DISMISSES SECURITIES ACT CLAIMS ON STATUTE OF LIMITATIONS GROUNDS AND UNDER THE PSLRA

Plaintiffs bringing claims under the Securities Act of 1933 often disclaim allegations of fraud in an effort to avoid the reach of more stringent pleading requirements that apply to fraud-based claims. That disclaimer comes at a cost, however, as demonstrated by a recent decision issued by United States District Court Judge Denise Cote 1 dismissing claims brought under the Securities Act of 1933 against a Canadian mining company (NovaGold Resources Inc.), its directors and officers, and six underwriters, which were represented by Milbank. The NovaGold decision makes clear that plaintiffs who disclaim reliance on fraud in asserting Securities Act claims face higher hurdles in a number of respects. In NovaGold, the plaintiff alleged that certain defendants violated Sections 11 and 12(a)(2) of the Securities Act, and that some violated Section 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, based on purported misrepresentations relating to a mining project undertaken by NovaGold in Galore Creek, Canada (the “Galore Creek Project”). In drafting its complaint, the plaintiff took great pains in emphasizing that its Securities Act claims were based on strict liability and negligence, and did not sound in fraud. Dismissing the Securities Act claims against some of the defendants as time-barred, Judge Cote made clear that because the plaintiff ’s claims did not purport to sound in fraud, plaintiff was on inquiry notice for more than the one-year limitations period that certain statements that appeared in NovaGold’s registration statement and prospectus (together, the “Prospectus”) were untrue even if the plaintiff had no notice whatsoever of fraud. It was reasonable, the Court noted, that plaintiffs need more information to be deemed on notice of a securities fraud claim than they need to challenge a statement as untrue under the Securities Act. Although the Second Circuit has held that “whether a plaintiff had sufficient facts to place it on inquiry notice is ‘often inappropriate for