United States: Class & Collective Action Newsletter - July 29, 2019


Denial of Certiorari in Stoyas v. Toshiba Corp.

Key Issue

While all circuits agree that a domestic transaction is necessary for the Exchange Act to apply, there is a split between the Second and Ninth circuits as to whether a domestic transaction is sufficient for its application, without more. Toshiba sought certiorari to resolve this split; in denying certiorari, the Supreme Court has left the question open.

Background & Decision

In July of 2018, the Ninth Circuit revived a securities class action against Toshiba,1 a Japanese company whose Japanese disclosures had been exposed as incorporating fraudulent accounting practices, on the theory that U.S. purchasers of Toshiba ADRs could assert claims against Toshiba under the Exchange Act. The Ninth Circuit held that this result was consistent with the Supreme Court's ruling in Morrison v. National Australia Bank Ltd.2 that the Exchange Act does not apply extraterritorially, but only to "transactions in securities listed on domestic exchanges, and domestic transactions in other securities."3 In so doing, the Ninth Circuit declined to follow the Second Circuit's decision in Parkcentral Global Hub Ltd. v. Porsche Automobile Holdings SE, which held that a domestic transaction is necessary, but not sufficient, for the Exchange Act to apply.4 At the same time, however, the Ninth Circuit suggested a different route to reach perhaps the same destination. It suggested that there might be sufficient distance between the alleged fraud—which was one arguably on Toshiba shareholders—and the purchase and sale of Toshiba ADRs so as to flunk the "in connection with" requirement.

Toshiba petitioned for certiorari, arguing that the split between the Ninth and Second circuits was significant and likely to have the usual pernicious consequences, including forum shopping by plaintiffs interested in the Ninth Circuit's more liberal approach to the Morrison inquiry. A few weeks ago, in June, the Supreme Court denied its petition.

Thoughts & Takeaways

The Supreme Court's denial of certiorari leaves intact a potential split between the Ninth Circuit's holding that a domestic transaction is sufficient for the Exchange Act to apply, and the Second Circuit's holding that a domestic transaction is necessary, but not sufficient. It will be interesting to see whether there will in fact be an increase in the number of securities fraud class actions filed in the Ninth Circuit, and in particular, whether more such cases are filed against foreign defendants whose relevant conduct occurred abroad and whose sole connection to the United States is the sale of their ADRs.

In addition, Stoyas itself will be interesting to follow. In Stoyas, the application of the Exchange Act to Toshiba hung on the slender thread of the domestic market in its Level 1 ADRs (which can be generated without any involvement or even consent from the company whose stock is referenced). But the Ninth Circuit emphasized that, to adequately plead a violation of the Exchange Act, plaintiffs must also sufficiently allege that Toshiba's fraudulent conduct in Japan was "in connection with" the ADR transactions that are the sole hook for domestic liability.5 How plaintiffs do so in the amended complaint that they now have an opportunity to file, and how the courts will evaluate that attempt, will determine the extent to which the result in Stoyas will differ from the result in Parkcentral.

Read the petition for certiorari here, and read the decision below here.

Denial of Certiorari in Mineworkers' Pension Scheme v. First Solar Inc.

Key Issue

Also in June, the Supreme Court denied a petition for a writ of certiorari from the Ninth Circuit's decision in Mineworkers' Pension Scheme v. First Solar Inc., which held that a private securities fraud plaintiff can establish loss causation based on a decline in the market price of a security even when the event or disclosure that triggered the decline did not reveal the fraud on which the plaintiff's claim is based.6

The Ninth Circuit permitted plaintiffs to recover based on the drop in the stock's value before the fraud was revealed to the market because "the underlying facts concealed by fraud affect[ed] the stock price."7 The Ninth Circuit concluded that the revelation of fraud to the market is just one of multiple theories on which a plaintiff may establish proximate cause in the context of a securities fraud claim. The denial of certiorari in this case gives securities plaintiffs in the Ninth Circuit in a stronger position with respect to pleading and proving loss causation.

Background & Decision

First Solar, a 2012 securities fraud class action filed against a major producer of solar panels, alleged that the company had concealed certain defects in its solar panels and understated their financial impact; as disappointing financial results trickled out and the company's stock took a hit, plaintiffs alleged that investors were suffering an injury proximately caused by the defendant company's fraud—despite the fact that that fraud had not yet been revealed to the market.

The district court, and then the Ninth Circuit, agreed with plaintiffs that they did not need to show that their losses were caused by the revelation of a fraud, as long as the loss could be traced back to the facts which the defendant had misstated. In other words, when the negative impact of a fraud is revealed to the market before the fraud itself is revealed, loss causation can be satisfied by showing its connection to that impact.

Thoughts & Takeaways

The Supreme Court's denial of certiorari leaves intact a decision that could be highly consequential for securities fraud defendants, because it enables plaintiffs to establish loss causation in a broader set of circumstances.

