Lit Alerts—December 2016 (Second Edition)
In This Issue:
- Securities: US Supreme Court Affirms Insider-Trading Conviction for Tipping Family Relatives
- California Anti-SLAPP Statute: Attorney's Communicative Acts in Representing a Client Can Constitute Protected Activity
- Class Actions: Seventh Circuit Orders Dismissal of Putative Class Action Under FACTA for Lack of Standing
Securities: US Supreme Court Affirms Insider-Trading Conviction for Tipping Family Relatives
This month, the US Supreme Court affirmed the conviction for insider trading of Bassam Salman, who had argued that his insider trading conviction should be reversed because the original tipper received no pecuniary benefit for gifting tips to his brother.
The government convicted Salman of violating § 10(b) of the 1934 Securities and Exchange Act and SEC Rule 10b-5 after he traded based on tips he received from his brother-in-law, Michael Kara. Michael Kara in turn had received the tips from his brother, Maher Kara, an investment banker with access to insider information. Maher Kara testified he gave insider information to his brother Michael with the knowledge Michael would trade based upon the information and to satisfy "whatever needs he [Michael] had." Maher Kara received no pecuniary rewards from Salman for passing on any insider information.
Salman argued that under the Supreme Court case Dirks v. SEC, the government could not prove that Maher, the tipper, had received a pecuniary benefit in exchange for the tips he provided to his brother Michael, which would preclude Salman's conviction for insider trading based on the tips. The government argued that Maher had received a benefit for his insider tips; gifting tips to his brother had the same effect as Maher trading on the tips himself and gifting the profits from the illegal trades to his brother.
The Supreme Court ruled that a tipper breaches a fiduciary duty sufficient to violate § 10(b) and SEC Rule 10b-5 when he gifts insider information to a "trading relative." According to the Court, gifting insider information has the same effect as trading on the insider information and gifting the profits to the tippee. While disclosing insider information for no benefit at all is insufficient grounds for an insider trading conviction, a relationship between the tipper and tip recipient can provide evidence of a personal benefit to the tipper sufficient to sustain a conviction for insider trading.
California Anti-SLAPP Statute: Attorney's Communicative Acts in Representing a Client Can Constitute Protected Activity
The California Court of Appeal confirmed in October 2016 (as amended last month) that an attorney's acts in connection with representing a client may constitute "protected activity" within the meaning of California's anti-SLAPP statute, rendering a complaint that alleges such behavior as a basis for liability subject to a Special Motion to Strike. Contreras v. Dowling, No. A142646 (Cal. Ct. App. Oct. 26, 2016), as modified (Nov. 18, 2016).
The decision is the latest in a lengthy and contentious landlord-tenant litigation, wherein Contreras sued her landlords, their son, and their former attorneys for tenant harassment and other activities arising out of entries into her apartment that she alleged were illegal. When attorney Dowling began representing the landlords, Contreras amended her pleading to allege an aiding and abetting cause of action in connection with the alleged unlawful entries. Dowling moved to strike the pleading under California's anti-SLAPP statute because, he asserted, all of the alleged behavior underlying Contreras's amended complaint (her fifth in the case) arose out of his representation of the landlords and constituted "protected activity" within the meaning of California's anti-SLAPP law. The trial court denied Dowling's motion, reasoning that Contreras sought to hold him liable "only for the underlying wrongful conduct of" the landlords under an aiding and abetting theory, which did not arise from protected activity, and awarded Contreras her fees.
The Court of Appeal reversed, holding that "the only actions Dowling himself is alleged to have taken are all communicative acts by an attorney," which were "unquestionably protected by" the anti-SLAPP statute. The court reaffirmed the principle that whether activity is "protected" under the statute focuses on "the acts on which liability is based," not on the legal theory of liability or, in the instant case, the activities of those whom the defendant is alleged to have aided and abetted.
Class Actions: Seventh Circuit Orders Dismissal of Putative Class Action Under FACTA for Lack of Standing
The Seventh Circuit ordered a district court to dismiss a putative class action this month under the Fair and Accurate Credit Transactions Act (FACTA) for lack of jurisdiction. The case, Meyers v. Nicolet Restaurant of De Pere, LLC, No. 16-2075, centered on allegations that the defendant-restaurant failed to truncate the expiration date on credit card receipts, as required by FACTA. The plaintiff sued on behalf of a class of all customers who had been provided a non-compliant receipt, seeking statutory damages of US$100 to US$1,000 per violation. The district court denied the plaintiff's motion for class certification on the grounds that he failed to show that classwide issues would predominate over individual issues under Rule 23(b)(3), and the plaintiff appealed.
In a ten-page opinion, the Seventh Circuit did not reach the certification question. Instead, the court held that as a threshold matter, the plaintiff had not suffered an injury sufficient to confer Article III standing. The court reasoned that the Supreme Court's widely publicized ruling in Spokeo, Inc. v. Robins "compels the conclusion that [the plaintiff's] allegations are insufficient to satisfy the injury-in-fact requirement for Article III standing. The allegations demonstrate that [the plaintiff] did not suffer any harm because of [the restaurant's] printing of the expiration date on his receipt."
Meyers, the first circuit-level case to address standing in FACTA cases after Spokeo, serves as an important reminder to evaluate all avenues for dismissing a case early on, before engaging in costly discovery and motion practice.