknowledged an implied non-public proper of motion for violations of Rule 14a-9 (which the statutory textual content doesn’t explicitly present for), based mostly on the “congressional perception that ‘(f)air corporate suffrage is an important right that should attach to every equity security bought on a public exchange.”9  The Court found a private right of action implicit because “among [the statute’s] chief functions is ‘the protection of investors,’ which actually implies the availability of judicial reduction the place mandatory to obtain that outcome.”10  Borak held that, beneath Part 14(a), a “right of action exists as to both derivative and direct causes”—i.e., on behalf of the company (for “damage done the corporation”) and on behalf of the particular person stockholder (for “damage inflicted directly upon the stockholder”), respectively.11

The excellence between a direct and by-product Part 14(a) declare was at the forefront of Seafarers.  The case arose out of the tragic occasions surrounding the 2018 and 2019 deadly crashes of two Boeing 737 MAX airliners in Indonesia and Ethiopia.  All 737 MAX airliners round the world had been thereafter grounded till November 2020, when the Federal Aviation Administration permitted the plane for flight.  In December 2019, Seafarers Pension Plan, a Boeing stockholder, filed a grievance in the U.S. District Courtroom for the Northern District of Illinois (the place Boeing is headquartered), asserting violations of Part 14(a) and Rule 14a-9 thereunder, derivatively on behalf of Boeing, towards Boeing officers and administrators for allegedly false and deceptive statements about the improvement and operation of the 737 MAX in Boeing’s 2017, 2018, and 2019 proxy supplies. 

The defendants moved to dismiss on discussion board non conveniens grounds, arguing that the go well with was precluded by a bylaw adopted by Boeing (which is integrated in Delaware) offering that every one by-product claims should be asserted in the Delaware Courtroom of Chancery.  In related half, the bylaw supplied:

[U]nless [Boeing] consents in writing to the choice of an alternate discussion board, the Courtroom of Chancery of the State of Delaware shall be the sole and unique discussion board for . . . any by-product motion or continuing introduced on behalf of the Company[.]   

The district courtroom (Hon. Harry D. Leinenweber) enforced the bylaw and dismissed the case.  The district courtroom was unmoved by the plaintiff’s argument that, in gentle of federal courts’ unique jurisdiction over Exchange Act claims, the bylaw successfully would preclude the plaintiff from bringing its by-product declare in any discussion board.  The district courtroom didn’t agree that there was a curtailment of plaintiff’s rights as a result of Delaware gives a declare that’s “precisely” the identical as a Part 14(a) declare, albeit beneath Delaware legislation, for failing “to disclose fully and fairly all material information within the board’s control when it seeks shareholder action.”12  Given the availability of a state-law equal, the district courtroom reasoned, it might not “thwart[]” public coverage to compel plaintiff to deliver its declare in state courtroom.13  There have been “good reasons,” the courtroom believed, for a company to restrict stockholder claims towards its officers and administrators to one discussion board, beneath a “single law,” together with avoidance of multi-forum litigation and “inconsistent verdicts.”14  The plaintiff appealed to the Seventh Circuit.

  1. The Resolution

In a choice resting on interpretations of Delaware and federal statutory legislation, a divided panel of the Seventh Circuit reversed.15  As for Delaware legislation, the foundation for the majority’s determination was Part 115 of the Delaware Normal Company Regulation, which allows Delaware companies to undertake bylaws that “require, consistent with applicable jurisdictional requirements, that any or all internal corporate claims”—together with “claims in the right of the corporation”—“be brought solely and exclusively in any or all of the courts in this State.”16  Counting on legislative historical past (and, particularly, a “synopsis” connected to the invoice that enacted the statute), the Courtroom defined that Part 115 was “not intended to authorize a provision that purports to foreclose suit in a federal court based on federal jurisdiction, nor . . . to limit or expand the jurisdiction of the Court of Chancery or the Superior Court.”17  Additional, the Courtroom discovered it important that the Legislature selected to permit claims to be restricted to “courts in this State” (i.e., federal and state courts), as opposed to “courts of this State” (i.e., solely state courts, as the Boeing bylaw purported to do).  Based mostly on these “signals,” the Courtroom construed Part 115 as prohibiting a bylaw that “close[s] all courthouse doors to [a] derivative action” over which federal courts have unique jurisdiction.18

Turning to the Exchange Act, the majority concluded that the Boeing bylaw impermissibly “close[d] all courthouse doors” in the current case.  Part 27 of the Exchange Act “provides that only federal courts may exercise jurisdiction over claims that arise under the Act,” together with by-product claims beneath Part 14(a).19  Furthermore, the Exchange Act comprises a “non-waiver” provision in Part 29(a) that “deems void contractual waivers of compliance with requirements of the Act.”20  In the majority’s view, software of the Boeing bylaw on this case would quantity to an unlawful waiver of Part 14(a) “compliance” as a result of it might “force plaintiff to raise its claims in Delaware state court, which is not authorized to exercise jurisdiction over Exchange Act claims.”21  “If that’s correct, checkmate for defendants.”22  Discovering this outcome untenable, the Courtroom reinstated plaintiff’s by-product Part 14(a) declare and remanded to the district courtroom for additional proceedings.

  1. Choose Easterbrook’s Dissent

The bulk’s reversal prompted a vigorous dissent from Choose Frank Easterbrook—former Chief Choose and a outstanding appellate jurist.  In Choose Easterbrook’s view, the majority essentially misunderstood the nature of (i) a Part 14(a) declare, (ii) a by-product motion, and (iii) the exclusive-jurisdiction and non-waiver provisions of the Exchange Act.

