Shareholder derivative lawsuits are notoriously difficult for claimants. In order to pursue a derivative suit, a shareholder plaintiff must overcome numerous procedural and pleading hurdles. Even when cases survive the initial obstacles, the ultimate outcome often consists of little more than the payment of the plaintiff’s attorney’s fees with slight benefit to the company in whose name the claim was ostensibly was pursued. In light of these considerations, UCLA law professor Stephen Bainbridge has a modest proposal: Eliminate derivative litigation altogether. In a brief October 3, 2017 post on his ProfessorBainbridge.com blog (here), Bainbridge suggests that we just do away with the whole inefficient process. Bainbridge raises a number of interesting points, but, as discussed below, while I agree with some of his concerns, I am not sure I agree with his proposed solution.
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deterrence justification
A Conservative’s Case in Support of Class Actions
In the current political environment, class action lawsuits are under assault, particularly in conservative legal circles. As Joe Patrice put it in an August 30, 2017 Above the Law post (here) , with a somewhat tongue-in-cheek summary of the conservative perspective on class actions, “The only thing every good conservative legal thinker knows is that class actions are greedy money grabs perpetrated by slimy lawyers that help no one and only frustrate the hard-working capitalists making America great again.”
Given this general outlook among conservatives about class action lawsuits it is all the more surprising and interesting that a conservative legal scholar has come forward with a robust defense of class actions. Vanderbilt Law Professor Brian Fitzpatrick, who clerked for Reagan appointee Dairmuid O’Scannlain on the 9th Circuit and for conservative Supreme Court Justice Antonin Scalia, has published a paper entitled “Do Class Actions Deter Wrongdoing?” (here), as part of his forthcoming book, “The Conservative Case for Class Actions.” In Fitzpatrick’s view, class actions serve an important role because they deter corporate wrongdoing. Fitzpatrick’s analysis may not only be important for the ongoing debate about class actions in the U.S., but, as discussed further below, it may be even more important for the debate about class actions outside the U.S.
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