With limits on class actions, shareholders file derivative litigation
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ORLANDO, Fla. — Shareholder derivative litigation is replacing class action lawsuits as the primary legal exposure for directors and officers and their insurers, legal experts said.
Steven Boughal, New York-based vice president at The Hartford Financial Services Group Inc., noted during a Tuesday panel discussion at the Professional Liability Underwriting Society's 26th international conference that while derivative suits were popular in 1970s, class actions had supplanted derivative suits until recently.
Tower C. Snow Jr., a partner at San Francisco-based law firm Cooley L.L.P., noted that recent Supreme Court rulings have made it more difficult to get class actions certified, prompting attorneys to file derivative suits instead.
“Now, 40% of class action suits are dismissed,” Mr. Snow said.
George C. Aguilar, partner at San Diego-based Robbins Arroyo L.L.P., said it is relatively easy to file a derivative lawsuit against a board of directors.
“All you need is one shareholder,” Mr. Aguilar said.
Mr. Boughal said in addition to the increasing frequency of shareholder derivative litigation, the severity of the settlements is rising, citing the $139 million out-of-court settlement paid by New York-based News Corp. in April as an example.
“Seeing these kinds of numbers is a game-changer,” Mr. Boughal said.
He said many companies now are opting to settle with the plaintiffs rather risk a trial.
“If the plaintiffs can overcome your motion to dismiss, you could be in trouble,” he said. “The risk of taking one of these derivative lawsuits to trial can be significant.”
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