In re Stillwater Capital Partners Inc. Litigation
853 F. Supp. 2d 441
S.D.N.Y.2012Background
- Putative class action in MDL involving Stillwater Funds and Stillwater's merger with Gerova; claims include Sections 14(a), 10(b)/Rule 10b-5, Section 20(a), breach of fiduciary duty themes, and aiding/abetting breaches.
- Plaintiffs allege Gerova (a Bermuda blank-check company) and Stillwater entities manipulated disclosures and related-party transactions to facilitate the merger.
- Defendants include Gerova, SCP, SCP, NY, and ten individual officers/directors; plaintiffs allege misstatements/omissions and fiduciary breaches.
- Alleged related-party deals (Amalphis and Wimbledon) not disclosed; Gerova collapsed after 2010 transactions, with stock delisting and restructuring attempts.
- Procedural posture: defendants moved to dismiss; court grants some counts and denies others, with SLUSA and internal affairs doctrine guiding preclusion and choice-of-law analyses.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Section 14(a) applicability to foreign issuer | Gerova is foreign private issuer status; 14(a) applies. | Gerova not subject to 14(a) because foreign private issuer; SCP proxy not covered. | Gerova not subject to Section 14(a); SCP proxy not liable under 14(a). |
| Section 10(b)/10b-5 liability for SCP and Gerova | Omissions related to Amalphis/Wimbledon, and unpaid fees, were material; scienter alleged. | Omissions not material or properly attributed; lack of causation or reliance. | Section 10(b) claims survive against SCP and Gerova officers; loss causation shown. |
| Control person liability under Section 20(a) | Primary 10(b) violation established; defendants in control liable. | Contends no independent primary violation or lack of control. | 20(a) claims survive given surviving 10(b) violations. |
| Breach of fiduciary duty and preemption | Counts V–VI survive; derivative/standing issues addressed; not preempted by Martin Act. | Counts challenged as derivative or duplicative or preempted. | Count IV derivative and dismissed; Counts V, VI survive; not preempted by Martin Act. |
| SLUSA preclusion and Delaware carve-out | Claims preserved under Delaware carve-out for issuer not incorporated in a state; SLUSA exceptions apply. | SLUSA precludes covered class actions; no Delaware carve-out for Bermuda issuer. | Count VII (aiding/abetting) dismissed as SLUSA-precluded; Delaware carve-out inapplicable. |
Key Cases Cited
- Janus Capital Grp., Inc. v. First Derivative Traders, 131 S. Ct. 2296 (U.S. 2011) (makers of statements attributed to them; intent and attribution matter for 10(b))
- Ashcroft v. Iqbal, 556 U.S. 662 (U.S. 2009) (plausibility standard for Rule 12(b)(6))
- Kalnit v. Eichler, 264 F.3d 131 (2d Cir. 2001) (scienter and motive standards in securities cases)
- Republic Tech. Fund, Inc. v. Lionel Corp., 483 F.2d 540 (2d Cir. 1973) (proxy-rule claims not under §14(a) when proxies not solicited for registered securities)
- In re Omnicom Grp., Inc. Secs. Litig., 597 F.3d 501 (2d Cir. 2010) (second circuit standards for securities fraud pleading and loss causation)