Efficient Market Theory and Securities Fraud Class Certification

Here's a recent decision near and dear to the Dalai Lawyer's heart: Gariety v. Advanta Mortgage Corp., 2004 U.S. App. LEXIS 9305 (4th Cir. May 12, 2004). In Gariety, the Fourth Circuit held that a district court considering a motion for class certification in a securities fraud action must conduct a "rigorous analysis" of whether the company's stock traded on an efficient market.

On the facts presented, the Court noted that "[h]ad the court conducted an inquiry about the market for [the] stock, it would have been confronted with at least a serious question about whether plaintiffs in this case could demonstrate that they purchased their shares on a market sufficiently efficient to act as a surrogate for reliance." Id. at *20 n. The company's stock was unlisted during part of the class period, and traded only in the "Pink Sheets" and the Nasdaq OTC Bulletin Board after that.

The Court stated that in evaluating "whether a security trades on an efficient market, a court should consider factors such as, among others, whether the security is actively traded, the volume of trades, and the extent to which it is followed by market professionals." Id. at *31.

Here's a law suit that I like: LL Bean Sues Pop Up Advertisers. There are four companion cases pending in the federal court in Portland, Maine. Here is one of the complaints: LL Bean Complaint.pdf

The gist of the allegations is that the defendants attached pop up ads to LL Bean's site without permission, such that when customers go to the LL Bean site, the defendants' ads would pop up, thus free riding on LL Bean's good name and annoying its customers all in one. Here's hoping LL Bean wins. That just can't be right, and I hate pop up ads.

"the death knell for the imposition of a heightened pleading standard"

The First Circuit recently issued its opinion in Educadores Puertorriquenos En Accion v. Hernandez, No. 13-1588 (1st Cir. May 10, 2004). The decision deals with heightened pleading standards in the context of a civil rights action, but the Court's opinion is pretty clear that notice pleading is going to be the order of the day going forward, unless a heightened pleading standard is imposed by statute or rule. "[T]he [Supreme] Court has signaled its disapproval of all heightened pleading standards except those that emanate from either congressional or Rule-based authority." Id. at 7 (discussing Swierkiewicz v. Sorema N.A., 534 U.S. 506 (2002)). Educadores will be an important decision, not just in the civil rights context, but in any context where courts have applied (increasingly) heightened pleading standards.

Free Electronic Discovery Newsletters

I continue to be a bit underwhelmed by the decisions I've been reviewing lately. Some marginally interesting stuff, but nothing all that thrilling. So today, a couple of good sites to check out for the litigators out there. Both offer a free newsletter that tracks recent electronic discovery decisions. I follow them both: Kroll on Track and Applied Discovery, which is a LexisNexis service.

A $380 Million Dollar Haircut . . .

Good article in the WSJ today -- Jathon Sapsford, "Lawyers Profit by Challenging Colleagues' Fees," about objectors to class action settlements. The lawyers' play is to wait until a class action settles, swoop in and object to the attorneys' fee petition by class counsel, and then submit their own big old fee petition for doing the service to the class of protecting them from their own lawyers. The WSJ article focuses on one case -- the Visa/Mastercard class action -- where the settlement was $3 billion and the requested fees were $600 million.

Objectors came swooping in and the court reduced the fee to $220 million, calling $600 million "absurd." Did the objectors do the class any good? Hard to say. The Court has an independent duty to review the fee application for reasonableness, and it seems likely that the judge in the Visa case would have administered the same haircut even if the objectors had not been involved.

The concept is right though, even if it does lead to abuse. Once the case settles and class counsel is focused on maximizing its fees, which usually come out of the "common fund" recovered by the class, it's a good thing to have someone raising objections.

I've been scanning my usual sources for interesting decisions, but nothing has really caught my eye these past several days. Everything I've read recently has been pretty run of the mill.

So here's a thought: I almost never use the "bcc" function when sending an e-mail, because I worry that my bcc recipient might hit "reply all" rather than "reply" and disburse some thoughts to people who should not be in the loop. So when sending e-mail, I send the original and then forward it to my bcc party. That way, the only person they can reply to is me.