In an earlier post (here), I reported on the voluntary dismissal of the options backdating related derivative lawsuit that had been filed against Novellus Systems (as nominal defendant) and certain of its directors and offices.The May 7, 2007 press release (here) issued by Novellus’ defense firm, Morrison Foerster, referring to the voluntary dismissal, announced "there goes one case you can strike from the options backdating scorecard." Referring to the case as "one of the few outright wins by a company accused of backdating stock options," the press release quotes Mo Fo partner Daryl Rains as saying that "it’s not often you get a plaintiff to give up and walk away.
Muellner noted that both settlements are contingent upon court approval.
Neither Muellner or the company released the details of the settlement.
Early on in the whole options backdating scandal, I asked (here) the rhetorical question, with respect to growing number of options backdating related derivative lawsuits, "Yes, but WHY are they filing derivative lawsuits," based on the observation that derivative lawsuits face many defenses including in particular the demand futility requirement.
When the Maxim Integrated Products decision came down in February 2007, it appeared that my concerns might have been misplaced, since the Delaware Chancery Court’s rejected the defenses so enthusiastically in that case.
I can’t help but wonder whether the Lerach Coughlin firm would have refiled the lawsuit if the defense firm had not issued the press release, or issued one that was a little more, well, restrained. The court found that he plaintiffs’ allegations did not satisfy the requirements under Delaware law (applicable to Openwave, a Delaware corporation, under Federal Rule of Civil Procedure 23.1) to show that a demand on the company’s board to pursue the lawsuit directly would have been futile. (Special thanks to Adam Savett at the , discussed here), which it said was "analogous." The court found that the Openwave plaintiffs’ allegations did not "allege facts sufficient to support an inference of backdating" and in fact the pattern alleged was "consistent with a random selection of stock option grant dates, as with a pattern of backdating." The court found that "plaintiffs complaint fails to plead sufficient facts to avoid Rule 23.1 demand requirements," but allowed granted leave to amend "to allow plaintiffs the opportunity to conduct and present a more comprehensive statistical analysis, or other allegations supporting an inference of backdating."It will of course remain to be seen whether plaintiffs can amend their complaints sufficiently to overcome the pleading deficiency.
In the meantime, it is worth noting that the Openwave dismissal joins a growing line of cases that have been dismissed on the ground of insufficient demand futility allegations, including CNET (here), CSC (here) and Bed Bath and Beyond (here).It should be noted that relatively few of the dismissal motion denials thus far have been with prejudice.Indeed, of the dismissals granted, only the Impac dismissal and the dismissal in the Nova Star Financial case (about which refer here) have been with prejudice.The Law Blog has liberally advertised the Options Scorecard, which tracks companies that have come under scrutiny in recent months for past stock-option grants.At the D&O diary blog, Kevin La Croix supplements the Journal’s work with a civil litigation scorecard.In any event, I have added the Impac dismissal to my list of subprime and credit crisis securities lawsuit resolutions, which can be accessed here. According to the press release, the verdict found the three individuals guilty of the charges. Yin to death, with a stay of execution of two years." The other two defendants received life imprisonment.