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Citing 'Stoneridge,' Judge Releases Clifford Chance From Securities Suit
New York Law Journal
May 01, 2008
A federal judge in Philadelphia has dropped Clifford Chance from a securities class action, citing the U.S. Supreme Court's recent decision in Stoneridge Investment Partners v. Scientific-Atlantic Inc.
The London-based Clifford Chance firm had been facing suit by shareholders of DVI Inc., a health care finance company the law firm had represented in the months leading up to its 2003 bankruptcy filing. The shareholders had accused the firm of participating in a scheme with DVI's executives to engage in sham transactions designed to conceal the company's true financial health.
In its January decision in the closely watched Stoneridge case, the Supreme Court rejected such "scheme liability" claims against third parties because the alleged schemes generally did not result in public statements on which investors could claim reliance.
Applying this reasoning to the DVI class action, Judge Legrome Davis of the U.S. District Court for the District of Pennsylvania said: "Though Lead Plaintiffs allege that Clifford Chance knew of the scheme, and at times took a more active part in assisting DVI in the scheme, the fact remains that none of this alleged conduct was publicly disclosed such that it affected the market for DVI's securities."
Though he declined to certify a class against Clifford Chance, the judge did allow the case to proceed against other defendants, including Merrill Lynch and Deloitte. The case is one of the first to cite Stoneridge, and Clifford Chance's lawyer, William J. Schwartz of Cooley Godward Kronish, said Davis' decision would satisfy law firms that "hoped there would be meaning in the Supreme Court's decision."
Clifford Chance continues to face a suit by DVI's bankruptcy trustee.
