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
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.
Continue Reading Cybersecurity-Related Oversight Duty Breach Claim Against Marriott Board Dismissed
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.
Continue Reading Guest Post: Director Liability in the Wake of the New Delaware Demand Futility Test
The shareholder derivative lawsuit filed against the directors of Danaher Corporation is the latest board diversity lawsuit to fail to survive initial pleading hurdles. In a June 28, 2021 order (here), District of Columbia District Court Judge Trevor N. McFadden granted the defendants’ motion to dismiss the shareholders’ claims, based on his determination that the plaintiffs had failed to establish that pre-suit demand on the board would have been futile. In making his rulings on the motion, Judge McFadden made several interesting and noteworthy observations about the plaintiffs’ board diversity allegations.
Continue Reading Board Diversity Lawsuit Against Danaher Directors Dismissed
As I have documented on this site, over the last few months plaintiffs’ lawyers have filed a series of lawsuits against the directors of companies that allegedly lack African American representatives on their corporate boards. Many of these lawsuits, particularly at the outset of this litigation filing trend, were filed by the same law firm. Among the first of these lawsuits was a shareholder derivative lawsuit filed in July 2020 against the board of the social media company, Facebook. In an order dated March 19, 2021 (here), Northern District of California Magistrate Judge Laurel Beeler granted the defendants’ motion to dismiss the plaintiff’s complaint. The dismissal was without prejudice with respect to the plaintiff’s proxy misrepresentation claims under Section 14(a). As discussed below, the court’s ruling could have important implications for the other pending (and prospective future) board diversity lawsuits.
Continue Reading Facebook Board Diversity Lawsuit Dismissal Motion Granted
In a very interesting development and one that will definitely be worth watching, a plaintiff shareholder has launched a shareholder derivative lawsuit in New York state court on behalf of Bayer AG against members of its supervisory board, certain managers, and other defendants, seeking damages from the defendants for alleged violations of their duties under the German Stock Corporations Act. The lawsuit basically alleges that the defendants violated their duties to the company for pursuing and completing Bayer’s disastrous acquisition of Monsanto. The lawsuit raises the question of whether shareholders of a company organized under the laws of and based in Germany can pursue German law claims in New York courts using New York court procedures. As discussed below, the plaintiff’s attempt to pursue her claims in New York rather than Germany could face significant threshold hurdles. However, if her claims are permitted to go forward, this case could have very significant implications for the potential exposures of other non-U.S. companies to litigation in the U.S. A copy of the plaintiff’s March 6, 2020 complaint can be found here.
Continue Reading Derivative Suit Against Bayer Board Alleging German Law Violations Filed in NY Court
If a “fast filer” plaintiff races to the courthouse in one jurisdiction to file a derivative suit without prior due diligence, should a dismissal of the lawsuit for failure to plead demand futility preclude a separate derivative lawsuit brought be a different , more diligent plaintiff who files in a second forum? On the one hand, considerations of judicial efficiency and conservation of public resources argues in favor of precluding the second claim. On the other hand, policies in favor of greater pre-suit care prior to filing a lawsuit would militate in allowing the more diligent plaintiff’s claim to go forward.
In an interesting July 25, 2017 opinion (here) in which he reviewed these questions of the prior derivate suit dismissal’s claim preclusive effects on subsequent non-party claimant derivative claims, Chancellor Andre Bouchard concluded, in a break with the Court’s prior practices, the prior derivative suit dismissal on grounds of failure to plead demand futility does not preclude the claims of a subsequent claimant. This new approach to the issue of non-party preclusion in derivative litigation has important practical implications, as discussed below.
Continue Reading Delaware Chancery Court Ruling Could Allow a Second Chance on Demand Futility Rulings
There is no private right of action under the Foreign Corrupt Practices Act. However, a company’s announcement of an FCPA investigation or enforcement action frequently will draw a follow-on civil lawsuit in the form of a shareholders’ derivative lawsuit, in which a shareholder plaintiff alleges that the company’s board failed to prevent the company from committing these violations. But while these kinds of lawsuits arise frequently, they are less frequently successful, as illustrated most recently in a Delaware Chancery Court shareholders’ derivative lawsuit involving the telecommunications equipment company Qualcomm.
Continue Reading FCPA Follow-On Civil Actions: Frequently Filed, Less Frequently Successful
For some time now, many commentators (including me) have been predicting that as a result of rising numbers of companies experiencing date breaches that there would be a resulting wave of D&O lawsuits. Indeed, there have been a small number of high profile data security-related D&O lawsuits filed. However, several of those cases – including, for example, the derivative lawsuits filed against Target (about which refer here) and Wyndham Worldwide (here) – have been dismissed. Following these dismissals, the sole remaining recent high-profile data breach-related derivative lawsuit was the one filed against the directors and officers of Home Depot. However, the Home Depot lawsuit has now also been dismissed as well. The spate of dismissals certainly raises a question about what we may expect with respect to future cybersecurity-related D&O lawsuits. A copy of Northern District of Georgia Judge Thomas Thrash’s November 30, 2016 opinion in the Home Depot derivative lawsuit can be found here.
Continue Reading Home Depot Data Breach Derivative Lawsuit Dismissed
One of the more distinct litigation phenomena in recent years has been the rise of multi-jurisdiction litigation, particularly in connection with merger objection litigation. Corporate advocates and defense attorneys have decried this development, as it has forced companies facing litigation to have to fight a multi-front war and to incur increased defense expense. At its…