Delaware

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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

Though SPAC-related lawsuits were among the most important factors contributing to securities class action litigation filing volume in 2022, SPAC-related litigation has not yet been as significant of a factor so far in 2023. But while there have been relatively few SPAC related securities suits filed this year, there has been SPAC-related Delaware state court breach of fiduciary duty litigation. In the latest example of this Delaware state court litigation activity, plaintiff shareholders recently filed a Delaware Chancery Court lawsuit against the directors of a SPAC; the post-merger de-SPAC company, as successor in interest in the SPAC; and the SPAC’s sponsor, alleging that the defendants breached their fiduciary duties in connection with the merger. A copy of the plaintiff’s March 31, 2023, complaint can be found here.Continue Reading SPAC Board and Sponsor Hit with Delaware State Court Breach of Fiduciary Duty Direct Action

Delaware’s courts traditionally have said that breach of the duty of oversight claims (sometimes referred to as Caremark claims) are “possibly the most difficult theory in corporation law upon which a plaintiff might hope to win a judgment.” However, in series of cases following the Delaware Supreme Court’s 2019 decision in Marchand v. Barnhill, Delaware courts have sustained a number of breach of the duty of oversight claims. More recently, Vice Chancellor Laster, in a pair of decisions in the McDonald’s case, elaborated significantly on the reach of duty of oversight. Among other things, Laster made it clear that the duty extends to corporate officers as well as to directors. Some commentators (including me) were concerned that Laster’s elaborations could lead to further lawsuits alleging breach of the duty of oversight.

Now, in what is the first high-profile post-McDonald’s Caremark claim of which I am aware, a group of four institutional investors has brought a breach of the duty of oversight claim against certain directors and officers of Meta, alleging that the executives failed to take sufficient action with respect to allegations that the company’s social media sites were being used for human trafficking. The new complaint appears to have been shaped to reflect many of the implications arising from Laster’s decisions in the McDonald’s case. A copy of the redacted public version of the plaintiffs’ March 20, 2023, complaint in the Meta case can be found here.Continue Reading Meta Board and Execs Hit with Oversight Duty Breach Claim Based on Trafficking Allegations

In the latest development in the Delaware courts’ evolving elucidation of the standards surrounding claims for breach of the duty of oversight – sometimes referred to as Caremark claims — a Delaware Court has held that the board of McDonald’s cannot be held liable for an alleged oversight duty breach in connection with the alleged scandals at the company involving sexual harassment allegations. This ruling in the directors’ favor follows closely after the same court’s recent ruling in the same case that the plaintiffs had stated a claim against an officer defendant for breach of the duty of oversight. The court’s recent rulings in the case provide extensive additional insights with respect to what must be alleged to establish a Caremark claim. Vice Chancellor Laster’s March 1, 2023, opinion in the case, dismissing the claims against the McDonald’s directors, can be found here.Continue Reading Breach of Duty of Oversight Claims Against McDonald’s Directors Dismissed

In yet another Delaware court D&O insurance coverage decision that is sure to set the D&O insurance industry spinning, a Delaware Superior Court Judge has held that a SPAC’s post-merger runoff policy provides coverage for the defense fees of former directors of the pre-Merger target company for alleged Wrongful Acts that the occurred prior to the merger – even though the former directors were not directors or officers of the SPAC at the time they allegedly committed the alleged Wrongful Acts. The court’s ruling could even further complicate the already fraught process of placing and structuring D&O insurance in the De-SPAC context. A copy of the Court’s February 6, 2023 opinion can be found here. (Please note that I have linked to the copy of the opinion on the Court’s website; the website copy to which I linked says that the opinion was filed under seal, but the seal reportedly was lifted by the court on February 16, 2023.)Continue Reading Delaware Court: Pre-Merger Target Company Execs Are Insured Persons Under SPAC’S Post-Merger Tail Policy

In a shareholder claim against the former global head of HR at McDonald’s, the Delaware Chancery Court has held that liability for breach of the duty of oversight, which Delaware courts had previously extended only to corporate directors, can also extend to corporate officers, as well. In addition, in a separate part of the opinion that may not gain as much attention as the duty of oversight ruling, the same court also held that a breach of fiduciary duty claim can be alleged against an officer based on sexual harassment allegations. The court’s January 25, 2023 opinion in this case, a copy of which can be found here, is likely to be the subject of scrutiny, commentary, and controversy.Continue Reading Breach of the Duty of Oversight Liability Extends to Officers as Well as Directors

One of the hotly contested issues in recent years has been whether or not there is D&O insurance coverage for shareholder appraisal actions. In a recent decision that was largely focused on choice of law issues, the Delaware Supreme Court affirmed the trial court’s dismissal of a policyholder’s action to try to obtain coverage for defense costs incurred in an underlying shareholder appraisal action. Though the insurers prevailed in this coverage dispute, the Court’s holding on the choice of law issues could have ominous implications for insurers’ prospects in future coverage disputes, as discussed below. The Delaware Supreme Court’s January 10, 2023, opinion in the Stillwater Mining Company coverage dispute can be found here.Continue Reading Delaware Supreme Court: No Coverage for Appraisal Action

Jeff Lubitz

Jarett Sena

Computer technology company Dell Technologies, Inc. recently announced that it had entered a $1 billion settlement in shareholder litigation relating to the company’s disputed 2018 stock swap transaction. In the following guest post Jeff Lubitz, Managing Director, ISS Securities Class Action Services, and Jarett Sena, Director of Litigation Analysis, ISS Securities Class Action Services, take a closer look at the Dell settlement and also put the massive settlement into context with other shareholder lawsuit settlements. A version of this article previously was published as an ISS Securities Class Action Services client alert. I would like to thank Jeff and Jarett 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: Dell Agrees to $1 Billion Shareholder Suit Settlement