Jan. 30, 2014
Christina L. Costley
See more on Christina L. CostleyKatten Muchin Rosenman LLP | Los Angeles | Litigation, dispute resolution
From late 2012 through early 2013, public companies were increasingly becoming the targets of lawsuits contending that they hadn't accurately or adequately disclosed significant facts regarding executive compensation and stock option plans.
"When I started practicing law, we would see lawsuits challenge legitimate issues in mergers," Costley said. "Starting in 2008, we began to see an acceleration in the number of merger lawsuits."
The claims were "rarely meritorious," but were still dark clouds hanging over pending transactions.
"These could enjoin the closing date of a merger," Costley said. "From a financial perspective, this is terrifying for a company and can cost the acquiring company, and those being acquired, money. It interjects uncertainty."
Consequently, she added, the plaintiffs had been able to extract settlements from a staggering number of companies.
"On the defense side, we all sort of knew that the plaintiffs eventually would start trying to enjoin annual shareholder meetings," Costley said. "It's the same idea. The stakes are lower, because there is no acquiring company, but it's the same legal theory."
Costley handled the briefing on the first of the say-on-pay cases to be litigated in federal court. Noble v. AAR Corp., CV12-7973 (N.D. Ill., filed April 3, 2013).
At the same time, she drafted a series of articles encouraging companies to fight the claims and organized a meeting attended by about 150 in-house counsel and insurance carriers to consider defense strategies.
Key to her strategy was that say-on-pay disclosure claims should be treated as "derivative claims," demonstrating self-dealing or intentional misconduct on part of the board - a high standard to meet, she said.
Costley argued that complying with federal disclosure regulations should provide companies with a "safe harbor" against these lawsuits.
A judge in the U.S. District Court for the Northern District of Illinois, as a matter of first impression, agreed. In August 2013, the plaintiffs then withdrew their appeal.
"I think the say-on-pay cases are primarily over," Costley said. "We were really making new law, and we had no briefs to fall back on. It had to be written from scratch."
- PAT BRODERICK
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