Shareholders Derivative Litigation

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As often happens when companies are hit with securities class action lawsuits, Lululemon, which in August was sued in a securities suit, was hit with a parallel shareholder derivative lawsuit. The derivative suit allegations not only largely track the allegations in the prior securities suit, but the derivative suit complaint expressly refers to the prior securities lawsuit filings. However, there is an unusual twist. In addition to tracking the same allegations as the securities suit, the Lululemon derivative suit complaint contains an entirely new and different set of allegations – and the new set of allegations are interesting in their own right.

The new allegations relate to the Lululemon’s DEI program (or what Lululemon called its IDEA program, standing for Inclusion, Diversity, Equity, and Action). DEI programs have been the recent focus of attention, with, for example, some companies facing litigation for even having a DEA program, and other companies (such as Ford and Harley-Davidson) having to publicly back away from their DEI program in response to political pressure. The allegations in the new Lululemon derivative complaint do not seek to challenge the company for having adopted this kind of program; the allegations instead question the company’s actions for doing too little to combat discrimination and eliminate racial issues at the company. In the context of a changing environment surrounding ESG issues in general, and DEI issues in particular, the new Lululemon lawsuit represents an interesting development, as discussed below. The derivative complaint in the new lawsuit can be found here.Continue Reading Lululemon Hit with Derivative Suit for Allegedly Ineffective DEI Program

In what is one of the largest settlements in a breach of the duty of oversight lawsuit, the parties to the Walmart Opioid-Related Shareholder Derivative lawsuit have agreed to settle the case for $123 million. The settlement is also one of the largest-ever derivative lawsuit settlements. As discussed below, the Walmart settlement is the latest in a series of jumbo settlements in opioid-related breach of the duty of oversight claims. The settlement is subject to court approval. A copy of the parties’ October 13, 2024, Stipulation of Settlement can be found here.Continue Reading Walmart Opioid-Related Duty of Oversight Derivative Suit Settled for $123 Million

As I have noted in several recent posts (most recently here), over the last several months Delaware’s Chancery Court has appeared increasingly skeptical of breach of the duty over oversight claims, seemingly underscoring the oft-stated proposition that so-called Caremark claims are among the most difficult to sustain. However, a recent decision out of the Northern District of California, applying Delaware law but arguably ruling contrary to the recent Delaware Chancery Court trends, sustained at least some of the breach of the duty of oversight claims alleged against Wells Fargo board of director in connection with discriminatory lending allegations against the company. As discussed in detail below, the Wells Fargo decision could have interesting implications for the evolving body of duty of oversight case law.Continue Reading Breach of the Duty of Oversight Claims Against Wells Fargo’s Board Sustained in Part

One of the basic exposures that corporate directors and officers face is the risk of a shareholder derivative lawsuit. In the following guest post, Greg Markel, Giovanna Ferrari, and Sarah Fedner, all of the Seyfarth Shaw law firm, take a look at the basic features of shareholder derivative suits and conclude with ten basic takeaways for boards and others. 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 site’s readers. Please contact me directly if you would like to submit a guest post. Here is the authors’ article.Continue Reading Guest Post: Derivative Litigation: Board Lessons and Takeaways

Sam Vardy
Carey Lynn

One of the most important director and officer litigation risks is the possibility of a shareholder derivative lawsuit. In the following guest post Sam Vardy and Carey Lynn take an overview of derivative suits and discuss some of the important D&O coverage issues the cases present. Sam is a lawyer and Divisional Director, and Carey is a lawyer and Managing Director, in the Financial Lines division of Howden.  A version of this article was published previously on the Howden website. I would like to thank Sam and Carey 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 site’s readers. Please contact me directly if you would like to submit a guest post. Here is Sam and Carey’s article.Continue Reading Guest Post: The Risks of Shareholder Derivative Suits and D&O Coverage

