Blue Chip Stamps v. Manor Drug Stores

24 Analyses of this case by attorneys

  1. Securities Litigation Alert: Second Circuit Adopts Restrictive View of Purchaser-Seller Rule, Limiting Section 10(b) Standing to Transactions in Securities of Company “About Which” Alleged Misstatements Were Made

    Cadwalader, Wickersham & Taft LLPJason HalperJanuary 23, 2023

    n the purchaser-seller rule. But given the sparse treatment in federal appellate courts, and the absence of a clear circuit split, that is unlikely for now. Until that happens, the only near-certainty in all circuits is that the purchaser-seller rule bars Section 10(b) claims by three sets of plaintiffs specifically identified in Blue Chip Stamps: (1) potential purchasers who never actually acquired a security, (2) actual shareholders who merely held onto securities that they previously had acquired, and (3) existing shareholders who may be consequentially harmed by an insider’s sale of securities to a third party. In the Second Circuit, Frutarom now adds an additional limitation, requiring plaintiffs to have purchased or sold securities “about which” the alleged misstatements were made. Elsewhere, uncertainty will persist on that question, although Frutarom may prove to be persuasive authority on the road to achieving judicial consensus.1 54 F.4th 82 (2d Cir. 2022).2Id. at 85, 88.3 421 U.S. 723, 730-31 (1975).4Id. at 731-35.5Id. at 740.6Id. at 754-55.7Id. at 747 (emphasis added).8Menora Mivtachim Ins. Ltd. v. Int’l Flavors & Fragrances Inc., 19 Civ. 7536 (NRB), 2021 WL 1199035, at *9-23 (S.D.N.Y. Mar. 30, 2021).9Id. at *29.10Frutarom, 54 F.4th at 84. Judge William J. Nardini joined Judge Park in the majority opinion. Judge Myrna Pérez filed a concurring opinion.11Id. at 85-86 (quoting Blue Chip Stamps, 421 U.S. at 740).12Id. at 85 (emphases added).13Id. at 86.14Id. at 86-87 (quoting Blue Chip Stamps, 421 U.S. at 755).15 369 F.3d 27 (2d Cir. 2004).16Frutarom, 54 F.4th at 88 (quoting Nortel, 368 F.3d at 34).17Id. at 90-91 (Pérez, J., concurring).18Id. at 91.19Id. at 94-95 (quoting Blue Chip Stamps, 421 U.S. at 743).20Id. at 88.21Id.22Id. (quoting In re NYSE Specialists Sec. Litig., 503 F.3d 89, 102 (2d Cir. 2007)).23IFF, 2021 WL 1199035, at *31 (citing Semerenko v. Cendant Corp., 223 F.3d 165, 169 (3d Cir. 2000), and Griggs v. Pace Am. Grp., Inc., 170 F.3d 877, 878-80 (9th Cir. 1999)).24Id.

  2. Ending the 10b-5 Hold-up: Aéropostale Rejects Debtor’s Attack on Traders

    Kramer Levin Naftalis & Frankel LLPOctober 23, 2016

    151In reAéropostale, Inc., 555 B.R. 369 (Bankr. S.D.N.Y. 2016).2Birnbaum v. Newport Steel Corp., 193 F.2d 461 (2nd Cir. 1952), endorsed inBlue Chip Stamps v. Manor Drug Stores, 421 U.S. 723, 731-48 (1975) (“Blue Chip Stamps”).3An issuer may sue only if it itself was a purchaser or seller of the relevant security.Blue Chip Stamps, 421 U.S. at 738.

  3. Supreme Court’s Omnicare Decision Muddies Section 11 Opinion Liability Standards

    K&L Gates LLPJon EisenbergMarch 31, 2015

    The Court has recognized, “When we deal with private actions under Rule 10b-5, we deal with a judicial oak which has grown from little more than a legislative acorn.”[65]Section 11 is an altogether different creature than Section 10(b), and Omnicare suggests that the Court views it less skeptically than it views class actions under Section 10(b).Notes:[1]Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723 (1975).[2]Ernst & Ernst v. Hochfelder, 425 U.S. 185 (1976).

