Paul, Weiss is widely recognized as having one of the nation’s preeminent securities litigation and regulatory practices. For two decades, our lawyers have guided global corporations and financial institutions through a series of “bet-the-company” securities-related crises, consistently reducing or eliminating their most damaging claims and negotiating favorable resolutions.
Texas Court Dismisses Derivative Suit Against Imperial Sugar
- Client News
- September 7, 2012
Practices
A Texas trial court dismissed a derivative suit brought against our client, Imperial Sugar. In the wake of a disappointing earnings announcement in August 2011 and an ensuing stock price drop, the plaintiffs sent Imperial Sugar a demand letter, requesting that the Board of Directors investigate purported breaches of fiduciary duty by Imperial Sugar's management and board. In response, in October 2011, the board of directors appointed a special litigation committee to investigate the plaintiffs' claims in October 2011. The plaintiffs then filed a derivative suit, which was stayed by the court pending the committee's investigation.
On May 1, 2012, Imperial Sugar announced a merger with Louis Dreyfus Commodities that, upon closing, would leave Louis Dreyfus Commodities as the sole owner of the company's shares. The merger was consummated on June 21, 2012, and shortly thereafter, we moved to dismiss the suit for lack of standing. Under Texas law, a derivative plaintiff must be a shareholder at the time of filing the lawsuit and throughout the pendency of the litigation. Until recently, Texas law recognized an exception to this rule where the merger itself is subject to a claim of fraud. In 2011, however, the Texas legislature amended the relevant statute to eliminate all exceptions to the continuous ownership rule. Relying on these recent developments in Texas law, we argued that the plaintiffs lost standing when the merger was consummated, thus depriving the court of jurisdiction.
In response, the plaintiffs asserted the now-defunct fraud exception to the continuous ownership rule and sought discovery, arguing that the timing of the merger was suspicious and that the special litigation committee's failure to respond to the plaintiffs' post-merger inquiries indicated bad faith. Rejecting these arguments in their entirety, the court ruled from the bench that the merger eliminated the plaintiffs' standing and dismissed the case.
The Paul Weiss team representing Imperial Sugar included litigation partners Daniel Kramer, Moses Silverman and Audra Soloway.