First, Choose Easterbrook rejected the majority’s assumption that limiting by-product claims to Delaware state courtroom—as the Boeing bylaw purported to do—would forestall all non-public enforcement of Part 14(a).  Underneath Borak, plaintiff might vogue a Part 14(a) declare as both “derivative” (on behalf of the company, as the plaintiff did in Seafarers) or “direct” (on behalf of the particular person stockholder, which the plaintiff didn’t).  “Nothing in Boeing’s bylaw,” Choose Easterbrook noticed, “strips plaintiff, as a recipient of proxy materials, of the ability to file a direct § 14(a) action in federal court.”23  Due to this fact, “it is hard to see how it has been deprived of a right to enforce § 14(a).”24

Second, it might not contravene federal unique jurisdiction to require the plaintiff, at minimal, to litigate the by-product parts of the Part 14(a) declare in state courtroom.  A by-product declare consists of three “steps”:  (1) a requirement on the board; (2) if the board rejects the demand, a lawsuit searching for permission to deliver a by-product motion; and (3) provided that the courtroom grants permission, prosecution of the substantive declare.  The primary two steps, which tackle “[w]ho speaks for the corporation,” are ruled by state (not federal legislation) legislation.  Even the place the substantive declare arises beneath federal legislation, the Supreme Courtroom has taught, “[i]t is state law . . . that determines both when demand is required and when investors can step into a corporation’s shoes.”25  Thus, Choose Easterbrook thought it permissible to require a plaintiff to litigate the first two steps “in state court, under state law, and the third (if the state judiciary authorizes plaintiff to represent Boeing) in federal court.”26 

Lastly, Choose Easterbrook disagreed with the majority’s evaluation that, on this context, unique federal jurisdiction is “non-waivable.”  To the opposite, the Supreme Courtroom has “treat[ed] exclusivity under § 29(a) as a right that people may waive.”27  Thus, the Supreme Courtroom has permitted arbitration of Exchange Act claims as a result of “the anti-waiver clause in § 29(a) . . . is limited to the Act’s substantive standards,”28 and has instructed {that a} contractual forum-selection clause is “compatible with the Exchange Act.”29  These rules utilized in Seafarers, in Choose Easterbrook’s view, as a result of, beneath Delaware legislation, bylaws are “contracts between corporations and investors.”  The Boeing bylaw, due to this fact, is “just another forum-selection clause” that permissibly “waives any right to exclusive federal jurisdiction.”30  Concluding that “there is no problem with litigating plaintiff’s claim in the courts of Delaware,” Choose Easterbrook would have affirmed dismissal of plaintiff’s declare from Illinois federal courtroom.31

  1. Implications

Seafarers is critical for Delaware companies which have adopted—or are contemplating whether or not to undertake—exclusive-forum bylaws that, like Boeing’s, restrict all by-product claims to Delaware state courtroom.  Since 2013, the Delaware Courtroom of Chancery has held repeatedly that “forum selection bylaws are statutorily valid under Delaware law.”32  Since then, forum-selection bylaws have been seen extensively as an efficient means of limiting the publicity of administrators and officers to overlapping, multi-forum litigation and inconsistent judgments (elements cited by the Seafarers district courtroom in upholding the bylaw on this case).  Seafarers doesn’t query this precedent or the validity of exclusive-forum bylaws generally.  Nor does it seem to disapprove of forum-selection bylaws that might restrict a Part 14(a) declare to a selected federal district courtroom, equivalent to the U.S. District Courtroom for the District of Delaware.  Fairly, the determination takes intention at a selected software of subset of bylaws—people who, like Boeing’s, prohibit claims over which federal courts train unique jurisdiction to state courtroom, the place such claims can’t be introduced, in order to “close all courthouse doors to [a] derivative action.”33  Now, a minimum of in the Seventh Circuit, a courtroom will disregard such a bylaw and permit the Part 14(a) by-product declare to proceed in a federal district courtroom the place jurisdiction and venue are in any other case applicable (in Seafarers, in Illinois, the place Boeing’s headquarters is situated).

Nonetheless, as Choose Easterbrook’s dissent exhibits, the majority’s conclusions are open to debate.  Delaware courts haven’t clearly delineated the scope of Part 115, and the majority’s reliance on the statute’s legislative historical past (which many jurists would disregard absent ambiguity in the statute) and a single statutory phrase (“courts in this State”) seems lower than conclusive.  Stable counterarguments exist, together with Choose Easterbrook’s that the statutory language of Part 115 “does not prohibit bylaws that limit derivative claims to state court” however, on the opposite, “authorizes such bylaws and prohibits only those that prevent litigation in state court.”34  Furthermore, Part 109(b) of the DGCL supplies, extra broadly, {that a} company’s “bylaws may contain any provision, not inconsistent with law or with the certificate of incorporation, relating to the business of the corporation, the conduct of its affairs, and its rights or powers or the rights or powers of its stockholders, directors, officers or employees.”35  The bulk refused to apply Part 109(b) based mostly on the precept that the “more specific statutory provision” (Part 115) takes priority over “more general provisions” (Part 109(b)).  However even when Part 109(b) did apply, the query begs to be requested:  is it “inconsistent” with federal legislation for a company bylaw—a assemble of state legislation—to alter or abridge the mandate of a federal statute granting federal courts unique jurisdiction over federal claims?  Issues of federal supremacy would seem to weigh towards that consequence.36

The reply, nevertheless, is just not essentially that easy.  As Choose Easterbrook noticed, the Supreme Courtroom has handled “exclusivity under § 27(a) as a right that people may waive.”37  In Shearson/American Specific, Inc. v. McMahon, furthermore, the Supreme Courtroom “reject[ed]” the argument that “§ 29(a) forbids waiver of § 27 of the Exchange Act.”38  As a substitute, the Courtroom defined, Part 29(a) forbids solely “enforcement of agreements to waive ‘compliance’ with the provisions of the statute.”39  Thus, the validity of a Boeing-style bylaw beneath Sections 27 and 29(a) ought to activate whether or not closing the door on by-product Part 14(a) claims successfully waives “compliance” with the statute.  On the one hand, even absent the danger of a Part 14(a) by-product go well with, there are a number of avenues by which company administrators might face Part 14(a) legal responsibility for false or deceptive proxy solicitation supplies.  As a number of courts have acknowledged (together with the Supreme Courtroom in Borak), “shareholders may bring both direct and derivative claims under Section 14(a) because there is a possibility that both the shareholders and the corporation were separately injured by the alleged material misstatements and omissions.”40  The SEC additionally retains authority beneath Part 21(d) of the Exchange Act to implement its personal guidelines, together with Rule 14a-9.41  And, as identified by the Seafarers district courtroom, Delaware permits a declare “precisely” the identical as a Part 14(a) by-product declare, i.e., a “derivative claim”—beneath Delaware state legislation—“against their corporate directors for failing ‘to disclose fully and fairly all material information within the board’s control when it seeks shareholder action.’”42 

