In the world of Enron and Sarbanes-Oxley, leaders of publicly-traded companies face greater expectations of accountability for their actions—even those who manage closely-held companies. Directors and officers are ever more likely to have their management decisions challenged by shareholders and creditors. These suits often find their voice in claims involving fraud, misrepresentation, breach of fiduciary duty and shareholder oppression.
This newly hostile attitude, however, faces substantial restrictions. These long-standing statutory protections include charter amendments and bylaws, shareholder agreements and court-created precedent.
Stites & Harbison represents companies, directors, officers and shareholders in investigations of management conduct and suits claiming management malfeasance and waste of company assets. Malfeasance claims occur in many contexts, including the purchase and sale of a controlling interest in the company through a stock sale or merger, or by a sale of a substantial portion of the company's assets.
Our litigation and business attorneys work together as a team in governance and control disputes. We have represented shareholders, target companies, "white knights" and hostile bidders in connection with contested corporate acquisitions. We have both challenged and defended defensive measures adopted by target companies and have litigated state and federal securities law issues which arise in contested acquisitions.
Experience
- We were lead counsel for the independent directors of a company who were sued along with several alleged corporate wrongdoers in a shareholders derivative suit seeking millions in damages for allegations of converting corporate funds for private gain. The client responded to the suit by appointing independent litigation committees to investigate the allegations, make recommendations and take control of the claims from the complaining shareholder. After a two-week trial where we acted as lead counsel for the directors, the court dismissed the claims asserted against our clients and granted control of the suit to the committees. The Kentucky Court of Appeals affirmed the trial court's ruling in the first Kentucky precedent approving of the use of "special litigation committees" as an extension of the "business judgment" rule. Allied Ready-Mix Company ex rel. Mattingly v. Allen, et al. (Ky. App. 1998).
- We have acted as lead counsel for one of the largest life insurers in the United States in prosecuting breach of fiduciary duty claims against certain of the company's former directors and officers. The insurer collapsed and was later liquidated as the result of a hidden insolvency caused in part by the failure of many ill-advised commercial mortgages and real estate ventures. As the result of our efforts, our client has secured a judgment and several settlements of its claims against certain of these directors and officers. We prosecuted claims against the client's "Big Four" auditors, as well resulting in a $23 million settlement on behalf of our client, which has been paid into escrow pending appeal.
- Our firm was lead counsel to the Independent Litigation Committees of two banking corporations in two related shareholder derivative suits. The Committees were charged with "...determining whether the Corporation or anyone acting on the Corporation's behalf shall undertake or continue any litigation against any one or more of the present or former Directors of the Corporation or the present or former Officers of the Corporation." The allegations investigated by the Committees included an alleged failure to detect and prevent a regional real estate developer's fraudulent diversion of more than $25 million in closing proceeds payable to third party construction lenders. We worked with the Committees to determine the legal standard, review the evidence, make findings and prepare a report, which was accepted by the supervising court in connection with the settlement and dismissal of the derivative suit.
- One shareholder sued to enjoin a merger of two affiliate companies based on the terms of the two successive shareholders' agreements. We defended claims brought against two of the directors and successfully persuaded the trial court to enter a summary judgment dismissing the suit on the grounds that consent rights contained in the agreement of the non-surviving affiliate were "vaporized" as a matter of law at the moment of merger.
- We represented a corporation in connection with the claims of a dissenting shareholder challenging the price offered in connection with a merger of two affiliate companies based on allegations attacking the validity of a fairness opinion secured in connection with the merger.
For more information
- Philip W. Collier (502) 681-0415
