Christopher Viapiano, Co-Head of S&C’s Securities Litigation Practice, and Partners Leonid Traps and Oliver Engebretson-Schooley authored an article for Law360 examining the need for a reformed shareholder derivative litigation framework as corporations increasingly face parallel filings across jurisdictions following a single corporate trauma. “While shareholder derivative litigation has often accompanied securities fraud suits, a corporation’s directors and officers must now defend against several derivative lawsuits in multiple forums—including in the Delaware Court of Chancery, federal court and non-Delaware state court—all at once,” the authors write.
The authors outline problems with the existing framework—including the incentive for shareholders to file quickly rather than conduct thorough investigations, while companies are left with the cost of defending duplicative lawsuits—and explore potential paths forward. “A critical first step is relatively simple: greater awareness,” the authors write. “If judges, particularly those outside of Delaware, are not familiar with the troubling incentive structure that shapes much of modern derivative litigation, it could undermine their ability to make informed decisions when managing these cases.”
The authors also note the impact the Private Securities Litigation Reform Act has had on securities litigation and discuss the potential for a similar federal framework to manage derivative litigation. “[A] PSLRA analog coupled with a Delaware-specific forum selection clause would go a long way toward fixing the problems that currently distort derivative litigation.”
Read the full Law360 article: “Shareholder Derivative Litigation Needs a Better Framework”