Milbank LLP has achieved a significant victory before the United States Court of Appeals for the Ninth Circuit on behalf of Primero Mining Corp. in a putative securities class action brought by investors related to the Canadian company’s disclosures regarding its Mexican subsidiary Primero Empresa Minera, S.A. de C.V. (“PEM”).
The Ninth Circuit affirmed the decision of the US District Court of the Central District of California in Royal Wulff Ventures LLC v. Primero Mining Corp. in which it granted Milbank’s motion to dismiss the investors’ Complaint based on the act of state doctrine and failure to state a claim.
In February 2016, the investors filed suit alleging that Primero made false and/or misleading disclosures regarding PEM’s recording of revenue and taxes from sales to Silver Wheaton Corp. The Complaint cited to disclosures regarding Primero’s request for and receipt of an Advance Pricing Agreement (“APA”) ruling by the Mexican Servicio de Administración Tributaria (the “SAT”), providing that PEM appropriately recorded revenue and taxes from sales under the silver purchase agreement at realized prices rather than spot prices. The investors further alleged that the shareholders were harmed by the drop in the company’s share price when Primero announced that the SAT filed a legal claim in Mexico seeking to nullify the APA.
Milbank successfully moved to dismiss the Complaint with prejudice based on the act of state doctrine and failure to state a claim. The District Court dismissed the class action on July 14, 2017 as barred by the act of state doctrine because the investors’ claims under the Securities Exchange Act of 1934 would require a US Court to pass judgment on the validity of a 2012 ruling by the Mexican tax authority. In the alternative, the District Court ruled that the investors had failed to adequately plead any materially false or misleading statements.
The investors appealed the decision, and the Ninth Circuit affirmed the dismissal on September 17, 2019. The Opinion stated “[w]e have long recognized that the act of state doctrine applies where resolution of a plaintiff’s claims would require a court to evaluate a foreign sovereign’s compliance with its own laws.” In this case, the Ninth Circuit found that the investors’ allegations would require a US court to determine if the ruling was deficient. Given the policies underlying the act of state doctrine, to respect foreign sovereignty and allow other governmental branches to handle foreign affairs, the Ninth Circuit determined that the application of the doctrine was justified in the investors’ case and held that the district court did not err when declining to specifically address each factor of a test that allows courts not to apply the doctrine in limited circumstances.
The Milbank team representing Primero is led by Litigation partner Daniel Perry and includes Litigation associate James Whooley.
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