Securities Litigation, Class Actions and Shareholder Derivative Lawsuits

If your company and board are facing litigation from shareholders or the government, you need a legal partner committed to collaborating with you. A team that has been there before and can jump in to assess the facts, help tailor your strategy and achieve the best possible outcome for your business.

We are a leader in defending securities litigation, with a team that includes seasoned trial lawyers, two former U.S. Attorneys, and former senior officials at the Securities and Exchange Commission (SEC) and the Department of Justice (DOJ). We bring integrated solutions to the most complex and challenging situations your company may face–from class actions to derivative litigation and M&A litigation. We regularly assist audit committees in conducting internal investigations, and defending investigations and enforcement actions by the SEC, the DOJ and state attorneys general.

We act for companies in a wide range of industries, from tech companies like NVIDIA and Electronic Arts to health care companies like Molina Healthcare and 23andMe to energy companies like Chesapeake Energy to consumer brands like Deckers and Nordstrom. We also represent leading investment banks and accounting firms in matters worldwide.

Our focus is on collaborating with our clients and minimizing disruption to the company. As one client told Chambers, “What I liked most was that I was intimately involved in my own case. We would explore ideas and go through information in detail, and they really wanted my opinions.”

  • The Power of a Credible Trial Threat

    A credible trial threat on the defense side can prove decisive in resolving securities class actions on favorable terms. The plaintiffs’ securities class action bar knows that we can, and will, take them to trial and win.

    Our lawyers have successfully defended hundreds of securities class actions in 43 states, often obtaining early dismissals using pretrial motions or by negotiating favorable early settlements within the limits of D&O coverage. And our team has successfully defended several of the securities class action cases that have reached a verdict since the enactment of the Private Securities Litigation Reform Act.

    We’ve also won important precedents. In a hotly contested case that broke new ground, we won a ruling from the Ninth Circuit that Item 303 of SEC Regulation S-K does not create a duty to disclose in the context of securities fraud litigation. The appellate court noted in its decision that it had never before directly addressed that question. We later successfully opposed the plaintiffs’ petition for certiorari to the U.S. Supreme Court.

    Complex Cases

    We are deeply involved in helping financial institution clients defend the complex litigation arising out of the financial crisis. We are defending one bank and its affiliates in wide-ranging RMBS cases brought by monoline insurers and RMBS trustees. Our recent victories for the client include dismissal, at the pleading stage, of two insurers’ fraud claims and successful efforts to block a trustee from asserting $5 billion in time-barred claims.

    We have particular strength in matters with a cross-border component. We successfully defended the Hong Kong arm of a major accounting firm in an SEC action that sought to bar those firms from performing audits for U.S. issuers because they declined to produce materials directly to the SEC. And we helped a leading online company based in China to defend consolidated securities class actions in the Southern District of New York, obtaining dismissal with prejudice prior to the commencement of any discovery.

    When a company and its directors and officers are sued in a securities class action or shareholder derivative lawsuit, it is important to have experienced counsel that not only have a strong track record of successfully defending against these types of cases, but also will provide the business judgment and understanding that is necessary for the most effective representation.

    Our securities litigators have an unparalleled reputation for exceeding clients’ expectations in all phases of securities litigation matters, and have a remarkable success rate to back it up. We have successfully defended well over 100 securities class actions throughout the United States, and have a superior record in obtaining dismissals at the motion-to-dismiss phase (before the commencement of discovery). Our unique experience among defense lawyers includes the experience and credibility that come from being one of only a handful of firms that have taken multiple securities class actions to trial and verdict, and have prevailed for our clients at each one of those trials. 

    Securities Class Actions

    The reason that so many public companies, financial institutions, accounting firms and executives turn to our securities litigators when facing a securities class action lawsuit is our proven track record of results.   

    Walkaways
    Some cases can be disposed of early by our convincing plaintiffs to dismiss the complaint voluntarily and without payment (“walkaways”). Although walkaways are increasingly difficult to obtain, we continue to be successful in achieving them for securities class actions alleging claims under both the Securities Act of 1933 and the Securities Exchange Act of 1934.

    Dismissals of Securities Class Action Complaints
    By raising the requirements for pleading claims of securities fraud, the Private Securities Litigation Reform Act of 1995 gave companies and executives that are named in a securities class action lawsuit an opportunity to knock out a case early, which is different than in other types of litigation. Our securities litigators focus on and capitalize on that opportunity. We win motions to dismiss in more than 75 percent of our cases, compared with an industry average of approximately 30 percent. This expertise is more important now than ever, particularly on the “close calls” that federal judges must make in many of these cases. Having a case dismissed before discovery begins can make a significant difference in the length of a case, the resources required to defend against it, and the business distractions to the company.

    Settlements
    Credibility with the plaintiff’s lawyers translates directly into favorable and early settlements for our clients. Our success rate on motions to dismiss, proven ability and track record of taking cases to verdict when necessary, and our close working relationships with the major D&O insurers (who normally contribute to a settlement) give our team this credibility. As a result, the average settlement our securities litigators negotiate is less than half the national average.

    Trials
    Although few securities cases have actually gone to trial and a verdict, a credible trial threat often proves decisive in resolving securities class actions on favorable terms for our clients. With the public and courts more inclined than ever to believe that companies and their officers and directors have engaged in misconduct, the prospect of defending against a bet-the-company jury trial can give plaintiffs enormous settlement leverage. We can, and do, reverse the usual situation because the plaintiffs’ securities class action bar knows that we can, and will, take cases to trial, and that we will win. Our securities litigators have extensive trial experience, including having obtained full defense verdicts in two of the eight major public company securities class actions that have gone to a jury trial in the last decade.

