Shareholders Derivative Litigation

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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

In the past, shareholder derivative lawsuits tended to settle for the defendants’ agreement to adopt corporate therapeutics and the payment of plaintiffs’ attorneys’ fees. There typically was not a cash component to the settlement, and rarely a substantial cash component. In more recent years, settlement patterns have changed, and, increasingly, derivative suit settlements have entailed large amounts of cash. The latest example of these new derivative suit settlement patterns is the $167.5 settlement of the derivative lawsuit brought by CBS shareholders in Delaware Chancery Court in connection with CBS’s $30 billion 2019 acquisition of Viacom. (The combined company was known as ViacomCBS, which changed its named to Paramount Global in February 2022.) Paramount Global disclosed the settlement of the CBS shareholder derivative lawsuit it its April 21, 2023 filing on Form 8-K, here.

Continue Reading CBS Shareholder Derivative Suit Relating to Viacom Merger Settles for $167.5 Million

If you own a device connected to the Internet, then you know that on Tuesday Dominion Voting Systems and Fox Corp. agreed to a $787.5 million settlement of Dominion’s defamation lawsuit against Fox relating to Fox News’s coverage of the 2020 Presidential election and its aftermath. The settlement doesn’t mean the end of related litigation, however; there is, for example, the separate lawsuit that voting-machine company Smartmatic brought against Fox Corp. in New York state court that remains pending. There are a host of other lawsuits that Dominion is pursuing related the 2020 Presidential election conspiracy theories, including, for example, lawsuits against Mike Lindell, the MyPillow executive, and news outlets such as Newsmax.

And then there is the derivative lawsuit that a Fox Corp. shareholder filed in Delaware Chancery Court last week against Fox Corp. Chairman Rupert Murdoch and four other Fox executives, in which the plaintiff alleges that the defendants breached their fiduciary duties by permitting the company’s news subsidiary to make false reports about the 2020 presidential election in order to avoid losing viewers. The shareholder suit, in and of itself, presents some interesting issues, but in light of Tuesday’s settlement in the Dominion lawsuit, and the threatening prospects of the additional litigation still pending against Fox Corp., the shareholder lawsuit may now be even more interesting.

Continue Reading The Derivative Suit Against the Fox Board Just Got a Lot More Interesting

Sarah Voutyras and Melanie Saponara

Readers of this blog know that one of the litigation risk management steps well-advised companies are taking in the current litigation environment is the adoption of forum selection bylaws, including, in particular, bylaws specifying a particular forum for the consideration of shareholders’ derivative suits. In a series of recent decisions, federal courts have reviewed these bylaws. In the following guest post, Melanie Saponara, Claims Manager – Executive Risk, Beazley, and Sarah Voutyras, Partner, Skarzynski Marick & Black LLP, take a look at recent federal appellate court developments on this issue and consider the implications. I would like to thank Melanie and Sarah 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.
Continue Reading Guest Post: Can Exclusive Derivative Forum Selection Provisions Survive Ninth Circuit’s En Banc Review?

In the latest development in the long-running FirstEnergy bribery-related derivative lawsuit settlement saga, a federal judge has granted final approval to the proposed settlement in the consolidated action pending in the Southern District of Ohio, albeit while reducing the amount of the plaintiffs’ fee award. The parties will now, with the benefit of the final settlement approval, turn to the Northern District of Ohio, where an unconsolidated parallel action remains pending, and where the presiding judge has recently appointed new counsel to prosecute the separate action. In a rational and orderly world, the separate proceeding in the Northern District of Ohio would be dismissed. However, under the actual conditions, anything could happen.
Continue Reading FirstEnergy Bribery-Related Derivative Suit Settlement Receives Final Approval; What Happens Next?