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Dismissal of jury's insider trading guilty verdict upheld: A divided Second Circuit has upheld the dismissal of a guilty verdict against a computer company executive who was convicted of insider trading in connection with a tender offer, finding that the jury's verdict was based upon insufficient evidence. United States v. Cassese, 03-1710 (Oct. 24).

The president and CEO of Computer Horizons, John Cassese, entered merger discussions with another computer company, Compuware Corp., but Horizons' board rejected the proposal. Later, Compuware's CEO called Cassese and informed him that they were no longer interested in buying Computer Horizons, and that his company was about to acquire another company.  Cassese then purchased 15,000 shares of that company, which he sold following the public announcement of the acquisition. The SEC filed an insider trading complaint against Cassese who consented to an order of judgment against him, disgorged his profits and paid penalties and interest. Cassese was also prosecuted for insider trading. Following an initial mistrial, Cassese was convicted by a jury of securities fraud in connection with a tender offer under Section 14(e) of the Securities Exchange Act of 1934 and Rule 14e-3. The district court judge overturned the verdict, however, finding that in criminal cases under '14(e) and Rule 14e-3, where no other securities laws violations are alleged, the government, in order to prove  willfulness, must prove that the defendant believed that the material nonpublic information he traded upon related to, or most likely related to, a tender offer. The district court found that the evidence at trial was insufficient to support the jury's finding that Cassese acted with criminal intent.

On appeal, the divided court found that, even after affording the government all the presumptions to which it is entitled, it 'failed to prove beyond a reasonable doubt that Cassese willfully violated Rule 14e-3 even under the more relaxed definition of willfulness it proposes.' By purchasing the shares of his rival, 'Cassese did not breach any duty, nor did he misappropriate any confidential information ' The  information Cassese received was not related to Computer Horizons or to any company in which he could be considered an insider by virtue of a directorship or otherwise. Accordingly, he was under no legal duty to refrain from trading on the information by virtue of being an insider, or to keep it confidential.' Significantly, the court noted, the government did not prove nor contend that when Cassese traded he knew the company would be the subject of a tender offer.

The dissent disagreed, stating that, 'unless a court determines that no rational jury could draw an inference favorable to the government from particular evidence, the court must assume that such an inference was drawn.'

Age discrimination suit dismissed for failure to cooperate with EEOC

The Tenth Circuit has ruled that a private sector employee must cooperate with the Equal Employment Opportunity Commission (EEOC) in order for the employee to exhaust his or her administrative remedies under the Age Discrimination in Employment Act (ADEA). The court also ruled that compliance must be judged by common sense standards as part of a good faith attempt to afford the EEOC a reasonable opportunity to reach the merits of the charge. Shikles v. Sprint/United Management Co., No 03-3326 (Oct. 20).

The plaintiff was an older employee who was terminated pursuant to a reduction in force. He filed a charge with the EEOC alleging that his termination constituted unlawful age discrimination, but then cancelled scheduled telephone interviews with  the EEOC investigator, failed repeatedly to return the investigator's calls, and failed to submit information requested by the investigator. After 90 days, the EEOC dismissed the charge because the plaintiff's failure to cooperate made it impossible to resolve the charge. A right to sue notice, however, accompanied the charge dismissal and the plaintiff brought suit. The employer moved to dismiss, asserting that the plaintiff's failure to cooperate in the EEOC investigation constituted a failure to exhaust administrative remedies that deprived the district court of subject matter jurisdiction. The district court granted the motion, holding that to allow the plaintiff to proceed with his 'ADEA claim after failing to cooperate with the EEOC would thwart the administrative process and turn the EEOC filing requirement into a mere formality.'

The Tenth Circuit affirmed, holding that the ADEA requires a private sector claimant to cooperate with the EEOC in order to exhaust his or her administrative remedies, that a plaintiff's exhaustion of administrative remedies is a jurisdictional prerequisite to suit under the ADEA, and a plaintiff's failure to exhaust his or her administrative remedies does not justify granting summary judgment to the defendant, but rather justifies dismissing the case for lack of jurisdiction.

Delaware Supreme Court rules that preferred stock need not pay dividends

In an issue of first impression, the Delaware Supreme Court has ruled that '151(c) of the Delaware Code does not require the holders of preferred stock to receive a dividend. Shintom Co. v. Audiovox Corp., No. 214 of 2005 (Oct. 31).

The plaintiff sought to recover over $2.5 million in consideration it paid for shares of preferred stock on the grounds that it was void. In 1981, the plaintiff purchased 50,000 shares of preferred stock of the predecessor of the defendant. The holder of this stock  was entitled to an annual noncumulative 10% dividend of $5 per share, but the company never paid any such dividends. In 1986, there was a merger stipulating that each outstanding share of noncumulative preferred stock, par value $50 per share would be converted into an equal number of shares of non-dividend preferred stock, par value $50 per share, of the surviving company. The new non-dividend preferred stock had a liquidation preference over the common shares. The plaintiff's complaint alleged that the preferred stock was void under '151(c) of the Delaware Code, which it claimed mandates the payment of a dividend. The chancery court dismissed the complaint finding the plaintiff's statutory interpretation to be erroneous.

The state Supreme Court affirmed. The court rejected the plaintiff's argument that the 'use of the word shall in '151(c) means that the holders of preferred stock are entitled as a matter of law to dividend rights.' This argument, the court stated, 'is contrary to the unambiguous meaning of the word 'shall' as it is used in the context of section 151(c), and it is also inconsistent with the enabling scheme of the Delaware General Corporation Law statute. The court found that '151(c) does not require all preferred stock to pay a dividend, rather that 'a corporation 'may' determine to issue preferred stock that 'may' have a contractually determined dividend right as one of its preferences.'

