The Lost Lessons of Shareholder Derivative Suits

Merger litigation has changed dramatically. Today, nearly every announcement of a significant merger sparks litigation, and these cases look quite different from merger cases in the past. These cases are now filed primarily outside of Delaware, they typically settle without shareholders receiving any financial consideration, and corporate boards now have far more ex ante power to shape these cases. Although these changes are often heralded as unprecedented, they are not. Over the past several decades, derivative suits experienced many of the same changes. This Article explores the similarities between the recent changes in merger litigation and the longer history of derivative suits. The trajectories of these lawsuits are not identical, but they nonetheless suggest larger lessons about shareholder litigation, including the predictable ways in which agency costs play out in the courtroom and at the settlement table. By uncovering the lost lessons of derivative suits, corporate law can finally tackle the deeper issues facing shareholder litigation

Heightened Procedure

When it comes to combating meritless litigation, how much should procedure matter? Conventional wisdom holds that procedure should be uniform, with the same rules applying in all civil cases. Yet the causes of meritless litigation are not uniform, making it difficult for identical procedures to address the problem. As a result, lawmakers frequently turn to what this Article calls “heightened procedure”—additional procedures applicable only in designated areas of the law. Across a variety of substantive areas, lawmakers have adopted heightened pleading standards, stays of discovery, agency review, and a multitude of other tools from the heightened procedural toolbox. Despite the prevalence of heightened procedure, there has been no comprehensive examination of its role across the legal system, leaving lawmakers with little understanding of what specific heightened procedures do and what specific areas of the law need. This Article aims to provide that framework, explaining how lawmakers can match the causes of meritless litigation with the appropriate heightened procedural tools. In the end, meritless litigation is not one-size-fits-all, and its procedural solutions should not be either

The New Professional Plaintiffs in Shareholder Litigation

In 1995, Congress solved the problem of professional plaintiffs in shareholder litigation—or so it thought. The Private Securities Litigation Reform Act (PSLRA) was designed to end the influence of shareholder plaintiffs who had little or no connection to the underlying suit. Yet it may have failed to accomplish its goal. In the wake of the PSLRA, many professional plaintiffs simply moved into other types of corporate lawsuits. In shareholder derivative suits and acquisition class actions across the country, professional plaintiffs are back. They are repeat filers involved in dozens of lawsuits. They are the attorneys’ spouses, parents, and children. They may even be entities created for the primary purpose of filing litigation. These new professional plaintiffs have flown almost entirely under the radar of corporate law scholarship. This Article pulls back the curtain on professional plaintiffs, examining court filings and other public records in the first comprehensive study of professional plaintiffs’ role in corporate law. In most instances, professionalism is a good thing—but not when it comes to choosing plaintiffs

Bespoke Discovery

The U.S. legal system gives contracting parties significant freedom to customize the procedures that will govern their future disputes.\u27 With forum selection clauses, parties can decide where they will litigate future disputes.2 With fee-shifting provisions, they can choose who will pay for these suits. 3 And with arbitration clauses, they can make upfront decisions to opt out of the traditional legal system altogether.4 Parties can also waive their right to appeal,5 their right to a jury trial,6 and their right to file a class action.7 Bespoke procedure, in other words, is commonplace in the United States. Far less common, however, are bespoke discovery provisions. Potential litigants rarely agree to alter the scope of discovery prior to a dispute.8 Once a lawsuit is filed, the Federal Rules of Civil Procedure encourage parties to work together to develop a joint discovery plan but parties rarely negotiate such agreements ex ante. Nor are bespoke discover agreements common in arbitration. Even when parties agree to arbitrate their claim, they seldom negotiate the scope of their discovery rights once they get into arbitration. Scholars examing the empirical record have deemed discovery provisions so rare as to be mearly mythical

