As readers of this blog know, the various board diversity lawsuits that the plaintiffs’ lawyers filed in late 2020 and early 2021 have uniformly fared poorly in the courts. In the latest dismissal motion ruling in one of these suits, the court in the board diversity suit filed against the directors of Cisco Systems has granted the defendants’ motion to dismiss, albeit without prejudice. The court’s ruling in the Cisco Systems board diversity suit is noteworthy because the court addressed the merits of the plaintiff’s Section 14(a) claims. A copy of the court’s March 1, 2022 dismissal order can be found here.
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FirstEnergy Bribery-Related Derivate Lawsuit Settled for $180 Million
In what is one of the largest shareholder derivative lawsuit settlements ever, the parties to the various FirstEnergy bribery-related derivative lawsuits have reached an agreement to settle the actions for a payment of $180 million and the company’s agreement to adopt a number of corporate governance reforms. The settlement amount is to be funded by D&O insurance. The settlement agreement is subject to court approval. First Energy’s February 10, 2022 announcement of the settlement can be found here. The parties’ February 10, 2022 settlement term sheet can be found here.
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Do Derivative Suit Dismissals Signal End of Non-U.S. Companies’ U.S. Liability Threat?
In my round-up of top D&O stories from 2021, I cited the recent rise of U.S. derivative lawsuit filings against the boards of non-U.S. companies as one of the year’s most important D&O liability and insurance stories. I was not alone in identifying this trend as a key development. Allianz identified the threat of these kinds of U.S. derivative suits against non-U.S. companies’ boards as one of the “five D&O mega trends companies should watch for and guard against in 2022.” However, recent developments could be interpreted to suggest that the threat from these kinds of lawsuits may turn out to be something less than feared.
As Alison Frankel noted in a January 4, 2022 post on her On the Case blog (here), “last week, two Manhattan state-court judges called off the revolution.” In the final week of 2021, two New York state judges granted motions to dismiss in separate derivative lawsuits filed in N.Y. courts against the boards of two non-U.S. companies. As discussed below, these two rulings potentially could spell the end for these kinds of lawsuits; at a minimum, it could mean that the threat may turn out to be significantly less than was feared – although as also noted below, there could yet be more of this story to be told.
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Alphabet’s Board Hit with Antitrust Enforcement Follow-On D&O Lawsuits
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.
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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.
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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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