On the different hand, the conclusion that precluding a by-product Part 14(a) declare doesn’t waive “compliance” assumes that there is no such thing as a elementary proper to deliver such a declare, in addition to {that a} “direct” motion will at all times be accessible to stockholder-recipients of proxy supplies.  That’s so, in accordance to Choose Easterbrook:  “[t]he federal right is for investors or the SEC to sue directly,” and “[a] derivative suit adds only a procedural snarl.”43  However Choose Easterbrook’s view is debatable.  In Borak, the Supreme Courtroom expressly acknowledged “that a right of action exists as to . . . derivative . . . causes” beneath Part 14(a).44  Furthermore, the Courtroom instructed {that a} by-product type of motion could also be the most well-liked enforcement mechanism in most Part 14(a) circumstances.  That’s as a result of “[t]he injury which a stockholder suffers from corporate action pursuant to a deceptive proxy solicitation ordinarily flows from the damage done the corporation, rather than from damage inflicted directly upon the stockholder.  The damage suffered results not from the deceit practiced on him alone but rather from the deceit practiced on the stockholders as a group.”45  Borak didn’t squarely tackle whether or not, in such cases, a stockholder can be restricted to bringing a by-product declare, or whether or not it might select between two equally accessible options (a by-product or direct declare).  In Delaware, nevertheless, courts have held that, to assert a direct declare, a stockholder “must demonstrate that the duty breached was owed to the stockholder and that he or she can prevail without showing an injury to the corporation.”46  If federal courts had been to undertake the identical method (an open query), an exclusive-forum bylaw like Boeing’s successfully would wipe out a swath of potential Part 14(a) legal responsibility, strengthening the argument that “compliance” has been waived.

Regardless of how federal courts resolve the conundrum, it’s unlikely that the answer is to cut up the distinction, and divide procedural and substantive parts of the by-product declare between state and federal courtroom, respectively, as Choose Easterbrook suggests.  As the majority famous, “the dissent does not cite any precedent adopting its solution for this case.”47  The division, furthermore, would undercut nicely established notions that judicial and social gathering effectivity is promoted by litigating in a single discussion board, and arguably run afoul of the rule towards “claim splitting,” which “prohibits a plaintiff from bringing a new case raising issues arising out of the same transaction or occurrence as an earlier case, when those issues could have been raised in the first litigation.”48  Underneath the rule, “multiple legal theories supporting relief on account of one transaction must be litigated at one go.”49

In the finish, Seafarers is a choice by two circuit judges, in a single circuit.  Whereas binding on district courts in the Seventh Circuit for now, the determination hinges on interpretations of each Delaware legislation and the Exchange Act, both or each of which could possibly be upended by future choices of the Delaware and/or U.S. Supreme Courtroom.  In the meantime, courts exterior the Seventh Circuit shall be free to consider these points afresh in future circumstances, and to attain their very own conclusions.  Thus, whereas Seafarers might briefly encourage extra plaintiffs to file duplicative Part 14(a) by-product actions in federal courtroom, regardless of the presence of a Delaware state exclusive-forum bylaw, the remaining phrase on the query seemingly has not been written.

  1. Ninth and Second Circuits Spotlight Limits on Issuers’ Disclosure Obligations in Affirming Dismissal of Part 10(b) Claims


  1. Weston Household Partnership LLLP v. Twitter, Inc. (ninth Cir.)


  1. Background

Twitter, Inc., like different social-media corporations, doesn’t cost its customers straight however relatively earns cash by promoting.  To reinforce the effectiveness of the promoting, and its worth to advertisers, Twitter shares sure consumer information with advertisers, equivalent to cellphone location information.  Due to privateness considerations, nevertheless, Twitter has allowed its customers to choose out of data-sharing since 2017.  Weston Household involved a selected promoting program, Twitter’s Cell App Promotion (“MAP”) product, which allowed advertisers to immediate customers to obtain the advertisers’ apps onto their telephones and tablets.  As with different promoting applications, MAP was handiest when coupled with data-sharing, so, for instance, the advertiser might know the consumer’s working system and what apps the consumer has already downloaded.  Twitter had touted its MAP program as an essential driver of future development, and invested in an improved next-generation MAP product.

In Might 2019, Twitter introduced in a weblog submit that it had found software program bugs that induced inadvertent sharing of cellphone location information.  Twitter, nevertheless, assured its customers that it had resolved the downside.  Then, on August 6, 2019, Twitter introduced that it once more had by accident shared information with advertisers from customers who had opted out of data-sharing.  In an accompanying submit, Twitter said, “[w]e fixed these issues on August 5, 2019.”  What Twitter didn’t reveal, nevertheless, was that the “fix” was not to get rid of the software program bugs, however to shut down data-sharing for its MAP promoting program altogether.  In so doing, Twitter not solely stopped unauthorized data-sharing, however blocked transmission of information that might bolster the worth of MAP to advertisers and Twitter.  Virtually three months later, Twitter introduced a $25 million income shortfall ensuing from the impact of software program bugs on its MAP program, main to a downgrade of Twitter’s inventory and 20% drop in its inventory worth. 

Following the announcement, a Twitter investor filed a putative class motion in the Northern District of California on behalf of all purchasers of Twitter’s inventory between July 26, 2019, and October 23, 2019, alleging violations of Part 10(b) and Rule 10b-5.  In essence, plaintiffs’ concept was that numerous public statements by Twitter regarding its merchandise and MAP—for instance, that it was “continuing [its] work to increase the stability, performance, and flexibility of [its] ad platform and [MAP]” however was “not there yet”—had been false or materially deceptive due to non-disclosure of the software-bug situation.  The district courtroom (Gonzalez Rogers, J.) dismissed plaintiffs’ claims for failure to allege materials misstatements or omissions, or to plead info establishing a robust inference of scienter.  Plaintiff appealed to the Ninth Circuit.

