S&C Wins Dismissal of Shareholder Derivative Complaint for VerifoneSeptember 22, 2017
On September 22, Judge Edward J. Davila of the U.S. District Court for the Northern District of California granted S&C client Verifone Systems, Inc.'s motion to dismiss the plaintiff's Third Amended Shareholder Derivative Complaint with prejudice. The suit alleged derivative claims for breach of fiduciary duty, abuse of control, unjust enrichment and violations of Section 14(a) of the Securities Exchange Act of 1934 in connection with Verifone's announcement in February 2013 that it would miss its earnings for its first fiscal quarter of 2013 and its CFO would resign. Following the announcement, Verifone suffered a 43 percent one-day drop in its market capitalization of $1.39 billion. The plaintiff's core theory was that Verifone maintained inadequate internal controls related to its financial reporting and that these inadequate controls led to Verifone's Board “firing” the CFO and the subsequent departure of the CEO and chairman.
The Court granted the defendants' motions to dismiss the First and Second Amended Complaints without prejudice on August 7, 2014, and December 3, 2015. In February 2016, the defendants moved to dismiss the Third Amended Complaint, again on the grounds that the plaintiff failed adequately to allege demand futility. This month, Judge Davila ruled wholly in favor of the defendants, dismissing the case with prejudice. The court adopted the defendants' arguments that the plaintiff failed to adequately allege any internal control deficiencies, let alone that the Board ignored them.
The S&C team representing Verifone was led by Robert Sacks and Brendan Cullen, along with Sverker Hogberg.