Loss Causation And Stichomythia: A Dramatization of Ninth Circuit's Leave to Amend Complaint
Wednesday, August 21, 2013

Yesterday,  I wrote about the Ninth Circuit’s recent decision allowing a plaintiff to amend his complaint to plead that a subsequent event (the filing of a registration statement) had caused his loss as a result of an exchange of shares in a merger that he had previouslyagreed to support.  Hildes v. Arthur Andersen LLP, 2013 U.S. App. LEXIS 17177 (9th Cir., Aug. 9, 2013).  This caused me to imagine the following dialogue:

Ajax: A sale of securities occurs when I agree to sell my shares, correct?

Odysseus  No, you need to more than that.

Ajax: Why? Section 2(a)(3) of the Securities Act is quite clear.

Odysseus: Really, how so?

Ajax: It says “The term ‘sale’ shall include every contract of sale . . .”; Section 25017(a) of the California Corporations Code says the same thing.

Odysseus: Mighty Ajax, were you asleep when they covered SEC v. National Student Marketing Corp., [457 F. Supp. 682 (D. D.C. 1978)] in law school?

Ajax: I thought that case was about whether the SEC could get an injunction.

Odysseus: It was, but Judge Parker focused on whether the parties were irrevocably committed.

Ajax: You are a man of many twists and turns - so, an agreement to sell is a sale after all?

Odysseus:  No, Judge Parker said there must be an irrevocable commitment.

Ajax: If I sign an agreement to vote for a merger and an irrevocable proxy, isn’t that a sufficient commitment?

Odysseus:  Not according to the Ninth Circuit Court of Appeals, your commitment could still be contingent upon a number of conditions such approval of the merger by the other shareholders.  [Hildes]

Ajax: What does that mean?

Odysseus: If the issuer lies in a registration statement to the other shareholders to win their approval, you could state a claim under the Securities Act.

Ajax:  Even though I made my decision before the issuer lied?

Odysseus: According to the Ninth Circuit, you can state a claim because the issuer’s misstatements to the other shareholders caused your loss by allowing a condition to the merger to be fulfilled.

Ajax: I’m confused!

Odysseus: I’m out of here.

Ajax:  Have a good trip home, give my regards to Penelope, and don’t forget your oar.

Odysseus: Don’t you forget your sword!

 

NLR Logo

We collaborate with the world's leading lawyers to deliver news tailored for you. Sign Up to receive our free e-Newsbulletins

 

Sign Up for e-NewsBulletins