Future of derivative suits hangs on high court ruling
Reprints
The appeal of filing derivative shareholder lawsuits in the future could hinge on the U.S. Supreme Court's eventual ruling in a class action case, observers say.
Halliburton Co. and David Lesar v. Erica P. John Fund Inc., FKA Archdiocese of Milwaukee Supporting Fund Inc. deals with the issue of how easily plaintiffs can obtain class action certification in cases in which they allege firms have misrepresented information to their detriment as investors. Arguments in the case are scheduled for March 5.
The focus of the case is the Supreme Court's 1988 ruling in Basic Inc. v. Max Levinson, in which the court endorsed the “fraud on the market presumption theory.”
The theory says plaintiffs in class actions do not have to demonstrate that each of the individual class members relied on the company's alleged misrepresentation of information.
It is based on the presumption that in an efficient marketplace, a company's share price reacts to all publicly available information about the company.
Experts say the Basic ruling has made it much easier for plaintiffs to file class action lawsuits.
“If the Supreme Court rules to overturn Basic vs. Levinson in that case, we'll unquestionably see a spike in derivative lawsuits after that,” said Will Fahey, New York-based senior vice president in Zurich North America's management liability group.
Read Next
-
Derivative shareholder lawsuits are on the rise and bring D&O liability risks
Derivative shareholder lawsuits are a growing area of concern for companies, as plaintiff attorneys, somewhat stymied in filing class action lawsuits, consider other options, say observers.
Related Stories
-
Derivative shareholder lawsuits are on the rise and bring D&O liability risks
-
Dodd-Frank rule aimed at controlling CEO pay could mean headaches for employers
-
Determining median employee compensation is new territory for employers
-
Rise in foreign D&O liability lawsuits complicates risk management
-
Supreme Court ruling sets precedent for foreign D&O liability litigation
-
Large data breaches bring litigation and potential D&O liability exposures
