On December 19, 2012, the court granted final approval of the $23.5 million settlement in In re Constar International Inc. Securities Litigation, pending since September 2003 in the United States District Court for the Eastern District of Pennsylvania. Plaintiffs asserted claims arising out of a November 2002 initial public offering of Constar

International stock. “This was a very hard-fought case where defendants repeatedly pressed every issue,” said Robbins Geller partner Steven W. Pepich, who worked on the case from the outset.

Defendants challenged the pleadings with both a motion to dismiss and a motion for judgment on the pleadings. After losing both motions, defendants opposed class certification with arguments similar to those rejected in their two earlier unsuccessful motions. After the district court granted class certification, defendants appealed that ruling to the United States Court of Appeals for the Third Circuit. Robbins Geller partner Eric Alan Isaacson briefed and argued the appeal for plaintiffs, and obtained a complete victory for plaintiffs and the class in In re Constar International Inc. Securities Litigation, 585 F.3d 774 (3d Cir. 2009).

Even after losing on appeal, defendants continued to mount an aggressive defense, and it took another three years to resolve the case. Scores of depositions and substantial expert witness discovery were undertaken, along with pretrial motions to exclude expert testimony. Defendants’ summary judgment motions were fully briefed and pending when the case settled.

Robbins Geller partner Andrew J. Brown, who was a key member of the litigation team, explained, “Ironically, defendants made the case much stronger by continuing to litigate every issue. As a result, a much larger recovery was obtained for shareholders."

By litigating for over nine years, defendants caused the insurance carriers to pay millions of dollars in additional defense costs that might have been avoided if they had resolved the case earlier. “This litigation should be a lesson to the defense bar and insurance carriers that our firm will fight for as long as it takes to put forth the strongest possible case on the merits,” said Mr. Pepich. “These cases rarely get better for defendants as litigation progresses.”

In re Constar International Inc. Securities Litigation, No. 03-CV-05020, Final Judgment and Order of Dismissal with Prejudice (E.D. Pa. Dec. 19, 2012).

European Parliament Weighs Access to Justice for All

The European Union may have a single market, but for those interested in consumer, shareholder and/or human rights issues, the legal systems of the EU’s member states are anything but uniform. Of the 27 member states in the EU, 17 currently have legal provisions for

collective redress (e.g., class actions), and the rest do not. However, the EU’s executive body, the European Commission, and the European Parliament are considering the concept of a uniform mechanism for the entire EU.

Research done by the public opinion analysis sector of the European Commission, known as Eurobarometer, has shown strong public interest in having access to collective redress, but European lawmakers not entirely familiar with the concepts and implementation of collective redress are still in the process of learning and evaluating how different states’ systems work in practice to bring either injunctive and/or compensatory relief to the injured. Toward this end, in November the European Parliament and the American Bar Association’s International Law Section held a two-day conference, titled “Increasing Access to Justice Through E.U. Class Actions,” for litigators and policy makers at the European Parliament in Brussels.

With world-class panelists and speakers from the global legal community, the conference offered tracks for both litigators and policy makers, as well as plenary sessions uniting the attendees “to discuss whether class actions bring increased access to justice for European citizens concerned about financial harm, competition, consumer protection, human rights, environmental damage, employment discrimination, and other common claims.” Some of the EU’s larger member states like Germany and France have neither opt-in nor opt-out class actions, and, as keynote speaker and former European Parliament Vice President Diana Wallis observed, “On the one hand, Eurobarometer surveys show that 79 percent of Europeans would be more willing to defend their rights in court if they could join other consumers complaining about the same thing. On the other hand, there are 14,000 lobbyists in Brussels, mostly opposed to any form of class actions.”

Robbins Geller attorney Nathan W. Bear was a panelist at two of the conference’s sessions. The first, in the litigator track, was “Myths and Realities of Financing Collective Actions,” where panelists discussed the differences between U.S. and various EU member states’ methods (or lack thereof) of litigation funding for collective redress with respect to (1) legal aid, (2) third-party commercial financing, (3) self-financing law firms, (4) consumer associations, and (5) victims. Where some U.S. firms have the capacity to self-finance large class actions, European firms are often barred by professional rules and instead have to collect hourly fees in any attempt at collective redress, which discourages access to justice.

