Shareholder Joint Suit (Class Action)

Legal ground; Financial Instruments and Exchange Act

If the securities report contains any fake statement on important matters, the company who submitted the securities report should be held liable to compensate shareholders (and the former shareholders) who suffered damage due to the fake statement. Therefore damaged shareholders can file a damage suit against the company. Its main legal ground is Financial Instruments and Exchange Act quoted below.

Financial Instruments and Exchange Act requires the followings in order for shareholders to file a damage suit against the company.

  1. That the securities report contains any fake statement on important matters (or lacks a statement on important matters that should be stated or on a material fact that is necessary for avoiding misunderstanding).
  2. That shareholder acquired the securities issued by the company during the period when the securities were made available for public inspection.
  3. That shareholder suffered damage arising from the fake statement.
  4. That shareholder did not know of the existence of the fake statement at the time of the acquisition.

Filing a damage suit against the company based on Financial Instruments and Exchange Act has the advantage that there is no need for shareholders to prove the company’s negligence or deliberate intention about the fake statement, because the Act do not require those proof. Additionally, regarding (c), shareholders are able to use the presumptive rule of damage assessment. These are very advantageous for shareholders.

Meanwhile, regarding (d), shareholders who acquired the securities after the time when the fake statement was revealed and the stock prices started falling are sometimes judged not to fulfill (d).

Article 21-2 of the Financial Instruments and Exchange Act
(Liability for Damages of Person Who Submits Document Containing Fake Statement, etc.)

  1. If any of the documents specified in the items of Article 25(1) (hereinafter referred to as the “Documents” in this Article) contains any fake statement on important matters or lacks a statement on important matters that should be stated or on a material fact that is necessary for avoiding misunderstanding, the person who submitted the document shall be held liable to compensate a person who, during the period when the document was made available for public inspection as required by Article 25(1), acquires the Securities issued by the person who submitted the document or by the person whose Parent Company, etc. is the person having submitted the document not through Public Offering or Secondary Distribution for damage arising from the fake statement or lack of a required statement (hereinafter collectively referred to as a “Fake Statement, etc.” in this Article), to the extent not exceeding the amount calculated according to the same rule as provided in Article 19(1); provided, however, that this shall not apply when the person who acquires the Securities had known of the existence of a Fake Statement, etc. at the time of the acquisition.
  2. In the case referred to in the main clause of the preceding paragraph, when Public Announcement of the Fake Statement, etc. is made, with regard to a person who acquired the Securities within one year prior to the day when the Fake Statement, etc. is announced (hereinafter referred to as the “Day of Announcement” in this paragraph) and continues to hold the Securities at the Day of Announcement, the amount calculated by deducting the average market value (or, where no market value exists, their estimated disposal value; hereinafter the same shall apply in this paragraph) during one month after the Day of Announcement from the average market value during one month prior to the Day of Announcement may be presumed as the amount of damage.
  3. The term “Public Announcement of the Fake Statement, etc.” as used in the preceding paragraph means the fact that the person who submitted the document or a person who has statutory authority over the person submitting the document takes measures for making available to a large number of persons important matters pertaining to the Fake Statement, etc. that should be stated or material fact pertaining to the Fake Statement, etc. that is necessary for avoiding misunderstanding by means of making such matters or fact available for public inspection provided in Article 25 (1) or by other means.
  4. In the case referred to in paragraph (2), when the person liable for damages proves that all or part of the damages sustained by the person who is entitled to claim damages was caused by any reason other than the decline in value of the Securities that should arise from the Fake Statement, etc. in the document, he/she shall not be liable for that all or part of the damages.
  5. In addition to the cases referred to in the preceding paragraph, in the case referred to in paragraph (2), when the court finds that all or part of the damage sustained by the person who is entitled to claim damages was caused by any reason other than the decline in value of the Securities that should arise from the Fake Statement, etc. in the document, but it is extremely difficult to prove the amount of the damages arising from such other reason due to its nature, the court may, based on the entire import of oral argument and the result of examination of evidence, determine a reasonable amount of the damages for which the person liable for damages is not liable.

Article 19 (Amount of Damages Payable by Person Who Submits Securities Registration Statement Containing Fake Statement, etc.)

  1. The amount of damages to be paid shall be the amount calculated by deducting the amount specified by either of the following items from the amount paid for acquisition of the Securities by the person who is entitled to claim damages:
    1. market value of the Securities at the time when claiming damages (or, where no market value exists, their estimated disposal value); or:
    2. disposal value of the Securities, if the Securities have been disposed of before the time referred to in the preceding item.

The Supreme Court Judgment for the Seibu Railway Case

In the case of filing the damage suit against the company based on the Financial Instruments and Exchange Act, as to how much the amount of damages shall be sustained, the following formula shown by The Supreme Court Judgment for the Seibu Railway Case (below ) is supposed to be the important guideline in conducting the trial.

the amount of damages = the purchase price
− the selling price or the market value at the conclusion of the oral arguments of the trial
− the amount of damages which should not arise from the fake statement

Even if the amount of damages is calculated by the formula above, it is extremely difficult to prove “the amount of damages which should not arise from the fake statement” certainly. Therefore it shall be calculated by the following formula as of filing the damage suit.

the amount of damages = the purchase price
− the amount of damages which shall be recovered

Overview of Procedures

1. To make an appointment for legal consultation with an attorney

  1. Please contact us to make an appointment by e-mail.
  2. Please let us know the followings about the stock deal.
    1. Purchase date, Number of shares purchased, Purchase price per share, Stock market trading commissions
    2. (In case of selling shares) Selling date, Number of shares sold, Selling price per share, Stock market trading commissions
  3. Please take the followings with you.
    1. Seal (Inkan) *If you have. *A ready-made seal is available, but a self-inking stamp is not.
    2. ID (e.g. Driver license, Pass port)
      * (In case of company) Certificate of registered matters, ID of a representative or a person in charge
    3. Evidential document of the stock deal

2. To sign Retainer Agreement

3. Preparation for Joint Suit

4. To file Joint Suit in Tokyo District Court

We will be filing the first joint suit in Tokyo District Court in around April, 2012.

5. Date for oral argument

It will be held about every 2 or 3 months.

6. First trial judgment

The first trial may go on for 1 to 3 years. The defeated party may appeal to the Appellate Court.

7. Appellate Court judgment

The defeated party may appeal to the Supreme Court.

8. Supreme Court judgment

Feature of our attorney’s fees

Two types of fee structures

You can select from two types of fee structures according to your needs.

Inexpensive attorney’s fees

Our fees are established much less expensive than the standard fees of Japan Federation of Bar Associations (currently abandoned.) Moreover the fees cover all the trial proceedings including final appellate court.

Contact

Please contact us to make an appointment by e-mail.

Shareholder Joint Suit (Class Action)