dcsimg Shareholder Derivative Suits

Shareholder Derivative Suits

In the wake of recent financial crises and accounting scandals, and emboldened by increased legislative and regulatory scrutiny of fiscal and fiduciary practices, shareholders are taking matters into their own hands. Shareholder derivative suits are on the rise, brought by individuals and groups of investors against parties — including directors and officers — that have allegedly caused harm to the organization.

The lawyers of McGuireWoods’ securities class action practice provide strategic legal counsel to defendants named in shareholder derivative suits. We fully understand the ramifications of these disputes, within the organization itself and in the public eye, and help clients determine the optimal course of action. This strategy necessarily helps preserve individual professional reputations, as well as the ongoing viability of corporations and business concerns.

As seasoned litigators, we have represented clients at every step of the investigative and trial processes, from pretrial discovery, witness deposition and serving as first-chair and national coordinating counsel to negotiating out-of-court settlements. From our offices across the United States and in Europe, we regularly defend senior corporate management, boards of directors and corporations against allegations involving breach of fiduciary duty, nonpayment of dividends and redemptions, excessive compensation, auditor activities and preparation of financial statements, disputed mergers and acquisitions, and backdating of stock option grants.

Among other recent successes, we won dismissal of a triple derivative action, with prejudice, in a matter alleging the diversion of more than $100 million in funds for the personal use of a senior corporate officer. Although the corporation was based outside of the United States, the shareholder who brought the complaint filed the lawsuit in Florida state court. The court agreed with our motion to dismiss, in which we argued that the laws of the corporation’s home country, which did not allow for a triple derivative action, should apply.

Because shareholder derivative suits often arise in conjunction with other investigations into the conduct of corporations and individuals, we work closely with other firm teams — white-collar criminal defense, directors and officers liability and accountants liability, for example. We regularly serve as counsel in grand jury investigations, agency investigations and law-enforcement actions implemented by the U.S. Securities and Exchange Commission (SEC), Department of Justice (DOJ) and other federal and state agencies.

CONTACTS

Jacks C. Nickens Partner T: +1 713 353 6668
Andrew J. Trask Counsel T: +44 20 7632 1600
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RESULTS DEPEND ON A VARIETY OF FACTORS UNIQUE TO EACH CASE. PRIOR RESULTS DO NOT GUARANTEE OR PREDICT A SIMILAR OUTCOME.

Representative Matter

Fortune 100 financial institution

Representation of a major financial institution in shareholder derivative actions alleging breaches of fiduciary duties related to increase in defaults in residential loan portfolio.
Representative Matter

Major IT company

Representation of a major IT company in a “right-to-inspect” case brought by two Class D directors who also were principals of activist hedge fund. After company’s auditor resigned citing impairment to its independence as a result of interference by Class D directors, our client sought and obtained a preliminary injunction to stop further interference with company’s new auditors, which allowed company to obtain audited financial statements and file its Form 10-K with SEC.
Representative Matter

Fortune 500 officers and board of directors

Representation of all defendant individual officers and members of the board of directors of a Fortune 500 company during extensive, multilateral investigation into allegations of illegal backdating of option grants. Effectively negotiated settlement in which officers and directors made no payments and admitted no wrongdoing.
Representative Matter

Global energy company

Representation of a global energy company in shareholder derivative action involving complex questions of international law. Court dismissed action with prejudice.
Case Study

Shareholder derivative claims against Telos Corporation dismissed with prejudice

The Circuit Court for Baltimore City, Md., dismissed with prejudice the shareholder derivative claims brought against Telos Corporation by activist hedge fund Costa Brava Partnership III, L.P., based on the report and conclusions of the Telos Special Litigation Committee. In 2005, activist hedge fund Costa Brava filed suit against the defense contractor, claiming it was owed at least $79 million in accrued and unpaid dividends and redemption payments on preferred stock. The
Representative Matter

Petroleum corporation

Representation of petroleum corporation in $100 million securities class action suit alleging violations of Sections 14(a) and 20 (a) of the Securities Exchange Act of 1934 and Maryland fiduciary duty law. Motion to dismiss granted.
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