  1. The Resolution

A unanimous Ninth Circuit panel affirmed.50  The premise of plaintiff’s fraud concept was that Twitter was obligated to establish the danger introduced by the software program bugs affecting the prospects of its MAP program in public statements over the class interval.  The Courtroom, nevertheless, rejected that premise, explaining that “companies do not have an obligation to offer an instantaneous update of every internal development, especially when it involves the oft-tortuous path of product development.”51  Fairly, corporations are required to disclose a improvement provided that “its omission would make other statements materially misleading.”52  On this occasion, and opposite to plaintiff’s competition, Twitter’s failure to particularly establish software program bug points didn’t depart a “misimpression” that work to enhance MAP was “on track.”  Fairly, Twitter’s statements about MAP progress had been certified and non-definitive, e.g., that it was “continuing [its] work to increase the stability, performance, and flexibility of . . . [MAP] . . . but we’re not there yet” and “MAP work is ongoing.”  At most, the firm’s vaguely optimistic statements about MAP had been “so imprecise and noncommittal that they [were] incapable of objective verification” and, due to this fact, not actionable.53

Likewise, the Courtroom rejected the argument that the danger warning in Twitter’s July 2019 Type 10-Q—that “products and services may contain undetected software errors, which could harm our business and operating results”—was materially deceptive as a result of the danger had already materialized by then.  First, the Courtroom held that plaintiff had not adequately alleged that defendants knew of the software program bugs at the time:  the undeniable fact that Twitter referred to a non-specific “fix” in August and two months later had acknowledged the existence of software-bug points as hampering MAP was not a adequate foundation from which to infer data in July.54  Second, plaintiff alleged no info to recommend that, at the time of the 10-Q, Twitter was conscious of or anticipated any materials affect on the MAP program—or its backside line—from software program bugs.55  Lastly, the Courtroom held that Twitter’s July statements had been topic to the protections of the Exchange Act’s safe-harbor provisions:  Twitter recognized the statements as forward-looking at the time and added “very detailed meaningful cautionary language that ‘identif[ied] important factors that could cause actual results to differ materially from those in the forward-looking statement[s].’”56

  1. Arkansas Public Workers Ret. System v. Bristol-Myers Squibb Co. (2nd Cir.)


  1. Background

This case arose from a medical trial to decide whether or not a drug in improvement can be more practical than chemotherapy in treating a standard type of lung most cancers.  In 2009, Bristol-Myers acquired an organization growing a drug known as “nivolumab,” later marketed as “Opdivo.”  Opdivo was a sort of drug known as a PD-1 checkpoint inhibitor.  The intention of a PD-1 checkpoint inhibitor is to forestall the interplay in most cancers cells between a protein known as PD-L1 and one other protein known as PD-1 discovered on immune system T-cells.  In wholesome cells the interplay is salutary, stopping T-cells from attacking the wholesome cells.  However in most cancers cells the presence of PD-L1 is counterproductive, blocking the immune system from attacking the tumor.  A PD-1 checkpoint inhibitor, due to this fact, might function a most cancers remedy by stopping PD-1/PD-L1 interplay and permitting T-cells to act on the most cancers cells.  Moreover, analysis has revealed that the efficacy of a PD-1 checkpoint inhibitor is positively correlated with the share stage of PD-L1 current in the affected person’s most cancers cells, referred to as “expression.”  In different phrases, the extra PD-L1 there may be to inhibit (i.e., the better “expression” share), the extra seemingly it’s that the checkpoint inhibitor will make a distinction in treating the most cancers. 

On January 19, 2014, Bristol-Myers introduced a medical trial to check Opdivo’s efficacy as a remedy of non-small cell lung most cancers, the most typical type of lung most cancers in the United States.  Bristol-Myers publicly said that the trial would contain sufferers “strongly” expressing PD-L1.  Over the course of the research, nevertheless, Bristol-Myers by no means quantified as a share what it meant by a “strong” expression.  At the time of the research there was little consensus in the business or amongst researchers as to what stage of PD-L1 constitutes “strong” expression.  For instance, a 2015 survey of numerous research famous that many used 5% expression, whereas others used 1% or 10%.  In June 2016, furthermore, Merck & Co. introduced a profitable medical trial for its PD-1 checkpoint inhibitor that it was growing, known as “Ketruda.”  Merck additional disclosed that, for the function of its trial, it outlined “strong” expression as PD-L1 expression better than 50%.  

On August 5, 2016, Bristol-Meyers introduced that its trial for Opdivo had failed:  the drug didn’t present higher outcomes than chemotherapy in sufferers “strongly” expressing PD-L1.  As well as, with its announcement, Bristol-Myers revealed for the first time that it had outlined “strong” expression for the function of the trial as 5% or better.  Following the announcement, Bristol-Myers’ inventory worth fell, and, thereafter, Bristol-Myers traders introduced a putative class motion in the Southern District of New York, asserting violations of Part 10(b) of the Exchange Act and Rule 10b-5.  In accordance to plaintiffs, Bristol-Myers deliberately misled traders about the design and chance of success of its medical trial by stating that it concerned sufferers “strongly” expressing PD-L1, regardless of allegedly understanding of an business consensus that 5% expression was not “strong.”  To bolster its allegations, plaintiffs alleged {that a} medical-oncologist professional would testify that there was an industrywide consensus that 5% meant “low or minimal expression” and 50% was “strong” expression.  The district courtroom (Vyskocil, J.), nevertheless, dismissed plaintiffs’ claims, holding that plaintiffs failed to allege materials misrepresentations or omissions or info giving rise to a robust inference of scienter.  Plaintiffs appealed.

  1. The Resolution

A unanimous panel of the Second Circuit affirmed.57  Part 10(b), the Courtroom defined, doesn’t create an affirmative obligation to disclose “any and all material information.”58  Disclosure is required solely when there may be an unbiased obligation to disclose or “when [it is] necessary to make statements made, in the light of the circumstances under which they were made, not misleading.”59  On this case, Bristol-Myers had no obligation to disclose the exact share it used, and thought-about “strong” expression, and in actual fact made clear that it was not disclosing that data.  Regardless of plaintiffs’ competition that there was an industrywide consensus as to what constituted “strong” expression, furthermore, the allegations of the grievance instructed in any other case.  The grievance itself pointed to a variety of thresholds utilized in different research, from 1% to 49%, reflecting an absence of consensus.  And plaintiff’s competition that an professional would testify to a 50% consensus was unavailing, as a result of the solely info on which the professional based mostly his opinion had been the identical various thresholds alleged in the grievance, which the Courtroom had discovered inadequate. 

