Investing in Corporate Procedure
68 Pages Posted: 2 Jul 2019
Date Written: July 1, 2019
Corporate litigation is in crisis. At the state level, shareholder lawsuits challenging mergers and other corporate decisions are ubiquitous but rarely end with meaningful relief for shareholders. At the federal level, securities class actions are rife with ethical challenges and low-value settlements. Over the last several decades, multiple groups — including judges, legislatures, and corporate boards — have tried to solve this problem, but all have come up short. This Article argues that the solution lies in rewriting the procedural rules that govern corporate lawsuits. New standing requirements would lead to better screening of these claims. Discovery limits and heightened pleading requirements would give defendants better tools to fight frivolous claims. All of these new procedures, if incorporated into corporate bylaws, would apply wherever the corporation is sued to address forum shopping, a common feature in these suits. Just as importantly, institutional investors should take the lead in crafting these procedures. They stand on both sides of these lawsuits and are therefore financially invested in ensuring that corporate lawsuits live up to their potential. It is their money on the line if corporate managers breach their fiduciary duties, but also their money on the line if corporations have to pay to defend against meritless litigation. The time has come for shareholders to invest in procedure to solve the enduring problems in corporate litigation.
Keywords: shareholder litigation; corporate law; merger litigation; mergers; derivative suits; procedure; heightened pleading; pleading standards; securities class actions; PSLRA; institutional investors
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