Florida Securites Fraud Class Action Dismissed Against The St. Joe Company

Northern District of Florida Judge Richard Smoak dismissed a securities fraud class action complaint filed by class action attorneys representing shareholders of The St. Joe Company.  The complaint concerned alleged misrepresentations of the value of properties the company owned in the Florida panhandle.

St. Joe is now one of the largest real estate development companies in Florida. The company operates its business in four segments: (1) residential real estate; (2) commercial real estate; (3) rural land sales; and (4) forestry.  St. Joe allegedly failed to timely take an impairment charge which caused it to overstate the value of its assets when the real estate market crashed in recent years.

In dismissing the complaint, the court stated:

Plaintiff’s claims of misrepresentation are insufficient to meet the standard of pleading fraud with particularity because they fail to allege that Defendants acted with the requisite scienter and made statements that they knew were materially false at the time. Additionally, Plaintiff has failed to establish loss causation.

See the Order on Motion to Dismiss Class Action Securities Fraud Complaint.

Meyer v. The St. Joe Company, 11-cv-27 (N.D. Fla.) (Smoak, J.).

What is Securities Litigation and Securities Arbitration

Securities attorneys and lawyers can practice is a wide variety of areas.

Transactional Securities Attorneys

Certain securities attorneys focus on transactional securities work which includes counseling issuers, underwriters and placement agents in private and public offerings under the Securities Act of 1933; advising on mergers and acquisitions or going private transactions; and preparing regulatory filings required under state and federal securities laws under the Securities Exchange Act of 1934, Sarbanes Oxley and the Dodd-Frank Act.

Securities Litigation and Arbitration Attorneys

Other securities laws may focus on securities litigation and arbitration. Securities litigation and arbitration cases are prosecuted and defended by securities attorneys on behalf of various parties including shareholders, private and publicly-traded companies, officers, directors, and senior management,  individuals and institutional investors, stock brokers, brokerage firms, broker-dealers, underwriters, investment banks, pension funds, and hedge funds.

In addition to recouping lost assets, private securities litigation also augments the efforts of federal regulators to pursue wrongdoers and to provide a deterrent to future violations.

Derivative Actions

Derivative actions are lawsuits brought by shareholders on behalf of the company against senior managers and officers.  Generally, the claim is brought where the shareholders believe that the senior managers are breaching their fiduciary duties to the company through malfeasance.  Plaintiffs may seek both injunctive relief (directing the end of the wrongful acts) and may seek compensatory damages to be paid  by the rogue managers directly to the company.

State & Federal Lawsuits

In lawsuits and arbitration, securities lawyers may allege violations of state or federal securities laws and may also allege common law claims including breaches of fiduciary duty or fraud depending on the factual scenarios.  Retaining a securities attorney to initiate a securities lawsuit may be the only means for for a shareholder to recover asset or investment losses caused by corporate fraud or malfeasance.  Such actions may be filed in state or federal court depending upon the type of claims asserted.

Class Actions

In addition to individual lawsuits, securities class actions may be filed on behalf of classes of shareholders who have similar interests and similar claims.  Because of the significant expense in engaging in securities litigation against large, publicly-traded companies, class actions provide means for recovery for shareholders with a small financial stake in the litigation.

Securities class actions are filed by securities attorneys who represent individuals who seek to serve as class representatives.  Class representatives must have claims similar to the other members of the class and must be approved by the court.  If a settlement is achieved between the class representative and the defendants, class members generally have three options:  (1) participate in the settlement for their pro-rata share; (2) opt-out of the settlement (and pursue their claims in separate litigation); (3) participate in the settlement, but object to certain parts of the settlement – such as the allocation of the settlement or object to the amount of attorney’s fees sought by the class attorneys.


Some securities disputes arise in the context of a stock broker/client relationship.  In most circumstances, a customer will enter into an agreement to arbitrate any disputes that arise between him and his broker in connection with his brokerage account.  For example, a dispute may arise when a broker is involved with the solicitation or sale of an unregistered security which leads to a loss of the customer’s investment.  Often the brokerage agreements specify that such disputes will be resolved before FINRA dispute resolution.  Arbitration can differ drastically than litigation in state and federal courts for securities attorney.  For example, there is no jury in FINRA arbitration, there are very limited rules of procedure and discovery and there are very limited grounds to appeal a FINRA arbitration award.



Enforcement attorneys at the Securities and Exchange Commission (“SEC”) filed a civil action against a former portfolio manager at the hedge fund investment adviser Diamondback Capital Management, LLC.  The SEC complaint alleges that the former portfolio manager used inside information to trade ahead of the November 29, 2009 announced acquisition of Axcan Pharma Inc. The SEC also names Diamondback as a relief defendant

Interestingly, in September 2007, Diamondback was appointed as a lead plaintiff in the securities class action case Technical Olympic USA, Inc. (TOUSA) Securities Litigation, No. 06-cv-61844, in the Southern District of Florida.  Shortly thereafter (and after vigorously pursuing its appointment), Diamondback moved to withdraw from this high profile position merely stating that “Diamondback no longer wishes to undertake take the responsibilities of Lead Plaintiff because it believes that doing so could be detrimental to Diamondback’s overall business.”  The Court granted this motion in an Order dated May 22, 2008.


On June 13, 2011, the United States Supreme Court revisited the issue of primary liability under the Securities Exchange Act of 1934. The Court held that a mutual fund investment adviser could not be held liable in a private action under Securities and Exchange Commission (SEC) Rule 10b–5 for false statements included in its client mutual funds’ prospectuses.  The Court found that although Rule 10b–5 prohibits “mak[ing] any untrue statement of a material fact” in connection with the purchase or sale of securities. 17 CFR §240.10b–5 (2010), the mutual fund advisor could not be held liable because it did not make the statements in the prospectuses.

