Broyles v. Commonwealth Advisors, Inc., No. 17-30092 (5th Cir. 2019)Annotate this Case
Investor plaintiffs filed suit alleging securities fraud under Louisiana law against their former investment adviser and its CEO for fraudulently inducing them to purchase falsely inflated hedge fund securities. The district court sua sponte granted summary judgment for defendants, holding that Delaware law required investor plaintiffs to bring a derivative claim on behalf of the hedge funds.
The Fifth Circuit vacated the district court's judgment and held that investor plaintiffs had Article III standing where their injury-in-fact arose immediately upon their purchase of the falsely overvalued securities; were induced and caused by defendant advisers' fraudulent advice and solicitations; and were likely will be redressed by a favorable decision on the merits. The court held that, under the circumstances of this case, it was at least arguable that Delaware law does not relegate the investor plaintiffs to a derivative action on behalf of the hedge funds for losses indirectly caused them by the funds' decline or lack of value, but instead recognizes their cause of action directly against the defendant sellers of the hedge fund securities for securities fraud under Louisiana law. Accordingly, the court remanded for further proceedings.