Decades of adverse court decisions have eaten away at investors’ rights, imposing what feels like “a death by a thousand cuts” on plaintiffs seeking to sue for securities fraud, Berman DeValerio Partner Joseph J. Tabacco, Jr. told corporate governance advocates recently.
Mr. Tabacco was one of three attorneys appearing on a Sept. 30 panel at the Council of Institutional Investors’ Fall Meeting in Los Angeles. The panel, Understanding the Legal Landscape, was moderated by Brian Bartow, general counsel of the California State Teachers’ Retirement System.
Mr. Tabacco and the other panelists reviewed a series of recent and upcoming decisions by the U.S. Supreme Court, as well as cases affecting investors’ rights in the State of Delaware, where more than half the country’s publicly traded companies are chartered.
In particular, Mr. Tabacco addressed Public Employees’ Retirement System of Mississippi v. IndyMac MBS, Inc. In that case, the Supreme Court had agreed to resolve an appeals court split regarding time limits for plaintiffs bringing claims in certain securities lawsuits, but later issued a curt statement saying that its decision to accept the case had been “improvidently granted.” The about-face leaves the split unresolved and investors will have to monitor some securities class actions more diligently to determine whether to file a complaint in the case to protect their future interests.
Mr. Tabacco also spoke about another case, City of Providence v. First Citizen Bancshares, Inc., in which the Delaware Court of Chancery upheld a corporation’s right to designate in its bylaws a state as an exclusive forum for certain types of lawsuits brought against the company – this time outside Delaware. He said such forum selection bylaws placed undue restrictions on shareholders seeking to sue a company for failing to act in the interests of shareowners.
He acknowledged that investors had “dodged a bullet” with the Supreme Court’s in Halliburton Co. v. Erica P. John Fund, Inc., in which the Justices left intact the fraud-on-the-market theory that underpins many modern securities class actions. The Halliburton decision will create additional work for plaintiffs, however, and increase the need for their lawyers “to be even more vigilant to have the economic backup for [their] theories,” Mr. Tabacco said.
Mr. Tabacco said he maintained “an optimistic view” about the efficacy of securities litigation as a deterrent to bad behavior. “I do think that over time it does make a difference,” he said.
The Council of Institutional Investors is a nonprofit association of pension funds, other employee benefit funds, endowments and foundations with combined assets exceeding $3 trillion. It seeks to educate members and the public about effective corporate governance and strong shareowner rights, and advocate on members’ behalf.
*In August 2017, our firm name changed to Berman Tabacco. Case references and content published before that date may refer to the firm under our prior name, Berman DeValerio.