Klehr Harrison Receives Favorable Decision in Securities Fraud Case from Pennsylvania Supreme Court
PHILADELPHIA (July 25, 2023) – Klehr Harrison Harvey Branzburg LLP is pleased to share news of a victory before the Pennsylvania Supreme Court on behalf of its client, Mimi Investors, LLC. Deciding an issue of first impression in the Commonwealth, the Pennsylvania Supreme Court concluded that a plaintiff need not plead and prove scienter (intent) as an element of Section 1-401(b) of the Pennsylvania Securities Act of 1972 (PSA).
In an opinion issued on July 19 by Justice Christine Donohue in Mimi Investors, LLC v. Tufano, P., et al., the Pennsylvania Supreme Court determined that “the General Assembly decided, unambiguously, that a plaintiff is not required to demonstrate that the defendant acted with scienter in misrepresenting a material fact relating to a securities transaction” and found that “the Legislature assigned the burden to demonstrate the absence of scienter to the defendant.”
Christopher J. Leavell, an associate in the firm’s Bankruptcy and Restructuring Department, briefed and argued the case before the high court. Co-counsel in the case was Jeffrey Kurtzman of Kurtzman Steady, LLC.
“We are gratified that the Court agreed with our client’s reading of the PSA and are mindful of the impact this decision may have for parties litigating under this statutory provision in the future,” Leavell said. “Nearly 50 years after the statute was enacted, the Pennsylvania Supreme Court has now answered the question of whether a plaintiff in a Pennsylvania securities fraud action has the obligation under section 1-401(b) of the PSA to plead and prove intentional misrepresentation.”
Under Section 1-401(b) of the PSA, it is unlawful, “in connection with the offer, sale or purchase of any security in this State, directly or indirectly[,]” to “make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they are made, not misleading[.]”
The case involves a data storage operator, Steel ORCA, which filed bankruptcy in 2015, leaving investors such as Mimi with substantial losses. Mimi asserted causes of action against Steel ORCA’s principals under both the PSA and common law alleging, among other things, that the defendants made false statements in connection with the company’s committed orders and available financing, which Mimi relied on in making its investment.
The case will now proceed to trial before the Court of Common Pleas for Bucks County.
Leavell focuses his practice on creditors’ rights, bankruptcy, workouts, and commercial litigation. Prior to coming to Klehr Harrison, he served as law clerk for the Honorable Bruce I. Fox, United States Bankruptcy Judge for the Eastern District of Pennsylvania.
He received his J.D., cum laude from Rutgers University School of Law and his A.B. from Columbia University.