The Economist on an unplanned (at least one hopes it was unplanned) effect of Dodd-Frank:
THE Dodd-Frank law of 2010 requires a “say-on-pay” vote for shareholders of American companies. Clever lawyers scent a payday for themselves.
One law firm in particular, Faruqi & Faruqi, has filed a series of class-action suits demanding more information about how companies decide what to pay their senior executives. It seeks to prevent its targets from holding their annual meetings until the extra information turns up. One such suit, against Brocade Communications, a Californian company, forced the suspension of the annual meeting last February. Brocade quickly settled. Faruqi’s fees were $625,000. Several other companies, not wanting to delay their meetings, have settled similar suits.
Prof. Bainbridge is reminded of the specialized group of non-lawyers in Japan known as sokaiya, who extract money from target companies by threatening (among other things) to disrupt annual meetings.
Putting the 2010 bill to work:
Now, lawyers have found a new way to bring lawsuits over executive pay, resulting in a handful of legal settlements. But the settlements to date have produced no changes in executive compensation and no money for investors. In fact, the main financial beneficiary so far has been a small New York law firm that brought the bulk of the cases.
[Nate Raymond, Reuters; Prof. Bainbridge]
“The U.S. Chamber’s Institute for Legal Reform today released a study on merger-related litigation that concludes plaintiff lawyers take advantage of the court system to extract tens of millions of dollars a year in fees from companies at the expense of shareholders. A loophole in the federal law designed to cut down on securities class-action abuses allows lawyers to file suits challenging mergers in multiple state and federal courts, the study found, making it impossible for companies to consolidate the litigation in one place and increasing the odds they’ll pay the lawyers a fee to go away.” [Daniel Fisher, Forbes]
The Economist on “Why American firms cannot do deals without being sued”:
In 2005, 39% of M&A deals were challenged by lawsuits, one study found. By 2011 a hefty 96% of acquisitions worth more than $500m were attracting suits…
J. Travis Laster of Delaware’s Chancery Court [has] become an outspoken public critic of “worthless”, “sue-on-every-deal” lawsuits. In March he told one group of plaintiffs’ lawyers: “I don’t think for a moment that 90%—or based on recent numbers, 95%—of deals are the result of a breach of fiduciary duty.”
According to the Harvard Law School online catalog, the SRP is “a newly established clinical program” that “will provide students with the opportunity to obtain hands-on experience with shareholder rights work by assisting public pension funds in improving governance arrangements at publicly traded firms.”
Marty Lipton and others at Wachtell, Lipton don’t like the idea and criticize it here. More at NYT DealBook (via Bainbridge).
Reader J.B. emails to say:
Whatever one thinks of Wachtell’s substantive critique of the attack on classified/staggered boards, it’s kind of interesting for a law school to be promoting a “clinical program” in which the kids get to work for institutional investors with bajillions of dollars in assets (and, you know, the wherewithal to retain sophisticated counsel at market rates) rather than the sort of boring old indigent individuals that are the traditional law school clinic client base.
A different view: Max Kennerly.
Merger announcements often trigger a spate of press releases announcing that securities plaintiff’s firms are “investigating” the situation. Even if the evidence of wrongdoing is absent and the financial analysis thin, lawsuits may be the next step, because that’s where the money is [David Nicklaus, St. Louis Post-Dispatch]
Neither Stephen Bainbridge nor Larry Ribstein is particularly impressed by it.
The suit was just a political stunt, writes Marc Hodak:
…Last week, the Delaware Chancery Court decided that in the absence of any substantiation whatsoever, and insisting on these things called facts, that they had to dismiss the case.
I only wish that the fiduciaries who brought this fact-challenged suit could be held accountable for the far more provable waste of their investors’ resources…
“Bernstein Leibhard has been chastised by a federal judge for revealing after six years of lawyering that the lead plaintiff in a securities case never bought the funds at issue.” [Mark Hamblett, New York Law Journal]
Following murmurs about pay-to-play, South Carolina has turned down offers from local powerhouse Motley Rice and from Labaton Sucharow, whose attorneys had donated $12,000 to Attorney General Alan Wilson. [The State]