    Shareholder Derivative Lawsuits

    Derivative suits and their associated risks are also becoming increasingly common. Generally, they are brought by a shareholder on behalf of the company against the officers and directors of the company and they allege breach of fiduciary duty. Derivative suits usually come in two varieties: those that accompany class actions and those that are freestanding. These two types require very different approaches.

    The Tag-Along Suits
    Many securities class actions will have at least one derivative suit as a “tag-along” suit. In 1998, Congress passed the Securities Litigation Uniform Standards Act (SLUSA) in an attempt to close a loophole in the Private Securities Litigation and Regulatory Enforcement Reform Act of 1995 (PSLRA) that allowed plaintiffs’ lawyers to file national securities class actions in state courts. The SLUSA essentially makes federal court the exclusive jurisdiction, and federal claims the exclusive claims, that are permitted for large-scale shareholder class actions. However, SLUSA does not pre-empt shareholder derivative actions. (This exemption is commonly referred to as the “Delaware carve-out”). As a result, there has been an increase in the filing of state tag-along derivative suits in securities cases.

    The derivative action will often be pursued by a different plaintiff’s counsel, and is usually not subject to the automatic discovery stay provisions of the PSLRA.

    The Stand-Alone Suits
    Increasingly, plaintiff firms have filed derivative suits to attack corporate action where no class action exists. The stand-alone suits can allege a wide variety of allegations, including claims of:

    • Breach of fiduciary duty
    • Excessive officer compensation
    • Proxy violations
    • Option plan violations
    • Related-party transactions
    • Misappropriation of corporate opportunities
    • Corporate waste

    In these stand-alone derivative suits, it is important to get to the facts quickly and make early strategic decisions about what procedures to use. Such actions are often brought as “stick up” cases in connection with proposed mergers and acquisitions. Our litigators are experienced in attacking “demand futility” allegations made against a board. We have been successful in obtaining stays of the suit or discovery, know when to – and when not to – establish a special litigation committee, and how to avoid having the tail wag the dog with respect to derivative lawsuits and securities class actions.  

    In recent years, we have been called on by companies and their directors across a wide spectrum of industries to represent and counsel them regarding these types of derivative actions. Our clients in stand-alone derivative cases have included such companies as Adaptec, AnswerThink, Cadence, Charles Schwab, Cisco, Fleming, Digital Lightwave, Intel, MaxWorldwide, Nike, NovaStar, NVIDIA, Onyx, PrePaid Legal Services, Retek and Versata.

    Staying Abreast of the Issues

    Our Securities Litigation Blog, which is often cited by The Wall Street Journal and other leading sources, helps our clients stay on top of the latest securities law issues.
  • Chesapeake Energy

    We have successfully defended Chesapeake Energy and its CEO against the most high-profile executive compensation litigation of the decade. Dozens of lawsuits were filed in state and federal courts challenging the size and structure of the CEO’s compensation, many of which sought to hold Chesapeake’s board of directors personally responsible for alleged damages. We worked to have all of the lawsuits, including two federal class actions, dismissed on the pleadings, and also successfully defended the board’s response to related shareholder litigation demands. To date, there has been no discovery into the question of executive compensation in any lawsuit.

    Countrywide Financial Corporation

    We represent the former president of Countrywide, the country’s largest mortgage lender, in connection with various regulatory and law enforcement investigations, as well as dozens of shareholder derivative and securities class action lawsuits.

    Everex Securities Litigation I & II

    We obtained a complete defense verdict in both jury trials despite the second being amid the national furor over Enron and other highly publicized accounting scandals.

    MaxWorldwide Inc. (formerly L90)

    In this federal shareholder class action alleging that L90 and other companies fraudulently engaged in so-called round-trip transactions with Homestore.com Inc., the U.S. Court of Appeals for the Ninth Circuit upheld the trial court’s dismissal of our client. Our partners’ analysis, which focused on the critical element of reliance, was adopted by the U.S. Supreme Court in its seminal decision in Stoneridge Investment Partners, LLC v. Scientific-Atlanta, Inc.

    PricewaterhouseCoopers, LLP

    We obtained dismissal of all claims against PwC in consolidated securities fraud class actions brought in U.S. District Court in Maryland based on alleged misstatements in financial statements, which were audited by PwC. Among other grounds for the dismissal, this case was one of the first to apply the Supreme Court’s 2005 decision in Dura Pharmaceuticals v. Broudo, holding that securities fraud plaintiffs cannot satisfactorily allege loss causation simply by alleging that they purchased securities at an inflated price.

    Retek Inc. and Oracle Corporation

    In this class action by shareholders to enjoin a merger between Retek Inc. and Oracle Corporation, our team obtained a dismissal with prejudice of a complaint filed against Retek and its board of directors alleging various breaches of fiduciary duty. Retek’s merger with Oracle was accomplished successfully, and the plaintiffs received nothing. We also handled a Section 10(b) class action and a suit opposing the merger with Oracle in Minnesota State Court.

    Salomon Smith Barney (and other underwriters)

    We obtained dismissal with prejudice of a securities class action claiming that Metricom and its underwriters had misled investors regarding a $300 million investment in the company by MCI WorldCom. The dismissal was affirmed by the Ninth Circuit.

    Thane International Inc.

    We obtained a complete defense verdict that was named a “Top Defense Verdict” by the Daily Journal. It was a rare class action trial under the Securities Act of 1933 and one of only eight securities class actions to be tried to verdict in the last 13 years. We obtained a complete defense verdict on all claims for Thane International and its directors and officers.

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Testimonials

Their securities litigation practice is top-notch. They are responsive, smart and efficient.
Chambers, 2015
I think they’re excellent lawyers. I have been impressed with the Orrick folks, and I give what they say a lot of weight.
Chambers, 2015