Posts in Derivative Claims

Court Of Chancery Denies Standing After Spin-Off

In re Abbvie Inc. Stockholder Derivative Litigation, C.A. No. 9983-VCG (July 21, 2015)

After a spin–off of a subsidiary, there is a question as to whether the subsidiary’s stockholders have standing to bring a derivative suit on behalf of the subsidiary for past wrongs against the subsidiary committed by the parent’s directors.  More ›

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Court Of Chancery Explains That The Existence Of A Controlling Stockholder Does Not Determine Demand Is Excused

Teamsters Union 25 Health Services & Insurance Plan v. Baiera,  C.A.  No. 9503-CB (July 13, 2015)

A transaction with a controlling stockholder that is the subject of a derivative complaint still requires that a majority of the directors be interested before demand is excused. More ›

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Court Of Chancery Explores Risk Management Duties

In re General Motors Company Derivative Litigation, C.A. 9627-VCG (June 26, 2015)

This decision involves the currently hot topic of the extent of a board of directors’ duty to properly assess corporate risks and act to prevent loss. More ›

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Court Of Chancery Explains Claims Available To LLC Members

CMS Investment Holdings LLC v. Castle, C.A. No. 9468-VCP (June 23, 2015)

This is an interesting decision because it explains what direct claims are available to investors in an LLC. More ›

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Court of Chancery Upholds Right To Secondary Offering

In Re Molycorp Inc. Shareholder Derivative Litigation, C.A. 7282-VCN  (May 27, 2015)

When investors bargain for the right to have their stock sold in a secondary offering after the company goes public, fiduciary duties normally do not operate to restrict that right. More ›

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Court Of Chancery Awards Major Fee

In re Activision Blizzard Inc. Stockholder Litigation, C.A. 8885-VCL (May 20, 2015, revised May 21, 2015)

This decision will be remembered for the very large fee it awarded to some very entrepreneurial lawyers who risked their all to win a big case. More ›

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Court Of Chancery Explains Standard Of Review Of Special Litigation Committee Report

Iron Workers District Council Of Philadelphia & Vicinity Retirement & Pension Plan v. Andreotti, C.A. No. 9714-VCG (May 8, 2015)

This may be the definitive decision on how to review the conclusion of a board of directors to accept the recommendation of a Special Litigation Committee report on whether to pursue derivative litigation.  Once a stockholder demand is made, as the decision points out, the type of review changes, particularly in regard to the level of deference the Court will give to the SLC’s conclusion not to pursue the litigation. The ultimate issue is not whether the Court actually agrees with that conclusion, but whether it is a rational decision based on the SLC’s findings. If it is, the Court will dismiss the litigation.

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Court Of Chancery Explains Creditor’s Right To File Fiduciary Duty Claims

Quadrant Structured Products Company Ltd. v. Vertin, C.A. 6990-VCL (May 4, 2015)

While it is generally known that creditors may only file derivative suits when the company is insolvent, there have been many open issues about what exactly that means. This decision answers many of those questions by clarifying that the creditor need only show insolvency when the suit was filed and not continuously after that date and that the insolvency need not be irretrievable. Thus, this should make it easier for creditors of insolvent companies to sue for breaches of fiduciary duty.

The opinion is also valuable for other reasons as well. It defines the solvency by the balance sheet test, for example. It outlines the duties of directors and when the business judgment rule will not protect their decisions.

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Court Of Chancery Explains Aronson Requirements

Ryan v. Gursahaney, C.A. 9992-VCP (April 28, 2015)

This is another decision explaining the pleading requirements to meet the standards to show demand is excused under Aronson v. Lewis. General allegations that the directors some how have a self-interest in the underlying decision or that their decision was too unreasonable to be in good faith just are not sufficient to meet those standards.

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Court Of Chancery Explains Notice Required For Moot Claims

Swomley v. Schlecht, C.A. 9355-VCL (March 12. 2015) This decision explains what notice is required when a representative litigation is to be dismissed as moot and a fee paid to the plaintiff's attorneys.  Notice should be given to the class or the other stockholders in the way and form spelled out in this case. Further, the case may be re-filed by another stockholder who has the right to claim it was not moot.  No hearing is required before the case is dismissed after the notice is given.

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Court Of Chancery Explains Rule 23.1 Standards

In Re Sanchez Energy Derivative Litigation, C.A. 9132-VCG (November 25, 2014) This decision is another helpful explanation of what is required to meet Rule 23.1 requirements to plead a derivative case.  Mere personal friendships or employment by a company that is a subsidiary of a company where the alleged controller is on the board are not enough to show a director is under the control of others. Indeed, merely being in management does not establish control over an entity because you must show control over its board. Share

Court Of Chancery Upholds Creditor Derivative Claim

Quadrant Structured Products Company Ltd. v. Vertin, C.A. 6990-VCL (October 1, 2014) This is an important decision because it outlines the rights of creditors of an insolvent corporation to file a derivative suit for breaches of fiduciary duty, it holds that the creditors do not need to meet the continuous ownership rule that limits which stockholders may file such suits, and it implies that the demand requirements of Rule 23.1 must be met by a creditor plaintiff. Also interesting is the holding that director decisions that do not directly benefit them or their controller are subject to the business judgment rule, even in the context of an insolvent entity. Creditors had sought to impose a rule of law giving them a preference for their interests in such situations, but they did not get it here. Share

Chancellor Explains When Demand Is Required For Compensation Claim

Friedman v. Khosrowshahi, C.A. 9161-CB (July 16, 2014) Recently derivative suits claim that there is no need to make a pre-suit demand on the board because that board violated the terms of an incentive compensation plan and is thus disqualified from considering a demand it file suit.  As this decision by the new Chancellor points out, the prior case law that excused demand turned on the alleged fact that the incentive plan was clearly violated by the board.  Here, in contrast, the plan might reasonably be interpreted to permit just what the board was accused of doing when it amended the plan to grant the extra incentive the complaint alleged was wrong.  Hence, the board was not disqualified out of fear the members would be held liable for doing what they did to intentionally violate their duties. Share

Court Of Chancery Explains Interest Requirement In Demand Test

Cambridge Retirement System v. James, C.A. No. 9178-CB (June 28, 2014) One way to meet the demand excuse requirement to bring a derivative suit is to show that a majority of the board of directors had a personal interest in the transaction under attack.  But does that interest have to be material to their financial position?  This decision clearly explains that a showing of materiality is NOT required when the directors engaged in self dealing.  On the other hand, such a showing of materiality is required when the transaction is with a third party and does not involve a direct benefit to the directors. Share

District Court Considers Status Of Disclosure Claims

In re Caterpillar Inc. Derivative Litigation, No. 12-1076-LPS-CJB (June 10, 2014)

This comprehensive decision is particularly interesting because it considers whether a disclosure claim is subject to the normal Rule 23.1 demand rules.  Normally, disclosure claims are thought of as direct claims based on the violation of the stockholder's right to cast an informed vote.  But when, as here, the plaintiff chooses to assert a derivative claim for an alleged disclosure claim, he must also meet the normal demand rules.  The plaintiff argued that there was no business judgment involved in making the disclosures at issue and, hence, the demand rules should not apply.  The federal court rejected that argument, relying largely on non-Delaware cases.

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