Bear’s second panel was a plenary session titled “How Claimants Can Recover Compensation Through Collective Actions Prosecuted by Victims,” where the speakers not only discussed the mechanics of compensation (and the use of settlement administrators in the United States), but also the different procedures one must perform to become a class member. In England, a “Group Litigation Order” is required, which gives judicial approval for a test case to proceed on behalf of the group. In the Netherlands, a foundation can be established, and the victims may assign their claims in order to participate. The differences between countries’ systems of opt-in classes (Finland, France, Germany, Italy, Poland, Spain, Sweden, the United Kingdom and Denmark) and opt-out classes (Netherlands, Portugal, the United States, and in some instances also Norway and Denmark) were discussed with a view to a European Parliament resolution earlier in 2012 that recommended opt-in classes where members must be identified at the beginning of litigation, notwithstanding a July 2011 European Parliament report that stated that all of the existing mechanisms “fail on full effectiveness test, except for schemes running [an] opt-out model,” and that “several Member States consider opt-out mechanisms to remedy general low participation resulting from opt-in.”

Given the substantial public support for more participation, and the previous findings on the efficacies of opt-out vs. opt-in systems, the EU is likely to face tough deliberations before reaching a union-wide decision. Robbins Geller is proud to provide input to these deliberations, fighting for the rights of investors.

Robbins Geller Attorneys Make an Impact with Pro Bono Work

For 20 years, Robbins Geller partner Sanford (Sandy) Svetcov has served as the Northern California and Hawaii District Coordinator for the United States Court of Appeals for the Ninth Circuit’s Pro Bono program. Beginning in 1993 under Chief Judge John Clifford

Wallace, the pro bono program allows judges to request briefing from pro bono amicus curiae counsel if they determine that such briefing would benefit the court’s review of the issues in a case. Going into its 20th year, the pro bono program now has over 150 attorneys from across California on its list of volunteers.

In 2010, Christopher M. Wood, an associate in Robbins Geller’s San Francisco office, assisted by Svetcov, volunteered to provide amicus briefing in an action involving novel questions regarding the intersection of California criminal law and federal immigration law.

The case, Gonzalez-Leyton v. Holder, 07-74946 (9th Cir.), was an appeal from a Board of Immigration Appeals decision to deport the petitioner for committing a crime of violence as defined by 18 U.S.C. § 16. The petitioner pled no contest to a violation of California Penal Code section 417(a)(1), which states that “[e]very person who, except in self-defense, in the presence of any other person, draws or exhibits any deadly weapon whatsoever, other than a firearm, in a rude, angry, or threatening manner, or who in any manner, unlawfully uses a deadly weapon other than a firearm in any fight or quarrel is guilty of a misdemeanor.” However, consistent with a practice in California, the prosecutor had substituted the word “and” for the word “or” when describing the statutory violation in the charging document.

The critical question presented in the appeal was whether, under California law, a guilty or no contest plea to a conjunctively charged indictment admits each conjunctively charged allegation, or only enough elements to support a conviction. If the no contest plea admitted each allegation, the violation would constitute a crime of violence. However, if the no contest plea only admitted enough elements to support a conviction, it could not be said that the petitioner committed a crime of violence. This is because the statute is so broad that the petitioner could have violated the statute simply by rudely picking up a knife in another person’s presence, even if the other person was unaware of such rude display.

Unfortunately, there were no easy answers to this critical question. For decades, various state and federal courts of appeals in California had come to opposite conclusions regarding this issue. Svetcov and Wood submitted two briefs explaining that, based on over 145 years of California precedent, the Ninth Circuit should hold that a no contest plea standing alone constituted an admission of enough elements to support a conviction and nothing more. In addition, they consulted with, and provided their briefing to, attorneys from the Federal Defenders’ office in San Diego, who were litigating other actions in the Ninth Circuit involving very similar issues.

