Lit Alerts—April 2019
Class Actions: Request to Appeal a Class Certification Order Must Be Filed Within 14 Days
In Nutraceutical Corp. v. Lambert, 139 S. Ct. 710 (2019), the US Supreme Court ruled that attorneys must strictly adhere to Federal Rule of Civil Procedure 23(f)'s 14-day deadline to appeal a class certification order. In that case, plaintiff Troy Lambert alleged Nutraceutical Corp. had falsely marketed a dietary supplement. The district court initially allowed Lambert to represent a class of consumers, but on February 20, 2015, it revisited that decision and ordered the class decertified.
Pursuant to Rule 23(f), Lambert had 14 days from that date to ask the Ninth Circuit for permission to appeal the decertification order. Instead of initially filing a petition for permission to appeal, Lambert told the district court on March 2 (10 days after the decertification order) that he would file a motion for reconsideration, which he did on March 12.
The district court denied the motion, and on July 8, 2015, Lambert finally petitioned the Ninth Circuit for permission to appeal the decertification order. Nutraceutical argued that Lambert's petition was untimely because more than four months had passed since entry of that order.
The Ninth Circuit disagreed, deeming Lambert's petition timely on the ground that Rule 23(f)'s deadline should be tolled because Lambert informed the district court of his intention to seek reconsideration of its ruling within Rule 23(f)'s 14-day window. Reversing the Ninth Circuit in an unanimous opinion, the Supreme Court enforced a strict deadline, ruling that Rule 23(f)'s 14-day deadline for seeking immediate appeal from an order granting or denying class certification was not subject to equitable tolling.
Securities: Tenth Circuit Affirms the SEC's Extraterritorial Reach When the "Conduct-and-Effects" Test Is Met in Enforcement Actions
In SEC v. Scoville, the Tenth Circuit held that Congress has "clearly indicated" that the antifraud provisions of the Securities Act of 1933 (1933 Act) and the Securities Exchange Act of 1934 (1934 Act) apply when "either significant steps are taken in the United States to further a violation of those antifraud provisions or conduct outside the United States has a foreseeable substantial effect within the United States." Defendant Charles Scoville operated an internet traffic exchange business through defendant Traffic Monsoon, LLC, Scoville's Utah-based company. In July 2016, the Securities and Exchange Commission (SEC) initiated a civil enforcement action against the defenants alleging they were operating an unlawful online Ponzi scheme involving the fraudulent sale of securities. The defendants purported to sell bundles of internet advertisements (Adpacks).
The SEC contended that the defendants violated Sections 17(a)(1) and 17(a)(3) of the 1933 Act, which prohibit fraud or deception in the offer or sale of securities. It also alleged that the defendants violated Section 10(b) of the 1934 Act and SEC Rule 10b-5(a) and (c), which prohibit fraud or deception "in connection with the purchase or sale of any security." The defendants argued, inter alia, that the SEC failed to show it was likely to succeed in proving the elements of its antifraud claims and could not show that the defendants engaged in a fraudulent securities scheme with the requisite scienter. The Tenth Circuit, affirming the district court's decision, held that Congress "affirmatively and unmistakably" intended to grant extraterritorial authority to the SEC here because Scoville engaged in conduct within the United States that was shown to have likely violated the securities laws.
The Tenth Circuit directly addressed the SEC's authority to enforce the federal securities laws at issue extraterritorially after the US Supreme Court's rejection of the "conduct-and-effects" test in Morrison v. Nat'l Australia Bank Ltd. Following an analysis of the legislative history of Section 929(b) of the Dodd-Frank Act, the Tenth Circuit held that the antifraud provisions reached Traffic Monsoon's sales of and offers to sell Adpacks to purchasers located outside the United States.
© Arnold & Porter Kaye Scholer LLP 2019 All Rights Reserved. This newsletter is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.