Nor did Bristol-Myers mislead traders with vaguely optimistic statements about the trial’s prospects, equivalent to that the research was designed with “great care” or that the firm had “great confidence” in it.  Plaintiffs alleged no info indicating that these statements of opinion had been false, or not genuinely held at the time they had been made.  What’s extra, every assertion was accompanied by language cautioning that the trial might fail, thereby invoking the protections of the Exchange Act’s secure harbor for forward-looking statements.60  Accordingly, none of the statements was actionable.

Lastly, the Courtroom held that plaintiffs failed to allege info giving rise to a robust inference of scienter.  The Courtroom rejected plaintiffs’ concept that defendants had motive to commit fraud so as to maintain the firm’s inventory worth whereas insiders bought shares at a revenue:  the grievance didn’t allege any uncommon or disproportionate buying and selling patterns amongst Bristol-Myers insiders throughout the class interval, and the majority of gross sales had been carried out pursuant to a Rule 10b5-1 buying and selling plan, or for procedural causes.61  Additional, there was no proof of aware misbehavior or recklessness, given the lack of business consensus over the threshold constituting “strong” expression.  The departure of high-level workers following the failed trial mirrored not fraudulent intent however, relatively, the significance the firm positioned on the trial’s success.62

  1. Implications

Twitter and Bristol-Myers reaffirm the precept that, a minimum of when it comes to legal responsibility beneath Part 10(b) and Rule 10b-5, there is no such thing as a generalized obligation for issuers to disclose any and all materials data to the public regarding their enterprise or prospects.  Fairly, disclosure is required solely when there may be an unbiased obligation to disclose (e.g., beneath a statute or regulation) or “when necessary ‘to make . . . statements made, in the light of the circumstances under which they were made, not misleading.’”63  Thus, as the Supreme Courtroom has famous, even with respect to materials data, “companies can control what they have to disclose under these provisions by controlling what they say to the market.”64  In Twitter, that meant not making any particular representations about the existence or non-existence of software program bugs hampering the firm’s MAP program, or about the chance of whether or not the program would achieve success, prior to the announcement of a income shortfall.  Equally, in Bristol Myers, the firm was specific in not defining what it meant by a “strong” expression of PD-L1, and always noting in public statements that its trial might fail.

Each Twitter and Bristol-Myers additionally spotlight the continued viability of the Exchange Act’s secure harbor for “forward-looking statements” recognized as such and accompanied by “meaningful cautionary language.”65  Underneath that provision, a defendant is just not liable if (1) “the forward-looking statement is identified and accompanied by meaningful cautionary language,” (2) the forward-looking assertion “is immaterial,” or (3) “the plaintiff fails to prove that [the forward-looking statement] was made with actual knowledge that it was false or misleading.”66  To take benefit of the “meaningful cautionary language” prong, the defendant should present not solely that the challenged assertion was “forward-looking”—i.e., a press release regarding income projections, plans or goals for future operations, or future financial efficiency67—however that the cautionary language accompanying it “was not boilerplate and conveyed substantive information.”68  In Twitter, the Ninth Circuit discovered the assertion that the firm was “continuing [its] work to increase the stability, performance and scale of [its] ads platform and [MAP]” forward-looking, and the danger warning that the firm’s “product and services may contain undetected software errors” sufficiently significant, to qualify for safe-harbor safety.69  So too in Bristol-Myers, with respect to vaguely optimistic statements about the Opdivo trial, accompanied by cautionary language that recognized “the relevant risk—that the trial may fail to reach its primary endpoint.”70 

Whereas defenses based mostly on absence of an obligation to disclose and the secure harbor are highly effective in concept, it is vital to understand that each are context-dependent, and courts might attain differing conclusions based mostly on delicate gradations of the info.  For instance, simply final 12 months, the Second Circuit reversed decrease courtroom choices dismissing Part 10(b) claims in two circumstances the place it discovered company disclaimers insufficient to negate the existence of the alleged materials misrepresentation.  In In re Synchrony Monetary Securities Litigation, the Courtroom held {that a} bank card firm CEO’s assertion that it didn’t obtain “any pushback on credit” from retail companions was materially deceptive based mostly on allegations that the firm’s principal retail associate (Walmart) had objected to modifications in underwriting requirements, regardless of the firm’s contemporaneous warnings about elevated competitors for renewals.71  And in Altimeo Asset Administration v. Qihoo 360 Know-how Co. Ltd., the Courtroom reinstated Part 10(b) claims premised on the defendants’ alleged failure to disclose in proxy supplies a plan to relist the post-merger firm on a international trade.  In so ruling, the Courtroom parted methods with the district courtroom, which concluded that the proxy supplies adequately disclosed the “possibility” of a relisting, and the plaintiffs failed to allege a “concrete” pre-merger relisting plan in order to render the disclosure deceptive.72  In reversing rigorously reasoned district courtroom choices discovering disclaimers to be adequate, these circumstances present what a detailed name the evaluation may be.

Furthermore, issuers can not evade Part 10(b) legal responsibility with a blanket coverage of not revealing dangers to the firm’s enterprise or prospects.  As courts uniformly acknowledge, an obligation to disclose could also be based mostly on “an affirmative obligation set by regulation or statute, or it may derive from a necessity to avoid misleading statements.”73  And Objects 105 and 303 of Regulation S-Okay, in actual fact, do impose on issuers an affirmative obligation to disclose “risk factors” in sure public filings.74  Merchandise 105 (previously Merchandise 503) requires “discussion of the most significant factors that make the offering speculative or risky,” and “only applies to the ‘most significant’ risk factors.”75  Merchandise 303, in flip, requires a prospectus to clarify “[i]f there has been an important change in [the] company’s business or environment that significantly or materially decreases the predictive value of [the] reported results’ so as to prevent ‘the latest reported results from misleading potential investors.’”76 Consequently, the query is just not whether or not issuers have any obligation to disclose dangers in the first place—they do.  Fairly, the activity for issuers each to adjust to affirmative disclosure obligations and say sufficient (together with by approach of substantive disclaimers) to be certain that the statements made aren’t materially deceptive.  

