Research Handbook on Representative Shareholder Litigation
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Research Handbook on Representative Shareholder Litigation

Edited by Sean Griffith, Jessica Erickson, David H. Webber and Verity Winship

Written by leading scholars and judges in the field, the Research Handbook on Representative Shareholder Litigation is a modern-day survey of the state of shareholder litigation. Its chapters cover securities class actions, merger litigation, derivative suits, and appraisal litigation, as well as other forms of shareholder litigation. Through in-depth analysis of these different forms of litigation, the book explores the agency costs inherent in representative litigation, the challenges of multijurisdictional litigation and disclosure-only settlements, and the rise of institutional investors. It explores how related issues are addressed across the globe, with examinations of shareholder litigation in the United States, Canada, the United Kingdom, the European Union, Israel, and China. This Research Handbook will be an invaluable resource on this important topic for scholars, practitioners, judges and legislators.
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Chapter 8: Addressing the “baseless” shareholder suit: mechanisms and consequences

James D. Cox

Abstract

This chapter examines several mechanisms—pretrial hearings, the derivative suit’s demand requirement, and settlements—that exist for screening shareholder suits. As this chapter details, pretrial hearings and the demand requirement often work fairly effectively, providing courts with an early opportunity to assess a suit’s quality. In contrast, approval of settlements is a far less effective approach to screen shareholder suits. Even outside the specific context of disclosure-only settlements, judges are in a poor position to assess the quality of a settlement at a settlement hearing, given the nonadversarial nature of the process and the frequent disconnect between the allegations in the complaint and the terms of the settlement. As a result of these concerns, the author argues that judges should withhold approval of the settlement and deny attorneys’ fees if they have reason to believe that the settlement does not provide tangible benefits to the corporation or the class.

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