In a resolution of one of the longest running
subprime-related securities class action lawsuits, the parties to the Toll
Brothers subprime securities suit have agreed to settle the case for $25
million. The parties' stipulation of settlement filed on October 28, 2010 can
be found here.
The Toll Brothers case was among the first of the
subprime-related securities suits when it was first filed in April 2007. As
reflected in greater detail here, the plaintiffs allege that between December
9, 2004 and November 8, 2005, the defendants made several misrepresentations
relating to the company's "ability to open new active selling communities
at the rate necessary to support its financial projections, traffic in its
existing communities, demand for Toll Brothers homes, and the ability to
continue its historically strong earnings growth." The Amended Complaint
further alleges that despite "adverse developments" the company
raised its earning projections, which allegedly inflated the company's share
price, facilitating the defendants' sale of 14 million of company shares for
proceeds of over $617 million.
The Amended Complaint also alleges that "within
days" of the completion of the insider sales, defendants "shocked
investors" in a series of disclosures between August and November 2005
revealing that traffic and sales were declining, as a result of which the
company's share price declined 43% from its class period high.
As reflected in greater detail here, in August 2008, the district court denied the
defendants' motion to dismiss. After extensive additional procedural wrangling
that included a trip to the Third Circuit, the parties agreed to settle the
case during mediation.
A November 2, Reuters article discussing the settlement
can be found here.
The interesting thing to me about this development is the
simple fact that this case has settled. For whatever reason, there have been
very few settlements of the subprime-related securities class action lawsuits,
even though we are now will into the fourth year of the subprime litigation
By my count, there have still only been 16 settlements of
subprime and credit crisis related securities class action lawsuits, even
though there have been over 220 subprime related securities class action
lawsuits filed since the beginning of the subprime litigation wave in early
2007 and even though scores of cases have survived the initial dismissal
motion. I would be very curious to know if any readers out there have any
suggestions on why so few of these cases have settled.
It is probably worth noting that even though there have
been only sixteen settlements of subprime and credit crisis-related securities
class action lawsuits, those sixteen settlements total over $1.85 billion
dollars (including the $624 million settlement in the Countrywide case).
It is also interesting to note that, because the Toll
Brothers lawsuit was filed in early 2007, after the beginning of the subprime
litigation wave, the lawsuit is counted among the subprime related cases, the
class period for the case goes from December 9, 2004 and November 8, 2005 and
relates to events and circumstances that allegedly took place well before the
subprime meltdown really gained momentum. The lawsuit's relation back to the
earlier time period is reminder that the later problems were in many ways
foreshadowed by earlier events.
In any event, I have added the Toll Brothers settlement
to my running tally of subprime and credit crisis-related settlements and other
case resolutions, which can be found here.
The Subprime and Credit Crisis-Related Cases
Are Still Coming In: While the earliest cases are now finally
being resolved, there are still subprime and credit crisis-related cases being
filed. The latest case is the lawsuit filed on November 3, 2010 in the Northern
District of Florida against The St. Joe Company and certain of its directors
According to the plaintiffs' lawyers November
3 press release, the Complaint (a copy of which can be found here) alleges that the defendants failed to disclose that:
(1) as the Florida real estate market was in decline, St.
Joe was failing to take adequate and required impairments and accounting
write-downs on many of its Florida based property developments; (2) as a
result, St. Joe's financial statements materially overvalued the Company's
Florida based property developments; (3) the Company's financial statements
were not prepared in accordance with Generally Accepted Accounting Principles;
(4) the Company lacked adequate internal and financial controls; and (5) as a
result of the foregoing, the Company's financial statements were materially
false and misleading at all relevant times.
The lawsuit follows on the heels of an October 13, 2010
report critical of the company written by hedge fund manager David Einhorn, the President of Greenlight Capital. Einhorn
is perhaps best known for his very public bet against Lehman Brothers prior to
the firm's collapse. Einhorn's report about St. Joe was the subject of a
November 3, 2010 Wall Street Journal article (here).
My list of all 222 subprime and credit crisis related
lawsuits that have been filed since February 2007 can be found here.
other items of interest from the world of directors & officers liability,
with occasional commentary, at the D&O Diary, a blog by Kevin LaCroix.