As the options backdating cases flooded in a year ago, the standard explanation of the plaintiffs’ lawyers preference for shareholders derivative lawsuits over securities class action lawsuits was that stock price declines rarely accompanied companies’ options backdating disclosures. (A list showing the predominance of derivative lawsuits among options backdating cases can be found here.) Any doubts about the challenge that the absence of a stock price drop poses for erstwhile options backdating securities class action litigants should be put to rest by the November 14, 2007 opinion (here) dismissing the options backdating-related securities class action lawsuit pending against Apple and 14 of its current and former directors and officers. Background on the lawsuit can be found here.
The thrust of the allegation is that the recipients of the backdated options were overpaid, in violation of Apple’s stock option plans. Such allegations necessarily involve an injury to the corporation in that overpayment entails a reduction in corporate assets…. Lead Plaintiff has not identified a unique injury independent of any harm done to the corporation….Were Plaintiff to file an amended complaint, their claims would be stated as derivative claims on behalf of Apple. However, any derivative claims on behalf of Apple arising from the facts alleged in the Complaint likely would be subject to consolidation with the pending derivative action.
A Comment on Judge Fogel’s Opinion: Judge Fogel’s opinion is seemingly important, particularly his comments with respect to loss causation, given that many of the options backdating cases have been filed in his judicial district – and indeed many backdating cases are pending before Judge Fogel himself. However, in issuing his opinion, Judge Fogel has repeated his unfortunate practice of issuing his opinions as “Not for Citation.”