The Court reached this conclusion noting that

For purposes of Rule 10b–5, the maker of a statement is the person or entity with ultimate authority over thestatement, including its content and whether and how tocommunicate it. Without control, a person or entity canmerely suggest what to say, not “make” a statement in its own right. One who prepares or publishes a statement on behalf of another is not its maker. And in the ordinary case, attribution within a statement or implicit from surrounding circumstances is strong evidence that a state-ment was made by—and only by—the party to whom it isattributed. This rule might best be exemplified by the relationship between a speechwriter and a speaker. Even when a speechwriter drafts a speech, the content is entirely within the control of the person who delivers it. And it is the speaker who takes credit—or blame—for what is ultimately said.

See Janus Capital Group v. First Derivative Traders, 564 U. S. ____ (2011)



In a June 6, 2011 decision, the United States Supreme Court just reversed the Fifth Circuit in the Halliburton securities litigation holding that securities fraud plaintiffs are not required to prove loss causation in order to obtain class certification. Discussing loss causation, the Court stated:

Loss causation, by contrast, requires a plaintiff to show that a misrepresentation that affected the integrity of the market price also caused a subsequent economic loss. As we made clear in Dura Pharmaceuticals, the fact that a stock’s “price on the date of purchase was inflated because of [a] misrepresentation” does not necessarily mean that the misstatement is the cause of a later decline in value. 544 U. S., at 342 (emphasis deleted; internal quotation marks omitted). We observed that the drop could instead be the result of other intervening causes, such as “changed economic circumstances, changed investor expectations,new industry-specific or firm-specific facts, conditions, or other events.” Id., at 342–343. If one of those factors were responsible for the loss or part of it, a plaintiff would not be able to prove loss causation to that extent. This is true even if the investor purchased the stock at a distorted price, and thereby presumptively relied on the misrepresentation reflected in that price.

According to the Court of Appeals, however, an inability to prove loss causation would prevent a plaintiff from invoking the rebuttable presumption of reliance. Such a rule contravenes Basic’s fundamental premise—that an investor presumptively relies on a misrepresentation so long as it was reflected in the market price at the time of his transaction. The fact that a subsequent loss may have been caused by factors other than the revelation of a misrepresentation has nothing to do with whether an investor relied on the misrepresentation in the first place, either directly or presumptively through the fraud-on-the-market theory. Loss causation has no logical connection to the facts necessary to establish the efficient market predicate to the fraud-on-the-market theory.

See the opinion at Erica P. John Fund, Inc., FKA Archdiocese of Milwaukee Supporting Fund, Inc., v. Halliburton Co. Et al.,No. 09-1403 (June 6, 2011).


In 112 page Order entered on April 25, 2011, a United States District Court Judge for the Southern District of Florida reversed a jury verdict that awarded class member-Bank Atlantic shareholders $2.41 per share in damages based on alleged fraud. Among other things, the Court held that “there was insufficient evidence to support the Jury’s finding of loss causation [and] even had Plaintiffs made a sufficient showing of loss causation, they did not produce sufficient evidence to support an award of damages in any amount.”

According to a January 10, 2010, Riskmetrics Report, only eight securities class action cases have been tried to a verdict since 1996. Only seven additional securities class action cases have been tried since 1996 (but not to a verdict), where the conduct at issue was alleged to have occurred after the PSLRA was enacted.


According to Cornerstone Research, the number of securities class action settlements approved in 2010 under the Private Securities Litigation Reform Act was the lowest in more than ten years. The number of class action settlements approved in 2010 decreased by approximately 15% from 2009. According to the report, “slightly more than 40 percent of cases settled in 2010 were accompanied by a derivative action filing compared with more than 45 percent of cases in 2009.” Further, institutional investors served as lead plaintiffs in more than 67% of settlements.


On November 5, 2009, the Ninth Circuit issued an Opinion regarding the PSLRA’s provision for selection of lead counsel after the trial court did not appoint as lead counsel, the law firm selected by the court-appointed lead plaintiff. The Court noted:

The statute expressly provides that lead plaintiff has the power to select lead counsel, suggesting that the identity of the party selecting lead counsel was of substantial importance to Congress. Nor does the statute, framed in mandatory language, designate any other actor as authorized to select lead counsel or suggest that the district court may appropriate this authority. It would be difficult for the statute to be more clear that it is the lead plaintiff who selects lead counsel, not the district court.

The clause subjecting the lead plaintiff’s selection of counsel “to the approval of the district court” in no way suggests that a district court shares in the lead plaintiff’s authority to select lead counsel or that isapproval of a lead plaintiff’s choice divests the lead plaintiff of this authority. The ordinary reading of this clause merely gives the district court the limited power to accept or reject the lead plaintiff’s selection. Given that the PSLRA indisputably assigns to the lead plaintiff the power to select lead counsel, it would be incongruous to conclude that this power shifts to the district court following disapproval of a lead plaintiff’s selection of lead counsel. Instead, the opposite conclusion is compelled. The logical interpretation of the statute’s failure to provide an intricate procedure for the district court to follow after rejecting the lead laintiff’s selection is that the power to select lead counsel remains in the hands of the lead plaintiff. Any other result would allow the district court in all cases to reject lead counsel and then proceed to appoint its own choice.

(Citations omitted).