After amicus briefing had been completed, the petitioner’s position got a critical boost. On January 28, 2011, a separate panel of the Ninth Circuit issued an opinion, Young v. Holder, 634 F.3d 1014 (9th Cir. 2011). In Young, the panel adopted the reasoning advanced by the petitioner, holding that “when Young pled guilty, he admitted that he did at least one of the acts required to convict him under the statute, not that he did them all.” Id. at 1023. After Young was published, amicus counsel submitted an additional brief explaining that, pursuant to Young, the Board of Immigration Appeals’ decision must be reversed. Unsatisfied with the panel’s decision in Young, however, the government sought en banc review. Svetcov and Wood again consulted with the Federal Defenders’ office in San Diego, which was providing amicus briefing to the court in Young.

On September 17, 2012, an en banc panel of the Ninth Circuit issued an order recognizing its prior inconsistent positions on this question and holding that “a guilty plea to a conjunctively phrased charging document establishes only the minimal facts necessary to sustain a defendant’s conviction.” Young v. Holder, 697 F.3d 976, 979 (9th Cir. 2012). Shortly thereafter, on October 26, 2012, the Ninth Circuit issued an order granting Gonzalez-Leyton’s petition and remanding the case back to the Board of Immigration Appeals. “It was a privilege to be able to assist the court in resolving this long-unsettled question of law,” said Svetcov.

While Svetcov is retiring from the position of District Coordinator for Northern California and Hawaii, the title will not be moving far. Robbins Geller partner Susan Alexander will be taking over for Svetcov later this year. “I look forward to continuing the important work that Sandy has contributed to the program over the last 20 years and to being of service to the court,” said Alexander.

Litigation Update

Ninth Circuit Reverses District Court’s Dismissal of Complaint Against VeriFone

On December 21, 2012, the Ninth Circuit reversed a district court order dismissing a complaint filed by lead plaintiff National Elevator Industry Pension Fund on behalf of investors who purchased VeriFone Holdings, Inc. stock between August 31, 2006 and April 1, 2008. The lead plaintiff alleged that VeriFone, its CEO Douglas Bergeron and its former CFO Barry Zwarenstein knowingly or recklessly made materially false and misleading statements about VeriFone’s financial results in 2007 following the acquisition of Lipman Electronic Engineering Ltd. in 2006.

Following an appeal led by Robbins Geller partner Sanford (Sandy) Svetcov, with assistance from partners Susan Alexander, Christopher Seefer and O’Donoghue & O’Donoghue LLP partner Lou Malone, the Ninth Circuit concluded that the “logical inference” was that “VeriFone’s priority was meeting projections even at the expense of accuracy.” Additionally, the Ninth Circuit said that it “defies common sense that for three straight quarters following a merger, when preliminary reports came in substantially below expectations and the acquired company had lower margins, the correct ‘adjustments’ to flash reports also happened to be the precise amounts Zwarenstein and Bergeron had identified as necessary to hit earnings targets.” The Ninth Circuit also found that defendants’ attack on “individual allegations in isolation … cannot overcome the overwhelming inference drawn from a holistic review” that defendants were “deliberately reckless to the truth or falsity of the financial reports.”

Defendants had touted the merger with Lipman, told investors that VeriFone’s gross margins would increase after the merger, and then reported increased gross margins in each of the first three quarters of 2007. However, investors did not know that the reported results were a sham and the result of fraudulent accounting practices. On December 3, 2007, VeriFone reported that it would have to restate its financial results for the first three quarters of 2007, which caused VeriFone’s stock price to decline by more than 45%, from $48.03 to $26.03.

Moreover, as alleged by lead plaintiff, investors did not know that defendants received “flash reports” in each quarter showing that gross margins were substantially lower than what defendants told investors to expect. Defendants characterized these results as an “unmitigated disaster” and the “end of the party big time,” and directed VeriFone’s accounting staff to “figure it out” and to “fix the problem.” They also provided the accounting staff with the specific dollar amounts of adjustments that were needed for VeriFone to report results in line with guidance. When the accounting staff made those suggested adjustments, it caused an unprecedented increase in VeriFone’s inventory, when Bergeron had earlier stated that reducing inventory was as “important as any goal we’ve set in the past.” Nevertheless, defendants blindly accepted the fraudulent accounting entries without requiring any support or verification. The district court had previously concluded that those allegations failed to raise a strong inference of scienter and dismissed the case with prejudice.

