DIVERTED BY THE DOWNTURN
Lawsuits related to subprime mortgages and financial instruments consumed much of Coughlin Stoia's energy in recent months, but new subprime filings are waning, Rudman said. "We're busy litigating those cases, but not a lot of new ones are being started," Rudman said. "We have [new cases] we've been looking at that we kind of back-burnered for two years."
Rudman said the firm is putting many prior stock drops under the microscope before the statute of limitations runs out. "My list is long," Rudman said.
Several other cases brought by his firm against companies in a range of industries also bump up against the statute of limitations for securities fraud claims. In Steamfitters Local 449 Pension Fund v. Advanta Corp., an Eastern District of Pennsylvania case against the former credit card issuer and current and former executives and officers, the plaintiff claims the defendants concealed customer dissatisfaction with its cash-rewards program and failed to promptly record losses or disclose how credit trends were harming the business. According to the case, unsuspecting investors were harmed by Nov. 27 and 28, 2007, stock drops when the company made delayed disclosures.
Advanta, which filed for bankruptcy protection earlier this month, "does not believe that there is any merit to the allegations," said spokesman Tom Becker.
Allegations in a Southern District of Texas case, Material Yard Workers Local 1175 Benefit Funds v. Men's Wearhouse Inc., stem from the discount menswear retailer's Jan. 10, 2008, stock drop. The plaintiff claims the defendants failed to make several key disclosures in the company's third quarter 2007 and fiscal year 2007 guidance on Aug. 22, 2007: one division's poor sales performance, low sales volume at a recently acquired unit, and significant discounting due to low demand. Men's Wearhouse's lawyer on the case, Gerry Pecht, a partner in Fulbright & Jaworski's Houston office, said he didn't want to discuss details of the case, but he questioned the motives of the plaintiffs lawyers. "It makes you wonder if they're sort of the bottom of the barrel for the plaintiffs bar, given that they're bringing them so late," Pecht said.
Coughlin Stoia also filed three other recent lawsuits alleging that companies' and executives' delayed disclosures of, or misstatements about, company problems harmed investors.
Two involve 2008 stock drops: International Brotherhood of Electrical Workers Local 697 Pension Fund v. Limited Brands Inc., filed in the Southern District of Ohio, against the retail company and current officers and directors, and Gissin v. Endres, filed in the Southern District of New York against former executives and officers of VeraSun Energy Corp., an ethanol producer. Another case against former and current executives of telephone directory company R.H. Donnelley Corp., Local 731 I.B. of T. Excavators and Pavers Pension Trust Fund v. Swanson, covers investors owning stock between July 26, 2007, and the day before the company's May 29, 2009, bankruptcy filing.
And then there is Hochuli v. Delgado, a class action not filed by Coughlin Stoia. In that case, filed on Oct. 23 in the Southern District of Florida against several former directors and officers of the now-defunct Carmel Energy Corp. but not the company itself, the plaintiffs define the class as buyers of the company's securities between Dec. 15, 2007, and Aug. 31, 2008. The plaintiffs claim the defendants misrepresented how they would use money raised from selling stock and failed to hire qualified auditors and securities lawyers that could help Carmel comply with U.S. Securities and Exchange Commission rules for public companies.
The plaintiffs lawyer, Joe White of Boca Raton, Fla.-based Saxena White, said the case is an outlier among securities cases because it involves a company that traded on the over-the-counter bulletin board instead of a national exchange. He also hasn't been able to locate or serve any of the defendants with court papers. In the Southern District of Florida, plaintiffs must serve defendants with court papers within 120 days of filing the case.
Finally, one recently filed case is already dead in the water. The plaintiffs who sued Regions Financial Corp. and current and former officers and directors in the Northern District of Alabama on Oct. 2 voluntarily dismissed the suit on Nov. 13.
In that case, McClellan v. Regions Financial Corp., the plaintiffs claimed the defendants issued a misleading proxy statement for shareholders to vote on Regions' November 2006 acquisition of another Birmingham, Ala.-based bank, AmSouth Corp. The case also made claims against the investment bank that advised Regions on the deal, Merrill Lynch Pierce Fenner & Smith, and the outside auditor for both companies, Ernst & Young.
The plaintiffs lawyer, Joseph Whatley Jr. of Whatley Drake & Kallas in Birmingham, said there's a problem with securities law time limits in cases like Regions, where subprime investments were concealed for years, but he agreed to the dismissal because he's planning to make Delaware law claims against the company.
David Tulchin, a partner at New York's Sullivan & Cromwell who was one of Regions' chief lawyers on the case, said the claims were barred by the three-year statute of limitations under the PSLRA. Tulchin said the plaintiffs lawyer withdrew the suits because he "was facing the reality there was no way around it; it was a case that was really brought too late."
The lawsuit was filed one day before the three-year anniversary of the Oct. 3, 2006, shareholder vote on the acquisition. Tulchin said the official materials sent to shareholders describing the acquisition, called the proxy statement, determines the time limit.
Tulchin also disputed the notion that plaintiffs lawyers have a surplus of potential securities cases for which they had no time during the subprime case boom.
"There are a lot of lawyers on the plaintiffs' side who file a lot of cases where they're sort of taking fliers," Tulchin said. "All that tells [me] is that there aren't any clients. That tells [me] the only people who have an interest in these cases are the lawyers."