By Joseph B. Crace and Matthew M. Curley 

We previously commented on Janus Capital Group, Inc. v. First Deriv. Traders, Inc., 131 S. Ct. 2296 (U.S. June 13, 2011), in which the Supreme Court held that a mutual fund investment adviser could not be held liable under Rule 10b-5 as a “maker” of an allegedly false statement in the fund’s prospectus, on the grounds that the fund, not the advisor, made the statement.  Since that decision, district courts have had the opportunity to apply the holding in Janus in a number of instances.  Those recent district court decisions provide a good bit of insight regarding just how far the holding in Janus might reach.

In Local 703, I.B. of T. Grocery & Food Emp. Welfare Fund v. Regions Fin. Corp., 2011 U.S. Dist. LEXIS 93873 (N.D. Ala. Aug. 23, 2011), the district court refused to apply Janus to officers and directors who sign the SOX certifications in companies’ public filings.  The district court reasoned that “[n]othing in Janus stands for the proposition that CEOs and CFOs cannot be liable for false and misleading statements in their own company’s financial statements, for which they signed Sarbanes-Oxley certifications.”  The district court also explained that “unlike the separate legal entities in Janus, the defendants here are in ultimate authority over their statements” and can be held liable as the makers of those statements.

In Hawaii Ironworkers Annuity Trust Fund v. Cole, 2011 WL 3862206 (N.D. Ohio Sept. 1, 2011), the district court considered the applicability of Janus to lower level employees.  The district court dismissed the 10b-5 claim against those employees and held that “[t]he complaint does not state a claim for primary liability under Janus, because the defendants did not have ultimate authority over the content of the statement,” in light of plaintiff’s allegation that the employees in question provided management with the misleading financial results “that they were commanded [by high-level management] to send.”  The district court also raised the possibility that Janus’s scope might be further limited due to the fact that the holding “dealt with liability under Rule 10b-5(b),” not the “deceptive conduct” provisions of Rule 10b-5(a) or (c).  See Hawaii Ironworkers, 2011 WL 3862206 at *5 (holding that nothing in Janus “suggests that Stoneridge required specific attribution for all 10(b)-5(a) and (c) claims, or that Janus adopts such a rule.”).

Finally, in City of Roseville Emp. Ret. Sys. v. Energysolutions, Inc., 2011 WL 4527328, *17 (S.D.N.Y. Sept. 30, 2011), the district court refused to apply Janus to limit the liability of a parent company concerning false statements in a subsidiary’s registration statement.  In that case, the parent company wholly owned the subsidiary and exerted control over the offering in question. The district court found the limitations in Janus inapplicable, as the parent company “had control over the content of the message, the underlying subject matter of the message, and the ultimate decision of whether to communicate the message.”

(Joe Crace is an attorney at Bass, Berry & Sims PLC, concentrating his practice on corporate and securities litigation, shareholder litigation and general commercial disputes. Matt Curley is a Member of Bass, Berry & Sims PLC, focusing his practice on complex commercial, securities and class action litigation and the representation of clients in connection with internal and governmental investigations and related proceedings).