In reversing the district court, the Ninth Circuit focused on the collective impact of defendants’ knowledge of the flash reports, their responses to them, and their failure to question or demand supporting documentation for the fraudulent accounting adjustments. The Ninth Circuit found it significant that defendants’ communications “did not reflect concern with operational issues that might have been driving margins down: their priority was the financial statements and publicly reported results.” Nor did their communications reflect “a search for errors” or “concern … with the accuracy of or basis for the manual accounting adjustments,” even though the adjustments increased inventory by millions of dollars. The Ninth Circuit stated that such “complacency can be described only as willful at this stage of the pleadings.” Further, while defendants touted the SEC’s decision to decline to charge VeriFone or its executives with fraud, the Ninth Circuit ruled that it was impermissible to draw any inferences from SEC inaction.

The Ninth Circuit found that the “allegations, viewed holistically, give rise to a strong inference that Bergeron, Zwarenstein and VeriFone were deliberately reckless to the truth or falsity of their statements regarding VeriFone’s financial results, particularly gross margin percentages.” The appeals court noted that that inference was more compelling than a nonfraudulent inference “in light of Bergeron and Zwarenstein’s public statements celebrating the merger as an unprecedented success.” In addition, the Ninth Circuit noted that Bergeron and Zwarenstein appeared “not to have asked … whether the adjustments were based in fact or even why changes of that magnitude were necessary in the first place,” and that their “overriding concern was avoiding the ‘unmitigated disaster’ of missing earnings targets, which led them to ignore unprecedented increases in inventory at the same time Bergeron was ‘obsessed’ with reducing it and claimed publicly that VeriFone had achieved supply chain efficiencies.”

In Re: VeriFone Holdings, Inc. Securities Litigation, No. 11-15860, Opinion (9th Cir. Dec. 21, 2012).

Arizona District Court Upholds 1934 Act Claims Against First Solar

On December 17, 2012, Judge David G. Campbell of the United States District Court for the District of Arizona upheld all allegations that First Solar had fabricated not only solar panel modules and power systems, but also the company’s performance. First Solar’s entire business model was built upon a promise to improve the efficiency of its solar panels and reduce their manufacturing costs to the point of making them competitive with fossil fuels. First Solar allegedly failed to fulfill this promise, but hid its failings from investors for years in order to maintain its inflated share price and enable its founder to sell nearly all of his shares for over $400 million.

As recounted in Judge Campbell’s order, lead plaintiffs Mineworkers’ Pension Scheme and British Coal Staff Superannuation Scheme alleged, among other things, that defendants manipulated First Solar’s publicly reported costper-watt (“CPW”) metric, covered up the existence and extent of defects in First Solar’s solar panels and manufacturing processes, and concealed the drastically increased failure rates First Solar’s panels suffered in hot climates. Defendants’ alleged misstatements and concealment of adverse facts caused First Solar’s stock price to reach artificially high levels during the class period (April 30, 2008 to February 28, 2012, inclusive), only to sink as the market absorbed defendants’ prior misrepresentations and fraudulent conduct, causing widespread loss to company shareholders.

Judge Campbell addressed and rejected each of the grounds defendants advanced for dismissal of the First Amended Complaint for Violation of the Federal Securities Laws, and concluded that lead plaintiffs had set forth the elements of their claims with the particularity demanded by the applicable pleading standard. In doing so, Judge Campbell focused on lead plaintiffs’ allegations regarding the CPW metric, which “was central to First Solar’s business plan” because it reflected First Solar’s progress toward viability without government subsidies.

Information from a former member of First Solar’s internal audit team was particularly critical to demonstrating First Solar’s brazen manipulation of the CPW metric. This former auditor recalled a whistleblower’s allegations regarding a specific directive from First Solar’s Vice President of Financial Planning and Analysis, who had directed his staff to “do whatever is necessary” to achieve the CPW number that First Solar reported publicly. The former auditor informed one of the individual defendants, former CFO Jens Meyerhoff, of this illicit directive, but Meyerhoff did nothing to prevent its execution. This confidential witness and others, as well as allegations regarding the individual defendants’ insider sales, convinced Judge Campbell that lead plaintiffs had met the applicable heightened pleading standards regarding defendants’ fraudulent intent.