The flip facet of the coin is that plaintiffs, too, should make an evaluation earlier than searching for to impose Part 10(b) legal responsibility based mostly on the issuance of information negatively affecting an organization’s prospects.  Particularly, plaintiffs have to meet the heightened pleading necessities attendant to a Part 10(b) declare, together with “[s]pecify[ing] each statement alleged to have been misleading, the reason or reasons why the statement is misleading, and . . . stat[ing] with particularity facts giving rise to a strong inference that the defendant acted with the required state of mind.”77  In borderline circumstances, then, Twitter and Bristol-Meyers might deter litigation.  And the place plaintiffs do file go well with, the choices ought to show precious in defending towards plaintiff overreach the place the issuers rigorously managed the data move, complied with all affirmative disclosure necessities, and included substantive cautionary language in public filings overlaying the allegedly undisclosed data.

  1. Second Circuit Affirms Dismissal of Part 10(b) Claims for Failure to Plead “Strong Inference” of Scienter

One of the threshold hurdles a plaintiff should overcome to plead a personal securities fraud declare beneath Part 10(b) of the Exchange Act and Rule 10b-5 is pleading with the requisite specificity the component of scienter, i.e., “a mental state embracing intent to deceive, manipulate, or defraud.”78  Enacted by Congress as “a check against abusive litigation by private parties,” the Non-public Securities Litigation Reform Act of 1995 imposes heightened pleading necessities for scienter.79  Part 21D(b)(2) requires a grievance, with respect to every alleged act or omission, to “state with particularity facts giving rise to a strong inference that the defendant acted with the required state of mind.”80  To ascertain the requisite “strong inference,” it isn’t adequate to allege “facts from which, if true, a reasonable person could infer that the defendant acted with the required intent”; that measure “does not capture the stricter demand Congress sought to convey in § 21D(b)(2).”81  Fairly, “an inference of scienter must be more than merely plausible or reasonable—it must be cogent and at least as compelling as any opposing inferences of nonfraudulent intent.”82 

The Supreme Courtroom has left it to the circuit courts to implement this framework.  Thus, the Second Circuit has articulated its personal check, holding {that a} “strong inference” is pled the place the grievance alleges info displaying both (1) “motive and opportunity to commit the fraud” or (2) “strong circumstantial evidence of conscious misbehavior or recklessness.”83  “Recklessness,” in flip, is established provided that a defendant’s conduct is “an extreme departure from the standards of ordinary care to the extent that the danger was either known to the defendant or so obvious that the defendant must have been aware of it.”84

  1. Malik v. Community 1 Monetary Companies, Inc. 

In Malik v. Community 1 Monetary Companies, Inc., the plaintiff asserted a Part 10(b) declare on behalf of a putative investor class based mostly on allegations that Community 1 Monetary Companies, an funding financial institution, facilitated the illegal issuance of unregistered securities, at inflated costs, by Longfin Corp., a now-defunct expertise and finance firm.  The crux of plaintiff’s allegations was that Community 1, as lead underwriter for Longfin’s providing of securities beneath Regulation A (an exemption from registration necessities beneath the Securities Act of 1933), was conscious {that a} important quantity of the securities to be issued weren’t really exempt from registration necessities as a result of that they had beforehand been transferred to Longfin insiders for no consideration.  Consequently, plaintiff alleged, Longfin invalidly reached the one million-share minimal for its shares to be listed on the NASDAQ and, thus, there was no foundation for Longfin’s shares to be traded in any respect, not to mention at the costs at which they had been bought by traders.

The district courtroom (Hon. Denise Cote, S.D.N.Y.) dismissed the Part 10(b) declare towards Community 1, and a Second Circuit panel affirmed, holding that scienter was insufficiently pled.85  Making use of the Second Circuit’s two-prong check, the Courtroom declined to infer that Community 1 had “motive and opportunity” to take part in Longfin’s alleged scheme to circumvent the NASDAQ itemizing necessities, which plaintiff tried to present based mostly on the allegation that Community 1 would “receive larger commission on the funds [Longfin] unlawfully raised in the Offering.”  Though “financial gain” typically “weigh[s] heavily in favor of a scienter inference,” motive and alternative can’t be proven just by alleging, as right here, “common goals” equivalent to a need to improve compensation or maximize revenue.86  Nor, in the Courtroom’s view, did plaintiffs recite info displaying aware misbehavior or recklessness.  The proof cited by plaintiffs (together with a Longfin management log and financial institution statements) didn’t clearly evince that Longfin had transferred securities to insiders without any consideration, or else was not evidently shared with Community 1 upfront of Longfin’s providing.  Thus, the Courtroom couldn’t infer an inference of fraudulent intent on the half of Community 1 that was “cogent and at least as compelling” as the rationalization that Community 1 was innocently unaware of the alleged foundation for non-exemption.87

  1. KBC Asset Administration NV v. MetLife, Inc. 

KBC Asset Administration NV v. Metlife, Inc. concerned an alleged scheme in reference to MetLife’s pension danger administration enterprise to offload liabilities and maximize revenue by releasing pension funds earmarked for future retirees.  MetLife allegedly completed this by a observe of sending letters to annuitants (at ages 65 and 70½) and presuming that people had been deceased if they didn’t reply, giving it a foundation to launch the funds as “reserves” for future liabilities.  Plaintiffs alleged, on behalf of a putative class of MetLife traders, that MetLife and its executives, in failing to disclose this observe, made materially false statements regarding MetLife’s monetary situation and inner controls, artificially boosting MetLife’s inventory worth in violation of Part 10(b).

