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Delaware Supreme Court Validates Exclusive Federal-Forum Provisions for Federal Securities Claims

On Wednesday, the Delaware Supreme Court held in Salzberg, et al. v. Sciabacucchi (C.A. No. 2017-0931) that exclusive federal-forum provisions, which require shareholder claims under the federal Securities Act of 1933 (1933 Act or Securities Act) only be filed in federal court, are valid under Delaware law. As a result of the United States Supreme Court’s 2018 ruling in Cyan, Inc. v. Beaver County Emp. Retirement Fund that federal and state courts have concurrent jurisdiction, many companies have faced multi-forum litigation of Securities Act claims that often resulted in higher litigation costs and inconsistent rulings. Among other reasons articulated in the opinion, the Delaware Supreme Court in Sciabacucchi found that federal-forum provisions advance certainty, predictability, and judicial economy.
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Delaware Chancery Court Declines to Dismiss Caremark Claim Against Directors for Insufficient Monitoring of Experimental Drug

On October 1, 2019, in In re Clovis Oncology Inc. Derivative Litig., a Delaware Chancery Court denied a motion to dismiss the plaintiffs’ Caremark claim alleging that individual directors should be held financially liable for failing to monitor the development of the biotech firm’s only promising experimental drug and for allowing the firm to publish inflated performance results. Clovis is significant because it marks the second opinion issued by the Delaware courts in recent months that allowed a Caremark claim to withstand a motion to dismiss, even though a Caremark claim is one of the most difficult to plead and prove.
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Delaware Supreme Court on Director Risk Oversight and Independence

Key Holding and Facts. In Marchand vs. Barnhill, Chief Justice Leo E. Strine, Jr. writing on behalf of the Delaware Supreme Court earlier this month reversed the Court of Chancery’s 2018 dismissal of a stockholder derivative suit alleging Caremark claims.  Caremark claims are essentially claims asserting bad faith by board members such that the directors breached their duty of loyalty. The facts underlying the case are well documented and spanned over several years, but generally involved a listeria outbreak at the ice cream production facilities of Blue Bell Creameries, a privately held monoline ice cream manufacturer, which resulted in devastating losses, including the death of three consumers, plant shutdowns, financial impairment and various regulatory investigation and private party litigation, including by the Food and Drug Administration (FDA), Centers for Disease Control and Prevention (CDC) and the Department of Justice (DOJ).
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