Client Alert: Eleventh Circuit Addresses Apparent Conflict Between Section 20(a) Joint and Several Liability and PSLRA Proportionate Fault Rules

 In Laperriere v. Vesta Ins. Group, Inc., decided on April 30, 2008, the Eleventh Circuit became the first appellate court to address an apparent conflict between Section 20(a) of the Securities Exchange Act of 1934, which makes a controlling person jointly and severally liable for a controlled person's conduct, and the proportionate fault provisions of the PSLRA, which make a covered person responsible only for his own proportionate share of fault.  The Court avoided an actual conflict by ruling that Section 20(a) of the '34 Act is only a statement of liability and not of damage.  In so ruling the Court held that a controlling person's damage exposure is limited by the PSLRA to his own proportionate share of fault and is not the same as the damage exposure of the controlled person.  This is an important victory for those alleged to be the controlling person, including directors, officers, venture capital firms, lenders and other entities that may be related in some way to the alleged primary wrongdoer.  The Court also elaborated on the Eleventh Circuit's standard for determining control, and on its standard for the "good faith" affirmative defense, comparing those standards to the standards adopted by other circuits.  In the attached memorandum we address the joint-and-several/proportionate-fault issue and the standard of control and of the related affirmative defense in the Eleventh and several other circuits.

Please direct any questions regarding this article to the following attorneys of Heller Ehrman:

Richard Cashman: +1 (212) 847-8796; richard.cashman@hellerehrman.com

Douglas M. Schwab: +1 (415) 772-6376; douglas.schwab@hellerehrman.com

Client Alert: Eleventh Circuit Addresses Apparent Conflict Between Section 20(a) Joint and Several Liability and PSLRA Proportionate Fault Rules