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The Citi That Almost Slept

As Susan Weiswasser reports in the current issue of The Pomerantz Monitor, a New York District Court has preliminarily approved a $590,000,000 securities class action settlement between Citigroup, the country’s third largest bank, and its shareholders, who lost millions when the value of Collateralized Debt Obligations (CDOs) held by Citi plunged. A final fairness hearing on the settlement is set for January 15, 2013. Citi allegedly failed to disclose its potential exposure to catastrophic losses if the housing market tanked, which, as we all know, it did.

To fool investors, Citi fed them false information designed to make them believe it had sold off, or hedged, the risk of many of these subprime mortgages; it also manipulated its books to create the perception of good financial health. These deceptions caused Citi’s stock price to be inflated. Once the truth came out, the price of Citi’s shares plummeted and investors lost billions.

Citi, which received a huge amount of federal bailout money to prop it back up, still faces a multitude of litigation by investors, as well as the Securities and Exchange Commission, for alleged misrepresentations and omissions regarding the value and safety of a variety of securities it was trading. The course of some of the cases has been tortuous. As Tamar Weinrib reported in February’s issue of The Pomerantz Monitor, one of the SEC’s cases against Citi was settled last year for $285 million, but the federal judge overseeing the case refused to approve the settlement because he did not believe it to be fair and adequate for shareholders. The Second Circuit Court of Appeals stayed that ruling, pending its review of the court’s action,which should occur early next year.

Judges around the country are considering, some with trepidation, other settlements involving the behavior of major financial institutions that led to the financial crisis. Another New York federal judge recently approved a settlement entered into by the SEC with two former Bear Stearns hedge fund managers. However, he did so grudgingly, stating that he was “constrained to accept the settlement,” and expressing disappointment that the SEC had such limited power to bring financial relief to plaintiffs. Only by disgorgement can the SEC possibly recover any money for injured investors; the power to return the money is discretionary. When the money isn’t there, investors have no chance of recovery in an action brought by the SEC. The court encouraged Congress to consider expanding the SEC’s powers “to recover amounts more reflective of investor losses.” For the foreseeable future, investors must rely on private litigation if they have any hopes of recovering any of their losses.

A Lawyer Looks at Obamacare

In the current issue of The Pomerantz Monitor, Brian Hufford, one of the most respected healthcare counsel in the country, writes about theJune 28, 2012 U.S. Supreme Court decision on the constitutionality of Patient Protection and Affordable Care Act, otherwise known as “Obamacare.”

The focus of the challenge to the bill was on its controversial “individual mandate,” whereby individuals would be subjected to a financial penalty if they did not purchase insurance. As soon as the bill was signed on March 23, 2010, 14 state attorneys general, with support from the Republican Party, filed suit to strike down the law, contending that this provision in particular was unconstitutional. Ironically, the individual mandate was originally a Republican idea, first raised in a 1989 proposal by the conservative Heritage Foundation, then, in 1993, as part of the Republicans’ proposed alternative to then-President Clinton’s health reform bill, and finally, and most famously, as an integral part of Governor Romney’s health care plan for Massachusetts. However, by the time President Obama’s proposed healthcare overhaul began to gain traction, every single Republican Senator went on record declaring the individual mandate unconstitutional.

In its landmark decision, written by Chief Judge John Roberts, the Court upheld the mandate by a 5-4 vote. The fact that Justice Roberts chose to find that the individual mandate exceeds federal authority under the Commerce Clause, but is indeed constitutional as a tax, has pundits shaking their heads. Some see this as proof of Robert’s alleged desire to gut the Commerce Clause – the clause that has provided national protection for civil liberties such as desegregated facilities and labor laws – and as such, a gift to conservatives and libertarians anxious to limit the role of the federal government. As Justice Ginsberg wrote in her opinion, “[Justice Robert’s] rigid reading of the [Commerce] Clause makes scant sense and is stunningly retrogressive.” The Court upheld not only the mandate but also the rest of the Affordable Care Act, including: eliminating exclusions based on pre-existing conditions for children up to age 19; allowing young people up to the age of 26 to be covered under their parents’ policies; phasing out annual and lifetime limits on most benefits; prohibiting cancellation of insurance policies based on honest mistakes in applications; requiring insurance companies to publicly justify rate hikes as a means to combat unreasonable increases; requiring that the bulk of insurance premiums be spent on health care, not administrative costs; permitting access to emergency care to hospitals outside the insurer’s network; and requiring preventive care at no cost to the subscriber. 

The one notable provision that was not upheld concerned the significant expansion of Medicaid, which will now cover anyone earning up to 138% of the federal poverty level (including individuals without children who previously were excluded). The Act sought to compel states to go along by threatening to withdraw federal funding of all Medicaid payments to any state that didn’t agree to the expansion. By a 7-2 vote, however, the Supreme Court found that, while expanding Medicaid was fine, the financial penalty imposed on the states was not. Thus, the federal government cannot take away current funding to compel states to accept expanding Medicaid coverage, but they can voluntarily agree to do so and accept additional funding.  A number of Republican Governors have already announced that they will not agree with the Medicare expansion in their states, leaving millions of people in an uncertain position as to what insurance coverage will be available to them.

In addition, the Affordable Care Act establishes ten categories of “essential health benefits” which must be included in the individual and small group market policies, including ambulatory patient services; emergency care; hospitalization; maternity and newborn care; mental health and substance use disorder services, including behavioral health treatment; prescription drugs; rehabilitative and habilitative services and devices; laboratory services; preventive and wellness services and chronic disease management; and pediatric services, including oral and vision care. According to the Department of Health and Human Services, these provisions will mean that 8.7 million Americans will gain maternity coverage; 4.8 million will gain substance abuse coverage; 2.3 million will gain mental health coverage; and 1.3 million prescription drug coverage.

The new law also allows the Department of Labor to adopt regulations to govern all claims processing, reimbursement, denials and appeals for nearly all healthcare claims accept those falling under Medicare. Thus, whereas current regulations under the Employee Retirement Income Security act of 1974 (“ERISA”) applies only to insurance policies issued by private employers, they now will extend to non-ERISA plans, including those issued by governments and individual policies. Regulations issued under the Act also establish that if health care plans fail to adhere strictly to all of the requirements, they will be entitled to file lawsuit immediately, rather than having to proceed through internal appeals first. This incorporates a “deemed exhaustion” provision previously applied under ERISA, but exchanges a strict compliance requirement for a previously permitted “substantial” compliance, which offered an easier hurdle for insurers to exceed.  As for Medicare, the Act expands rights there as well, by allowing free wellness exams; excluding preventive services, such as mammograms, bone scans and depression and diabetes screenings, from deductibles and copays; and gradually closing the current “doughnut hole” gap in drug coverage, including continued discounts on drug costs.

Two Courts Refuse to Enjoin Proposed Class Action Settlement

As Matthew Tuccillo reports in the May/June issue of the Pomerantz Monitor, corporate transactions are typically challenged by shareholders in multiple jurisdictions. Courts will sometimes stay duplicative cases, so that defendants do not have to fight the same claims in different places at the same time, and subject themselves to duplicative proceedings and possibly inconsistent rulings. When a stay is not entered, it can lead to problems, particularly when defendants try to settle one case without involving counsel from the other(s). That is because any settlement will include a release dismissing all pending cases raising the same claims, whether the other plaintiffs like it or not.

That is exactly what happened recently in two cases involving claims that the directors of Bank of America (“B of A”) breached their fiduciary duties in 2008 in connection with the $50 billion acquisition of Merrill Lynch (“Merrill”). This notorious transaction led to many lawsuits, because B of A’s board proceeded with the deal even after allegedly learning before the merger closed that Merrill had suffered catastrophic losses and that Merrill was paying huge bonuses to management. Not only did B of A’s board fail to abort the deal, they also allegedly misled B of A shareholders about those facts before they voted to approve the merger.

Two derivative actions pursued those claims, one in New York federal court and the other in Delaware state court. Although the Delaware case had been far more heavily litigated, with more discovery, more motion practice, and an October 2012 trial date set, defendants chose to settle the claims with New York counsel. This decision prompted Delaware counsel to challenge the settlement, claiming that defendants had engaged in an improper “reverse auction” to settle far more cheaply than they could have in Delaware.

The proposed settlement of the New York action, reached on April 12, 2011, provided for a payment of $20 million in damages, all of which was to come from B of A’s insurance coverage. Delaware counsel had demanded far more, including that the defendant directors pay some of the damages out of their own pockets, given that potential damages were alleged to be $5 billion and that the Securities and Exchange Commission had previously imposed a $150 million penalty (after the court rejected a $33 million settlement) regarding the adequacy of disclosures concerning the Merrill deal.

In order to recover anything from directors, however, plaintiffs would have had to overcome their “raincoat” legal protections, which bar the recovery of damages from them unless they are guilty of intentional wrongdoing. Moreover, counsel’s submissions to the New York court have been redacted to remove discussion of applicable insurance coverage. So, it is not self-evident to non-parties exactly how much this case is really worth, given the likelihood of recovery from available sources.

Hit Them in the Wallets: What if Executives Were Held Personally Liable?

Some of you may recall our post from last year regarding the surprise rejection of the Citibank SEC settlement whereupon Judge Rakoff expressed his disdain with the evasive language "neither admit nor deny." 

In their  Dealbook article, Why S.E.C. Settlements Should Hold Senior Executives Liable the authors Claire Hill and Richard Painter review the findings of the Congressional hearing on the subject and  make a provocative argument to hit the defendent in their wallets instead. 

Hill and Painter say that "Requiring settlements to include an admission of guilt is not the best way to proceed. A more effective approach would be to make senior, highly compensated officers of the bank pay some portion of the fine."

"The Congressional hearing addressed the fact that a penalty assessed against an entity is effectively paid by its shareholders. The shareholders neither caused the behavior that led to the fine nor were they responsible for preventing it. By contrast, the Citigroup officers who were responsible do not bear a significant portion of the penalty, except to the extent they are shareholders or their bonuses are tied to earnings, now reduced by the penalty. They thus have little incentive to change their behavior."

Big Bucks. No Whammies?

Tick Tock. Tick Tock.  In a scenario reminscent of the classic game show Press Your Luck.  It appears Former Fannie Mae CEO Daniel Mudd  may get a reprieve  courtesy of new Dodd-Frank stopwatch.  Mudd was put on notice March 11th that he could face regulatory action for his role in misrepresenting the underwriter's subprime exposure to investors and government agencies.  But Dodd-Frank amendments enacted last year introduced a 180 day time limit compelling Commission staff  to "either file an action or provide notice to the Director of the Division of Enforcement of its intent to not file an action,” within 180 days of the Wells Notice. 

The probe centers on his time at Fannie Mae and his role in creating the subprime debacle that would shock the country and the world.  But given the radio silence, observers wonder if  new admendments that were intended to make the agency more proactive in handling such cases have backfired.   

An alternate theory is that the inaction is related to reports that the SEC is winding down its investigations of Fannie & Freddie the NY Times reported that Fannie settlement talks were underway and fraud charges would likely be dismissed.  

As we explore more in the Pomerantz Monitor this month.  Fannie & Freddie Conservator the FHFA  also announced in early September that they'll seek to recover $196 billion in new actions against 17 banks for misrepresenting CDO risks to the underwriters.

For his part, Mudd has shown little remorse.  His failure, he said, was only that he could not maintain the “delicate balance,” required to meet such expectations.   Since taking over the CEO position at Fortress Investment Group Mudd's appetite for subprime has continued unabated.  In May, the publicly traded hedgefund unveiled subprime bond Springleaf acquired from AIG.  They  even managed to secure triple A rating from S&P after that agency had downgraded US treasury securities. 

So far, for Mudd its big bucks, and no whammies. 

In Madoff Case, Second Circuit Affirms Use of “Net Investment Method” to Compensate Victims

The Second Circuit was recently called upon to evaluate how the losses of investors in the Madoff Ponzi scheme should be calculated under the Securities Investor Protection Act, 15 U.S.C. § 78aaa et seq. (“SIPA”).  When a broker-dealer, such as Madoff, fails, SIPA establishes procedures for compensating that broker-dealer’s customers out of its liquidated assets.  In particular, SIPA establishes a special fund of “customer property” for priority distribution exclusively among customers based on the “net equity” value of their investments with the broker dealer.  These provisions are designed to protect investors against financial losses arising from the insolvency of their brokers.  

The problem is determining how each investor’s “net equity” should be calculated, particularly when the broker-dealer in question was a Ponzi schemer who never carried out the stock trades investors thought they were effectuating.  Normally, net equity is calculated by reference to each customer’s account at the time of liquidation, including the growth of each customer’s investments up to that time.  But what if the customer’s funds were never actually invested in any securities?  Should an investor who entrusted his money to Madoff be given credit for the growth of his investment over time—even if that growth was an illusion created out of whole cloth by the fraudster?

In the case In re Bernard L. Madoff Inv. Sec. LLC, 2011 U.S. App. LEXIS 16884 (2d Cir. Aug. 16, 2011) certain former Madoff investors appealed a decision of the United States Bankruptcy Court for the Southern District of New York approving use of the so-called “Net Investment Method” of calculating investor losses under SIPA.  Under that method, each investor’s “net equity” is calculated as the difference between the amounts they deposited with Madoff and the amounts they eventually withdrew.  That meant that Madoff’s customers would get credit only for the money they had actually deposited, not the paper gains in their investment over time.  In other words, if an investor had ultimately withdrawn more money than they deposited with Madoff, they would have no net equity in the SIPA customer fund. 

In challenging the use of the Net Investment Method, the appealing investors argued that they were entitled to recover the market value of the securities they believed they had purchased, as reflected on their last customer statements from Madoff.  This method of calculating net equity is known as the “Last Statement Method.”  The Bankruptcy Court agreed with the SIPA Trustee that, if the Last Statement Method were used, then claimants who had withdrawn funds from their Madoff accounts in excess of their initial investments would end up taking away resources from investors who hadn’t yet been made whole.  Thus, under these circumstances, the Last Statement Method would yield an inequitable result.

The Second Circuit agreed with the Bankruptcy Court that to compensate investors who had withdrawn more than their initial investment would inequitably diminish the amount of customer property available to other investors.  The Court’s decision, however, clearly leaves open the possibility that other valuation methods may continue to be used in more conventional SIPA cases not involving fabricated customer statements.

Supreme Court's Concepcion Case Poses New Challenges For Consumers

The Supreme Court’s decision in AT&T Mobility LLC v. Concepcion, No. 09-893, 563 U.S. ___ (Apr. 27, 2011) presents a major obstacle to consumers’ ability to  seek redress for fraudulent, deceptive or otherwise illegal schemes perpetrated in the marketplace.  The decision appears to permit wrongdoers to escape class adjudication of consumers’ claims merely by including collective-arbitration waivers in their form contracts of adhesion.  Despite the broad implications of the Court’s opinion, however, the decision leaves some room for state and common law protections that may prevent the evisceration of class action procedure in the adjudication of commercial claims.

Background

In Concepcion, the Court held that the Federal Arbitration Act (“FAA”) preempts state rules conditioning the enforceability of arbitration agreements on the availability of classwide arbitration procedures.  The respondents had entered into cellphone service agreements with AT&T Mobility LLC (“AT&T”) that, inter alia, required that the parties to arbitrate disputes on an individual, rather than class, basis.  The respondents later filed a putative class action alleging that AT&T had improperly charged them sales tax for phones that were advertised as being included free of charge.  AT&T moved to compel arbitration of respondents claims, and respondents in turn challenged the motion on the grounds that the collective-action waiver in the arbitration agreement was unenforceable under the rule set forth in Discover Bank v. Superior Court, 36 Cal. 4th 148 (2005).  In Discover Bank, the California Supreme Court held that collective-action waivers are unenforceable when included in contracts of adhesion and where “it is alleged that the party with the superior bargaining power has carried out a scheme to deliberately cheat large numbers of consumers out of individually small sums of money.”  Id. at 162. 

The Majority’s Analysis

Justice Scalia’s majority opinion purports to analyze the case largely through the lens of the legislative purpose of the FAA:  to counteract judicial hostility to arbitration agreements.  The majority notes that the FAA’s substantive provisions reflect both a liberal policy favoring arbitration, and the principle that arbitration is a matter of contract between the parties.  Slip Op. at 4.  However, Section 2 of the FAA also contains a provision permitting arbitration provisions to be declared unenforceable “upon such grounds as exist at law or in equity for the revocation of any contract.”  Respondents argued that, in accordance with this provision of the FAA, California law provided grounds in law or equity to hold the arbitration agreement unenforceable.  The majority, however, held that the Discover Bank rule, insofar as it particularly applied to agreements to arbitrate, did not present grounds for revocation of any contract.  See Slip Op. at 7–9. 

Moreover, in the majority’s view, the Discover Bank rule frustrates the overarching purpose of the FAA by interfering with arbitration.  Id. at 12.  The majority articulates several reasons why the imposition of class arbitration procedures is supposedly inconsistent with the FAA:  (1) class arbitration is slower, more costly, and more procedurally complicated than bilateral arbitration; (2) class arbitration requires procedural formality; (3) class arbitration increases risks to defendants.  Id. at 14–16.  On this last point, Justice Scalia posits that “[a]rbitration is poorly suited to the higher stakes of class litigation.”  Id. at 16.

Justice Breyer’s Dissent

In dissenting from the majority opinion, Justice Breyer argues that the Discover Bank rule is consistent with the intent of the FAA because the Discover Bank rule does precisely what Section 2 of the FAA requires by putting “agreements to arbitrate and agreements to litigate on ‘upon the same footing.’”  Dissent Op. at 5.  Justice Breyer also disputes the empirical claims that class arbitration increases the complexity of arbitration procedures and thus discourages parties from entering arbitration agreements, and that arbitration is poorly suited to the high stakes of class adjudication.  Id. at 5–8.  Finally, the dissent argues that the majority’s view usurps matters usually left to the States.  Id. at 8–10.

Reason for Hope

There are a few reasons to hope that the AT&T decision will not lead to a complete evisceration of class adjudication at the hands of any company savvy enough to build class-arbitration waivers into their boilerplate contracts.  For one thing, victims of consumer fraud can presumably still challenge arbitration agreements on the grounds that the defendant’s fraud renders the agreement unenforceable.  Similarly, plaintiffs may still have success challenging agreements on unconscionability grounds that do not rest on a blanket rule of the Discover Bank type.  The arbitration agreement at issue in AT&T was exceptionally favorable to complainants.  It provided, inter alia, that AT&T would cover the cost of all nonfrivolous claims, that arbitration take place in the complainant’s country, that complainants could elect to bring their claims in small claims court rather than arbitration, that AT&T could not seek reimbursement of its attorney fees and that, in the event an arbitration award exceeds AT&T’s last settlement offer, AT&T would pay a $7,500 minimum recovery and twice the amount of the claimant’s attorney fees.  Slip Op. at 2.  It is quite possible that plaintiffs will be able to sustain a challenge to less favorable agreements on the grounds that their terms, irrespective of any blanket requirements regarding the form of arbitration, are unconscionable.

Finally, it is possible that States will respond to the AT&T decision by requiring stricter rules for the form of a class-arbitration waiver.  A footnote to the majority opinion notes that:  “Of course States remain free to take steps addressing the concerns that attend to contracts of adhesion–for example, requiring class-action-waiver provisions in adhesive arbitration agreements to be highlighted.”  Slip Op. at 12 n.6.  There is good reason to expect that numerous states will build stronger safeguards into their regimes for the enforcement of contracts of adhesion, and that these safeguards may either discourage the use of class-arbitration waivers or otherwise render non-compliant waivers unenforceable.

From the Pages of The Pomerantz Monitor: The Supremes and U.S. Chamber of Commerce Are Reading from the Same Playbook

As Jason Cowart reports in the current issue of The Pomerantz Monitor, one of the most controversial Supreme Court decisions of 2010, Citizens United v. Federal Election Commission, fundamentally altered the way elections will be conducted in our country. The Court held that corporations and unions have the same First Amendment rights as people and therefore can spend unlimited amounts of money in elections. The U.S. Chamber of Commerce filed an amicus brief in this case that supported the extension of First Amendment rights to inanimate entities. 

As the New York Times recently reported, the Chamber is having an extraordinary degree of success at the Supreme Court these days. Indeed, Carter G. Phillips, who often epresents the Chamber, has said that “except for the solicitor general representing the United States, no single entity has more influence on what cases the Supreme Court decides and how it decides them than the [Chamber’s] National Chamber Litigation Center.”

Although hundreds of lower court decisions are appealed to the Supreme Court every year, the Court only agrees to hear a few of those cases. For average citizens, the odds of obtaining Supreme Court review are about 1 in 100. According to the Chamber’s lawyers, their odds of convincing the Court to take a case increase those odds to 30%. This state of affairs is all the more troubling because the Court sides with the Chamber a disturbingly high percentage of the time. 

Consider these facts:

■  The Chamber’s positions have prevailed 68 percent of the time since Justice Roberts became Chief Justice, compared with 56 percent in the last 11 years (with no personnel changes) of the Rehnquist court.

■  Under Justice Roberts, the Court has ruled for business interests 61 percent of the time, compared with 42 percent by all courts since 1953.

■  According to the Constitutional Accountability Center, the conservative bloc of the Court favored the Chamber position 74% of the time, compared to 43% of the time for the moderate/liberal bloc – a difference nearly triple that of the Rehnquist and Burger Courts.

■  Last term, the Chamber’s side won 13 of 16 cases. Six of those were decided with a majority vote of five justices, and five of those decisions favored the Chamber. (One of them was Citizens United.)

This year, the Court will hear a series of cases that pit shareholder interests against those of corporate managers. Want to handicap the outcome? Ask: what is the Chamber’s position?

Further reading: Why Does Business (Usually) Win in the Roberts Court?

And follow: "Fix the US Chamber"

From the Pages of The Pomerantz Monitor: Must Loss Causation be Proven at the Class Cert Stage?

As Adam Prussin opines in the current issue of The Pomerantz Monitor, few decisions have caused more members of the plaintiffs’ bar to pull their hair out than the Fifth Circuit’s 2007 decision in Oscar Private Equities. There the court held that a class could not be certified in a securities fraud case unless the plaintiff could prove, by a preponderance of the evidence, that the false statements caused the investors’ losses. This is a critical issue because the Supreme Court has held that “loss causation” is  an essential element of a securities fraud  claim, and that it requires a showing that disclosure of the true facts actually caused a drop in the market price of the company’s shares. 

Oscar caused such agita because the Fifth Circuit seemed to be saying that now plaintiff had to prove, at the class certification stage, not only that there were “common questions” concerning loss causation, but also that he was going to prevail on that merits-related issue. This is not an academic question, because experts often disagree about what may have caused the price of a stock to move on any given day. In Oscar itself, certification was denied because the company disclosed other information at the same time as it corrected its previous fraudulent statements, and plaintiff’s expert could not separate the effects of one disclosure from the effects of the other. Needless to say, companies in the position of making “corrective disclosures” have become more and more sophisticated in mixing such disclosures up with other disclosures so as to obscure the “loss causation” effects. 

This issue has enormous practical consequences, because if Oscar is upheld, an additional obstacle will be interposed in securities fraud cases. Defendants would now have three chances before trial to attack the case on the merits: at the motion to dismiss stage; at summary judgment; and, now, at the class certification stage as well. Until recently, it had been accepted that the courts were to decide issues related to the merits of the case in the course of ruling on a class certification motion.  

Luckily, no other Circuit has gone along with the Oscar decision; and now, there is a good chance that even in the Fifth Circuit the Oscar rule may bite the dust. Although Oscar never went up to the Supreme Court, the principle established in that case has finally found its way there, in another Fifth Circuit case, involving Halliburton. In that case, an institutional investor alleged that Halliburton executives deliberately misrepresented the company’s financial results, and when Halliburton subsequently disclosed the true facts, the market declined. However, the lower courts denied class certification because plaintiffs had not proven that disclosure of the fraud had caused the market price of the shares to fall.

If, as we expect (hope) that decision is reversed, Oscar will be history. 

New Proxy Rules Already Impacting Pending Litigation

The SEC’s new proxy access rules, enacted on August 25, 2010, have already found there way into court.  Based on the rule changes adopted by the SEC, the Second Circuit recently remanded Bebchuk v. Elec. Arts, Inc. to the Southern District of New York for reconsideration of its previous dismissal of the case.  We’ve previously commented on the new rules here and here.

The Electronic Arts matter arises from a proposal by Harvard law professor Lucian Bebchuk to amend the company bylaws and establish a procedure for the placement of shareholder proposals into company proxy materials.  Opponents of the proposal noted that it potentially ran afoul of the SEC proxy rules as they then existed:

Professor Bebchuk's proposal is significant, in part, because it would enable a company's shareholders to amend the bylaws to permit shareholders to submit director nominees for inclusion in the company's proxy statement, even though proposals relating to the election of directors are excludable under Rule 14a-8, the SEC's shareholder proposal rule.   Accordingly, the proposal represents an effort to gain "proxy access" – that is, access to a company's proxy statement for the purpose of nominating directors.

The District Court agreed with that reasoning and granted EA’s motion to dismiss; holding that Bebchuk’s proposal was excludable under Rule 14a-8(i)(3) as contrary to the SEC’s proxy rules.  See Bebchuk v. Elec. Arts, Inc., No. 08-5842-cv (2d Cir. Sept. 13, 2010).  Now, nearly two years after that District Court dismissal, the Second Circuit has ruled that the SEC’s changes to the its proxy rules “may bear on the issues presented in this appeal” and the case should be remanded for reconsideration.  Id.