In this episode of S&C’s Critical Insights, Christopher Viapiano, Co-Head of S&C’s Securities Litigation Group, and Litigation partners Lenny Traps and Oliver Engebretson-Schooley, discuss strategies to defend against an emerging and increasingly important development in stockholder derivative litigation: the rise of derivative claims under Section 10(b) of the Exchange Act.
They also discuss some logical inconsistencies in these claims that corporate defendants can highlight and suggest strategies to address the increasing prevalence of these claims, including seeking enforcement of forum selection clauses.
Here’s a preview of their conversation.
Christopher: Lenny, Ollie, what’s the bottom line?
Lenny: Well I think first, defense attorneys should continue to argue that derivative Section 1010(b) claims are fundamentally flawed because plaintiffs can’t establish reliance, as we saw in Verisign, Elfers and Franklin. Defendants should also remind courts that these claims are better suited as breach of fiduciary duty claims—a framework that avoids messy reliance issues.
Ollie: Agreed. And then second, companies can adopt and leverage forum selection clauses. Where those clauses limit the forum for derivative suits to Delaware Chancery Court, the Exchange Act’s exclusive jurisdiction provision may require the dismissal of Section 1010(b) claims. As these claims continue to be asserted by plaintiffs’ lawyers, companies and defense counsel need to be ready—both doctrinally and strategically.
Read their Bloomberg Law article: “The Rise (and Eventual Fall?) of Derivative Section 1010(b) Claims”