April 7, 2025
Willkie secured the dismissal of a securities class action in the United States District Court for the Northern District of Illinois stemming from Discover Financial Services’ (“Discover”) 2023 announcement that it had put certain credit cards into an incorrect pricing tier, as well as from regulatory consent orders that Discover entered into related to its student loan servicing practices and other compliance matters. Willkie represented ten current and former members of Discover’s Board of Directors (the “Independent Directors”).
In February 2024, Plaintiffs filed an amended class action complaint against Discover, certain current and former officers, and the Independent Directors, alleging that Discover made a series of allegedly false or misleading statements about Discover’s risk management and compliance deficiencies in violation of Section 10(b) and 20(a) of the Securities Exchange Act of 1934 and SEC Rule 10b-5 (the “Amended Complaint”). The crux of Plaintiffs’ allegations was that, through various public statements and filings, the Defendants assured investors that Discover’s compliance efforts were effective when, in reality, those efforts were not effective. Plaintiffs argued that those statements artificially inflated Discover’s stock price, and they were damaged when Discover’s stock price dropped following revelation of its compliance issues in 2023.
In March 2024, the Defendants moved to dismiss the Amended Complaint. On Monday, Judge Pacold granted Defendants’ motion in its entirety. The court analyzed each of the “dozens” of statements that the Plaintiffs alleged were materially misleading and rejected Plaintiffs’ “unpersuasive” arguments for all of them. For many of the generic statements at issue (for example, “we have policies and a defined governance structure in place to manage risks”), the court concluded that no reasonable investor would rely on the statements or interpret the statements as material or conveying assurances of specific results, actions, or positions. The court further noted that Plaintiffs took many of Discover’s statements out of context and ignored “abundant and unambiguous language” throughout Discover’s filings stating that its compliance efforts were ongoing and issues persisted. Judge Pacold’s opinion also adopted most of Defendants’ arguments, including that some of the challenged statements were inactionable, either because they were immaterial as a matter of law (for example, vague corporate statements affirming the importance of regulatory compliance) or because they fell under the PSLRA’s safe harbor provision for forward looking statements (for example, “we’ll continue to strengthen and fine-tune our processes and comply with all regulations”).
The decision provides Plaintiffs with a limited opportunity to amend. If they choose to do so, they must file a motion for leave to amend by no later than April 30, with a detailed exhibit showing how all pleading defects have been remedied.
The New York/Chicago/Washington, D.C.-based Willkie team consisted of partners Todd Cosenza, Charles Cording, Debra Bogo-Ernst; counsel Joshua Levy; and associates Amanda Payne, Anthony Vecchio, Rahima Ghafoori, Victoria Efetevbia, Jacqueline Cope, Samantha Huang, and Amanda Cort.
In February 2024, Plaintiffs filed an amended class action complaint against Discover, certain current and former officers, and the Independent Directors, alleging that Discover made a series of allegedly false or misleading statements about Discover’s risk management and compliance deficiencies in violation of Section 10(b) and 20(a) of the Securities Exchange Act of 1934 and SEC Rule 10b-5 (the “Amended Complaint”). The crux of Plaintiffs’ allegations was that, through various public statements and filings, the Defendants assured investors that Discover’s compliance efforts were effective when, in reality, those efforts were not effective. Plaintiffs argued that those statements artificially inflated Discover’s stock price, and they were damaged when Discover’s stock price dropped following revelation of its compliance issues in 2023.
In March 2024, the Defendants moved to dismiss the Amended Complaint. On Monday, Judge Pacold granted Defendants’ motion in its entirety. The court analyzed each of the “dozens” of statements that the Plaintiffs alleged were materially misleading and rejected Plaintiffs’ “unpersuasive” arguments for all of them. For many of the generic statements at issue (for example, “we have policies and a defined governance structure in place to manage risks”), the court concluded that no reasonable investor would rely on the statements or interpret the statements as material or conveying assurances of specific results, actions, or positions. The court further noted that Plaintiffs took many of Discover’s statements out of context and ignored “abundant and unambiguous language” throughout Discover’s filings stating that its compliance efforts were ongoing and issues persisted. Judge Pacold’s opinion also adopted most of Defendants’ arguments, including that some of the challenged statements were inactionable, either because they were immaterial as a matter of law (for example, vague corporate statements affirming the importance of regulatory compliance) or because they fell under the PSLRA’s safe harbor provision for forward looking statements (for example, “we’ll continue to strengthen and fine-tune our processes and comply with all regulations”).
The decision provides Plaintiffs with a limited opportunity to amend. If they choose to do so, they must file a motion for leave to amend by no later than April 30, with a detailed exhibit showing how all pleading defects have been remedied.
The New York/Chicago/Washington, D.C.-based Willkie team consisted of partners Todd Cosenza, Charles Cording, Debra Bogo-Ernst; counsel Joshua Levy; and associates Amanda Payne, Anthony Vecchio, Rahima Ghafoori, Victoria Efetevbia, Jacqueline Cope, Samantha Huang, and Amanda Cort.
