Category

Derivative Litigation

30 August 2021

A Delaware Corporate and M&A Checklist: 11 Cases That Every Practitioner Should Know

EmailShare

As regular readers know, this blog typically covers the latest developments and trends emerging from the Delaware Court of Chancery. For this post, however, we revisit first principles and remind our readers of the bedrock decisions of modern Delaware M&A practice, and highlight 11 key decisions with which every practitioner should be familiar. (more…)

13 May 2021

Court of Chancery Provides Reminder That Privilege Is Not Absolute

EmailShare

Last week, Vice Chancellor Joseph R. Slights III issued a ruling in Tornetta v. Musk that serves as a reminder that the corporate attorney-client privilege is not absolute. Deciding a discovery motion in a stockholder derivative suit challenging the 2018 compensation deal for Tesla CEO Elon Musk, the Court ordered the defendants to produce a limited set of documents that reflected communications between Musk and in-house counsel, though it rejected the plaintiff’s request for additional communications between in-house counsel, the Board’s Compensation Committee, and outside advisors. The decision serves as a reminder to company counsel, both internal and external, that their communications may not always be protected from stockholder plaintiffs in shareholder derivative actions.

(more…)

11 May 2021

Maybe ESG Derivative Cases Aren’t Going to be a Thing After All?

EmailShare

Starting last summer, a series of derivative cases were filed against boards of a number of public companies alleging that the boards failed to create meaningful diversity in their board rooms and amongst the ranks of senior management.  These cases, filed mostly by one law firm and primarily in the Northern District of California, had the markings of becoming a new genre of claim. Two of these cases have now proceeded through their first motion hearing and neither survived intact. Ocegueda v. Zuckerberg et al., No. 20-cv-04444 (the Facebook case) and Lee v. Fisher et al., No. 20-cv-06163 (the Gap case).  Although other cases remain pending and perhaps these two will be refiled, judicial reaction so far suggests that other methods to promote diversity may have greater impact.

(more…)

07 April 2021

Securities Litigation Against Life Sciences Companies: 2020

EmailShare

Securities class actions against life sciences companies are almost always second-order problems. The first-order problem is a business or regulatory setback that, when disclosed by the company or a third party, triggers a stock price decline. Following the decline, plaintiffs’ class-action attorneys will search the company’s previous public statements and seek to identify inconsistencies between past positive comments and the current negative development. In most cases, plaintiffs’ attorneys will seek to show that any arguable inconsistency amounts to fraud — that is, they will claim that the earlier statement was knowingly or recklessly false or misleading. Where a company makes the challenged statement in a public offering document — a registration statement or prospectus — plaintiffs need only show that the statement was materially false or misleading, not that it was made with scienter.

(more…)

05 April 2021

Latest Caremark Dismissal Reinforces High Bar for Alleging Oversight Liability and Import of Exculpatory Provisions for Corporate Directors

EmailShare

The Court of Chancery’s March 30 decision in LendingClub is another example of the significant difficulty plaintiffs face in adequately alleging demand futility in the context of a derivative corporate oversight claim governed by Caremark, especially so in the face of an applicable exculpatory provision contained in a corporate charter.

(more…)

21 January 2021

Caremark Claims: Not Mission Impossible, but Still Risky Business for Plaintiffs

EmailShare

The Court of Chancery provided its latest guidance on so-called Caremark claims in a New Year’s Eve opinion issued by Vice Chancellor Glasscock in Richardson v. Clark, an action brought derivatively by a stockholder of Moneygram International, Inc. The opinion dismissing the claims, in which the Court had some fun with film titles from Tom Cruise’s career, provides an important level-setting because some have questioned whether Delaware’s courts are lowering the bar for claims alleging that a board of directors failed in its oversight duties. Richardson should provide some comfort to directors that the standards have not changed: absent particularized allegations of bad-faith action (or inaction) by a board, such claims should not survive a motion to dismiss.

(more…)

24 August 2020

Delaware Court of Chancery Reaffirms Heightened Standard for Caremark Claims — But Reminds That Outlier Facts Yield Outlier Results

EmailShare

On August 24, 2020, Vice Chancellor Sam Glasscock III issued a rare denial of a motion to dismiss so-called Caremark claims in a case against directors of AmerisourceBergen Corporation (the Company). Although the decision reiterates the significant pleading burden that such oversight claims must meet, and exemplifies that only extraordinary facts typically permit a plaintiff’s claims to proceed to discovery, it is also a useful reminder that board-level best practices can, among other things, help address and limit any such liability.

(more…)

27 April 2020

Caremark Claim Allowed to Proceed Against Audit Committee Members Based on Oversight Failures

EmailShare

The Delaware Chancery Court recently denied a motion to dismiss a shareholder derivative suit against directors and officers of Kandi Technologies Group, Inc., a publicly traded Delaware corporation based in China. Hughes v. Hu (Del. Ch. Apr. 27, 2020). The company had persistent problems with financial reporting and internal controls, encountering particular difficulties with related-party transactions dating back to 2010. In March 2014, the company disclosed material weaknesses in financial reporting and oversight, including a lack of audit committee oversight and a lack of internal controls for related-party transactions. The company pledged to remediate these problems. However, in March 2017, the company disclosed that its preceding three years of financial statements needed to be restated and that it continued to lack sufficient expertise and/or controls relating to accounting and SEC reporting.

(more…)