The 6th Circuit splits with 2nd and 9th, lowers bar for securities claims

The 6th Circuit splits with 2nd and 9th, lowers bar for securities claims 5/24/2013 (Reporting by Alison Frankel) Federal courts in Kentucky, Ohio, Tennessee and Michigan may soon be seeing an influx of securities class actions claiming strict liability under Section 11 of the Securities Act of 1933, thanks to a ruling Thursday by the 6th Circuit Court of Appeals in Indiana State District Council of Laborers v. Omnicare. Judge Guy Cole, writing for a panel that also included Judge Richard Griffin and U.S. District Judge James Gwin of Cleveland, found that shareholders asserting Section 11 claims for misrepresentations in offering documents need not show that defendants knew the statements to be false. "Under Section 11," Cole wrote, "if the defendant discloses information that includes a material misstatement, that is sufficient and a complaint may survive a motion to dismiss without pleading knowledge of falsity." The panel explicitly noted that its reasoning is at odds with the 9th Circuit's ruling in the 2009 case Rubke v. Capitol Bancorp and the 2nd Circuit's oft-cited 2011 decision in Fait v. Regions Financial. But the court said it is bound only by the U.S. Supreme Court and insisted that high court precedent in the 1991 case Virginia Bankshares v. Sandberg is consistent with its Omnicare holding. "In the instant case, the plaintiffs have pleaded objective falsity," Cole wrote. "The Virginia Bankshares court was not faced with and did not address whether a plaintiff must additionally plead knowledge of falsity in order to state a claim. It therefore does not impact our decision today." The Omnicare class action has quite a convoluted history. The case began in federal court in Kentucky as a securities fraud class action claiming that the pharmaceutical distributor deceived investors when it concealed its supposedly illegal kickback and false billing deals with pharma manufacturers. Shareholders later amended the complaint to include Section 11 claims based on disclosures in a 2005 public offering. The entire case was dismissed in 2007, but in 2009 the 6th Circuit revived and remanded the Section 11 claims, instructing the district court to determine whether they "sound in fraud" and must meet a heightened pleading standard. Plaintiffs' lawyers at Robbins Geller Rudman & Dowd considered asking the U.S. Supreme Court to review the issue of scienter for Section 11 claims that sound in fraud, but instead amended their Omnicare complaint in an attempt to strip out hints of fraud, focusing only on the falsity of so-called "soft statements" about Omnicare's legal compliance in the offering documents. The district court nevertheless said shareholders failed to meet the requisite standard of establishing that defendants knew the statements were false. In Thursday's ruling, the appeals court said such a showing is not necessary for Section 11 claims, which entail strict liability for offering documents that contain material misstatements. "No matter the framing, once a false statement has been made, a defendant's knowledge is not relevant to a strict liability claim," the panel said. Omnicare counsel Richard Reinthaler of Winston & Strawn told me he believes the 6th Circuit is flat wrong. The Supreme Court's precedent in Virginia Bankshares, he said, holds that shareholders must establish "objective falsity and subjective falsity.... The knowledge requirement is imbedded in the materiality element for soft statements." According to Reinthaler, "If every statement of opinion or belief is actionable without knowledge of falsity, it will open the floodgates" for Section 11 securities class actions. He said that Omnicare hasn't made a final decision about its next step but is leaning toward asking the entire 6th Circuit to review the panel's ruling en banc. Ultimately, of course, the Supreme Court may have to take up the issue to resolve the circuit split. I left a message for Eric Isaacson of Robbins Geller, who argued for shareholders at the 6th Circuit, but didn't immediately hear back. (Reporting by Alison Frankel)

Tax Plan for New Firms Urged

May 22, 2013News Tax Plan for New Firms Urged University-Based Businesses Could Get 10-Year Tax Break PermalinkCloseFacebookTwitterExpand/Collapse New businesses on university campuses in upstate New York would be able to operate tax-free for 10 years under a proposal introduced Wednesday by Gov. Andrew Cuomo and legislative leaders. ALBANY—New businesses on university campuses in upstate New York would be able to operate tax-free for 10 years under a proposal introduced Wednesday by Gov. Andrew Cuomo and legislative leaders. The proposal, which requires legislative approval, would allow new businesses on the State University of New York’s 64 campuses to avoid sales, property and business taxes, and their employees wouldn’t be required to pay income taxes. Private colleges north of Westchester County would also be eligible for the program. As much as 200,000 square feet surrounding the campuses would be included in the tax-free region. –Erica Orden