The district courtroom (Hon. Sterling Johnson, Jr., E.D.N.Y.) dismissed the Part 10(b) claims and, once more, the Second Circuit affirmed based mostly on inadequate allegations of scienter.  Plaintiffs tried to display “conscious misbehavior” by approach of a 2012 settlement settlement between MetLife and state regulators regarding its failure to use the Social Safety Administration’s Demise Grasp File to establish deceased people who had life insurance coverage insurance policies or annuity contracts.  The Courtroom rejected the allegation, nevertheless, as a result of (though superficially comparable in relating to the identification of deceased people) it had nothing to do with the particular observe at situation in the grievance, and plaintiffs didn’t allege that MetLife had violated the settlement settlement the least bit.  Nor was the Courtroom persuaded by the undeniable fact that three MetLife executives resigned in 2018 and 2019.  Though suspiciously timed resignations could also be suggestive of scienter, that’s so solely “in the context of other compelling circumstantial allegations supporting scienter” not current on this case.88  Lastly, a 2016 inner audit report discussing “control weaknesses” regarding “retirement letter mailings” instructed solely that recipients had been “alerted to possible issues” regarding MetLife’s methodology of finding pension annuitants; it didn’t assist an inference of “fraudulent intent or recklessness.”89  Briefly, plaintiffs failed to allege “any specific facts” displaying that MetLife and its executives supposed to defraud shareholders; “poor business judgment,” by itself, “is not actionable under section 10(b) and Rule 10b-5.90

  1. Implications

Analysis of scienter is fact-dependent, and no hard-and-fast rule may be drawn from any specific determination.  Courts invariably will decide whether or not the requisite “strong inference” is pled on a case-by-case foundation, figuring out, based mostly on the particular allegations, the events’ respective arguments, and the courtroom’s personal judgment and expertise, whether or not an inference of fraudulent intent is “cogent and at least compelling” instead, harmless rationalization for defendants’ conduct.  Nonetheless, Malik and KBC must be of curiosity to securities litigants as a result of they present that the Second Circuit—nonetheless the most fertile floor nationwide for securities class-action filings91—will intently scrutinize a plaintiff’s factual allegations, and not hesitate to minimize off claims absent a “strong inference” of fraudulent intent.  Defendants, in the Second Circuit and elsewhere, ought to depart no stone unturned in difficult Part 10(b) claims on scienter grounds.


1  23 F.4th 714 (seventh Cir. 2022).

2  17 C.F.R. § 240.10b-5(b).

3  — F.4th –, No. 20-17465, 2022 WL 853252 (ninth Cir. Mar. 23, 2022).

4  28 F.4th 343 (2nd Cir. 2022).

5 No. 20-2948-CV, 2022 WL 453439 (2nd Cir. Feb. 15, 2022).

6  No. 21-29-CV, 2022 WL 480213 (2nd Cir. Feb. 17, 2022).

7  Part 14(a) supplies:  “It shall be unlawful for any person, by the use of the mails or by any means or instrumentality of interstate commerce or of any facility of a national securities exchange or otherwise, in contravention of such rules and regulations as the Commission may prescribe as necessary or appropriate in the public interest or for the protection of investors, to solicit or to permit the use of his name to solicit any proxy or consent or authorization in respect of any security (other than an exempted security) registered pursuant to section 781 of this title.”  15 U.S.C. § 78n(a).

8  Rule 14a-9 supplies:  “No solicitation subject to this regulation shall be made by means of any proxy statement . . . containing any statement which, at the time and in the light of the circumstances under which it is made, is false or misleading with respect to any material fact, or which omits to state any material fact necessary in order to make the statements therein not false or misleading. . . .”  17 C.F.R. § 240.14a-9. 

9  377 U.S. 426, 431 (1964) (quoting H.R. Rep. No. 1383, 73d Cong., 2nd Sess., 13).

10 Id. at 432 (quoting S. Rep. No. 792, 73d Cong., 2nd Sess., 12).

11 Id. at 431-32.

12 Seafarers Pension Plan v. Bradway, No. 19 C 8095, 2020 WL 3246326, at *2 (N.D. Sick. June 8, 2020).

13 Id. at *3 (quoting Bonny v. Society of Lloyd’s, 3 F.3d 156, 160 (seventh Cir. 1993)).

14 Id.

15 The panel consisted of Circuit Judges Diane P. Wooden, David F. Hamilton, and Frank H. Easterbrook.

16 Seafarers, 23 F.4th at 720 (quoting 8 Del. C. § 115).

17 Id. (quoting S.B. 75, 148th Gen. Assemb., Reg. Sess. (Del. 2015) (synopsis)).

18 Id. at 720.

19 Id. at 719 (citing 15 U.S.C. § 78aa). 

20 Id. at 720 (citing 15 U.S.C. § 78cc(a)).

21 Id.

22 Id.

23 Id. at 729 (Easterbrook, J., dissenting).

24 Id.

25 Id. at 729 (citing Kamen v. Kemper Fin. Servs., Inc., 500 U.S. 90 (1991)). 

26 Id. at 730.

27 Id.

28 Id. (citing Shearson/Am. Specific, Inc. v. McMahon, 482 U.S. 220 (1987)).

29 Id. (citing Scherk v. Alberto-Culver Co., 417 U.S. 506 (1974)).

30 Id.

31 Id. at 732.

32 Boilermakers Loc. 154 Ret. Fund v. Chevron Corp., 73 A.3d 934, 954 (Del. Ch. 2013); see Sylebra Capital Companions Grasp Fund, Ltd. v. Perelman, C.A. No. 2019-0843-JRS, 2020 WL 5989473, at *10 (Del. Ch. Oct. 9, 2020) (“[t]he ability of a board of directors of a Delaware corporation to adopt binding bylaws is an essential part of the contract stockholders assent to when they buy stock”); Metropolis of Windfall v. First Residents BancShares, Inc., 99 A.3d 229, 242 (Del. Ch. 2014) (“[T]hat there is currently a controlling stockholder who may favor a board-adopted forum selection bylaw . . . does not make it per se unreasonable to enforce the bylaw.”).

33 Seafarers, 23 F.4th at 720.

34 Id. at 731 (emphasis in unique).

35 8 Del. C. § 109(b). 

36 U.S. Const. artwork. VI, cl. 2 (“This Constitution, and the Laws of the United States which shall be made in Pursuance thereof; and all Treaties made, or which shall be made, under the Authority of the United States, shall be the supreme Law of the Land. . . .”).

37 Seafarers, 23 F.4th at 730.

38 Shearson/Am. Specific, 482 U.S. at 227. 

39 Id. at 228.

40 In re Financial institution of Am. Corp. Sec., Spinoff, & Emp. Ret. Earnings Sec. Act (ERISA) Litig., 757 F. Supp. 2nd 260, 292 (S.D.N.Y. 2010); see additionally Yamamoto v. Omiya, 564 F.2nd 1319, 1326 (ninth Cir. 1977) (“[I]n light of . . . Borak . . . , a shareholder who alleges a deceptive or misleading proxy solicitation is entitled to bring both direct and derivative suits.  The former action protects the shareholders’ interest in ‘fair corporate suffrage.’”). 

