Courts Resisting Shareholder Failure-To-Disclose Lawsuits

A common  type of shareholder lawsuit is running into resistance from the courts, according to a Morrison & Foerster client alert by attorneys Jordan Eth and Mark R.S. Foster. The lawsuits in question typically seek injunctions that stop the shareholder meeting, based on the claim that shareholders did not receive enough information to cast an informed say-on-pay vote. Some companies have settled by agreeing to additional disclosures and six-figure payments to plaintiff attorneys. In a California case that went in favor of defendants, the plaintiff wanted certain details from the compensation consultant’s report, but the court rejected the claim that information was “material,” noting that in any case further information was available in SEC filings. Under Delaware law, the court opined, the duty to disclose “is not a mandate for prolixity.” Despite the favorable trend for companies, however, they are advised to pay close attention to what’s said in their proxy disclosures in comparison to what has been presented to the board.