N.Y. attorney general says more evidence banks violated mortgage pact

N.Y. attorney general says more evidence banks violated mortgage pact 5/24/2013 By Karen Freifeld NEW YORK (Reuters) - New York Attorney General Eric Schneiderman said there is mounting evidence that Bank of America Corp, Wells Fargo and Co and other banks violated the terms of a settlement designed to end mortgage servicing abuses. Schneiderman - who has said he plans to sue Bank of America and Wells Fargo for failing to live up to their obligations under the deal - said other states had found similar problems. "Several other states have identified similar recurring deficiencies by the participating servicers," Schneiderman said in a letter dated May 23 to the monitor for the settlement, former North Carolina Banking Commissioner Joseph Smith. The letter was obtained by Reuters on Friday. The $25 billion settlement was brokered last year between five banks and 49 state attorneys general. The other banks are JPMorgan Chase & Co, Citigroup Inc, and Ally Financial Inc. The banks agreed to provide relief to homeowners and comply with a set of servicing standards to atone for foreclosure misconduct. In his letter, Schneiderman did not identify which other states had provided evidence of banks failing to abide by the settlement. Nor did he identify the banks with recurring deficiencies. He said receipt of his letter to Smith and a concurrent one to a monitoring committee would start the clock on a waiting period before lawsuits could be filed against the banks. The settlement authorizes the monitor to first work with a mortgage servicer to correct any potential violations and sue if the servicer does not fix the errors. Schneiderman said on May 6 he planned to sue Bank of America and Wells Fargo after the waiting period was over, although he did not mention the possibility of a lawsuit in Thursday's letter. At the time, Schneiderman said that, since last October, his office had documented 339 violations of standards - 210 by Wells Fargo and 129 by Bank of America - dictating the timeline for banks to process mortgage modification applications. In Thursday's letter, Schneiderman said the violations reveal the two banks "are engaging in much of the same misconduct that precipitated the National Mortgage Settlement." Smith said in a statement Friday he would review the violations Schneiderman shared. He also said he will issue a report on the banks' compliance in June. "I intend to use the full breadth of my power under the settlement to hold the banks accountable," he said. North Carolina Attorney General Roy Cooper, who is on the monitoring committee, said in a conference call on Tuesday that some banks have "fallen short" of complying with servicing standards. He did not name any banks. In Thursday's letter, Schneiderman said there had been "inordinate delays" in reviewing loan modification applications at Wells Fargo, so applicants had to resubmit documents. He cited evidence of piecemeal requests for additional documents in one modification application at Bank of America, and said more than three months passed without a request for more information or a decision on another application. Bank of America has said it did not commit any violations, and that it has provided more relief under the settlement than any other servicer. Wells Fargo has said it was committed to abiding by the settlement. Citibank said on Friday it remains committed to fulfilling the terms of the settlement. JPMorgan spokesman Tom Kelly declined to comment. Ally said its bankrupt mortgage subsidiary Residential Capital is responsible for the settlement. A spokesperson for ResCap could not immediately be reached for comment. On Tuesday, Smith reported that the five banks in the settlement had distributed $50 billion in direct relief to over 620,000 homeowners as part of the settlement.

N.Y. Assembly passes 'shadow docket' legislation

N.Y. Assembly passes 'shadow docket' legislation 5/24/2013 By Daniel Wiessner ALBANY, N.Y.(Reuters) - The New York State Assembly this week approved a bill designed to expedite residential foreclosure cases by requiring lenders to file mandatory paperwork earlier in the process. The proposed law would create a new section, 3012-b, of the Civil Practice Law and Rules that would require lenders to file "a certificate of merit," a sworn statement they have standing to foreclose on a home, at the start of an action, along with a summons and complaint. The bill also would amend CPRL Rule 3408 to require lenders to attach copies of mortgage documents to the complaint, and file proof of service within 20 days. Currently, lenders who bring residential foreclosure actions have 120 days to file a proof of service. They must simultaneously file a request for judicial intervention and the certificate of merit. Courts can then schedule a settlement conference. Supporters of the proposal, including Chief Judge Jonathan Lippman, say it would prevent cases from winding up on the "shadow docket" of foreclosure proceedings that have stalled because lenders have not submitted certificates of merit. The Democrat-dominated Assembly on Wednesday approved the bill 111-26. It could, however, face opposition in the Republican-led Senate, which blocked a similar measure last year. A second bill approved by the Assembly on Wednesday would create criminal penalties designed to deter foreclosure fraud. For example, employees of residential mortgage businesses who knowingly prepared or executed false documents in a foreclosure action could face a class A misdemeanor punishable by up to one year in jail. The bill, known as the Foreclosure Fraud Prevention Act, was proposed last year by Attorney General Eric Schneiderman. The assembly approved it in 2012, but it stalled in the Senate.

Mechanics Liens and … Criminal Law?

New York Mechanics Liens and … Criminal Law? By Elliot Singer on May 22, 2013 U.S. ex. rel Roberts v. Ternullo is an example in which falsely filing a mechanics lien — in this example, many mechanics liens — led to criminal charges and even jail time. David Roberts for many years operated a retail fence business under several corporate names. As the State of New York alleged, Roberts: “would frequently fail to deliver fencing contracted for by customers or deliver less than called for in the contract, and when full payment was not forthcoming, would file mechanics liens with the County Clerk …” As a result, Roberts was charged with multiple counts of forgery and the making of an apparently sworn false statement, amongst other charges. Interestingly, it was only after more than 200 unhappy customers complained about Roberts that the county District Attorney got involved. As a result of the charges lodged against him, the defendant was charged with between one and four years in prison. His conviction, after being reversed and remanded on the first appeal, was affirmed at the appellate level the second time around. As the federal court that heard Roberts’ writ of habeas corpus held, the false mechanics liens the defendant filed were admissible because they were available to the public and, of course, filed by the defendant himself. As the court noted, it would be completely illogical to bar the state from presenting evidence such as a mechanics lien that was already in its public record.

"Selecting A Business Entity" with David Sorin of SorinRand

With radical changes, law firms can beat recession, says Susskind