  4. Tenth Circuit Reverses Dismissal Of Putative Class Action, Holding That Statute Of Repose Did Not Bar Filing Of Second Amended Complaint

    Shearman & Sterling LLPAugust 4, 2023

    cond Amended Complaint” and that plaintiff should submit his second amended complaint if there are “genuinely new facts that are materially different tha[n] those that the [c]ourt had already found to be insufficient to state a claim.” Id. at *3.The district court did not set a deadline for filing a second amended complaint, and plaintiff did not file it until nearly 19 months later. Id. The second amended complaint did not add any parties or causes of action or identify any new challenged statements; rather, it added factual allegations to support the existing claims that defendants had engaged in a price-fixing conspiracy. Id. Defendants moved to dismiss. The district court granted the motion, holding: (1) challenged statements made more than five years prior to the filing of the second amended complaint were barred by the Exchange Act’s five-year statute of repose; (2) any claims based on more recent challenged statements were barred by Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723, 730–31 (1975), because “[p]laintiff had not been a purchaser or seller of securities within that five-year period.” Pilgrim’s Pride, 2023 WL 4508545, at *3. The district court dismissed with prejudice the claims barred by the statute of repose, declining to “excuse [plaintiff’s] nearly two-year delay in refiling this case” and declining to apply potential exceptions to the repose period such as tolling for fraud claims or the relation-back doctrine. Id.The Tenth Circuit reversed, holding that the statute of repose applies only to causes of action “brought” later than five years after the alleged violation, which the Court construed as meaning to “initiate or commence” a claim. Id. at *5. While noting that the repose period is “claim specific” and could therefore apply with respect to claims newly added by amendments to a complaint, the second amended complaint in this case was not barred by the statute of repose because it added no new parties or causes of action and did “not even add addition

  5. Second Circuit Confirms that Item 303 Disclosure Violations May Support Section 10(b) Liability in Reviving Claims Based on Failure to Disclose Risks from Harmful-Emission Regulation

    Cadwalader, Wickersham & Taft LLPApril 4, 2023

    e? Or does a duty only arise in the circumstances articulated in Basic and Matrixx Initiatives, which explained that “[d]isclosure is required . . . only when necessary ‘to make . . . statements made, in the [] light of the circumstances under which they were made, not misleading’”? That is a threshold question in a Section 10(b)/Rule 10b-5 case, and uncertainty over the answer has created differing standards and imbalances in incentives for plaintiffs to bring Item 303-based claims in the different circuits. Although the Macquarie plaintiffs did not raise the issue in their action (where their petition for rehearing by an en banc Second Circuit was denied), the question is likely to arise again. When it does, reconsideration of Stratte-McClure may be warranted, and if the split among the circuits persists, Supreme Court review may be appropriate. No. 21-2524, 2022 WL 17815767 (2d Cir. Dec. 20, 2022).See 15 U.S.C. § 78j(b); 17 C.F.R. § 240.10b-5; Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723, 729–31 (1975). 17 C.F.R. § 229.303(b)(2)(ii). 17 C.F.R. § 229.105(a).See, e.g., Carvelli v. Ocwen Fin. Corp., 934 F.3d 1307, 1330 (11th Cir. 2019) (“[N]o court of which we are aware has found a private right of action under Item 303, and the rule itself doesn’t seem to contemplate one.”); In re NTL, Inc. Sec. Litig., 347 F. Supp. 2d 15, 37 (“[T]here is no private cause of action violation of Regulation S-K.”); Jaroslawicz v. M&T Bank Corp., 962 F.3d 701, 711 n.10 (3d Cir. 2020) (finding that neither the language of Item 105 nor the SEC’s interpretive guidance suggests that there is a private cause of action under Item 105). After the consolidated complaint in this case was filed, Macquarie announced on October31, 2019 its intention to sell all of its operating businesses. In the following three years, Macquarie completed sales of all of its operating businesses—including the sale of IMTT in December 2020—concluding with the sale of its final remaining business and delisting of Macquarie units from

  6. Northern District Of California Holds That SPAC Investors Have Standing To Sue Regarding Alleged Misstatements About A Different Entity, But Dismisses Putative Class Action For Failure To Allege Material Misstatements  

