Gap Diversity Case Pits Corporate Bylaws Against Stockholders


Publish Date:
December 9, 2022
Bloomberg Law
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In an unusual step, several former prominent Delaware state judges joined the amicus brief that Manesh submitted with Professor Joseph A. Grundfest of Stanford Law School, saying they saw no violation of Delaware law.

But Manesh and Grundfest say the right to sue derivatively under Section 14(a) isn’t in the text of the Exchange Act or even within the holding of a key US Supreme Court precedent, J. I. Case Co. v. Borak.

It’s an implied right, Grundfest said. “The Supreme Court has cautioned that implied rights of action should be interpreted narrowly,” he said.

The pair’s amicus brief, and one submitted by two business organizations, gave another reason why courts shouldn’t recognize a derivative action under Section 14(a). The claim is direct, they say. The “injury in a proxy misstatement claim is to the stockholder’s individual right to cast an informed vote,” said the US Chamber and the National Retail Federation.


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