Securities Regulation Daily Failed attempt to amend complaint not a basis for sanctions
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Thursday, January 28, 2016

Failed attempt to amend complaint not a basis for sanctions

By Rodney F. Tonkovic, J.D.

The district court sitting in Las Vegas declined to impose Rule 11 sanctions in a shareholder derivative lawsuit brought against Las Vegas Sands Corp. While the amended complaint was unsuccessful in pleading its new claims, those claims and contentions were warranted by existing law and were not frivolous. The motion for sanctions was accordingly denied (Sokolowski v. Adelson, January 27, 2016, Mahan, J.).

The original complaint alleged six claims arising from material misstatements and omissions in Las Vegas Sands's proxy statements. This complaint was dismissed in July 2014 for failure to plead derivative shareholder standing due to the complaint's failure to state both the stock purchase date and that the plaintiff owned any shares during the time at issue.

An amended complaint was filed in August 2014. This complaint still contained claims based on conduct occurring before the shareholder purchased any shares, but added additional allegations of post-purchase conduct. The amended complaint was dismissed in June 2015, after the court found that the allegations, for the most part, concerned pre-purchase conduct and that the allegations of post-purchase conduct were conclusory in nature. Additionally, the court found that the complaint failed to meet Rule 8's "short and plain statement" requirement.

No sanctions. The Las Vegas Sands defendants argued that the amended complaint lacked a legal basis and that it was signed, filed, and defended in violation of Rule 11. The amended complaint, Las Vegas Sands argued, was little more than a restatement of the claims in the original complaint for which the shareholder lacked standing. Under Exchange Act Section 21D(c), then, they would be entitled to attorney fees and costs.

The court disagreed, stating that the amended complaint was dismissed for failing to make particularized allegations of post-purchase conduct, for which the shareholder had standing, not because the shareholder lacked standing to bring any claims at all. In short, the court found that the amended complaint made a good faith attempt, albeit unsuccessfully, to set forth new factual allegations in compliance with instructions given in the July 2014 order. The court noted further that the amended complaint made it clear that it was bringing claims only for post-purchase conduct and that the allegations related to pre-purchase conduct served only as context for the post-purchase allegations.

The court found that the shareholder did not violate Rule 11. The amended complaint, in contrast to the authority cited by Las Vegas Sands, was neither a verbatim copy of the original complaint, nor were the claims barred or based on false information. The claims and contentions in the amended complaint were warranted by existing law, the court said, but they simply were not detailed enough to meet the pleading standard.

The case is No. 2:14-cv-00111.

Attorneys: Mark Albright (Albright, Stoddard, Warnick & Albright) for W. A. Sokolowski. Francisca M. Mok (Reed Smith LLP) for Sheldon G. Adelson.

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