In my annual roundup of the issues to watch in the world of D&O that I posted early in the fall, I included in my list of topics the possibility of an increase in antitrust-related enforcement activity. I raised this concern in part because of fears arising from the emerging make-up of the Biden Administration’s antitrust regulatory team. For some readers, it may not have been apparent how these antitrust regulatory concerns might translate into D&O claims activity. Anyone looking for an example of how antitrust enforcement activity can lead to D&O claims will want to review the two shareholder derivative actions filed late last week against certain directors and officers of Alphabet, the parent of Google, as well as against directors and officers of Google itself. The complaints assert breach of fiduciary duty claims against the defendants relating to antitrust enforcement actions that have been filed against Alphabet and against Google by federal and state regulators.
Continue Reading Alphabet’s Board Hit with Antitrust Enforcement Follow-On D&O Lawsuits
Qualcomm Board Diversity Derivative Suit Dismissed
In late 2020 and early 2021, plaintiffs’ lawyers filed as many as ten shareholder derivative suits against the boards of U.S. publicly traded companies alleging that the director defendants violated their legal duties by failing to nominate, elect or appoint African American individuals to their boards. So far, these suits have not fared well. In the latest of these cases to fail to clear the initial pleading hurdles, the court in the board diversity lawsuit filed against Qualcomm’s board has granted the defendants’ motion to dismiss. The decision in the Qualcomm case is noteworthy because, unlike many of the prior dismissal motion rulings, the court addressed the merits of the plaintiff’s Section 14(a) claims. A copy of the court’s November 15, 2021 opinion can be found here.
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Cybersecurity-Related Breach of the Duty of Oversight Claim Filed Against SolarWinds Board
In the latest example of claimants seeking to assert the newly revitalized type of claim for breach of the duty of oversight against corporate boards, plaintiff shareholders have filed a derivative lawsuit in Delaware Chancery Court against certain past and current directors of technology company SolarWinds, based on the massive cybersecurity incident involving the company’s software and systems discovered in December 2020. As discussed below, there are several interesting features of this lawsuit in light of recent developments involving claims for alleged breaches of the duty of oversight. A copy of the heavily redacted publicly available version of the plaintiffs’ complaint against the SolarWinds board can be found here.
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Boeing Air Crash Derivative Lawsuit Settles for $237.5 Million
In what is one of the largest derivative lawsuit settlements ever, and — according to the statement from one of the co-lead plaintiffs in the case — the largest settlement ever in Delaware of a Caremark/breach of the duty of oversight case, the parties to the Boeing 737 Max Crash shareholder derivative suit in Delaware Chancery Court have agreed to settle the case for a payment of $237.5 million, all of which is to be funded by D&O insurance. As part of the settlement, the company also agreed to adopt several safety and oversight protocols and other corporate governance measures. The settlement is subject to court approval. A copy of the November 5, 2021 statement of the co-lead plaintiff, New York State Comptroller Thomas DiNapoli, about the settlement can be found here. A copy of the parties’ settlement stipulation can be found here.
Continue Reading Boeing Air Crash Derivative Lawsuit Settles for $237.5 Million
Litigation Alert: U.S. Derivative Lawsuits Against Boards of Non-U.S. Companies
For those whose job it is to worry about the U.S. litigation risk for non-U.S. companies, the focus historically has been on the risk of U.S. securities class action litigation. However, as detailed in a new white paper from AIG and the Clyde & Co law firm, over the last 18 months a small group of U.S. plaintiffs’ law firms has filed a series of shareholder derivative lawsuits in U.S. courts on behalf of non-U.S. companies and alleging violations of the companies’ home country laws. As discussed below, these lawsuits potentially could represent a significant new source of U.S. litigation exposure and D&O liability risk for directors and officers of non-U.S. companies. A copy of the paper, which is entitled “Shareholders Increasingly Targeting D&Os of Foreign Companies in New York Derivative Actions,” can be found here.
