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Joseph M. Donley of Thorp Reed & Armstrong has returned a good turn by Italian lawyer Marina Santarelli. Santarelli suggested her Italian law firm hire Donley to defend it in an American class action, and Thorp Reed has successfully defended Pavia e Ansaldo in a securities case by getting Pavia out of the case on summary judgment. U.S. District Judge Lewis A. Kaplan of the Southern District of New York granted summary judgment, dismissing the Pavia e Ansaldo law firm, which has offices in Milan and Rome and had a presence in the past in New York City, and other businesses from a proposed class action. Thorp Reed partner Donley and associate Christopher M. Brubaker have been representing Pavia e Ansaldo in In re Parmalat Securities Litigation. The proposed class of purchasers of Italian dairy conglomerate Parmalat Finanziaria S.p.A. and its subsidiaries’ securities argued in court papers they relied upon the “materially false and misleading financial statements and other public statements” made by the company and Parmalat’s U.S.-based lawyers, bankers and auditors about the company’s financial health at the same time Parmalat’s leaders were faking its fiscal health in order to raise money for its investments. Parmalat sensationally collapsed in 2003 after it was revealed that the conglomerate’s debt was understated by $10 billion and its shareholder equity was overstated by $16.4 billion, according to court papers. Kaplan knocked out the plaintiffs’ federal Securities Exchange Act claims against a group of defendants. Under the January 2008 U.S. Supreme Court decision in Stoneridge Investment Partners LLC v. Scientific-Atlanta Inc., the plaintiffs’ Section 10b-5(a) and 10b-5(c) claims against the defendants can’t stand because the plaintiffs didn’t show that investors relied upon the defendants’ individual allegedly deceptive conduct, Kaplan said in his Aug. 7 opinion. Regarding Pavia, Kaplan said the plaintiffs didn’t prove that Pavia had breached “a legal duty to the plaintiffs” with its arguments that Pavia breached a duty of disclosure under New York’s Rule 4.1 of the Model Rules of Professional Conduct to disclose Parmalat’s allegedly fraudulent conduct. The Stoneridge decision held that a plaintiff’s reliance “‘upon the defendant’s deceptive acts is an essential element” of Section 10b-5(a) and 10b-5(c) causes of action; unless a member of the public had knowledge of a defendant’s alleged deceptive conduct, a plaintiff can’t demonstrate a defendant’s liability, Kaplan wrote. Ultimately, the Supreme Court “rejected the proposition ‘that in an efficient market investors rely not only upon the public statements relating to a security but also upon the transactions those statements reflect,’” Kaplan wrote. Kaplan ruled before the Stoneridge decision that the plaintiffs could have maintained some of their Section 10b-5(a) and 10b-5(c) claims against Pavia and other defendants “assuming that they proved their allegations notwithstanding the lack of any actionable misrepresentations or omissions by them,” the opinion said. Brubaker said there is not much relevant case law about what actionable deceptive misconduct is. He also noted that plaintiffs have tried to use Section 10b-5(a) and 10b-5(c) to pursue civil causes of action regarding banks or attorneys they allege aided and abetted bad behavior about securities because the 1995 Private Securities Law Regulation Act made aiding and abetting a crime but didn’t afford a civil cause of action for aiding and abetting. Robert M. Roseman, a plaintiffs’ attorney with Spector Roseman & Kodroff in Philadelphia, and Donley noted that Kaplan was one of the first judges, if the not the first, to address the implications of the Stoneridge decision. Roseman said he believes it’s the first Stoneridge-related opinion in the Southern District of New York. The Stoneridge ruling created a bright line rule of when a secondary actor can be held liable for any alleged deceptive conduct that has been made public, Donley said. Lydia Ferrarese, one of the plaintiffs attorneys with Grant & Eisenhofer in New York, said the Stoneridge decision tightened the standard under which Section 10b-5(a) and 10b-5(c) claims go forward. Roseman said the Stoneridge decision “makes it fact-intensive” for judges to rule on whether plaintiffs have established a “scheme liability.” But he said the vast majority of securities cases don’t involve scheme liability so most securities law won’t be affected by the Stoneridge ruling. Plaintiffs’ counsel are still evaluating their options regarding Kaplan’s summary judgment ruling, including whether to move for reconsideration, appeal to the 2nd U.S. Circuit Court of Appeals or to accept the ruling, Roseman said. According to the plaintiffs’ third amended class action, defendant Gian Paolo Zini and the law firms he was connected with in New York City allegedly orchestrated most of Parmalat’s alleged fraudulent transactions to divert funds to Parmalat. According to the plaintiffs, Zini worked for Pavia e Ansaldo from 1998 to 2001 when he was with the Pavia law firm’s Milan office. During that time, Zini was counsel to Calisto Tanzi, Parmalat’s chairman, managing director and controlling shareholder of a subsidiary that owned 50.5 percent of Parmalat’s equity. Donley said they were able to demonstrate Zini had left the firm by the time that most of the Parmalat alleged fraud occurred. Donley noted Kaplan didn’t reach other arguments Pavia put forth for summary judgment, including that under Italian law a law firm doesn’t have the obligation to control the legal work of a firm member because a firm member’s legal work is personalized to the member. Kaplan didn’t reach the merits of the claim or scrutinize the conduct of Pavia and other defendants in his decision analyzing if the plaintiffs’ claims met the reliance requirement under the Stoneridge decision, Ferrarese said. According to the plaintiffs’ third amended complaint, Parmalat allegedly defrauded investors by concocting “a series of transactions whose aim was to show the investing public that the company had profits and assets that, in fact, did not exist” via the use of bogus bank accounts, forged financial records and the manipulation of Parmalat’s balance sheet. Zini established Pavia’s New York office and moved there, the plaintiffs alleged, “because New York is the world’s financial center (which would provide great credibility to Parmalat’s money-rasing plans” and to implement the Parmalat fraud. In February 2001, Zini established Zini & Associates, and all 20 Pavia attorneys became part of that firm, according to court papers. Zini has since been convicted in Italy of crimes related to this activity. Kaplan also dismissed Bank of America and its various entities and Citigroup and its various entities in the summary judgment. A preliminary settlement has been reached with the restructured Parmalat successor, which underwent an Italian bankruptcy settlement, for 10.5 million shares. A final $50 million settlement has been reached with two banks, Credit Suisse Group and Banca Nazionale del Lavoro S.p.A., in 2006. The case is still pending against other defendants.

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