Cleary Gottlieb’s “2020 Developments in Securities and M&A Litigation” discusses major developments from 2020 and highlights significant decisions and trends ahead.
In Liu v. SEC, the most notable securities decision of 2020, the Supreme Court cemented but limited the SEC’s authority to seek disgorgement as “equitable relief” for a securities law violation.
The Circuit courts also issued opinions that impact shareholder suits alleging violations of the securities laws, addressing both the standards district courts must use in considering defendants’ efforts to rebut the fraud-on-the-market presumption of reliance by showing a lack of price impact, as well as the validity of the “price maintenance” theory of inflation. A decision from the Second Circuit also provided helpful guidance concerning the requirements for pleading scienter in securities actions and the Supreme Court granted certiorari in the matter. The Ninth Circuit also weighed in on whether unproven allegations in whistleblower lawsuits and short-seller reports may constitute corrective disclosures in fraud-on-the-market securities cases.
With respect to M&A and corporate governance litigation, the COVID-19 pandemic was a catalyst for a number of lawsuits, most notably, “busted deal” litigation where buyers sought to avoid their obligation to consummate mergers that had been announced before the pandemic but had not yet closed, by invoking Material Adverse Effect clauses or claiming breaches of interim operating covenants by the seller. The Delaware Supreme Court issued an important decision green-lighting federal-forum charter provisions for claims under the federal Securities Act, and other decisions providing meaningful guidance regarding the demand futility requirement of shareholder derivative actions and the grounds on which dissident slates may be excluded in a proxy contest. The Delaware Court of Chancery also issued important decisions concerning aiding and abetting claims, the proper purpose requirement and scope of a Section 220 request for books and records, the validity of contractual terms adopted in a spin-off, the materiality of certain proxy statement disclosures, and the scope of attorney-client privilege as between company counsel and a board of directors.
Please click here for a PDF version of 2020 Developments in Securities and M&A Litigation.