Duane Morris Class Action Review - 2023 - Report - Page 311
E.
Appellate Decisions Affirming Dismissal Of A Class Action Claim
In 2022, the Second Circuit affirmed an order dismissing a class action claim because
the plaintiffs lacked standing under a strict application of the purchaser-seller rule, which
requires that standing to sue under § 10(b) is limited to persons who traded the
securities of the issuer about which the alleged misrepresentation was made. The
plaintiffs in Menora Mivtachim Insurance Limited, et al. v. Frutarom Industrial, 49 F.4th
790 (2d Cir. 2022), argued against strict application of this long-established rule. The
case arose out of the acquisition by International Flavors & Fragrances (IFF) of a
company called Flutarom. The allegations concerned a bribery scheme by Flutarom and
materially misleading statements by Flutarom concerning its compliance with antibribery laws that were later incorporated into the S-4 Registration Statement of IFF. The
plaintiffs, however, were purchasers of stock in IFF, not Flutarom (about which the
alleged misrepresentations were made). The plaintiffs, relying on dicta from an earlier
Second Circuit opinion, argued that the purchaser-seller rule should be relaxed where
the misrepresentation had a direct relationship to the value of the traded securities. The
Second Circuit expressly denied this argument in favor of the narrow buyer-seller rule. It
also expressed concern that ruling against the buyer seller rule would risk the
expansion of vexatious Rule 10b-5 litigation that has long concerned earlier courts.
In Weston Family Partnership, LLP, et al. v. Twitter, Inc., 29 F 4th 611 (9th Cir. 2022),
the Ninth Circuit affirmed dismissal of an action under Sections 10(b), 20(a) and Rule
10b-5 of the Securities Exchange Act. The allegations at issue involved revenues from
an ad program that targeted Twitter users based on their shared location data. The
Twitter app allowed users to opt out of the shared data program but a “bug”
inadvertently continued to share data with advertisers. Twitter announced that the bug
had been corrected in May 2019. In fact, Twitter had stopped using the program
altogether and this detail was not disclosed when the company announced in August
2019 that it had corrected additional bugs in the program. The plaintiffs brought a class
action alleging Twitter had made material misstatements of fact. The complaint argued
that the statements concerning the program made in July 2019 failed to disclose that
the program bugs had not been fixed. The alleged misrepresentations relied on by the
plaintiffs were deemed by the court to be optimistic assessments of concerning the
progress of a program under ongoing development. The Ninth Circuit ruled that
companies do not have an obligation to instantaneously disclose each and every
material fact under federal securities law. It also found that the statements fell within the
definition of forward looking statements under the safe harbor provisions of the
Securities Exchange Act and failed for lack of particularity under Rule 9(b).
III.
Top Securities Fraud Class Action Settlements In 2022
The plaintiffs’ class action bar successfully converted class certification rulings into
class-wide settlement at a brisk pace. The top ten securities fraud class-wide
settlements totaled $3.25 billion in the past year.
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Duane Morris Class Action Review – 2023