The Gatekeepers of Shareholder Litigation

Concerns over agency costs dominate corporate law. The central challenge is ensuring that directors act in the corporation\u27s best interests, rather than their own best interests. Shareholder litigation is a key tool in controlling these agency costs. If directors cross the line, the law provides an array of litigation options that shareholders can use to hold directors accountable. Shareholders can file securities class actions if directors lie to them. They can file shareholder derivative suits if directors engage in egregious misconduct. And they can file lawsuits under both state and federal law if directors try to sell the company at too low of a price or without adequate disclosures. Shareholder litigation, however, has agency costs of its own. Most shareholder plaintiffs lack sufficient incentives to closely monitor these lawsuits. As a result, plaintiffs\u27 attorneys can make litigation decisions that benefit themselves at the expense of their shareholder clients. This concern arises in nearly all types of shareholder litigation-from shareholder derivative suits to securities class actions and merger cases. Regardless of the underlying law, shareholder litigation faces a common need for a gatekeeper

Reader Response Blogging Curriculum Guide To Support Digital Literacies And 21st Century Skills With 2nd Grade Students

In the past two decades, technology has changed the instruction of literacy in the classroom. The literature reviewed in this capstone project states that students need instruction with new skill sets such as working with digital literacies, 21st century skills, and self-directed learning. The research showed that blogging as a digital literacy tool provides students with the opportunity to work with these skill sets. This capstone project used the research to provide a blogging curriculum to support the question, How can a reader response blogging curriculum guide support digital literacy and 21st century skills with 2nd grade students? This curriculum provides a how-to approach to setting up a classroom blog and implementation during a reading unit on characters in a series

Automating Securities Class Action Settlements

This Article argues that the time has come to modernize the distribution of settlement funds in securities class actions. There are two possible ways to modernize this process. The first approach relies on market innovation, proposing an automated system that collects the relevant transaction data from individual banks and brokers. Claims administrators could then use this data to calculate every class member’s pro rata share of the settlement and send them their money. The second approach relies on regulatory innovation using the SEC’s Consolidated Audit Trail, which, once it is up and running, will contain a complete record of nearly all securities transactions in the financial markets. The Consolidated Audit Trail will contain exactly the type of data needed to automate the distribution of settlement funds in securities class actions. Neither of these solutions is turnkey, and both would require the cooperation of courts and lawmakers, but they have the potential to revolutionize how investors recover money lost to corporate fraud

Piling On? An Empirical Study of Parallel Derivative Suits

Using a sample of all companies named as defendants in securities class actions between July 1, 2005 and December 31, 2008, we study parallel suits relying on state corporate law arising out of the same allegations as the securities class actions. We test several ways that parallel suits may add value to a securities class action. Most parallel suits target cases involving obvious indicia of wrongdoing. Moreover, we find that although a modest percentage of parallel suits are filed first, over 80 percent are filed after a securities class action (termed “follow-on” parallel suits). We find that parallel suits and, in particular, follow-on parallel suits sometimes target individual officers not already named as defendants in the securities class action. Suing more officers, however, does not positively correlate with an increase in settlement incidence, monetary recovery amounts, or attorney fees. Parallel suits sometimes result in settlements when the corresponding class action is dismissed; however, only rarely do the parallel suit settlements provide monetary recovery for investors. We find that follow-on parallel suits often result in nonmonetary, corporate governance settlements, particularly for frequent-filing plaintiffs’ attorneys. Corporate governance settlements correlate with significantly lower attorney hours and attorney fees for the plaintiffs’ attorneys. We conclude that such settlements are used to justify fees in cases in which there is no monetary recovery

Experiential Education in the Lecture Hall

Legal education today is composed of two separate worlds. The first world includes clinical faculty, law skills faculty, and other related faculty. These faculty members have long embraced experiential education, and they organize and attend conferences like the Experience the Future symposium, hosted by Northeastern University School of Law and the Alliance for Experiential Learning in Law. The other world includes people like me- doctrinal faculty members who are still largely teaching the way we always have. As we see it, our role is to teach doctrine and legal analysis, leaving skills training and other experiential teaching to others. Experiential education is simply not a part of our professional conversation. It is only a slight exaggeration to say that these two worlds never meet. They speak in the hallways and they sit in the same faculty meetings, but they rarely meet as educators to discuss their collective ideas on how to teach their students. As a result, while different models of experiential education have been debated, studied, and critiqued by one group of legal educators, it is largely ignored by the other. This Essay argues that the push for experiential education in law schools is really a push for better teaching. Part I explains the relationship between experiential education and student learning. Part II explores different ways to use experiential education in traditional doctrinal courses. Part III examines ways to foster a culture of experiential education among doctrinal faculty