Wednesday, October 26, 2011
I was cleaning off my desktop and came across an interesting letter opinion in which the Chancery Court deals with the question of selecting a lead plaintiff (SEPTA v Rubin et al). Selecting a lead plaintiff and the problem of multi-jurisdiction litigation in the context of transaction-related litigation is a recent interest of mine. While this can be difficult problem when there is multiple litigation in different jurisdictions, it's less complicated with respect to litigation within a single jurisdiction.
Delaware has long not followed the old "first to file" rule in determining the identity of lead plaintiffs. Rather, it has a two step approach. First, the courts encourage plaintiffs to organize themselves and work it out internally. That's a pretty successful approach. When it fails, however the court has to make a determination as to which of the competing plaintiffs should be the lead plaintiff. The court does does by applying the so-called "Hirt factors":
- the quality of the pleading that appears best able to represent the interests of the shareholder class and derivative plaintiffs;
- the relative economic stakes of the competing litigants in the outcome of the lawsuit (to be accorded great weight);
- the willingness and ability of all the contestants to litigate vigorously on behalf of an entire class of shareholders;
- the absence of any conflict between larger, often institutional, stockholders and smaller stockholders;
- the enthusiasm or vigor with which the various contestants have prosecuted the lawsuit; [and]
- the competence of counsel and their access to the resources necessary to prosecute the claims at issue.
Rather than encourage a race to courthouse, the Hirt factors are intended to create incentives for parties to bring quality claims and to weed out low quality, knee-jerk claims that appear in the wake of many deal announcements.