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  • Seventh Circuit Rules Aerospace Company Cannot Use Bylaws To Avoid Federal Securities Claims

    On January 7, 2022, a split panel of the United States Court of Appeals for the Seventh Circuit reversed the dismissal of claims under Section 14(a) of the Securities Exchange Act of 1934 (the “Exchange Act”) against the current and former officers and directors (the “Defendants”) of a major aerospace company (the “Company”).  Seafarers Pension Plan v. Bradway, No. 20-2244, 2022 WL 70841 (7th Cir. Jan. 7, 2022).  Relying on a bylaw that gave the Company the right to insist that any derivative actions be filed in the Delaware Court of Chancery, Defendants obtained a forum non conveniens dismissal in the United States District Court for the Northern District of Illinois.  The Seventh Circuit reversed, holding that the Company’s bylaw could not be applied to Section 14(a) claims, which are subject to exclusive federal jurisdiction.
  • District Of Delaware Dismisses Suit Against Wireless Technology Company For Failure To Plead Actionable Misstatement

    On November 15, 2021, Judge Richard G. Andrews of the United States District Court for the District of Delaware dismissed a derivative suit against a company that provides hardware, software, and services for wireless technology (the “Company”), alleging the Company violated Section 14(a) of the Securities Exchange Act of 1934 and breached its fiduciary duty by allegedly allowing “unlawful and discriminatory practices to proliferate at the Company.”  Kiger v. Mollenkopf, No. 21-409-RGA (D. Del. Nov. 15, 2021).  Plaintiffs alleged that the Company made misrepresentations in 2019 and 2020 proxy statements about its commitment to diversify its board of directors (the “Board”).  The Court dismissed the complaint for failure to plead an actionable misstatement or omission and for failure to plead demand futility.
  • Eleventh Circuit Affirms Dismissal of Derivative Action Against Israeli Company For Failure To Make Pre-Suit Demand

    On June 25, 2020, the United States Court of Appeals for the Eleventh Circuit affirmed the dismissal of a putative class action against an Israeli Voice over Internet Protocol (“VoIP”) services provider (“the Company”) and certain of its current and former directors for violations of Sections 14(a) and 20(a) of the Securities Exchange Act of 1934 (“the Exchange Act”).  Freedman v. magicJack Vocaltec Ltd., No. 18-15303, 2020 WL 3467396 (11th Cir. June 25, 2020).  Plaintiff claimed that two of the Company’s proxy statements contained misrepresentations designed to influence shareholder votes in a board of directors election and on changes to executive compensation packages.  The district court dismissed the action, holding that plaintiff’s claims were derivative in nature under Israeli law and that plaintiff failed to satisfy the demand requirement under Federal Rule of Civil Procedure 23.1.  The Court affirmed the district court’s dismissal in all respects.  In doing so, the Eleventh Circuit for the first time joined many other Circuit Courts that have held that the law of the place a company is incorporated is controlling on the issue of whether a claim is direct or derivative in nature.
    CATEGORY : Derivative Claims
  • Eighth Circuit Dismisses Derivative Action For Failure To Adequately Allege Futility Of Making Pre-Suit Demand To Board Of Directors

    On July 22, 2016, the Court of Appeals for the Eighth Circuit dismissed a shareholder derivative action alleging that directors and executives at Wal-Mart Stores, Inc. (“Wal-Mart”) permitted and then covered up pervasive bribery at its Mexican subsidiary, Wal-Mart de Mexico (“Wal-Mex”).  Cottrell v. Duke, No. 15-1869 (8th Cir. July 22, 2016).  Plaintiffs were seeking to enforce rights belonging to Wal-Mart, but alleged that they were not required to demand that Wal-Mart itself pursue the claims, because the current board of directors was not impartial, meaning that such a demand would have been futile.  Applying Delaware law (the state of Wal-Mart’s incorporation), the Court found plaintiffs’ allegations insufficient to excuse demand as futile, and upheld the dismissal of the action.

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    CATEGORY : Derivative Claims