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The California Supreme Court agreed Nov. 21 to decide whether investors given misleading financial forecasts can sue for securities fraud in state court even if they didn’t sell their shares. Four months ago, a California appellate court ruled that though such suits cannot be brought under securities statutes, they can be brought under common law. But San Francisco defense lawyer William Alderman said that the appellate court’s ruling overextended the common law — and could augur a wave of vexatious securities litigation. “The risk of a rush to California’s courts is especially acute,” the Orrick, Herrington & Sutcliffe lawyer wrote in his petition for review on behalf of Fritz Companies Inc. The case stems from Fritz’s May 1995 acquisition of fellow transportation giant Intertrans Corp. — a merger viewed by Fritz analysts as a move in the right direction to boost fiscal health. And a financial report issued the following April reflected the company’s optimism. But by the following July, the company announced it was making adjustments, explaining that it had underestimated the costs of the merger. New York lawyer Harvey Greenfield filed a securities class action on his own behalf and on behalf of everyone who held Fritz common stock between April 1996 and July 1996. San Francisco Superior Court Judge David Garcia sustained a demurrer based on Greenfield’s failure to allege specific facts showing actual and individual reliance on the faulty report — as well as his failure to show that people who did nothing to either buy or sell stocks should be able to assert claims for fraud. But the First Appellate District, in an opinion authored by Justice Marcel Poch�, ruled that damages for fraud can be recovered even when the misrepresentation prompts the investor to sit tight. The court acknowledged that the question is rather novel for California but ultimately concluded that, “We are not blazing a new trail, but merely extending a trail already started.” Just four of the justices — Ronald George, Marvin Baxter, Kathryn Mickle Werdegar and Janice Rogers Brown — voted to review Greenfield v. Fritz Cos. Inc., S091297. The same justices plus Stanley Mosk also granted review last week in another First District case, San Remo Hotel v. City and County of San Francisco, S091757. That case stems from the hotel’s 7-year-old challenge of the city’s Residential Hotel Unit Conversion and Demolition Ordinance as a taking. The ordinance requires residential hotel owners to build or pay for new housing when they convert their hotels to tourist use. The First District reversed a trial judge and said the owners of the San Remo hotel in North Beach could move forward on its claim that the city’s ordinance — restricting the conversion of residential hotel rooms to tourist use — constitutes a taking.

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