In addition to crediting the information from lead plaintiffs’ confidential witnesses when denying defendants’ motion to dismiss, Judge Campbell also addressed a separate motion from lead plaintiffs regarding First Solar’s use of confidentiality agreements to discourage other witnesses from coming forward with additional information. Specifically, lead plaintiffs asked Judge Campbell to limit First Solar’s confidentiality agreements so as to prevent First Solar from using them to suppress information concerning defendants’ alleged fraud. Judge Campbell rejected First Solar’s argument that lead plaintiffs lacked standing to pursue such a motion, but requested further briefing before ruling on it. First Solar subsequently agreed to inform its former employees that, notwithstanding the terms of their confidentiality agreements, they are permitted to speak with lead plaintiffs’ counsel, who agreed to maintain the confidentiality of any information they receive.

Smilovits v. First Solar, Inc., No. 2:12-CV-00555-DGC, Order (D. Ariz. Dec. 17, 2012).

Winn-Dixie Class Action Moves Past Motion to Dismiss

On December 12, 2012, Robbins Geller and its co-counsel achieved a significant victory in the litigation concerning the takeover of Winn-Dixie Stores, Inc. by BI-LO, LLC. Plaintiffs alleged that the takeover of Winn-Dixie was the product of corporate misconduct by Winn-Dixie’s board of directors and BI-LO, depriving the former WinnDixie shareholders of as much as $200 million in value.

Defendants moved to dismiss the case, arguing that plaintiffs had no standing to allege their claims under Florida law. Defendants further argued that plaintiffs’ claims were barred by the Florida business judgment rule, and that plaintiffs’ claims did not have sufficient potency to state causes of action.

The court denied defendants’ substantive motions to dismiss. Robbins Geller and its co-counsel are now proceeding with a complaint against Winn-Dixie’s board of directors and BI-LO, seeking as much as $200 million in damages for their respective roles in the unlawful takeover of Winn-Dixie.

In re Winn-Dixie Stores, Inc. Shareholder Litigation, No. 16-201-CA-010616, Order on Defendants’ Motions to Dismiss Lead Plaintiffs’ Second Amended Complaint (Fla. Cir. Ct. Dec. 12, 2012).

The High Cost of BP’s Lack of Corporate Governance

In the field of corporate governance, executive compensation and board policies are given the most attention as subjects of concern. However, an important aspect of corporate governance that is often overlooked relates to social and environmental standards. A board’s

failure to ensure that a company has robust standards of compliance in these areas can often have a large impact on investors. The Deepwater Horizon explosion and BP oil spill in 2010 provide insight into how a board’s inability to properly ensure the safety of employees and the prevention of environmental disasters can lead to massive losses for the company and its shareholders. This case provides evidence of how corporate governance affects the ability of management to reconcile environmental and social objectives with risk mitigation and profit maximization.

On April 20, 2010, an explosion and fire sank the Deepwater Horizon oil rig in the Gulf of Mexico, killing 11 workers and setting off one of the worst offshore oil spills in U.S. history.1 Estimates suggest about 4.9 million barrels of oil gushed into the Gulf waters, destroying hundreds of miles of fragile coastline and threatening the livelihood of the local population.2 The BP oil well was finally sealed after 87 days of leakage.3 While costs related to social and environmental issues have largely been ignored by both corporations and individuals in the past, recent disasters such as this have forced companies to take a closer look at how their policies and procedures can have an effect on shareholder value.

