Delaware Business Litigation Report

Delaware Business Litigation Report

Category Archives: Derivative Claims

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District Court Considers Status Of Disclosure Claims

Posted in Derivative 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. … Continue Reading

Court Of Chancery Lifts Stay

Posted in Derivative Claims
In re Molycorp Inc. Shareholder Derivative Litigation, C.A. 7282-VCN (May 12, 2014) This decision clearly explains when a derivative suit should be stayed in favor of securities litigation elsewhere. The general rule is that when the derivative suit depends on the outcome of the securities litigation because it seeks recovery of the damages to be … Continue Reading

District Court Dismissed Derivative Suits Under Delaware Law

Posted in Derivative Claims
New Jersey Building laborers Pension Fund v. Ball, D. Del. No. 11-1153-LPS-SRF (March 13, 2014) and Freedman v Mulva,  D.Del., No. 11-686-LPS-SRF (March12, 2014) In these 2 decisions, the U.S. Magistrate shows a sound understanding of Delaware corporate law. She recommends the dismissal of these 2 derivative suits under Rule 23.1 because the complaints do … Continue Reading

Court Of Chancery Explains Scienter Requirement In Insider Trading Claim

Posted in Derivative Claims
Silverberg v. Gold, C.A. 7646-VCP (December 31, 2013) Under Delaware law, a so-called Brophy claim seeks to recover the profits made by trading on insider information. Showing that material insider information was available is not too hard.  What is harder is showing the intent to use that information, the scienter requirement.  After all, an insider may trade … Continue Reading

Supreme Court Explains Merger Effect On Derivative Claims

Posted in Derivative Claims
Arkansas Teacher Retirement System v. Countrywide Financial Corp, No. 14, 2013 (September 10, 2013) When does a derivative suit survive a merger?  This decision says "not very often."   There seems to be two rules at play here. First, when the merger’s sole purpose is to eliminate the standing of the derivative plaintiff, then the derivative suit may … Continue Reading

Court Of Chancery Again Explains Demand Excused Rules

Posted in Derivative Claims
In Re China Automotive Systems Inc. Derivative Litigation, C.A. 7145-VCN (August 30, 2013) The rules for determining when demand on the directors is excused apply even to Chinese-based companies despite their bad press.  This decision in a direct and clear way spells out when demand is not excused.  For example, merely being on the audit committee does not … Continue Reading

District Court Follows Carsanaro

Posted in Derivative Claims
Fares v. Lankau, No. 12-1381-SLR (August 15, 2013) This federal decision follows the recent Chancery explanation of the Gentile doctrine that permits a direct claim for equity dilution.  In short, the dilution can be by paying too little cash for the additional shares and the so-called "controlling" stockholder requirement for the buyer can be satisfied by … Continue Reading

District Court Upholds Option Complaint

Posted in Derivative Claims
Halpert v Zhang, C.A. 12-1339-SLR (August 1, 2013) This federal decision illustrates when a complaint does state a proper derivative claim because it alleges that a majority of the Board violated a clear restriction on its right to award stock options. Such violations of an option plan are akin to violations of the law that are almost always … Continue Reading

Court Of Chancery Upholds Caremark Complaint

Posted in Derivative Claims
In re China Agritech Inc. Shareholder Derivative Litigation, C.A. 7163-VCL (May 21, 2013) One of the harder aspects of practicing Delaware corporate law is dealing with all the decisions. This is an excellent summary of current Delaware law on Rule 23.1, Caremark and a lot of other aspects of Delaware law that are implicated by derivative … Continue Reading

Supreme Court Reverses Important Decision Giving Delaware Primacy

Posted in Derivative Claims
Pyott v. Louisiana Municipal Police Employees’ Retirement System, No. 380, 2012 (April 4, 2013) In a major decision, the Delaware Supreme Court dismissed a derivative suit on the basis that a prior dismissal of essentially the same suit by a different stockholder barred the Delaware litigation.  This reverses the Court of Chancery that held the suit might … Continue Reading

Court Of Chancery Explains The Gentile Case

Posted in Derivative Claims
Carsanaro v. Bloodhound Technologies, Inc., C.A. 7301-VCL (March 15, 2013) This is a major decision.  For some time lawyers have struggled to understand when a claim is derivative or direct. The distinction is important if for no other reason than derivative claims may be mooted by a merger that eliminates the plaintiff as a stockholder with … Continue Reading

Court Of Chancery Explains The Gentile Doctrine

Posted in Derivative Claims
In re Nine Systems Corporation Shareholders Litigation, C.A. 3940-VCN (February 28, 2013) When is a claim that stockholders were wrongly diluted by the issuance of stock a derivative claim and not a direct claim?  Under the Gentile rule, such a claim is derivative unless the dilution was done to benefit a controlling stockholder of a control … Continue Reading

Court Of Chancery Applies McWane Doctrine

Posted in Derivative Claims
In re Diamond Foods Inc. Derivative Litigation, C.A. 7657-CS (February 28, 2013) Under the McWane doctrine, a Delaware court will dismiss  a case if another proceeding filed elsewhere is more advanced and will provide complete relief for any valid claim.  As this decision illustrates, while Delaware does not too often apply McWane, it will do so when it … Continue Reading

Court Of Chancery Requires Effective Pre-Suit Investigation

Posted in Derivative Claims
South v. Baker, C.A. 7294-VCL (September 25, 2012) Many lawyers believe that it may be okay to file suit and do an investigation of the facts later through discovery. Not so in some derivative litigation. This decision explains what pre-suit investigation is required to sustain a derivative suit alleging a Caremark claim.  It is required reading for … Continue Reading

Court Of Chancery Upholds Compensation Claim In Derivative Suit

Posted in Derivative Claims
Seinfeld v. Slager, C.A. 6462-VCG (June 29, 2012) Derivative suits alleging excess compensation are hard to plead.  To avoid dismissal, the plaintiffs must show the directors were interested in the compensation awarded and their customary director fees do not count.  Indeed, even bonus awards to themselves are not enough when the bonuses are approved by a stockholder … Continue Reading

Court Of Chancery Upholds Derivative Claim Despite Prior Dismissal

Posted in Derivative Claims
Louisiana Municipal Police Employees’ Retirement System v. Pyott, C.A. 5795-VCL  (June 11, 2012) This is one of the most important decisions on derivative litigation in many years. There are 3 key holdings, at least one of which may reverse prior law.  First, the Court held that a derivative suit dismissed for failure to plead sufficient grounds to … Continue Reading

Court Of Chancery Crafts Settlement Options

Posted in Derivative Claims
Forsythe v. ESC Fund Management Co. (U.S.) Inc., C.A. 1091-VCL (May 9, 2012) When the Court tasked with reviewing a settlement proposal in a derivative action is faced with apparently well-intentioned objectors who want to go to trial and not settle, deciding what to do is not easy.  This decision comes up with an ingenious solution – … Continue Reading

Court Of Chancery Resolves Who May Bring Derivative Claims After Dissolution

Posted in Case Summaries, Derivative Claims, Jurisdiction
Matthew v. Laudamiel, C.A. 5957-VCN (February 21, 2012) This decision resolves who may bring a derivative claim after an LLC has been dissolved.  The argument made by 1 of the parties was that after dissolution, any member may bring a derivative claim directly.  The Court rejected that argument and concluded that the claim still must be brought in … Continue Reading