Otterbourg Successfully Defeats Class Action

August 20, 2010

In an action brought by minority shareholders in the Delaware Chancery Court against directors and majority shareholders of a technology company, the defendants defeated the plaintiffs’ efforts to have the action proceed as a class action. 

The two named plaintiffs had been shareholders of Nine Systems Corporation.  They alleged that their interest, and the interests of other minority shareholders, were improperly diluted during a corporate restructuring approved by the board of directors and majority shareholders, and which had not been submitted to all shareholders for approval.  They also alleged that the notice to shareholders advising of the restructuring insufficiently described the transaction. 

Otterbourg, representing the defendants, prevailed in getting the plaintiffs’ claims dismissed in actions initially filed in the California and New York State courts.  In a third action filed in the Delaware Chancery Court, the defendants prevailed in getting almost all of the claims dismissed on the merits.  Thereafter, the plaintiffs sought class certification on the inadequate disclosure claim, and the Chancery Court denied the motion, agreeing with Otterbourg’s argument that the remaining claims were not proper subjects of a class action.

Please see the full text of the Chancery Court’s August 20, 2010 Memorandum Opinion denying class certification and the Chancery Court’s May 22, 2009 Decision granting the defendant’s motion to dismiss as to most of the claims asserted.