Duane Morris Class Action Review - 2023 - Report - Page 305
provided the plaintiffs’ bar with a significant tactical advantage in litigating class action
claims.
Corporations, however, had another card to play by way of federal forum provisions
(FFPs) in a corporation charter that required class actions brought under Section 11 of
the Securities Act to be filed in federal court. The Supreme Court of Delaware upheld
the enforceability of such provisions in 2020 in Salzberg, et al. v. Sciabacucchi, 227
A.3d 102 (Del. 2020). The decision allows Delaware corporations contemplating the
issuance of shares to seek dismissal of state court Section 11 claims through the use of
FFPs. It remains unclear how the majority of state courts will interpret FFPs and the
ruling does not apply to issuers incorporated outside of Delaware. Nevertheless, the
number of state court and parallel filings has dropped sharply after Sciabacucchi. In the
second half of 2020 state court and parallel filings dropped 62% and have remained
relatively low to through 2022.
In 2021, the U.S. Supreme Court again addressed the Basic presumption in Goldman
Sachs Group, Inc., et al. v. Ark. Teacher Retirement Systems, 141 S. Ct. 1951 (2021).
After an adverse decision on appeal, Goldman Sachs argued that the Second Circuit
failed to consider the generic nature of the alleged misstatements at issue and its
relevance to the rebuttal of price impact. The Supreme Court determined that the
generic nature of an alleged misrepresentation can serve as evidence of a lack of price
impact "when there is a mismatch between the contents of the misrepresentation and
the corrective disclosure.” Id. at 1961. The Supreme Court in Goldman Sachs clarified
that there is frequent overlap between materiality and price impact and “evidence
relevant to one will almost always be relevant to the other.” Id. This overlap cannot
serve as the basis to preclude a defendant’s price impact evidence, even where the
evidence is relevant to materiality. Because material evidence concerning a plaintiff’s
claims is generally not an appropriate consideration at the class certification stage,
many courts had refused to weigh material evidence in determining whether a
defendant had rebutted the Basic presumption. The ruling in Goldman Sachs provides
further guidance that should allow defendants greater latitude in presenting material
evidence concerning the nature of alleged misstatements of fact and whether they
caused a price impact. It should be noted, however, that the burden of persuasion to
overcome the Basic presumption remains with defendants. Recent attempts by
defendants to expand the ruling in Goldman Sachs or shift the burden of persuasion to
plaintiffs have not proved successful.
Statistically, 23 of 24 class certification motions in securities actions were successful in
2022, although some of the certifications often limited portions of the class. Defendants
fared better on motions to dismiss, motions to strike, and motions for summary
judgment, which were granted in whole or in part at a rate of 50%. The Second and
Ninth Circuits continued to be the most active forums for securities actions seeking
class certification, accounting for 62.5% of all filings.
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Duane Morris Class Action Review – 2023
