August 19, 2019

Archives for March 13, 2013

Split Decision in the U.S. Supreme Court

BNHoffmanBy Brian Neil Hoffman

The U.S. Supreme Court recently issued two much-anticipated decisions on securities law matters: One on the statute of limitations applicable in SEC enforcement matters in Gabelli et al. v. Securities and Exchange Commission, No. 11-1274 (Feb. 27, 2013) and another on class certification standards in private securities class actions in Amgen Inc. v. Connecticut Retirement Plans and Trust Funds, No. 11-1085 (Feb. 27, 2013). The rulings together present a “you win some, you lose some” outcome for securities law litigants.

In the Gabelli case, the Supreme Court unanimously ruled that the SEC’s five-year time limit to recover civil penalties (contained in 28 U.S.C. § 2462) begins to run when the alleged fraud occurs, not when it is later discovered. The Court rejected the SEC’s attempt to graft a “discovery rule” onto the statutory limitations period. Unlike private plaintiffs, the Court reasoned, part of the SEC’s very mission is to ferret out potential securities law violations. The SEC has a plethora of tools available to aid in the effort — including examination and subpoena powers, the ability to pay whistleblower incentive awards, and cooperation agreements. As such, the Court found that the agency should not benefit from a presumption allowing further delays.

The ruling is bound to set the SEC scrambling to assess its current case load and prioritizations. Indeed, we may see a push to bring, or close, more dated cases, and a new urgency in cases approaching the five year mark. Importantly, the decision leaves untouched the SEC’s authority to seek a civil injunction, cease-and-desist order, and disgorgement at any point – even more than five years after the misconduct. Yet the staff may be reluctant to seek these remedies unaccompanied by claims for a civil penalty. Moreover, the Court did not address whether the SEC could rely on equitable tolling (that is, when a defendant takes steps – independent from the fraud itself – to conceal his or her actions) to seek penalties after the five year period. Nor did the Court address whether the ruling applies to other punishments that the SEC could seek: officer-and-director or securities industry collateral bars. Despite these uncertainties, registered entities, public companies, auditors, and other market participants can breathe a small, brief sigh of relief that there is now at least some certainty about how long a potential SEC enforcement action may be afoot.

The Amgen decision, however, is less defendant-friendly. In this 6-3 ruling, the majority held that private securities class action plaintiffs do not need to prove that the alleged misrepresentations or omissions were material at the class certification stage. Class action plaintiffs seeking class certification frequently rely on the “fraud-on-the-market” presumption to overcome a need to prove reliance by each individual class member. The presumption allows a court to presume that the price of a security in an efficient market reflects all publicly-available material information, which a buyer presumptively relied upon when purchasing the security. Although the efficiency of the market for Amgen’s securities was not in question, Amgen challenged the materiality of the challenged misrepresentations or omissions and, thus, the appropriateness of using the fraud-on-the-market presumption to overcome individual reliance issues. The Supreme Court majority rejected this argument. Rather, it held that materiality is evaluated on an objective standard, and thus raised a question common to all class members.

The Amgen decision is a disappointment to entities and individuals named as defendants in securities class actions. Rulings on class certification are important mileposts in a private securities lawsuit, often significantly affecting damages and sometimes dictating whether a case even proceeds at all. Yet decreasing plaintiffs’ burden at this stage, as the Amgen decision does, only increases the pressure on defendants to try and resolve or narrow claims at other stages of the case. The Amgen case is not a total loss for defendants, though. Justice Alito’s short concurrence noted that “more recent evidence suggests that the [entire fraud-on-the-market] presumption may rest on a faulty economic premise.” Time will tell the uses to which lower courts and the defense bar put this missive.

For litigants, the effects of the Supreme Court’s decisions in Gabelli and Amgen are both immediate and concrete. Both decisions, albeit in different contexts, ultimately address whether and how a securities case will proceed. And both decisions significantly affect the remedies that may be awarded in those cases. Yet perhaps most importantly, both decisions — whether viewed favorably or unfavorably — provide some degree of certainty in a previously uncertain area.

Brian Neil Hoffman is Of Counsel in Morrison & Foerster’s Securities Litigation, Enforcement, and White-Collar Defense Group. He recently served as a Senior Attorney in the SEC’s Division of Enforcement. He now represents entities and individuals in government and self-regulatory organization investigations and proceedings; conducts corporate internal investigations; and defends shareholder class action and derivative lawsuits. He can be contacted at and (303) 592-2227.

The opinions and views expressed by Featured Bloggers on CBA-CLE Legal Connection do not necessarily represent the opinions and views of the Colorado Bar Association, the Denver Bar Association, or CBA-CLE, and should not be construed as such.

Tenth Circuit: Unpublished Opinions, 3/11/13

On Monday, March 11, 2013, the Tenth Circuit Court of Appeals issued no published opinions and two unpublished opinions.

United States v. Dang

United States v. Gibson

No case summaries are provided for unpublished opinions. However, published opinions are summarized and provided by Legal Connection.


HB 13-1142: Modifying Four Tax Credit Programs Under the Urban and Rural Enterprise Zone Act

On January 18, 2013, Rep. Dickey Hullinghorst and Sen. Rollie Heath introduced HB 13-1142 – Concerning Reforms to the “Urban and Rural Enterprise Zone Act.” This summary is published here courtesy of the Colorado Bar Association’s e-Legislative Report.

