Kahn Swick & Foti prosecutes shareholder derivative suits in state and federal courts when corporate boards breach their fiduciary duties owed to the company. These actions encompass the business judgment rule, corporate waste, executive compensation, failing to disclose non-arm length transactions between insiders and the company, and other corporate governance matters.
- Orrego v. Lefkofsky (Groupon, Inc. Derivative Litigation), No. 12 CH 12420
Circuit Court of Cook County, Illinois, Chancery Division
In re Bank of America Corp. Securities, Derivative, and Employment Retirement Income Security Act (ERISA) Litigation, 09 Civ.580 (DC) (S.D.N.Y.). KSF served as court appointed Co-Lead Counsel in the Southern District of New York, and sued current and former executive officers and directors of the company, on behalf of shareholders. The substance of this action focused on Bank of America’s January 1, 2009, acquisition of Merrill Lynch & Co., Inc. in a stock-for-stock transaction. This action alleged, among other things, that certain material information was omitted from the proxy statement filed with the Securities and Exchange Commission and mailed to stockholders on November 3, 2008. This proxy was critical in allowing defendants to obtain shareholder consent for the issuance of shares necessary to consummate the Merger. KSF was successful in resolving this action after defeating motions to dismiss by multiple defendants. In addition to major corporate governance reforms, KSF was also able to recover over $62.5 million for the company.
In re Barnes & Noble Stockholder Derivative Litigation, C.A. No. 4813-VCS (Del. Ch. Ct.). As Co-Lead Counsel in this shareholder derivative action filed in the Court of Chancery of the State of Delaware on behalf of Barnes & Noble, Inc. against certain of its officers and directors, including Chairman Leonard Riggio, related to the company’s 2009 acquisition of Mr. Riggio’s private company Barnes & Noble College Booksellers, Inc., alleging that the purchase price, and the process by which it was agreed to, was not entirely fair to Barnes & Noble, Inc. and harmed shareholders, KSF helped obtain a settlement resulting in the recovery of $29 million for Barnes & Noble, Inc. in the form of reductions to the principal and interest payable to Mr. Riggio
In re FAB Universal Corporation Shareholder Derivative Litigation, Lead Case, No. 14-cv-687 (S.D.N.Y.). As sole Lead Counsel in this consolidated action, KSF brought breach of fiduciary claims derivatively on behalf of FAB Universal Corporation against certain of its current and former directors and officers. Claims brought included breaches of duties of loyalty, due care, good faith, independence, candor and full disclosure to shareholders; misappropriation of material, non-public information of the Company by certain individual defendants; and violations of Section 14(a) of the Securities Exchange Act of 1934 and Rule 14a-9 promulgated thereunder. The action focused on defendants’ publication of false and misleading statements concerning the Company’s kiosk business in China, and the failure to disclose the issuance of $16.4 million worth of bonds to Chinese investors in April 2013. KSF obtained a settlement involving numerous corporate governance reforms, including the creation a new Disclosure Committee to put effective procedures and protocols in place and designed to ensure that all of the Company’s public statements are vetted for accuracy, integrity and completeness. KSF was also able to cause the Company to modify the Charter of the Audit Committee to provide that at least one non-executive member of the Audit Committee has general expertise in accounting or financial management. Modifications were also caused to be made to the Company’s Corporate Governance Committee and to the Company’s Code of Conduct.
In re Fifth Street Finance Corp. Stockholder Litigation, Consolidated C.A. No. 12157-VCG (Del. Ch.). As Co-Lead Counsel in this shareholder derivative action filed in the Delaware Court of Chancery on behalf of Fifth Street Finance Corporation (“FSC”) against certain current and former directors of FSC, its investment advisor, Fifth Street Asset Management Inc. (“FSAM”), and current and former directors and officers of FSAM, KSF alleged that certain FSC and FSAM officers and directors caused FSC to pursue reckless asset growth strategies, to employ aggressive accounting and financial reporting practices, and to pay excessive fees under FSC’s investment advisory agreement with FSAM, in order to inflate the perceived value of FSAM in the lead up to FSAM’s initial public filing. KSF was instrumental in obtaining a settlement consisting of certain changes to FSC’s investment advisory agreement and governance enhancements. The changes to the investment advisory agreement include a waiver by FSAM of fees equal to $10 million and an acknowledgment that plaintiffs were a substantial and remedial factor in the reduction of base management fees from 2% to 1.75%. The governance enhancements include additional Board governance provisions, enhanced policies, practices and procedures regarding FSC’s valuation of its investments, increased disclosure of relevant issues, and increased consultation with outside advisors and independent third parties.
