Makor Issues & Right v. Tellabs Incorporated ( 2006 )

UNPUBLISHED ORDER
Not to be cited per Circuit Rule 53
United States Court of Appeals
For the Seventh Circuit
Chicago, Illinois 60604
July 10, 2006
Before
Hon. KENNETH F. RIPPLE, Circuit Judge
Hon. DIANE P. WOOD, Circuit Judge
Hon. DIANE S. SYKES, Circuit Judge
No. 04-1687
MAKOR ISSUES & RIGHTS, LTD., et al., Appeal from the United States
Plaintiffs-Appellants, District Court for the
Northern District of Illinois,
v. Eastern Division.
TELLABS, INC., et al., No. 02 C 04356
Defendants-Appellees.
Amy J. St. Eve, Judge.
ORDER ON PETITION FOR REHEARING
Defendants-Appellees filed a petition for rehearing en banc on February 8, 2006.
No judge in active service has requested a vote on the petition for rehearing en banc.
All members of the original panel have voted to DENY rehearing except to the
extent that the opinion is MODIFIED as follows: the first full paragraph on page 28 of the
slip of the opinion is deleted and replaced with the following:
The plaintiffs also pleaded a claim against Birck for insider trading.
A private cause of action exists under § 20A of the Securities Exchange Act
No. 04-1687 Page 2
against persons who purchase or sell a security “while in possession of
material, nonpublic information.” See 15 U.S.C. § 78t-1(a). To create
potential liability under § 20A, the plaintiffs must prove an independent
violation of “this chapter or the rules or regulations thereunder.” Id. In
other words, § 20A claims are “derivative, requiring proof of a separate
underlying violation of the Exchange Act.” Advanta Corp., 180 F.3d at 541.
At this point in the litigation, we have affirmed the dismissal of the
underlying securities fraud claims pleaded directly against Birck. He still
faces liability, but solely as a control person under § 20(a). Whether § 20(a)
control-person liability standing alone can serve as the “separate
underlying violation” required for § 20A insider trading is an open
question of law and raises an important issue of statutory interpretation
that should not be decided in a vacuum. No party in this litigation has
provided more than cursory briefing of this issue, and therefore we take no
position on its resolution, leaving it for further factual and legal
development during the course of the litigation.