The bill:

  • Commencing Jan. 1, 2014, requires the director of the Colorado office of economic development and the Colorado economic development commission (commission) to review the enterprise zone designations at least once every 10 years to ensure that the existing zones continue to meet the statutory criteria to qualify as an enterprise zone.
  • For credits certified on or after Jan. 1, 2014, limits the amount of an income tax credit that may be claimed in an income tax year for qualified investments in an enterprise zone to the sum of the taxpayer’s actual tax liability for the income tax year up to $5,000, plus 50 percent of any portion of the tax liability for the income tax year that exceeds $5,000 up to a maximum of $1 million.
  • Allows a taxpayer to appeal to the commission for a credit in excess of the $1 million limit.
  • Requires the commission to annually post information regarding certified investment tax credits on its web site or the Colorado office of economic development’s web site.
  • Increases the income tax credit for investments made in a qualified job training program in an enterprise zone for income tax years commencing on and after Jan. 1, 2014, from 10 percent of the total investment to 12 percent.
  • Increases the income tax credit for establishing a new business facility in an enterprise zone for income tax years commencing on and after Jan. 1, 2014, from $500 for each new business facility employee to $1,100.
  • Increases the income tax credit for each new business facility employee in an enterprise zone who is insured under a health insurance plan or program provided through his or her employer for income tax years commencing on and after Jan. 1, 2014, from $200 per such employee to $1,000.
  • On Feb. 28, the Finance Committee took testimony and delayed action on the bill to a future date.

    HB 13-1138: Establishing Requirements for Corporations to Become Benefit Corporations

    On January 18, 2013, Rep. Pete Lee and Sen. John Kefalas introduced HB 13-1138 – Concerning Benefit Corporations. This summary is published here courtesy of the Colorado Bar Association’s e-Legislative Report.

    On and after Jan. 1, 2014, the bill permits a corporation to become a benefit corporation if it includes a statement to that effect in its articles of incorporation and also specifies in its articles of incorporation an additional purpose of providing a general or specific public benefit. A corporation needs to obtain two-thirds of the shareholders’ consent to amend its articles of incorporation to become a public benefit corporation; shareholders have dissenting rights.

    The corporation and its directors and officers are not liable for failure to pursue or create a general or specific public benefit. The bill specifies directors’ and officers’ standards of conduct. A benefit corporation must prepare a benefit report if so required by its articles of incorporation, and must send the report to its shareholders. The report may assess the corporation’s performance in achieving its general or specific public benefit against a third-party standard. This legislation is sponsored by the CBA. On March 8, the Appropriations Committee approved the bill and sent it to the House for consideration on 2nd Reading.

    Since this summary, the House Second Reading was laid over daily.

    HB 13-1136: Establishing the Job Protection and Civil Rights Enforcement Act of 2013 to Discourage Employment Discrimination

    On January 18, 2013, Rep. Claire Levy and Sen. Morgan Carroll introduced HB 13-1136 – Concerning the Creation of Remedies in Employment Discrimination Cases Brought under State LawThis summary is published here courtesy of the Colorado Bar Association’s e-Legislative Report.

    Current law does not permit an award of compensatory or punitive damages or attorney fees and costs to a plaintiff who prevails in a complaint before the Colorado civil rights commission (commission) or in a lawsuit alleging a discriminatory or unfair employment practice under state law, even in cases of intentional discrimination. While federal employment antidiscrimination laws allow such damages in cases where intentional discrimination is found, and allows an award of reasonable attorney fees and costs, only employers who employ 15 or more employees are subject to federal law. Moreover, victims of employment discrimination on the basis of sexual orientation are not afforded protections under federal law. Thus, employees who work for employers with fewer than 15 employees or who claim employment discrimination on the basis of sexual orientation are not allowed compensatory or punitive damages and cannot recover reasonable attorney fees and costs when they prove a case of intentional employment discrimination.

    Additionally, current law precludes a claim of age discrimination by persons 70 years of age or older.

    The bill establishes the “Job Protection and Civil Rights Enforcement Act of 2013,” which would allow the additional remedies of compensatory and punitive damages in employment discrimination cases brought under state law against employers where intentional discrimination is proven. These damages would be in addition to the remedies allowed under current law, namely, front pay, back pay, interest on back pay, reinstatement or hiring, and other equitable relief that may be awarded. Compensatory damages are to compensate a plaintiff for other pecuniary losses, emotional pain and suffering, inconvenience, mental anguish, loss of enjoyment of life, and other nonpecuniary losses. If the plaintiff shows by a preponderance of the evidence that the defendant engaged in a discriminatory or unfair employment practice with malice or reckless indifference to the rights of the plaintiff, the plaintiff may recover punitive damages.

    The bill limits the amount of compensatory and punitive damages to the amounts specified in the federal “Civil Rights Act of 1991” and directs the commission or court to consider the size and assets of the defendant and the egregiousness of the intentional discriminatory or unfair employment practice when determining the amount of damages to award the victim.

    When a plaintiff claims compensatory or punitive damages in a civil lawsuit, either party to the action is entitled to demand a jury trial. Additionally, the court may award the prevailing plaintiff reasonable attorney fees and costs and, if the court finds that the action was frivolous, groundless, or vexatious, the court may award attorney fees and costs to the defendant.

    The bill removes the maximum age limit for purposes of age discrimination claims, thereby permitting persons 70 years of age or older to pursue a claim based on age discrimination.

    The bill authorizes the commission to appoint a working group of employers and employees to assist in education and outreach efforts to foster compliance with laws prohibiting discriminatory or unfair employment practices.

    The remedies available under the bill would apply to causes of action alleging discriminatory or unfair employment practices accruing on or after Jan. 1, 2015.The CBA LPC has voted to support this legislation. On Feb. 14, the Judiciary Committee amended the bill and referred it to the Appropriations Committee for consideration of the fiscal impact.