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.

REPRESENTATIVE RECOVERIES

Orrego v. Lefkofsky (Groupon, Inc. Derivative Litigation), No. 12 CH 12420 (Ill. Cir. Ct, Cook Cnty., Ch. Div.). KSF acted as Co-Lead Counsel in the consolidated shareholder derivative action filed in the Chancery Division of the Cook County Circuit Court in Illinois, which was brought derivatively on behalf of Groupon, Inc. against certain of its current and former directors and officers for allegedly breaching their fiduciary duties by, among other things, causing Groupon to issue or make materially false and misleading statements and failing to implement necessary controls over Groupon’s accounting function. KSF facilitated a settlement consisting of comprehensive corporate governance reforms with an estimated value of $159 million, including changes to the Compensation Committee Charter, implementation of director education requirements, enhanced Independent Director meeting obligations, augmentations to the Audit Committee and Disclosure Committee rules and procedures, creation of a new Director of Compliance position, and the retention of an independent auditing firm to conduct an assessment of the company’s internal audit department.

In re Bank of America Corp. Securities, Derivative, and Employee 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.

Bassett Family Trust v. Costolo, et al. (Twitter, Inc. Derivative Litigation), C.A. No. 2019-0806 (Del. Ch.). As counsel for the plaintiff in this demand wrongfully-refused shareholder derivative action, KSF brought breach of fiduciary claims derivatively on behalf of Twitter, Inc. (“Twitter”) against certain of its current and former directors and officers for breaches of duties involving false and misleading statements about Twitter’s user engagement and growth and for insider trading. Plaintiffs were able to secure a settlement providing that Twitter’s board of directors will pay $38 million in cash to Twitter. Twitter’s board will also adopt a series of corporate governance reforms, which include (among other things): (i) enhanced board independence and oversight reforms, including amendments to the charters for the Disclosure Committee and the Audit Committee; (ii) enhancements to oversight of corporate strategy and risk, internal controls, and disclosures, including the creation of the Independent Chief Compliance Officer; and (iii) enhancements to corporate policies regarding compliance training, compensation, insider trading, and recapture of cash-based incentive compensation.

Brunson v. Otworth, et al. (PureCycle Technologies, Inc. Derivative Litigation), C.A. No. 2024-0326 (Del. Ch.). As counsel for the plaintiff in this demand wrongfully-refused shareholder derivative action, KSF brought breach of fiduciary duty and aiding and abetting claims derivatively on behalf of PureCycle Technologies, Inc. (“PureCycle”) against certain of its current and former directors and officers and others in connection with false and misleading statements regarding PureCycle’s recycling technology and its management’s experience. KSF obtained a settlement providing the company with a cash payment of $3 million and the Board’s agreement to implement comprehensive corporate governance reforms with an estimated value of $33.8 million, including adding two new independent directors to the Board, creating a Board-level Operational Excellence Committee responsible for overseeing the manufacturing and delivering of PureCycle’s products, and creating the position of Chief Compliance Officer to manage and oversee the company’s ethics and compliance programs.

In re Barnes & Noble Stockholder Derivative Litigation, C.A. No. 4813 (Del. Ch. Ct.). KSF served 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. The action related to the company’s 2009 acquisition of Mr. Riggio’s private company, Barnes & Noble College Booksellers, Inc., and alleged 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 Fifth Street Finance Corp. Stockholder Litigation, Consolidated C.A. No. 12157 (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.

In re Fitbit, Inc. Stockholder Derivative Litigation, Consolidated C.A. No. 2017-0402 (Del. Ch.). As Co-Lead Counsel in this shareholder derivative action filed in the Court of Chancery of the State of Delaware on behalf of Fitbit, Inc. (“Fitbit”) against certain of its officers and directors, KSF alleged that certain insiders made stock sales in the company’s initial public offering and—after agreeing to release the insiders from lock-up agreements that barred them from trading for 180 days after the initial public offering—an early secondary offering, taking advantage of an artificially positive market response to Fitbit’s flagship PurePulse heartrate monitoring technology. KSF was successful in resolving this action after defeating the defendants’ motion to dismiss, recovering $5 million for Fitbit.

In re Conduent Incorporated Shareholder Derivative Litigation, Lead Case No. 650903/2021 (N.Y. Sup. Ct., N.Y. Cnty., Ch. Div.). KSF acted as Co-Lead Counsel in the consolidated shareholder derivative action filed in the New York Supreme Court, New York County, which was brought derivatively on behalf of Conduent Incorporated against certain of its current and former directors and officers for allegedly breaching their fiduciary duties by (i) failing to oversee its electronic tolling line of business, resulting in fines, government complaints, and revenue withholding, and (ii) causing the Company to make materially false and misleading statements in press releases and SEC filings about the known issues with its legacy information technology infrastructure that were impacting the Company’s financial guidance and growth. KSF facilitated a settlement consisting of comprehensive corporate governance reforms, including Board refreshment, formation of the Corporate Social Responsibility and Public Policy Committee, separation of the Chief Executive Officer and Chairperson positions, enhancements to the duties and responsibilities of the Audit Committee regarding financial reporting and internal controls, creation of a Board-level Risk Oversight Committee, addition of the Chief Risk Officer to the management-level Disclosure Committee, and adoption of an enhanced Amended Compensation Recoupment Policy.

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