Dismissal of jury's insider trading guilty verdict upheld: A divided Second Circuit has upheld the dismissal of a guilty verdict against a computer company executive who was convicted of insider trading in connection with a tender offer, finding that the jury's verdict was based upon insufficient evidence. United States v. Cassese, 03-1710 (Oct. 24).

The president and CEO of Computer Horizons, John Cassese, entered merger discussions with another computer company, Compuware Corp., but Horizons' board rejected the proposal. Later, Compuware's CEO called Cassese and informed him that they were no longer interested in buying Computer Horizons, and that his company was about to acquire another company.  Cassese then purchased 15,000 shares of that company, which he sold following the public announcement of the acquisition. The SEC filed an insider trading complaint against Cassese who consented to an order of judgment against him, disgorged his profits and paid penalties and interest. Cassese was also prosecuted for insider trading. Following an initial mistrial, Cassese was convicted by a jury of securities fraud in connection with a tender offer under Section 14(e) of the Securities Exchange Act of 1934 and Rule 14e-3. The district court judge overturned the verdict, however, finding that in criminal cases under '14(e) and Rule 14e-3, where no other securities laws violations are alleged, the government, in order to prove  willfulness, must prove that the defendant believed that the material nonpublic information he traded upon related to, or most likely related to, a tender offer. The district court found that the evidence at trial was insufficient to support the jury's finding that Cassese acted with criminal intent.

On appeal, the divided court found that, even after affording the government all the presumptions to which it is entitled, it 'failed to prove beyond a reasonable doubt that Cassese willfully violated Rule 14e-3 even under the more relaxed definition of willfulness it proposes.' By purchasing the shares of his rival, 'Cassese did not breach any duty, nor did he misappropriate any confidential information ' The  information Cassese received was not related to Computer Horizons or to any company in which he could be considered an insider by virtue of a directorship or otherwise. Accordingly, he was under no legal duty to refrain from trading on the information by virtue of being an insider, or to keep it confidential.' Significantly, the court noted, the government did not prove nor contend that when Cassese traded he knew the company would be the subject of a tender offer.

The dissent disagreed, stating that, 'unless a court determines that no rational jury could draw an inference favorable to the government from particular evidence, the court must assume that such an inference was drawn.'

Age discrimination suit dismissed for failure to cooperate with EEOC

The Tenth Circuit has ruled that a private sector employee must cooperate with the Equal Employment Opportunity Commission (EEOC) in order for the employee to exhaust his or her administrative remedies under the Age Discrimination in Employment Act (ADEA). The court also ruled that compliance must be judged by common sense standards as part of a good faith attempt to afford the EEOC a reasonable opportunity to reach the merits of the charge. Shikles v. Sprint/United Management Co., No 03-3326 (Oct. 20).

The plaintiff was an older employee who was terminated pursuant to a reduction in force. He filed a charge with the EEOC alleging that his termination constituted unlawful age discrimination, but then cancelled scheduled telephone interviews with  the EEOC investigator, failed repeatedly to return the investigator's calls, and failed to submit information requested by the investigator. After 90 days, the EEOC dismissed the charge because the plaintiff's failure to cooperate made it impossible to resolve the charge. A right to sue notice, however, accompanied the charge dismissal and the plaintiff brought suit. The employer moved to dismiss, asserting that the plaintiff's failure to cooperate in the EEOC investigation constituted a failure to exhaust administrative remedies that deprived the district court of subject matter jurisdiction. The district court granted the motion, holding that to allow the plaintiff to proceed with his 'ADEA claim after failing to cooperate with the EEOC would thwart the administrative process and turn the EEOC filing requirement into a mere formality.'

The Tenth Circuit affirmed, holding that the ADEA requires a private sector claimant to cooperate with the EEOC in order to exhaust his or her administrative remedies, that a plaintiff's exhaustion of administrative remedies is a jurisdictional prerequisite to suit under the ADEA, and a plaintiff's failure to exhaust his or her administrative remedies does not justify granting summary judgment to the defendant, but rather justifies dismissing the case for lack of jurisdiction.

Delaware Supreme Court rules that preferred stock need not pay dividends

In an issue of first impression, the Delaware Supreme Court has ruled that '151(c) of the Delaware Code does not require the holders of preferred stock to receive a dividend. Shintom Co. v. Audiovox Corp., No. 214 of 2005 (Oct. 31).

The plaintiff sought to recover over $2.5 million in consideration it paid for shares of preferred stock on the grounds that it was void. In 1981, the plaintiff purchased 50,000 shares of preferred stock of the predecessor of the defendant. The holder of this stock  was entitled to an annual noncumulative 10% dividend of $5 per share, but the company never paid any such dividends. In 1986, there was a merger stipulating that each outstanding share of noncumulative preferred stock, par value $50 per share would be converted into an equal number of shares of non-dividend preferred stock, par value $50 per share, of the surviving company. The new non-dividend preferred stock had a liquidation preference over the common shares. The plaintiff's complaint alleged that the preferred stock was void under '151(c) of the Delaware Code, which it claimed mandates the payment of a dividend. The chancery court dismissed the complaint finding the plaintiff's statutory interpretation to be erroneous.

The state Supreme Court affirmed. The court rejected the plaintiff's argument that the 'use of the word shall in '151(c) means that the holders of preferred stock are entitled as a matter of law to dividend rights.' This argument, the court stated, 'is contrary to the unambiguous meaning of the word 'shall' as it is used in the context of section 151(c), and it is also inconsistent with the enabling scheme of the Delaware General Corporation Law statute. The court found that '151(c) does not require all preferred stock to pay a dividend, rather that 'a corporation 'may' determine to issue preferred stock that 'may' have a contractually determined dividend right as one of its preferences.'