2009 Year In Review: Selected Federal Securities Litigation Developments

Article by Brian A. Herman, John M. Vassos, Elizabeth A. Frohlich, Karen Pieslak Pohlmann and Christian J. Mixter Morgan Lewis is pleased to present our second annual review of selected decisions from the United States Courts of Appeal addressing private actions under the federal securities laws.

We summarize below key decisions analyzing claims by private litigants under Sections 10(b), 14(a), 16, 20(a), and 20(A) of the Securities Exchange Act of 1934 and Sections 11, 12, and 15 of the Securities Act of 1933.1 Our review includes 64 opinions, organized by topic and, within each topic, by circuit in chronological order, allowing you to quickly identify the most recent authority on particular issues in any jurisdiction.2 A copy of the full review can be found at http://www.morganlewis.com/pubs/LIT_2009SECLITDvlpmntsWP_Jan2010.pdf (http://tinyurl.com/yfkct9j ).

We have focused on the following topics, which are often dispositive in high-stakes private securities litigation: scienter, loss causation, SLUSA, class certification; Stoneridge Investment Partners, LLC v. Scientific-Atlanta, Inc., 552 U.S. 148, 128 S. Ct. 761, 169 L. Ed. 2d 627 (Jan. 15, 2008); statutes of limitations; materiality; falsity; and several other miscellaneous topics. We have spotted the following trends.

First, as in 2008, scienter was this year's hottest topic. We have identified at least 20 appellate decisions addressing scienter, including nine decisions by the Second Circuit. These cases reflect the following:

Under Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 127 S. Ct. 2499, 168 L. Ed. 2d 179 (June 21, 2007), the Circuit Courts are applying a "dual inquiry," first examining whether, standing alone, any of the allegations are sufficient to create a strong influence of scienter. If no one individual allegation is sufficient, the courts are then reviewing all of the allegations holistically to determine whether the allegations combine to create a strong inference. See Zucco Partners, LLC v. Digimarc Corp., 552 F.3d 981 (9th Cir. Feb. 10, 2009); see also Avon Pension Fund v. GlaxoSmithKline PLC, No. 08-4363, 2009 WL 2591173 (2d Cir. Aug. 24, 2009). Nonetheless, a number of appellate decisions have held that the scienter requirement was not met through application of the second-level, holistic inquiry. Rather, the Circuit Courts have held that the allegations, even when viewed together, are insufficient. As the Second Circuit put it in the unpublished decision Malin v. XL Capital, Ltd., 312 Fed. Appx. 400, 402 (2d Cir. Feb. 26, 2009): "[H]aving concluded that none of plaintiffs' allegations showed even a weak inference of scienter, there is no logical way that the District Court could have...

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