Cited in Delaware

05/24/2010

Cited in Delaware

In his recent Verifone Holdings, Inc., decision, Delaware Vice Chancellor Leo Strine cired my book Corporation Law for the proposition that:

The Delaware Supreme Court has noted the need for courts to temper the incentives for plaintiffs' counsel to be immoderate in the pursuit of their own interests:
The jurisprudence of Aronson and its progeny is designed to create a balanced environment which will: (1) on the one hand, deter costly, baseless suits by creating a screening mechanism to eliminate claims where there is only a suspicion expressed solely in conclusory terms; and (2) on the other hand, permit suit by a stockholder who is able to articulate particularized facts showing that there is a reasonable doubt either that (a) a majority of the board is independent for purposes of responding to the demand, or (b) the underlying transaction is protected by the business judgment rule.
Grimes, 673 A.2d at 1216-17 (citations omitted). The wide spread concerns about potential misuse of the derivative suit have been well summarized:
The courts have recognized that “derivative actions brought by minority stockholders could, if unconstrained, undermine the basic principle of corporate governance that the decisions of a corporation-including the decision to initiate litigation-should be made by the board of directors or the majority of shareholders.” Likewise, “it has long been recognized,” the derivative action is susceptible to abuse in cases where derivative claims are filed “more with a view to obtaining a settlement resulting in fees to the plaintiff's attorney than to righting a wrong to the corporation (the so-called ‘strike suit’).... Prerequisites to the commencement of derivative litigation and other special rules governing derivative litigation have developed in order “to filter such cases at an early stage more finely” than is the case in other types of litigation and “prevent abuse of this remedy.”
DENNIS J. BLOCK, NANCY E. BARTON & STEPHEN A. RADIN, THE BUSINESS JUDGMENT RULE: FIDUCIARY DUTIES OF CORPORATE DIRECTORS 1384-85 (5th ed.1998) (citations omitted); see also STEPHEN M. BAINBRIDGE, CORPORATION LAW AND ECONOMICS 365-68 (2002) (noting that “[m]any of the rules governing derivative litigation are best understood as a response to ... abuses” arising from the incentive for plaintiffs attorneys to bring non-meritorious lawsuits or to prematurely settle meritorious lawsuits).

Posted at 11:32 AM in Corporate Law | Permalink

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In his recent Verifone Holdings, Inc., decision, Delaware Vice Chancellor Leo Strine cired my book Corporation Law for the proposition that:

The Delaware Supreme Court has noted the need for courts to temper the incentives for plaintiffs' counsel to be immoderate in the pursuit of their own interests:
The jurisprudence of Aronson and its progeny is designed to create a balanced environment which will: (1) on the one hand, deter costly, baseless suits by creating a screening mechanism to eliminate claims where there is only a suspicion expressed solely in conclusory terms; and (2) on the other hand, permit suit by a stockholder who is able to articulate particularized facts showing that there is a reasonable doubt either that (a) a majority of the board is independent for purposes of responding to the demand, or (b) the underlying transaction is protected by the business judgment rule.
Grimes, 673 A.2d at 1216-17 (citations omitted). The wide spread concerns about potential misuse of the derivative suit have been well summarized:
The courts have recognized that “derivative actions brought by minority stockholders could, if unconstrained, undermine the basic principle of corporate governance that the decisions of a corporation-including the decision to initiate litigation-should be made by the board of directors or the majority of shareholders.” Likewise, “it has long been recognized,” the derivative action is susceptible to abuse in cases where derivative claims are filed “more with a view to obtaining a settlement resulting in fees to the plaintiff's attorney than to righting a wrong to the corporation (the so-called ‘strike suit’).... Prerequisites to the commencement of derivative litigation and other special rules governing derivative litigation have developed in order “to filter such cases at an early stage more finely” than is the case in other types of litigation and “prevent abuse of this remedy.”
DENNIS J. BLOCK, NANCY E. BARTON & STEPHEN A. RADIN, THE BUSINESS JUDGMENT RULE: FIDUCIARY DUTIES OF CORPORATE DIRECTORS 1384-85 (5th ed.1998) (citations omitted); see also STEPHEN M. BAINBRIDGE, CORPORATION LAW AND ECONOMICS 365-68 (2002) (noting that “[m]any of the rules governing derivative litigation are best understood as a response to ... abuses” arising from the incentive for plaintiffs attorneys to bring non-meritorious lawsuits or to prematurely settle meritorious lawsuits).