Lowry v. Basile (Violin Memory, Inc. Derivative Litigation), No. 4:13-cv-05768 (N.D. Cal.). As counsel for the plaintiff in this shareholder derivative action, KSF brought breach of fiduciary claims derivatively on behalf of Violin Memory, Inc. against certain of its current and former directors and officers for breaches of duties and waste of corporate assets. The action focused on defendants’ publication of false and misleading statements concerning the Company’s operating results and financial condition and alleged waste of corporate assets by granting outsized compensation to the CEO that was not in line with the performance of the Company. KSF obtained a settlement involving numerous corporate governance reforms, including the formalization of a Disclosure Committee to put effective procedures and protocols in place and designed to ensure that all of the Company’s public statements are vetted for accuracy, integrity and completeness. KSF was also able to cause the Company to modify the Charter of the Compensation Committee to provide that the committee will create annual and long-term performance goals for the CEO, whose compensation will be based on whether those performance goals are achieved. Modifications were also caused to be made to the Company’s Audit Committee and to the Company’s Corporate Governance Guidelines.
In re Moody’s Corporation Shareholder Derivative Litigation, No. 1:08-CV-9323 (S.D.N.Y.). As Lead Counsel for the demand-excused shareholder derivative actions filed on behalf of Moody’s Corporation against current and former executive officers and directors of the company, asserting various claims, including for breach of fiduciary duty, in connection with, inter alai, Moody’s credit ratings on various mortgage-backed securities, KSF helped obtain a settlement in which the settling defendants agreed that Moody’s had implemented or will adopt, enhance and/or maintain certain governance, internal control, risk management and compliance provisions, designed to identify, monitor and address legal, regulatory and internal compliance issues throughout the business and operations of Moody’s Investors Service, Inc., the credit rating agency operating subsidiary of the company.
In re Morgan Stanley & Co., Inc. Auction Rate Securities Derivative Litigation, No. 1:08-CV-07587-AKH (S.D.N.Y.). As Lead Counsel for shareholders in this federal derivative action against a prominent broker-dealer to redress harms to the company from its sales and marketing of auction rate securities, KSF obtained substantial corporate governance reforms that promised to avoid a recurrence of similar harms in the future.
In re Star Scientific, Inc. Virginia Circuit Court Derivative Litigation, Lead Case No. CL13-2997-6 (Circuit Court of the City of Richmond, Virginia). KSF acted as court appointed Lead Counsel in the consolidated state court shareholder derivative action filed on behalf of Star Scientific, Inc. against certain current and former directors and officers. This action focused on defendants’ false statements and misrepresentations concerning the Company’s product Anatabloc. Specifically, the action stated that defendants had caused or allowed the Company concealed: (i) private placements and related-party transactions; (ii) government investigations of the Company; and (iii) a December 2013 warning letter from the U.S. Food and Drug Administration. In resolving this matter, KSF obtained sweeping corporate governance changes, including but not limited to, the creation of a new board-level committee to review and oversee the Company’s legal, regulatory, compliance, and government affairs functions. KSF also caused the Company to modify the charter of the Audit Committee to strengthen disclosure oversight and risk management. Modifications were also caused to be made to the Company’s Compensation Committee. The Company was caused to adopt a set of Corporate Governance Guidelines. A new Governance and Nominating Committee was created and the position of Compliance Officer tasked with oversight and administration of the Company’s corporate governance policies was added. Changes were also made to the Company’s Corporate Code of Business Conduct and Ethics.
Weil v. Baker, No. 08-CA-00787-SS (In re ArthroCare Corp. Securities Litigation, No. 08-cv-574-SS) (W.D. Tex.). As Co-Lead Counsel in the consolidated federal derivative action on behalf of ArthroCare Corporation against certain of its officers and directors arising from alleged improprieties in the company’s marketing of spine wands, KSF helped obtain a cash settlement of $8 million, along with important corporate governance changes.
In re ProQuest Co. Shareholder Deriv. Litig., No. 2:06-cv-11845-AC-MKM (E.D. Mich.). As Co-Lead Counsel in a federal derivative action filed on behalf of ProQuest (now Voyager Learning Company) against certain of its officers and directors, KSF helped obtain a settlement including important corporate governance changes.