S&C Partners Christopher Viapiano, Lenny Traps, and Oliver Engebretson-Schooley and associate Joseph Lindblad co-authored an article for Bloomberg Law analyzing the prevalence of stockholder derivative claims under Section 10(b) of the Securities Exchange Act, particularly as a tool to circumvent companies’ forum selection provisions. They offer strategies for legal professionals to prepare for and defend against these claims as they become more common.
The authors note that defense attorneys “can argue that derivative Section 10(b) claims are fundamentally flawed because plaintiffs can’t establish reliance.” Defendants, they explain, “should remind courts that these are legal claims better suited to be brought as Delaware breach-of-fiduciary-duty claims and that the reliance paradox results from plaintiffs forcing their claims into a mismatched framework.”
“Companies also can adopt and leverage forum selection clauses,” the authors add. “Where such clauses limit the forum for derivative suits to Delaware Chancery Court, the Exchange Act’s exclusive jurisdiction provision may require the dismissal of Section 10(b) claims.”
Read: “The Rise (and Eventual Fall?) of Derivative Section 10(b) Claims”