After the accident, BP reported during the 2010 financial year that it had taken a total pre-tax charge of $40.9 billion in relation to the accident and spill.4 The company was compelled to announce the sale of up to $30 billion of assets, and agreed to almost $22 billion of disposals by the end of 2010. Three dividend payments to shareholders were cancelled, and significant changes were made to its board.5

Given these costs, it would be reasonable to conclude that BP must have taken at least some action to reform its safety and environmental procedures. However, this has not been the case. BP has a history of hugely destructive incidents. In addition to the 2010 explosion and oil spill, BP’s history of accidents has not only cost human lives, but has also caused catastrophic environmental damage, particularly in the last decade. In 2005, an explosion and fire occurred at the BP Products’ Texas City refinery, claiming the lives of 15 workers and injuring many others.6 In 2006, BP Exploration Alaska, Inc. had two major leaks of crude oil in Prudhoe Bay, Alaska, due to corrosion of the pipeline system, causing serious environmental damage.7 In 2008, a “bad cement job” caused a giant gas leak in a BP-owned oil field in Azerbaijan, forcing hundreds of employees to evacuate and cutting production by 500,000 barrels per day.8

Despite these incidents, BP has tried to portray itself as highly responsible in regard to health, safety, and the environment through its own measures of self-regulation, dependability and transparency. The board states that it has developed a committee to monitor “non-financial risk” and conduct “regular reviews of information and reports from executive risk committees, such as … the safety and operational risk function.”9 There are two major problems with this: first, BP’s own history has clearly shown that health, safety, and environmental risk can hardly be considered “non-financial risk”; second, BP’s system of internal controls is merely a loose system that is internally self-regulated by a few directors with little transparency or critical review about the processes.

The lessons from BP show us that failure to properly create and oversee social and environmental standards can have devastating consequences. Not only does it cost lives and environmental damage, it also costs the company billions of dollars in fines, litigation, penalties and reputational harm. Meaningful and robust policies and procedures must be set in place to ensure that these accidents do not occur again, and the board must act and oversee these processes on behalf of shareholders. In addition, the board must have its own systems to provide as much disclosure and transparency as possible in these areas.

BP has a history of turning a blind eye to these important issues, and it remains to be seen whether it will make the necessary changes to its corporate governance practices to protect the health and safety of its employees and the environment, and the wealth and well-being of its shareholders.

1 See Chris Baltimore and David Ingram, BP Oil Spill Settlement: Fine For Deepwater Horizon Disaster May Be Largest Criminal Penalty In U.S. History, The Huffington Post (Nov. 15, 2012), available at: http://www.huffingtonpost.com/2012/11/15/ bp-oil-spill-settlement_n_2134400.html.

2 See Jim Polson, BP Oil Still Ashore One Year After End of Gulf Spill, Bloomberg (July 15, 2011), available at: http://www. bloomberg.com/news/2011-07-15/bp-oil-still-washing-ashore-oneyear-after-end-of-gulf-spill.html.

3 See Chris Baltimore, BP says Gulf spill well sealed despite surface oil sheen, Reuters (Oct. 18, 2012), available at: http:// www.reuters.com/article/2012/10/18/us-bp-oilspill-sheen-idUSBRE89H1HO20121018.

4 See Carolyn Windsor and Patty McNicholas, The BP Gulf Oil Spill: Public and Corporate Governance Failures,available at: http://ro.uow.edu.au/cgi/viewcontent.cgi?article=1036&context=acsear2012.

5 Id.

6 See Michael J. De La Merced, BP to Sell Texas City Refinery to Marathon Petroleum, The New York Times Dealbook (Oct. 8, 2012), available at: http://dealbook.nytimes.com/2012/10/08/ bp-to-sell-texas-city-refinery-to-marathon-petroleum.

7 See Abrahm Lustgarten, Extensive corrosion threatens BP pipelines in Alaska, risking explosions, spills, The Washington Post (Nov. 2, 2010), available at: http://www.washingtonpost.com/ wp-dyn/content/article/2010/11/02/AR2010110207708.html.

8 See Tim Webb, WikiLeaks cables: BP suffered blowout on Azerbaijan gas platform, The Guardian (Dec. 15, 2010), available at: http://www.guardian.co.uk/world/2010/dec/15/wikileaks-bpazerbaijan-gulf-spill.

9 SeeBP Sustainability Review 2010, BP plc (2011), available at: http://www.bp.com/assets/bp_internet/globalbp/ STAGING/global_assets/e_s_assets/e_s_assets_2010/ downloads_pdfs/bp_sustainability_review_2010.pdf.