Practice Areas: Shareholder/Directors & Officers Litigation

Shareholder actions present an increasingly frequent challenge to the boards and officers of both public and closely-held companies. These cases range from mere distractions to fundamental challenges to the integrity of a company’s decision making. McGuireWoods has deep experience in all aspects of defense of these procedurally complex matters in federal and state courts:

• We represent the officers and directors who are the targets of claims of breach of fiduciary duty, fraud or misrepresentation.
• We represent the corporate entity that is a direct target, or the nominal defendant in a shareholder derivative action.
• We represent special litigation committees of corporate boards that are charged with investigating and reporting on shareholder demands.

McGuireWoods’ trial teams frequently litigate the issue of demand futility, which often presents a significant hurdle to shareholders seeking to seize control of internal matters from management. We also have favorably defended direct actions asserted by shareholders on the ground that the claim was only derivative in nature. In addition, we work to make sure that derivative cases are managed in the most appropriate jurisdiction, and that multiple, duplicative challenges are effectively addressed. Delaware corporate law, which is often applicable in shareholder matters, is well-known to our team.

We fully appreciate the need for great care in maintaining the independence of board special committees that are charged with investigating the actions of fellow board members. Subtle issues of attorney-client privilege and confidentiality frequently emerge in the midst of special litigation committee investigations, and require careful, experienced management.

Direct and shareholder derivative cases rarely arise in isolation. Strategies must be developed and implemented with sharp peripheral vision. We understand the vital need to coordinate in an effective and efficient manner when companion investigations, regulatory proceedings or lawsuits are in play. We have worked on multiple matters that involve parallel civil or criminal proceedings, and grand jury or SEC investigations. We seek to maximize the insurance protection that may be available to clients through D&O policies. Our Securities, Government Investigations and White Collar Criminal Defense, Insurance and Accountants Defense Teams are often integral to the effective handling of shareholder matters.

Representative Matters

• Representation of a Fortune 20 financial services institution in a shareholder derivative action against its directors alleging failure to adequately prepare for and respond to the residential foreclosure crisis.
• Representation of a Fortune 200 energy company and certain of its directors and officers in a shareholder derivative action arising from the sale of a portion of the company’s interest in a real estate developer, which went into bankruptcy after the transaction.
• Representation of a government contractor in a shareholder action brought by two hedge funds claiming non-payment of more than $100 million in dividends and redemption payments for preferred shares and seeking dissolution of the company. The court dismissed the shareholder action on the recommendation of the special litigation committee and dismissed all direct shareholder claims.
• Representation of the Special Litigation Committee of the board of directors of an insurance company in its investigation of shareholder derivative claims that attacked the fairness of the company’s merger with another entity and claimed excessive executive compensation. The six-month investigation culminated in a comprehensive report which was the basis for the court’s dismissal of the derivative claims.
• Representation of officers and directors of a national retailer in the investigations of allegations of illegal backdating of option grants.
• Representation of a Big Four accounting firm in securities claims and a direct shareholder action brought by a bank’s shareholders against multiple defendants to recover losses in the bank’s stock in the time leading to the merger of two banking entities. The court dismissed the shareholder action because it could only be brought as a derivative claim.
• Representation of an international telecommunications company in an action to determine majority and minority shareholder rights under the “true-up” provisions of a shareholder agreement, as well as claims of oppression, constructive fraud, breach of fiduciary duty and breach of contract by minority shareholders.
• Representation of a Cypriot company, and its subsidiaries in a shareholder derivative action brought by a Russian shareholder who claimed that various individual defendants improperly diverted funds. The court applied the law of Cyprus in determining that the matter should be dismissed.