Vindicating the Duty of Loyalty: Using Data Points of Successful Stockholder Litigation as a Tool for Reform

Abstract

The stockholder litigation reform agenda is currently shaped by the felt necessity of the time to eliminate forms of stockholder actions that typically had been settled for nominal relief soon after filing. The empirical rationale for this agenda gives insufficient attention to recent cases in which stockholder plaintiffs have obtained significant relief. This article discusses data points of successful stockholder actions and argues that commonalities among them suggest an alternative agenda for reform. In particular, these cases suggest that reform should focus on rejecting early settlements that lack the hallmarks of adequacy of representation — vigorous, adversarial litigation and arms-length bargaining. These cases also illustrate the danger of under-deterrence from altering generally applicable legal rules to make it more difficult to finance, plead, or prove claims for breach of the duty of loyalty.

Keywords: Corporation Law, Mergers and Acquisitions, M&A, Shareholder Litigation, Class Actions, Civil Procedure, Empirical Legal Studies, Damages, Derivative Actions, Fee-Shifting, Discovery, Business Judgment Rule, Disclosure and Non-Adversarial Settlements

JEL Classification: G34, G38, K22, K41