Photo by Laura Barisonzi.
Michael J. Wernke spent the early part of his litigation career dipping into several different practice areas before being drawn into the complexities of securities law, first on the defendant side. He now most typically represents classes of investors, and has recovered hundreds of millions of dollars for clients based on accounting fraud and other misstatements from companies. He secured a $31M partial settlement connected to the LIBOR rigging investigations, and recently helped set an important precedent regarding compliance disclosures in a case regarding emissions in the auto industry. Wernke is a partner at Pomerantz and a graduate of Harvard Law.
Lawdragon: Will you please describe for our readers the focus of your practice?
Michael Wernke: I primarily focus on securities class actions but have occasionally been involved in class actions asserting common law fraud or antitrust violations related to price fixing or similar conduct.
LD: How did you first become interested in securities litigation?
MW: I stumbled into it in a way. Out of law school I, like most of my class as Harvard Law School, went to a big defense firm in New York City. The firm was one of the few that handled high-profile First Amendment cases. I started working on a few such cases as a junior associate. However, I needed to supplement the work I was getting on the First Amendment cases in order to keep my billable hours high enough. So I took on a hodgepodge of other complex commercial litigations, which were abundant at the firm. Fresh out of law school, I didn’t really know the nuts and bolts differences of litigating different types of cases. So I just accepted whatever cases were available.
One of the cases I was assigned was a securities fraud class action. A year or so into the case, the Supreme Court issued its decision in Dura Pharmaceuticals, which discussed the concept of causation and damages in securities fraud class actions. That is, how misrepresentations made by a company would “inflate” the company’s stock price and how when the truth was revealed to the market the inflation would come out when the stock price declined. But because a company’s stock price can rise and fall for lots of reasons unrelated to a fraud, the plaintiff was required to demonstrate that the loss suffered was a result of the fraud and not some other non-fraud factor or news. I found the complexity of the analysis fascinating and took on numerous securities cases. As I learned more about this area of law, I found myself agreeing more with the investors’ arguments than the defendant companies’ positions. So, I decided to come to Pomerantz where I could focus exclusively on securities law as well as champion the rights of the little investors against the big corporations.
LD: What keeps you excited about this type of work?
MW: It’s never boring. Every day I learn something either about securities law or the nature of the business underlying a particular case. The law is always developing so there is always something new to learn or a nuance to the facts of a case that allow for creative thinking and an opportunity to make new law. Also, while the elements of securities fraud remain unchanged, every case involves a different type of company and type of operations. As a result, I have to become an expert in the critical issues underlying the alleged fraud. One day I’m learning about accounting issues, the next I’m learning about how companies manage their pipeline of sales, the next I’m learning about how diesel emission engines work and are tested by the EPA, and the next I’m learning about how an FDA regulated company conducts its clinical trials.
LD: Will you talk a bit about the recent case you handled against Fiat Chrysler?
MW: This year we settled a case against Fiat Chrysler for $110M, which was 19 percent of the estimated recoverable damages, a much higher than average percentage. The complaint alleged that Fiat Chrysler misled investors when it represented that it was in compliance with vehicle safety and emissions regulations. In fact, Fiat Chrysler improperly slow-played its recall obligations for defective vehicles, waiting too long to announce recalls for certain vehicles and then failing to provide remedies. The company also outfitted certain diesel vehicles with “defeat device” software designed to cheat NOx emissions regulations in the U.S. and Europe. Fiat Chrysler concealed this information, as well as the fact that regulators had accused Fiat Chrysler of violating the emissions regulations. When the EPA and other regulators publicly accused the company of violating the law and/or levied fines, Fiat Chrysler’s stock price significantly declined.
LD: What were the key challenges of successfully representing the clients in this case?
MW: Regarding Fiat Chrysler’s slow-playing of vehicle recalls, the alleged false statement was the company’s representation that it was in “substantial compliance” with relevant regulations. The number of vehicles that the company failed to properly recall was a very small percentage of the total number of Fiat Chrysler vehicles on the road, especially given that a vehicle can remain on the road easily for ten or more years. Similarly, Fiat Chrysler is a multi-national corporation subject to regulations in many countries concerning all kinds of issues. Nevertheless, we were able to convince the court that “substantial compliance” with relevant regulations would be understood by investors to mean substantial compliance as to each regulation, not, for example, full compliance with 99 percent of the regulations and 50 percent compliance with vehicle safety regulations. Especially given the importance of vehicle safety and the U.S. market to its operations.
Regarding the NOx emissions issue, the court originally dismissed those allegations for failing to adequately allege that Fiat Chrysler knew its statements were false or misleading when they made them. However, well before the court issued its order dismissing those claims, we had issued FOIA requests to the EPA requesting all communications with Fiat Chrysler concerning their emissions compliance. The documents obtained from those requests showed that the EPA had told Fiat Chrysler management that the EPA believed, although had not come to a final conclusion, that Fiat Chrysler was violating the law prior to the company assuring investors that their vehicles did not contain any defeat devices. We were granted leave to amend the complaint with the new information and the court sustained the allegations, determining that it was misleading for the company to assert that they were in compliance when the EPA was actively questioning that compliance.
LD: Might the outcome in this case have broader implications for investors, beyond your clients in the matter?
MW: The decision is significant because it established that a company professing compliance with regulations must also disclose if their regulators have taken a different position, even if it is not a final determination by the regulator. Prior cases had primarily dealt with final or more formal determinations of violation by the regulator. Here, an email exchange with management about an initial determination was sufficient. This case will make it easier for investors to bring an action when companies don’t provide the full story concerning a critical issue like regulatory compliance.
LD: Any advice for current law school students?
MW: Try new things. A lot of people enter law school thinking they know exactly the type of law they want to practice despite having little practical information about that area of law and almost no information about other areas of law. And many people end up practicing in an area of law completely different from what they thought when entering law school. The more areas of the law you can be exposed to, whether through taking a variety of courses, talking to practitioners or doing internships, the sooner you will be able to determine the area that’s right for you.