41 See 15 U.S.C. § 78u(d).

42 Seafarers, 2020 WL 3246326, at *2 (citing Stroud v. Grace, 606 A.2nd 75, 84 (Del. 1992)).

43 Seafarers, 23 F.4th at 729.

44 Borak, 377 U.S. at 432. 

45 Id.

46 Tooley v. Donaldson, Lufkin & Jenrette, Inc., 845 A.2nd 1031, 1039 (Del. 2004) (emphasis added).

47 Seafarers, 23 F.4th at 728.

48 Rexing High quality Eggs v. Rembrandt Enters., Inc., 953 F.3d 998, 1002 (seventh Cir. 2020).

49 Id. (quotation omitted); see additionally Maldonado v. Flynn, 417 A.2nd 378, 382 (Del. Ch. 1980) (“The rule against claim splitting is an aspect of the doctrine of res judicata and is based on the belief that it is fairer to require a plaintiff to present in one action all of his theories of recovery relating to a transaction, and all of the evidence relating to those theories, than to permit him to prosecute overlapping or repetitive actions in different courts or at different times.”).

50 The panel consisted of Circuit Judges Daniel P. Collins and Kenneth Okay. Lee and District Choose Jill A. Otake of the District of Hawaii, sitting by designation.

51 Twitter, 2022 WL 853252, at *6.

52 Id. (citing Matrixx Initiatives, Inc. v. Siracusano, 563 U.S. 27, 45 (2011)). 

53 Id.

54 Id. at *7-8.

55 Id. at *8.

56 Id. (quoting 15 U.S.C. § 78u-5(c)(1)).

57 The panel consisted of Circuit Judges Debra Ann Livingston, Dennis Jacobs, and Steven J. Menashi.

58 Bristol-Myers, 28 F.4th at 352-53 (quoting Matrixx, 563 U.S. at 44). 

59 Id. (quoting Kleinman v. Elan Corp., plc, 706 F.3d 145, 153 (2nd Cir. 2013)).

60 Id. at 354-55 (citing 15 U.S.C§ 78u-5(c)). 

61 Id. at 355-56; see 17 C.F.R. § 240.10b5-1(c) (figuring out adoption of a “written plan for trading securities” as an affirmative protection in insider buying and selling circumstances).

62 Id. at 356.

63 Matrixx, 563 U.S. at 45 (quoting 17 C.F.R. § 240.10b-5(b)).

64 Id.

65 See 15 U.S.C. § 78u-5(c). 

66 Slayton v. Am. Specific Co., 604 F.3d 758, 766 (2nd Cir. 2010); see Wochos v. Tesla, Inc., 985 F.3d 1180, 1191-92 (ninth Cir. 2021).

67 See 15 U.S.C. § 78u-5(i)(1).

68 Slayton, 604 F.3d at 772.

69 Twitter, 2022 WL 853252, at *7-8.

70 Bristol-Myers, 28 F.4th at 355.

71 See In re Synchrony Fin. Sec. Litig., 988 F.3d 157, 168-70 (2nd Cir. 2021).

72 See Altimeo Asset Mgmt. v. Qihoo 360 Tech. Co., 19 F.4th 145, 150-52 (2nd Cir. 2021).

73 In re SunEdison, Inc. Sec. Litig., 300 F. Supp. 3d 444, 472 (S.D.N.Y. 2018) (emphasis added).

74 See 17 C.F.R. § 229.105(a) (Merchandise 105) (“Where appropriate, provide under the caption ‘Risk Factors’ a discussion of the material factors that make an investment in the registrant or offering speculative or risky.”); 17 C.F.R. § 229.303(b)(2)(ii) (Merchandise 303) (“Describe any known trends or uncertainties that have had or that are reasonably likely to have a material favorable or unfavorable impact on net sales or revenues or income from continuing operations.”).

75 In re Lions Gate Entmt. Corp. Sec. Litig., 165 F. Supp. 3d 1, 21 (S.D.N.Y. 2016) (citations omitted).

76 Willard v. UP Fintech Holding Ltd., 527 F. Supp. 3d 609, 619 (S.D.N.Y. 2021) (quoting Lowinger v. Pzena Inv. Mgmt., Inc., 341 F. App’x 717, 720 (2nd Cir. 2009)). 

77 15 U.S.C. § 78u-4(b)(1), (b)(2).

78 Ernst & Ernst v. Hochfelder, 425 U.S. 185, 194 n.12 (1976). 

79 Tellabs, Inc. v. Makor Points & Rts., Ltd., 551 U.S. 308, 313 (2007).

80 15 U.S.C. § 78u-4(b)(2)(a) (emphasis added).

81 Tellabs, 551 U.S. at 314. 

82 Id. (emphasis added).

83 Emps.’ Ret. Sys. of Gov’t of the Virgin Islands v. Blanford, 794 F.3d 297, 306 (2nd Cir. 2015) (quotation omitted). 

84 In re Carter-Wallace, Inc., Sec. Litig., 220 F.3d 36, 39 (2nd Cir. 2000) (quotation omitted). 

85 The Courtroom noticed that Community 1—as an underwriter—had no obligation beneath the NASDAQ guidelines to assure Longfin’s compliance NASDAQ itemizing standards; NASDAQ Rule 5205 requires the “Company” (i.e., Longfin) to fulfill these guidelines, not the underwriter.  Community 1, 2022 WL 453439, at *2.

86 Id. at *3.

87 Id. at *4.

88 Metlife, 2022 WL 480213, at *3. 

89 Id.

90 Id. (quoting Rothman v. Gregor, 220 F.3d 81, 90 (2nd Cir. 2000).

91 See Janeen McIntosh & Svetlana Starykh, NERA Financial Consulting, Current Traits in Securities Class Motion Litigation:  2021 Full-12 months Evaluation 1, 5 (2022) (noting that in 2021 40% of all class-action filings had been in the Second Circuit, the most nationwide). 

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