03/30/2011
Cooley Achieves Significant Securities Litigation Victory for Clifford Chance
New York – Cooley LLP announced it achieved a significant victory yesterday in a securities case in the Third Circuit on behalf of Clifford Chance LLP. An important securities litigation victory for law firms, the Third Circuit held that, under the Supreme Court's decisions in Central Bank and Stoneridge, public attribution for a secondary actor's actions is required to invoke the fraud-on the-market presumption of reliance in a 10(b) scheme liability action.Clifford Chance was named in a securities class action brought by investors in its former client, DVI, a company which had collapsed after revelations of internal fraud. Plaintiffs sued Clifford Chance on a theory of "scheme liability" under Rule 10b-5(a) and (c), claiming that the firm had participated in a scheme to allow the Company to avoid disclosing a material weakness in its quarterly financial statements. Clifford Chance successfully opposed plaintiffs' motion for class certification before the Eastern District of Pennsylvania. The Court held that under Stoneridge plaintiffs could not invoke the "fraud on the market" theory to establish reliance because the firm's alleged misconduct had not been disclosed to the public.
Plaintiffs appealed the district court's decision, challenging the court's application of Stoneridge and attempting to assert a claim under 10b-5(b) for the first time on appeal.
"The Third Circuit's affirmation of the lower court's decision is a significant win for our client and law firms that give securities advice," said William Schwartz, New York-based litigation partner at Cooley. "This adds important legal clarity to the issue of secondary liability for law firms that render advice to their clients on securities law matters."
The Cooley team was led by New York-based litigation partners William Schwartz and Celia Barenholtz and included New York-based litigation associates Maxine Sleeper, Rachel Kane and Jennifer Lerner, and litigation special counsel Angela Dunning (Palo Alto).
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