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High Court Tackles Hurdle In Securities Lawsuits January 8, 2007

Posted by notapundit in Judiciary, US News.
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WASHINGTON (Dow Jones)–The U.S. Supreme Court Friday, in a case involving Tellabs Inc. (TLAB), said it will clarify what shareholders must prove before a civil securities fraud lawsuit can proceed in federal court.

The appeal was filed by Tellabs and stems from lawsuits filed against the fiber-optics equipment company after its stock price dropped on 2001 news that demand was down for its products. The shareholders alleged the company had illegally inflated its stock price prior to releasing the revised revenue projections for 2001’s second quarter.

A federal trial judge dismissed the case, but on appeal the Seventh U.S. Circuit Court of Appeals in Chicago revived the lawsuit against the company and a former chief executive.

At issue in the case is the proper court interpretation of whether a “strong inference” of potential fraud has been proven, a necessary hurdle Congress required in 1995 securities lawsuit reforms. Under the lawsuit reforms, shareholders must plead specific facts that meet that standard before a case can survive in court.

Attorneys for Tellabs said the Supreme Court should review the appeal because federal appeals courts have adopted different interpretations of what constitutes “strong inference,” allowing too many securities lawsuits to survive.

“The approach adopted by the Seventh Circuit in this case does serious violence to the deliberately high pleading standard adopted by Congress and to its desire to provide business with relief from costly strike suits,” Tellabs said in its appeal.

Attorneys for the shareholders said the appeals court had properly “applied the heightened pleading requirements” and urged the Supreme Court to allow their lawsuit to continue without interfering.

“The allegations in this case are so strong and highly particularized that the complaint satisfies any formulation of the Public Securities Litigation Reform Act,” the attorneys said.

The case is Tellabs Inc. v. Makor Issues & Rights Ltd., 06-484.

The Supreme Court accepted several additional appeals to hear during the 2006-2007. Those cases include:

– The justices accepted an appeal on whether home health-care workers under third-party contracts should be covered by federal minimum wage and overtime laws. U.S. Labor Department regulations exempt home health workers from those provisions, but the 2nd U.S. Circuit Court of Appeals in New York has twice ruled against the Labor exemption to the Fair Labor Standards Act. The case is Long Island Care At Home Ltd. v. Coke, 06-593.

– The high court will review a race discrimination lawsuit brought by an employee of a Coca Cola Enterprises Inc. (CCE) bottling unit. The employee, Stephen Peters, alleged his firing from a Los Alamos, N.M. bottling facility was racially motivated. According to court filings, Peters was fired after he called in sick when he was asked to work on a Sunday, which he normally had off. The legal issue in the case is whether a company can be held liable of a federal civil rights violation when the person who made the firing decision isn’t the person alleged to have a racial bias. The case is BCI Coca-Cola Bottling Co. of Los Angeles v. EEOC, 06-341.

– Another case added to the docket is an appeal related to how federal agencies must balance the Endangered Species Act against other competing laws. The appeal, which was filed for review by the U.S. Solicitor General’s office, deals with how various Arizona-based regulatory officials must balance the Clean Water Act with the ESA when implementing regulations on construction projects and water use matters. The case is EPA v. Defenders of Wildlife, 06-549.

All of the appeals approved Friday will go to oral arguments by April, 2007 and decisions are expected by July.

By Mark H. Anderson, Dow Jones Newswires

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