    Shearman & Sterling LLPJanuary 23, 2023

    ially announced by the SPAC and the company themselves. Following post-merger statements that allegedly contradicted the company’s pre-merger statements, plaintiffs sued, claiming that defendants’ alleged misrepresentations regarding the electric vehicle company’s value had caused them to pay an inflated price for the SPAC’s stock. The Court held that plaintiffs had standing to sue the electric vehicle company, but dismissed their claims for failure to identify any material misrepresentations because the challenged statements were made before the SPAC and the electric vehicle company had announced or confirmed that they were in merger discussions.The Court first addressed defendants’ argument that plaintiffs lacked standing to bring a claim under the Exchange Act because the alleged misstatements concerned a company other than the one in which plaintiffs allegedly purchased shares. Defendants relied primarily on the Supreme Court’s decision in Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723, 737 (1975), but the Court determined that the only standing requirement announced in the Blue Chip decision was that a plaintiff must have purchased or sold securities. CCIV, slip op. at 8. The Court also rejected as unpersuasive two Second Circuit decisions holding that a plaintiff must have bought or sold the security about which the alleged misstatement was made. Id. at 10–12 (discussing Ontario Pub. Serv. Emps. Union Pension Tr. Fund v. Nortel Networks Corp, 369 F.3d 27, 34 (2d Cir. 2004), and Menora Mivtachip Ins. Ltd. v. Frutarom Indus. Ltd., 54 F.4th 82, 88–89 (2d Cir. 2022)). The Court explained that in its view the Second Circuit had added unnecessary standing requirements not contemplated by the Supreme Court, and that, in addition, the Second Circuit’s requirement that a plaintiff must plead a misstatement to have Section 10(b) standing was inconsistent with Supreme Court precedent permitting certain claims to proceed on a theory of scheme liability in the absence of a misstatemen

  7. Second Circuit Affirms Dismissal Of Exchange Act Claims Against Acquired Public Company, Holding That Shareholders Of An M&A Acquiror Do Not Have Standing To Pursue Claims Based On Acquired Company’s Alleged Pre-Transaction Misstatements  

    Shearman & Sterling LLPOctober 12, 2022

    panies. Defendants moved to dismiss, and the district court granted the motion, finding that (1) plaintiffs failed to plead with the requisite particularity that the alleged misconduct continued into the class period; (2) the allegedly false statements and omissions were not actionable or material; and (3) plaintiffs lacked statutory standing to sue the Company and its officers because plaintiffs were shareholders only of the Parent Company and never bought or sold shares of the Company. Plaintiffs appealed the decision only as it related to the Company and its officers.Plaintiffs contended that they had standing because there was a “direct relationship” between the Company’s alleged misstatements and the price of the Parent Company’s shares. The Second Circuit rejected this argument. The Court stated that “judicially created private rights of action should be construed narrowly” and noted that this had been emphasized by the Supreme Court in Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723 (1975). In Blue Chip Stamps, the Supreme Court adopted the “purchaser-seller rule,” which “limited the class of plaintiffs who could sue under Rule 10b-5 to those who purchased or sold the securities of an issuer about which a material misstatement was made.” The Court noted that adopting plaintiffs’ “direct relationship” test would erode the Supreme Court’s precedent by “adding further uncertainty to Section 10(b)’s ‘rule of liability imposed on the conduct of business transactions.’” Further, the Court found that plaintiffs improperly relied on dicta from an earlier case in which the Second Circuit contemplated whether “a merger creates a far more significant relationship between two companies than does the sale of a business unit” in ultimately holding that plaintiffs lacked standing to sue under the latter scenario. Ontario Public Service Employees Union Pension Trust Fund v. Nortel Networks Corp., 369 F.3d 27 (2d Cir. 2004) (“Nortel”). While acknowledging that the Nortel decision l

  8. US Supreme Court Upholds State Court Jurisdiction for Class Actions Under Securities Act of 1933

    Morgan, Lewis & Bockius LLPKaren PohlmannMarch 24, 2018

    881, as amended, 15 U.S.C. §§ 78a et seq.[8] Slip op. at 2 (citing Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723, 752, 730, and n.4 (1975)).[9] 109 Stat.

  9. Why Bassam Salman Should Not Have Been Convicted

    Allen Matkins Leck Gamble Mallory & Natsis LLPKeith Paul BishopMarch 13, 2017

    Nobody said anything except Summer Pike who said, `Well,’ he said, `we are against fraud, aren’t we?’ That is how it happened.” Remarks of Milton Freeman, Conference on Codification of the Federal Securities Laws, 22 Bus. Law. 793, 922 (1967) quoted in Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723, 767(1975) (Note that this Milton Freeman is not the famous economist).Wouldn’t Theory First – Verdict Afterwards Be More Fair? Notably, Rule 10b-5 itself doesn’t explicitly mention insider trading.

  10. Government Urges the Supreme Court to Significantly Expand Insider Trading Liability

    K&L Gates LLPJon EisenbergAugust 9, 2016

    [2] Petition of the United States of America for Rehearing and Rehearing En Banc in United States v. Newman at 3, 22-23 (Jan. 23, 2015).[3] Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723, 762 (1975) (Blackmun, J., dissenting).[4] 463 U.S. at 651.[5]Id.