State Court Declines to Dismiss Complaint Alleging Legal Malpractice in Giving Section 16 (and Other) Advice
In a one-page order, a Pennsylvania trial court has declined to dismiss a complaint filed by an issuer and two of its insiders alleging that a lawyer and his firm committed malpractice in advising on a variety of federal securities law matters, one of which involved the defendants’ pre-clearance of transactions that resulted in the insiders’ settlement of Section 16(b) claims. The complaint alleges that the defendants initially acknowledged responsibility for the consequences of the 16(b) advice but subsequently declined to pay the costs incurred by the insiders and the issuer in resolving the 16(b) claims. Among the bases on which the defendants based their motion to dismiss was that, with respect to the 16(b) advice, the plaintiffs’ recovery of damages would amount to “indemnification” of the insiders in violation of the 1934 Act and the policy of Section 16(b). The court noted that the plaintiffs’ claims “raise state actions well beyond indemnification . . . , potentially includ[ing] reckless torts if plaintiffs can prove that defendants deliberately misled them into believing responsibility for averred Section 16 non-compliance was acknowledged and being honored.” Recovery would be available, the court said, “outside of money” the insiders paid to the issuer to settle the 16(b) claim.
-Alan Dye, Section16.net July 20, 2020
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