Cleary Gottlieb’s “2021 Developments in Securities and M&A Litigation” discusses major developments from 2021 and highlights significant decisions and trends ahead.
In 2021, the Supreme Court issued its much anticipated decision in Goldman Sachs Group Inc. v. Arkansas Teacher Retirement System, holding that courts must consider and weigh all evidence concerning price impact at the class certification stage to determine whether it is more likely than not that the alleged misrepresentations had price impact. The Supreme Court also granted certiorari in Pivotal Software, Inc. v. Tran to consider whether the Private Securities Litigation Reform Act’s automatic stay of discovery applies to Securities Act cases brought in state court, but the parties subsequently settled the case before the Court could decide the issue.
The Circuit courts also issued several notable decisions concerning the securities laws, including deepening or creating several circuit splits that could be resolved by the Supreme Court. The split between the Second Circuit and First and Ninth Circuits deepened in 2021 on the issue of whether the presence of a domestic transaction is a necessary, but not sufficient, condition to invoke Section 10(b) for securities not listed on a domestic exchange. The Third Circuit joined the Second, Ninth, and Tenth Circuits in holding that American Pipe’s tolling doctrine applies to opt-out actions filed while class certification is still pending, furthering a split with the Sixth Circuit. And the Ninth Circuit created a circuit split in holding that investors in a direct listing had standing to bring a Section 11 claim despite being unable to trace their purchases to registered shares.
With respect to M&A and corporate governance litigation, the Delaware courts issued a number of important decisions. The Delaware Supreme Court reformulated and streamlined the demand futility test in shareholder derivative actions. In a separate case, the Delaware Supreme Court overruled its prior precedent, and in doing so established that all overpayment/dilution claims are exclusively derivative and cannot be brought by stockholders directly. Other decisions by the Delaware courts addressed the standard for pleading a Caremark claim, material adverse effect claims, the enforceability of liability limitations in a contract procured by fraud, the effect of a merger agreement’s termination provision, and the standard for granting an injunction in order to facilitate disclosures before a shareholder vote on a proposed merger, among other issues.
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