Duane Morris Class Action Review - 2023 - Report - Page 309
or otherwise acquiring any interest in any security of the Corporation shall be deemed to
have notice of and consented to this Article VIII.” Id. at 59. The named plaintiff Wong
filed a class action claim in California state court alleging that Restoration had made
material misstatements in its Registration Statement concerning its capital and liquidity
needs and the status of its technology. Restoration’s initial motion to dismiss was
denied and a motion to renew was filed and granted by the trial court after the
Sciabacucch decision. On appeal, the court of appeal affirmed the trial court’s decision
and reasoned that the bar on removal of state court claims to federal court, as set forth
in the Securities Act, did not apply to the Restoration FFP because the provisions did
not require removal. It merely required the named plaintiff to file his claim in federal
court from the outset. The court of appeal also noted that FFPs were analogous to
arbitration clauses, which have been held applicable to the Securities Act by the
Supreme Court. The named plaintiff’s arguments that the FFP violated the commerce
clause and supremacy clause of the U.S. Constitution were denied. The court of appeal
found that Delaware had a legitimate interest in allowing FFPs for corporations within its
state and any burden on interstate commerce did not outweigh the benefits of the
governing Delaware statute. As to the supremacy clause, the court of appeal reasoned
that there was no conflict between the Delaware statute and federal law concerning the
Securities Act and its remedies. The FFP was held valid under Delaware law. The court
of appeal concluded that the FFP was disclosed in the Registration Statement and any
failure by an investor to attend to such disclosures should not be excused.
D.
Rulings Granting Class Action Certification Under The Basic Presumption
Defendants in securities class actions have attempted to broaden the ruling in Goldman
Sachs by arguing that it alleviated the defendant’s burden to rebut the Basic
presumption. Two recent cases illustrate that Goldman Sachs merely clarified the
standards established by earlier interpretations of Basic. A defendant must still provide
sufficient evidence and analysis that severs the connection between an alleged
misrepresentation and price impact.
The plaintiffs in St. Clair County Employees’ Retirement System, et al. v. Acadia
Healthcare Co., 2022 U.S. Dist. LEXIS 178750 (M.D. Tenn. Sept. 30, 2022), alleged
several misrepresentations and omissions concerning the quality of care and staffing at
the defendant’s health care facilities. News items and reports by securities analysts later
disclosed allegations of understaffing, cost cutting, and patient neglect by the company.
The defendant cited Goldman Sachs in support of its argument that the alleged
misrepresentations were generic and did not affect the price of a security. The court
acknowledged that Goldman Sachs had addressed generic statements and stated that
it was less likely that the price of a security is impacted by a subsequent disclosure that
corrects a generic misrepresentation. But the court also noted that Goldman Sachs
requires a “mismatch between the contents of the misrepresentation and the corrective
disclosure” Id. at *17. The defendant offered an expert report in support of its argument,
but the court determined that the defendant failed to rebut the Basic presumption
because it offered no analysis supporting a disconnect between the allegedly generic
misstatement and the price impact. The court held that, in the absence of such analysis,
mere contentions that the statements were generic were insufficient to overcome the
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Duane Morris Class Action Review – 2023
