Broker-Dealer Litigation - Greenberg Traurig LLP

claim; that there is an actual misstatement or omission at the time the statement is made and that
the misstatement or omission is materially misleading. The court found that, due to the several
misstatements regarding how compensation to the Encore shareholders would be calculated,
defendant’s actions met the first requirement under both sections 11 and 14. Further, the court
found that the misstatements made are not immaterial as a matter of law. Under Section 14, the
materiality standard turns on whether a reasonable shareholder would consider the fact important
in deciding how to vote. Accordingly, since the misstatements at issue related directly to the
compensation received by Encore shareholders, the misstatements are material as a matter of
law, causing defendant’s motion to dismiss to fail.
Tiberius Capital, LLC v. Petrosearch Energy Corporation, 2011 WL 1334839 (S.D.N.Y. Mar.
31, 2011)
In March 2009, Petrosearch Energy Corp. announced that it had entered into a merger
agreement with Double Eagle Petroleum Co. (DBLE). Plaintiff, a shareholder in Petrosearch,
made a tender offer, which the Petrosearch Board rejected. A proxy statement discussing the
DBLE merger and plaintiff’s tender offer was issued in July 2009, and the merger was approved
in a shareholder meeting in August of 2009. Plaintiff filed suit alleging violations of sections
10(b), 14(a), and 20(a) of the Exchange Act and Rules 10b-5 and 14a-9 thereunder, as well as
state law claims. Plaintiff alleged in connection with both the Section 10(b) and 14(a) claims,
that Petrosearch had made a material misrepresentation that plaintiff was not entitled to
dissenters’ rights. Although Petrosearch had subsequently acknowledged that their
representation was in error, the court found that the conclusion that dissenters’ rights were
available was not obvious, and could only be reached after legal analysis, and that plaintiff did
not reasonably rely on the misrepresentation, as plaintiff had communicated its independent
conclusion that it was entitled to dissenters’ rights in a letter on the day of the shareholder
meeting. With specific reference to the Section 14(a) claim, the court found that as a minority
shareholder, plaintiff could not plead transaction causation, and that plaintiff’s votes were not
necessary for the approval of the merger. Following analysis of the aiding and abetting and state
law claims, the court granted defendant’s motion to dismiss.
Strugala v. Riggio, 2011 U.S. Dist. LEXIS 115834 (S.D.N.Y. Oct. 4, 2011).
Although the underlying claim is a Section 14(a) of the Exchange Act, this particular
decision is about whether the plaintiff sufficiently alleged under Delaware law that it would have
been futile to make a demand on the board before bringing a suit against the corporation. In this
case, the plaintiff failed to show that it would have been futile. The court decided that the
following, on their own, are insufficient to establish a reasonable doubt that the shareholders
were disinterested or independent: 1) the possibility that a shareholder would face a substantial
likelihood of liability; 2) the existence of an insured versus insured insurance policy; 3) the
previous payment of director’s fees; and 4) personal or close social relationships.
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