Shareholder suits in deep freeze
By Pam MacLean, CBS MarketWatch
Last Update: 11:47 AM ET Aug 17, 1999
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SAN FRANCISCO (CBS.MW) -- If you're part of a shareholder suit
against a publicly traded company, don't expect it to settle any time soon.
Investor class-actions are being put on ice while a federal appeals court
ponders its next move.
A three-judge panel of the appellate court last
month issued a ground- breaking decision that
made survival nearly impossible for shareholder
suits against corporations accused of recklessness
or mismanagement.
Now lawyers in the Silicon Graphics Inc. (SGI:
news, msgs) case, the subject of the appeal, have
asked the San Francisco-based court to reconsider
that action and place the case before an 11-judge panel. That would be
the last step before U.S. Supreme Court review.
In the case, the 9th U.S. Circuit Court of Appeal ruled shareholder suits
based on alleged fraud should be dismissed unless they show "in the
greatest detail possible" what company officials knew when they made
statements at the heart of the claim. See full story.
Putting cases on hold
Because the outcome of the SGI ruling would implicate nearly every other
securities case in the West, lawyers for investors are hurrying to hold off
dismissal of their lawsuits. They have asked trial judges to freeze the
cases until the appeals court decision.
In at least six cases in Northern California and one in San Diego, lawyers
have formally asked to put cases on hold. Those requests involve Madge
Networks, (MADGF: news, msgs), Sigma Design Inc. (SIGM: news,
msgs), Smart Modular Technologies Inc. (SMOD: news, msgs), Splash
Technology Holdings (SPLH: news, msgs), Storm Technology Inc.
(EASY: news, msgs) and Versant Object Technology Inc. (VSNT: news,
msgs). In San Diego, the case involves Brooktree Corp., which was
acquired by Rockwell (ROK: news, msgs) in September 1996.
A San Jose judge recently dismissed a shareholder case against CBT
Group PLC (CBTSY: news, msgs), but left open the opportunity to
renew the claims if the appeals court reconsiders the SGI case.
Reconsideration likely
"The betting is that [a rehearing] will be granted,"
according to Michael Torpey, a San Francisco
lawyer with Brobeck, Phleger & Harrison. His firm
is defending corporations in 70 active securities
cases nationally.
"Silicon Graphics is a Draconian result from the
[shareholders'] point of view," Torpey said.
Because the case is so significant, the court may
vote for a larger, 11-judge review. Also, there are
three other rulings across the country at odds with
portions of the SGI interpretation of the law.
All of this legal maneuvering sets up the final
face-off in the U.S. Supreme Court for the
definitive meaning of the 1995 reforms by
Congress that tried to curtail what companies called
baseless claims in securities suits.
Joseph Tabacco Jr. a San Francisco lawyer who represents investors in
securities cases, says he has advised people to file cases in Boston if
possible. The appeals court in the East has had a much more sympathetic
interpretation of the law from the shareholder point of view.
In the end, this all affects the potential settlement value of the cases for
lawyers involved. The SGI ruling dropped the value for shareholders
because the cases would become harder to prove. Settlements were
averaging $10 million each up to that point. With 80 percent of the cases
settling out of court and roughly 500 cases pending, that's a heck of a lot
of money.
None of the shareholder attorneys are anxious to give up on the cases until
they have fought it out in the high court.
But at least one judge in a recent seminar with securities lawyers said he
may very well dump cases he doesn't believe will survive even the most
relaxed interpretation of the 1995 reform law.
U.S. District Judge Jeremy Fogel of San Jose, Calif. said, "The one's that
I can get rid of, I will. I don't want to wake up in two years with 80
[securities] cases on my docket."
Pam MacLean writes Legal Options and Taxing Times for CBS
MarketWatch.
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