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N.Y. Derivative Suit Against China-Based Cayman Islands Company Settles for $300 Million
In one of the largest shareholder derivative lawsuit settlements ever, involving a very unusual derivative claim under Cayman Island law prosecuted in a U.S. court on behalf of a China-based Cayman Islands company, the parties to the Renren derivative litigation have agreed to settle the case for at least $300 million. The settlement is subject to a “true up” process that could increase the ultimate amount of the settlement payments. The settlement is also subject to court approval. The parties’ October 7, 2021 settlement stipulation can be found here. Renren’s October 8, 2021 press release about the settlement can be found here. An October 8, 2021 press release from the lead plaintiff’s counsel about the settlement can be found here.
Continue Reading N.Y. Derivative Suit Against China-Based Cayman Islands Company Settles for $300 Million
Cybersecurity-Related Oversight Duty Breach Claim Against Marriott Board Dismissed
Last month, when the Delaware Court of Chancery sustained the breach of the duty of oversight claim against the Boeing board, some observers suggested we could see an increase in board oversight breach lawsuits. We may yet see more breach of the duty of oversight claims, but another more recent Delaware Chancery Court decision in the Marriott data breach shareholder derivative suit suggests claimants still face an uphill battle in asserting these kinds of claims. On October 5, 2021, Delaware Vice Chancellor Lori Will granted the defendants’ motion to dismiss in the case, in part on grounds related to the plaintiff’s breach of the duty of oversight claims. As discussed below, the ruling could have particular significance with respect to the prospects for claims of breach of the duty of oversight relating to cybersecurity issues. A copy of Vice Chancellor Will’s opinion can be found here.
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Guest Post: Director Liability in the Wake of the New Delaware Demand Futility Test
In the following guest post, Gregory A. Markel, Paul Ferrillo, Daphne Morduchowitz and Sarah A. Fedner take a look at and consider the implications of the Delaware Supreme Court’s September 23, 2021 decision in United Food and Commercial Workers Union v. Zuckerberg, et al, in which the Court articulated a new test for determining whether demand is excused as futile in shareholder derivative actions under Delaware law. Greg, Paul, and Daphne are partners and Sarah is an associate at Seyfarth Shaw LLP. I would like to thank the authors for allowing me to publish their article as a guest post on this site. I welcome guest post submissions from responsible authors on topics of interest to this blog’s readers. Please contact me directly if you would like to submit a guest post. Here is the authors’ article.
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Del. Court Substantially Denies Boeing Duty of Oversight Claim Dismissal Motion
In an important decision that highlights the liability exposures facing corporate boards for claims alleging breaches of the duty of oversight, a Delaware Court of Chancery Vice Chancellor denied in substantial part the defendants’ motion to dismiss in the shareholder derivative suit pending against the board of Boeing relating to the 737 Max air crashes. The court concluded that the plaintiff had sufficiently alleged that the company’s board had breached its oversight obligations by failing to establish safety oversight mechanisms prior to the October 2018 Lion Air crash and ignoring red flags about safety issues after the Lion Air crash and before the March 2019 Ethiopian Airlines crash. Vice-Chancellor Morgan Zurn’s September 7, 2021 opinion can be found here.
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Two More Board Diversity Lawsuits Dismissed
Starting last summer and through the early part of this year, plaintiffs’ lawyers filed several shareholder derivative lawsuits against the boards of a number of companies alleging that the directors had breached their fiduciary duties by failing to include African American individuals on their boards. As I have detailed in previous posts (most recently here), these suits have not fared well, as courts have granted the motions to dismiss each of the cases in which courts have ruled on dismissal motions. In the past week, the courts in two more of these cases – involving the boards of NortonLifeLock and OPKO Health – granted the defendants’ motions to dismiss. The August 30, 2021 order in the NortonLifeLock case can be found here and the September 1, 2021 order in the OPKO Health case can be found here.
Continue Reading Two More Board Diversity Lawsuits Dismissed