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Laster Scrutinizes Strike Suits in Theragenics Litigation

Stocks in this article: ATVI CVX


Laster directed several questions to the Theragenics shareholder plaintiffs Leslie Baker and Julia Davis. He wanted to know their economic interest in the company at the time the complaint was filed and the date of settlement; "a description of the plaintiff's investment portfolio sufficient to determine the materiality of the plaintiff's economic interest in the issuer;" and "a description of the plaintiff's investment strategy."

Laster also asked a series of questions designed to reveal the relationships between shareholders and their counsel. Laster queried how the plaintiff came to hire Rigrodsky, "including whether counsel advertised for potential plaintiffs; how plaintiff came into contact with counsel; whether plaintiff contacted any other law firms; any referral process among counsel; [and] whether the plaintiff has any other relationships with counsel." He requested a table of "representative actions filed by the plaintiff within the last five years" including the counsel retained, venues in which the matters were filed, outcomes, and any "compensation that the plaintiff received."

Finally, Laster directed a pointed question at Rigrodsky. Counsel for shareholders generally work on a contingency basis, but Laster asked the law firm how many times in the last year it's been hired by the hour "together with an estimate of the percentage of total firm revenues represented by such engagements." Corporate lawyers complain that firms such as Rigrodsky do nothing but file form complaints designed to induce a quick settlement and accompanying fee. Laster wants to know how much of Rigrodsky's business is comprised of those cases.

Corporate lawyers and litigators have asked similar questions - and cynically theorized answers - for many years. They view most M&A-related shareholder litigation as an unwarranted tax on dealmaking. Delaware judges have often agreed with that critique but said they were unable to curb strike suits because of the problem of multijurisdictional litigation. Plaintiffs' lawyers bring M&A-related class action suits in multiple state courts, and defendant companies seek global settlements rather than fight dubious suits because of the cost of defending the matters and the risk of an adverse decision. But many Delaware corporations have in recent years adopted forum selection bylaws or charter provisions that require all fiduciary duty litigation to be brought in Delaware.

There hasn't been much litigation about the legality of such provisions, though then-Delaware Chancellor Leo. E. Strine Jr., blessed one last year. The plaintiffs, shareholders of Chevron (CVX), did not appeal the decision to the Delaware Supreme Court. But Strine is to be sworn in as the chief justice of that body on Friday, and it seems likely that he would steer a similar case to the same conclusion should the issue come before him.

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