A federal judge in
CC, advised by West Coast giant Cooley Godward Kronish, had been facing a suit brought by shareholders of DVI, a healthcare finance company the law firm had represented in the months leading up to its bankruptcy filing in 2003.
The shareholders had accused the firm of participating in a scheme with DVI¹s executives to engage in sham transactions designed to conceal the company¹s true financial health.
In its January decision in the closely watched Stoneridge case, the Supreme Court rejected so-called 'scheme liability' claims against third parties because the alleged schemes generally did not result in public statements on which investors could claim reliance.
Applying this reasoning to the DVI class action, Judge Legrome Davis of the US District Court for the District of Pennsylvania said: "Though lead plaintiffs allege that Clifford Chance knew of the scheme, and at times took a more active part in assisting DVI in the scheme, the fact remains that none of this alleged conduct was publicly disclosed such that it affected the market for DVI¹s securities."
Though he declined to certify a class against CC, the judge did allow the case to proceed against other defendants, including Merrill Lynch and Deloitte. The case is one of the first to cite Stoneridge.
New York-based Cooley Godward litigation partner William Schwartz, who led the team representing CC, said Judge Davis' decision would satisfy law firms that "hoped there would be meaning in the Supreme Court's decision".
CC continues to face a suit by DVI's bankruptcy trustee, Dennis Buckley.
The New York Law Journal is a US sister title of Legal Week.