Securities Litigation

In an opinion Thursday, the Delaware Supreme Court held that independent directors should be dismissed from shareholder derivative litigation - even over transactions presumptively subject to "entire fairness" review - unless plaintiffs adequately plead non-exculpated claims against them. Prior precedent suggested, and the lower courts in these consolidated appeals adopted, a transactional approach to the issue: If the transaction was subject to entire-fairness review, then all the directors presumptively remained in the case through discovery to summary judgment at least. But the Court stressed that independent directors are entitled to judicial consideration of their individual circumstances, so must be dismissed if derivative plaintiffs state no cognizable non-exculpated claim against them: Thus, when a complaint pleads facts creating an inference that seemingly independent directors approved a conflicted transaction for improper reasons, and thus, those directors may have breached their duty of loyalty, the pro-plaintiff inferences that must be drawn on a motion to dismiss counsel for resolution of that question of fact only after discovery. By contrast, when the plaintiffs have pled no facts to support an inference that any of the independent directors breached their duty of loyalty, fidelity to the purpose of Section 102(b)(7) requires dismissal of the complaint against those directors. In re Cornerstone Therapeutics Stockholder Litig. v. Meeks, 2015 Del. LEXIS 231, 36-37 (Del. May 14, 2015). Thomas K. Potter, III (tpotter@burr.com) is a partner in the Securities Litigation Practice Group at Burr & Forman, LLP. Resident in the Nashville office, Tom is licensed in Tennessee, Texas and Louisiana. He has over 29 years' experience representing financial institutions in litigation, regulatory and compliance matters. See attorney profile. © 2015 by Thomas K. Potter, III (all rights reserved).