Securities litigator Helen B. Kim was a featured speaker in a roundtable hosted by California Lawyer magazine. The roundtable, which appears in the January 2015 issue of the publication, covered a host of recent issues in securities litigation including:
Helen is a partner in our Los Angeles office and the co-vice chair of the business litigation group at Thompson Coburn. She represents public and private companies and their directors and officers in class actions and other complex litigation. She is co-chair of the ABA Securities Litigation Committee and former editor of the ABA Securities Litigation Journal. She is a graduate of Harvard College, Yale Law School and the Juilliard School of Music.
Below are some of Helen’s comments from the roundtable. Click here to read the full transcript of the discussion.
MODERATOR: One of the most interesting decisions for public companies this year came from the Delaware Supreme Court in ATP Tour, Inc. v. Deutscher Tennis Bund. How does it enable fee shifting in securities litigation?
HELEN B. KIM: The ATP Tour decision was decided in the context of a non-stock corporation, so whether a fee-shifting bylaw in a Delaware stock corporation would be upheld as facially valid is an open question. But there was plenty of language in the opinion warning the legal community, “Just because you have a facially valid bylaw does not mean that we will enforce it. We are going to look at the circumstances in which the bylaw was enacted to see if it was enacted for an improper purpose.”
Thirty-four corporations have adopted fee-shifting bylaws since the ATP Tour decision came down. And 23 of these have language that is incredibly broad. It’s not just “loser pays all.” It’s “you have to substantially prevail on not only the claims that you asserted, but in terms of the remedy that you sought.” So if you got only 45 percent of the remedy you sought, you might still be considered a loser. And some of the fee-shifting provisions cover whistle-blower claims, administrative proceedings and investigations. I would advise corporate clients not to be so greedy. Delaware corporations do have a legitimate interest in discouraging frivolous claims. In 2013 alone, 94 percent of mergers and acquisitions in Delaware were challenged with lawsuits. But when you make the fee-shifting provision so onerous that shareholders are deterred from bringing valid claims, the court will likely not uphold it.
MODERATOR: From the U.S. Supreme Court, we had another decision this year in Halliburton Co. v. Erica P. John Fund Inc., or “Halliburton II.” What is the impact of this ruling?
HELEN B. KIM: There have been two cases decided by district courts since Halliburton II, and the class was certified in both. Now we’ll see what happens in the Halliburton case itself. Judge Barbara Lynn stated from the bench that she was faced with two completely contradictory expert opinions. If she believed the plaintiffs, there was price impact. If she believed the defendants, there was no price impact. How is she going to decide? In a close case I would expect the court to take the conservative approach and allow the case to proceed.
MODERATOR: Another case of interest for public companies is Indiana State District Council of Laborers v. Omnicare, which was argued before the U.S. Supreme Court on November 3, 2014.
HELEN B. KIM: My take from this case is, first of all, anytime an issuer doesn’t have to release “soft information,” keep your opinions to yourself. Second, I think there is something to the Sixth Circuit argument about applying Virginia Bankshares, which was a Section 14(a) case, to a Section 11 case. They’re very different. I agree with the government’s middle ground position that it’s not fair to impose Section 11 liability on a statement that turns out to be false based on some later event, that absolute objective falsity should not be the only test. You should have to look at whether there was a reasonable basis for the issuer’s or speaker’s statement.
MODERATOR: Okay, our final topic for today is, what are the ramifications of the SEC’s move to use more administrative proceedings in insider trading cases?
HELEN B. KIM: Judge Jed Rakoff gave a speech in which he criticized the SEC for bringing more insider trading cases in the administrative forum. As he points out, in administrative proceedings the SEC has a 100 percent success rate. Surprise! As John [Pernick] points out, in the administrative context there’s no discovery, no depositions, no interrogatories. The Federal Rules of Evidence don’t apply. And the SEC has carte blanche to push its more novel theories for liability. Whereas in federal district court the success rate for the last fiscal year was only 61 percent. And they had very high-profile losses, including the Obus case in New York and the Mark Cuban case in Texas.
Judge Rakoff noted that while there’s technically a right of appeal from administrative decisions, deference is given to administrative law judge’s rulings, whereas federal district court decisions on matters of law are reviewed de novo by the court of appeal. There is far more rigorous and transparent legal analysis in the federal courts than in administrative proceedings. Judge Rakoff was correct to warn the SEC that they need to look at this from the long view. Is this really the right way to develop our securities laws? Those types of high-profile cases should be brought in federal district court.