Erin McGinn

As regular readers know, I have for several years been tracking on this site the largest shareholder derivative lawsuit settlements. In the following guest post, Erin McGinn, Head of Financial Lines Claims, Vantage Risk, analyses and discusses the largest recent shareholder derivative lawsuit settlements and considers the settlements’ implications for Side-A D&O insurance. A version of this article was previously published on vantagerisk.com. I would like to thank Erin for allowing me to publish her article 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 Erin’s article.Continue Reading Guest Post: As Derivative Settlements Trend Higher, Side-A Coverage Becomes Crucial

In what is as far as I know the largest shareholder derivative lawsuit settlement ever as measured by dollar value, the defendant board members in the Tesla Board compensation derivative suit have agreed to settle the case for a combination of payments and transfers with a total value of $735 million. The agreement settles a Delaware Chancery Court lawsuit that a public pension fund shareholder filed against the board in June 2020 alleging that the since at least 2017 the board had received “unfair and excessive” compensation. The settlement is subject to court approval. A copy of the parties’ stipulation of settlement in the case, filed with the court on July 14, 2023, can be found here.Continue Reading Tesla Board Compensation Derivative Suit Settles for $735 Million

One of the hot topics in the world of corporate and securities litigation in recent years has been the use of forum selection bylaws as a way for companies to try to manage their litigation risk by steering corporate and securities litigation to a specified forum. Courts have largely upheld these provisions. For example, as noted in a recent post, an en banc ruling of the Ninth Circuit dismissed a plaintiff’s claim against the board of The Gap in reliance on a forum selection clause in the company’s bylaws, even though the dismissal effectively deprived the plaintiff of a forum for its derivative Section 14(a) claims.

Now in a further development, a federal district court judge, again in a reliance on a forum selection clause, has granted the defendants’ motion to dismiss in a SolarWinds cyber incident-related derivative suit, even though the dismissal means that the plaintiff has no forum in which to assert his derivative Exchange Act claims – most notably including the plaintiff’s derivative claims under Section 10(b). At a minimum, the ruling expands the reach of what a forum selection clause may achieve, and it possibly could increase the chances that these issues ultimately wind up before the U.S. Supreme Court. A copy of the court’s July 12, 2023, order in the federal court derivative lawsuit can be found here. A July 14, 2023, post on CorporateCounsel.net about the ruling can be found here.Continue Reading Federal Court Derivative Suit Dismissed Based on Forum Selection Clause, Despite Exchange Act Claims

On June 1, 2023, in a much-anticipated decision, the Ninth Circuit held, in a split en banc decision in the long-running board diversity lawsuit filed against the board of The Gap, that the provision in the company’s bylaws designating a Delaware state court forum for derivative actions was enforceable, even as to claims asserted derivatively under Section 14(a), and, accordingly, the appellate court affirmed the district court’s dismissal of the action. The decision, which validates company’s use of these kinds of forum selection clauses, also creates a split in the federal judicial circuits which could mean that the issue could be headed to the U.S. Supreme Court. A copy of the Ninth Circuit’s decision can be found here.Continue Reading Ninth Circuit En Banc Ruling Upholds Forum Selection Clause

In a ruling last week, Delaware Vice Chancellor Travis Laster denied motions to dismiss in the shareholder derivative suit against Facebook executives for failing over the course of several years to protect users’ data privacy. The alleged privacy violations to which the lawsuit relates were the subject of a massive $5 billion penalty that Facebook agreed to pay to the FTC to settle charges that the company had violated a 2012 consent order relating to protecting users’ privacy. As discussed in a May 10, 2023, Law360 article (here), Vice Chancellor Laster made his ruling from the bench in a telephonic hearing. Vice Chancellor Laster’s ruling is also discussed in a May 10, 2023, Associated Press article (here). As discussed below, Vice Chancellor Laster’s ruling underscores the extent to which privacy-related issues represent an area of significant corporate liability exposure.Continue Reading Court Denies Dismissal Motion in Facebook User Data Privacy Derivative Suit