Read the petition for certiorari here, and read the decision below here.

Denial of Certiorari in Perryman v. Romero

Key Issue

In March of this year, in Frank v. Gaos,8 the Supreme Court avoided directly addressing an objection to the cy pres settlement mechanism despite an invitation to do so. More recently, on June 24, the Supreme Court declined even to take up a challenge to cy pres relief, denying certiorari in Perryman v. Romero.9 Some commentators have interpreted this as a signal that, at least for the time being, cy pres is here to stay. However, the tea leaves are not so clear, and if a better vehicle for challenging a cy pres settlement comes along, it is possible that the Supreme Court will take it up.

Background & Decision

Perryman concerned the settlement of a class action in which plaintiffs alleged that the defendants had fraudulently enrolled all 1.3 million class members into a membership program without their consent, and then charged them a monthly membership fee, reaping tens of millions of dollars thereby. The case settled for $12.5 million, with class counsel requesting $8.65 million in fees and $200,000 in costs, a special payment of $80,000 to the class representatives, and the $3.65 million remainder available to class members who submitted refund claims. Class members were also to receive a $20 coupon that could be redeemed at the website of one of the defendants, which defendants valued at around $26 million (a valuation that was disputed). After administrative costs were satisfied and refunds paid, any remaining unclaimed money was to go to cy pres awards to three San Diego universities, including one from which several of the attorneys on the case graduated. The awards were to be coordinated with the main defendant and directed to be used in relation to issues of internet privacy or data security.

Ted Frank, for the Center for Class Action Fairness, which also objected to the settlement in Frank v. Gaos, represented Perryman, a member of the class, in his objection to this settlement. Perryman objected on a number of grounds, among them, the distribution of any money to cy pres recipients when all class members were known and would receive a distribution.

The district court was not persuaded and approved the settlement, despite the fact that only about 3,000 class members claimed refunds, with the result that about $225,000 was refunded to class members, leaving about $3 million to go to cy pres recipients. And, on appeal, the Ninth Circuit too rejected the cy pres argument (despite taking issue with other aspects of the settlement, including vacating the award of fees). The Ninth Circuit noted that due to the large size of the class, a distribution of any remaining amounts would be "de minimis." Nor was the court persuaded by the argument that an award to universities to which certain of the litigating attorneys had relationships was improper or that it was improper for the cy pres award to be geographically concentrated despite a nationwide class.

Thoughts & Takeaways

Unlike Frank v. Gaos, Perryman did not involve a cy pres-only settlement. In Perryman, the cy pres mechanism was used to distribute unclaimed funds, with other funds being paid directly or indirectly to class members. It therefore raised a somewhat different question about the cy pres mechanism. To the extent that the grant of certiorari in Frank v. Gaos suggested that the Supreme Court was open to weighing in against the use of cy pres, the denial of the petition in Perryman does not necessarily signal a shift in its views.

Ted Frank, counsel to Perryman and also "Frank" in Frank v. Gaos, has assured the press that he has other cy pres cases pending,10 and will certainly continue his scrutiny of class action settlements. Consequently, cy pres only settlements, or settlements where the cy pres portion is more significant in comparison to direct relief than it was in Perryman, should still be considered carefully by counsel, and the potential (depending on the circuit, perhaps remote, but not nonexistent) for a successful appeal of cy pres relief should be taken seriously in structuring and negotiating classwide relief.

Read the petition for certiorari here, and read the decision below here.

To view this Newsletter in full, please click here.


1. Stoyas v. Toshiba Corp., 896 F.3d 933 (9th Cir. 2018). In the Supreme Court, the case was captioned Toshiba Corp. v. Auto. Industries Pension Trust Fund, No. 18-459.

2. Morrison v. Nat'l Australia Bank Ltd., 561 U.S. 247 (2010).

3. Id. at 267.

4. Parkcentral Global Hub Ltd. v. Porsche Automobile Holdings SE, 763 F.3d 198, 216 (2d Cir. 2014).

5. Stoyas, 896 F.3d at 32.

6. Mineworkers' Pension Scheme v. First Solar Inc., 881 F.3d 750 (9th Cir. 2018). In the Supreme Court, the case was captioned First Solar Inc. v. Mineworkers' Pension Scheme, No. 18-164.

7. Id. at 754.

8. Frank v. Gaos,—S. Ct.—, No. 17-961, 2019 WL 1264582 (Mar. 20, 2019) (per curiam).

9. Brian Perryman v. Josue Romero, et al., No. 18-1074. In the Supreme Court, the case was captioned Brian Perryman v. Josue Romero, et al., No. 18-1074.

10. Bem Kochman, High Court Won't Hear Challenge to Cy Pres Mechanism, Law360 (June 24, 2019), https://www.law360.com/articles/1172218/high-court-won-t-hear-challenge-to-cy-pres-mechanism.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

In association with
Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions