Joshua Silverman on Finding Post-Morrison Protections for Investors

When plaintiffs’ counsel sought class certification in a lawsuit against Ireland-based pharmaceutical giant Perrigo, they faced a major obstacle. That was the landmark 2010 ruling in Morrison v. National Australia Bank, Ltd., in which the U.S. Supreme Court found that Section 10(b) of the Securities Exchange Act of 1934 – the primary anti-fraud weapon for plaintiffs’ securities lawyers – does not apply to non-U.S. investors who use a foreign stock exchange to purchase shares of a foreign company. The complaint in the Perrigo case alleged that, to induce shareholders to reject a hostile takeover offer by Mylan NV, the company failed to disclose problems with its largest acquisition, Omega Pharma, and its anti-competitive pricing practices in its generic prescription drug business. The putative plaintiffs included Israeli institutional investors that purchased Perrigo stock on both the New York (NYSE) and Tel Aviv (TASE) exchanges after Mylan made its offer in November 2015.

But a legal team led by Joshua B. Silverman, a partner in the Chicago office of Pomerantz and Jeremy A. Lieberman, Managing Partner of the firm, developed a novel legal strategy to circumvent the obstacles imposed by Morrison. They argued that, in addition to certifying a class of U.S. investors, the court should exercise “supplemental jurisdiction” to certify a class of TASE investors asserting claims from purchases of Perrigo on the TASE. U.S. District Court Judge Madeline Cox Arleo accepted Pomerantz’s argument and certified parallel classes of investors in November 2019. This marked the very first time since Morrison that a U.S. court independently analyzed the market of a security traded on a non-U.S. exchange and found that it met the standards of market efficiency necessary to allow for class certification – an important precedent for global investors. 

Last April, the parties reached a $97M settlement that is now awaiting preliminary court approval.

For Silverman, the case is another milestone in a securities litigation career that has taken him from defense work at McGuireWoods to the plaintiffs’ side at Pomerantz, which he joined in 2006. “At least in the context of dual-listing cases where the facts support it, we've opened the door” to extraterritorial claims, he says.

Silverman is a member of Lawdragon's 500 Leading Plaintiff Financial Lawyers. 

Lawdragon: When did the Perrigo case first come across your desk and how did you know that it was something worth pursuing?

Joshua Silverman: Well, the firm is always very active in covering potential frauds, especially at companies where our clients have significant holdings. This was a company that clearly had a lot of red flags, and we initially pursued it. We took a more expansive role after our clients were appointed lead plaintiff. That happened a few months into it, and that's when I became involved.

Our clients in the matter are major Israeli institutions. It was important to them and important to us to protect the purchasers of Perrigo stock, whether they were in Israel or in the United States. Historically, that had been very difficult to do. The Supreme Court decision in Morrison closed the door on a large category of claims. It said that a foreign purchaser couldn't bring claims under Section 10(b). But there was a path here because Israel has a securities law that says if a stock is dual-listed, then the issuer of that stock can choose whether to be regulated under Israeli securities law or under the securities law of its country of primary listing.

We couldn't bring a claim directly under Section 10(b) because that would be a violation of what the Supreme Court ordered in Morrison. But Perrigo’s primary listing was in the U.S., so we brought a claim under the Israel Securities Law of 1968, arguing they violated that statute and because Israel applies the same standards as U.S. law, it could all be adjudicated here. It makes sense. It was fairer to institutional investors who may have purchased in one venue and sold in another or vice versa. In our view, it’s a more efficient use of judicial resources.

When we had the class certified, it was the very first time that a foreign purchaser class had been certified since Morrison. We think it was a big deal for international investors, and we're very pleased to have achieved that.

Morrison made very clear that Section 10(b), our main securities statute, did not have extraterritorial application, at least as to private causes of action. That was very limiting for many securities cases. At least in the context of dual-listing cases where the facts support it, we've opened the door.

LD: Is this particular to Israel or could the same argument lay the groundwork for other countries?

JS: Israel is not the only country that has dual-listed companies, so the case laid the foundation for much broader application. The argument that we brought in Perrigo was tailored to the circumstances that involved Israel. If you brought a claim for a class of, let's say, French purchasers of a stock that wasn't dual-listed, it might have a different outcome. Perrigo stands for the proposition that a court can entertain claims on behalf of a class of foreign purchasers if the foreign law applies the same standards as U.S. law.

LD: Just to put things in context, what did the Morrison decision mean for your clients and investors around the world?

JS: Prior to Morrison, courts looked at a variety of contacts to determine whether there was a sufficient nexus with the United States to allow adjudication of claims here. Morrison made very clear that Section 10(b), our main securities statute, did not have extraterritorial application, at least as to private causes of action. That was very limiting for many securities cases. At least in the context of dual-listing cases where the facts support it, we've opened the door.

LD: Can you talk a bit more about what arguments you used to persuade the court?

JS: For class certification under 10(b), one of the big issues is always market efficiency. So here we had to show the court that not only was the U.S. market efficient, but also that trading of Perrigo stock on the Tel Aviv exchange was similarly efficient. We had a very good econometric expert who drew comparisons between the two. He talked quite extensively about intraday price movements, both at times when both markets were open and at times when only one of the markets was open. We used that information as well as a more traditional analysis to show that the Tel Aviv Stock Exchange was also an efficient market for the trading of Perrigo shares. At all times, the market information was impounded into the stock price, and that's really the paradigm for applying the fraud-on-the-market presumption.

LD: After the class was certified, what happened next in the case? What other hurdles and challenges did you face?

JS: One challenge was discovery. There were basically two large groups of claims that survived the motion to dismiss. One concerned Perrigo’s acquisition of a European company called Omega, and the other addressed anti-competitive practices in the generic drug portion of Perrigo. With the generic drug discovery, we faced a lot of hurdles. For example, a key witness at Perrigo who allegedly conspired with competitors killed himself before we were permitted to begin discovery, so we could not take his deposition. That allowed Perrigo to characterize him as a rogue employee rather than having him expose a more widespread corporate practice.

Another obstacle was that the U.S. government asked us not to take many depositions and to delay others. Eventually, we were permitted to take most of the depositions we wanted, but the Department of Justice did intervene with our case and ask for several stays. This wasn’t unusual – they often intervene to stop discovery they think will impede a criminal investigation – but it did make discovery considerably more difficult.

LD: How did the case progress after class certification?

JS: After class certification, the defendants immediately sought interlocutory review. Their main argument was that the Israeli market was not efficient and that the district court should not have determined that our expert had established efficiency. We fought that and won. The 3rd Circuit rejected defendants’ petition, which was a big step forward.

The summary judgment phase of the case spanned three judges in New Jersey federal court. Eventually, the chief judge of the district, Renée Marie Bumb, took the case over and issued a split decision. We won on most of the Omega-related claims, but the court made clear it was likely to toss the generic drug-related claims. I did not believe that there was evidence of scienter as to the individual defendants, something we feel we could have proved had our access to witnesses not been limited. There were several subsequent negotiations, and the parties pretty much understood which claims would survive to trial and which would not.

LD: Can you talk a little bit about your style when it comes to negotiating these types of cases?

JS: It’s generally to be as aggressive as possible. In this case, there were very extensive negotiations, which were led by our managing partner Jeremy Lieberman. First, we negotiated with a mediator in 2018, and then there were five subsequent settlement conferences with the magistrate judge. We view our task as pretty simple – it’s to maximize the return for shareholders.

LD: And $97M isn’t a bad result.

JS: Definitely not. It’s an above-average recovery relative to what's widely reported to be the median in these kinds of actions, even cases of this magnitude. Given the circumstances of this case, we think this is a highly favorable recovery for shareholders.

LD: Is there anything else about the case you’d like to spotlight?

JS: I've told you about the few stones that we couldn't turn over, but we did get to depose almost everybody we wanted involving the generic drug issue. And we ultimately took or participated in 40 depositions. We had a big team working on that. Prior to our amended complaint, we also conducted a very broad private investigation involving investigators here, investigators in Europe, and some investigation into former employees in Australia. So we really left few stones unturned, both before the amended complaint and then once we were permitted to engage in discovery. I think that had we gone to trial, we would have had a very strong shot on the Omega claim.

LD: Can you tell me about some of the other cases that you're working on right now?

JS: I manage our Chicago office, which has at any given time between 25 and 30 active cases. I have some role in each of them. I just settled a case involving a SPAC [special purpose acquisition company] called Ginkgo. We've been very aggressive in SPAC cases to try to expand the claims. When this sort of litigation started, other firms were bringing claims just under Section 10(b). We expanded to claims under Section 14 of the Exchange Act and under Section 11, which is really advantageous because it has a lower burden for showing scienter. We've been very successful in expanding claims. In the Ginkgo case, we've achieved a very lucrative settlement relative to damages, which has been preliminarily approved. I'm working on another SPAC case involving Grab Holdings, which is basically the Uber of Southeast Asia. I'm also working on a case involving the alleged manipulation of Bed Bath & Beyond stock, just prior to its demise.

LD: How would you describe your leadership style?

JS: My role is to put together the best team we can and give them the opportunities, support and guidance to excel up to their personal abilities. As part of that effort, it's important for me to give younger attorneys a level of responsibility they might not find elsewhere. In the Grab case, my colleague Brian O'Connell took on one of the leading senior partners at Skadden in oral argument on a motion to dismiss, and won. I don't think there are a lot of firms that would have a younger attorney take on an argument of that magnitude, but that's how you build a team of exceptionally capable lawyers who are ready to lead cases themselves.