Directors Sound Off on Shareholder Lawsuits
from
July/August 2003
Interviews by David Sendler and Charlie Deitch
Power To The People
Will the rash of shareholder lawsuits serve a purpose? Are they justified?
I defend a lot of those, so I am familiar with them. They’re terribly vexatious, but it’s my experience that most of them have merit. They keep American management honest, or hopefully do. Though a lot of suits are frivolous, I would say the vast majority are not.
Dan L. Goldwasser, 63
Partner, Vedder Price Kaufman & Kammholz, New York City
Outside directorship: Forest Laboratories
There are certain circumstances where they’re well warranted, and those are the highly publicized ones where clearly senior management has committed fraud or very questionable acts. And then there are the rest of the lawsuits, which seem to be designed primarily to make up for people’s poor judgment. From what I can tell, most of the lawsuits are in this second category.
Kevin Quinlan, 53
President, COO, Treasurer, and Director, Boston Biomedica, West Bridgewater, Massachusetts
There are some suits that are frivolous and some that are justified. But regardless, when you have a lawsuit filed it has most likely been encouraged by a trial lawyer.
Greg Brudnicki, 47
Regional Mentor of Cemetery Operations and Director, Carriage Services, Panama City, Florida
It’s ambulance-chasing by plaintiffs’ attorneys.
John H. Short, 59
Managing Partner, Phase 2 Consulting, Salt Lake City
RehabCare Group
It’s the obvious right of any shareholder to hold the company accountable, but a balance needs to be struck between investors keeping management accountable and those in the bar exploiting them just to make money.
Bruce Fried, 53
Partner, Sonnenschein Nath & Rosenthal, Washington, D.C.
CareScience, MedicaLogic/Medscape
It’s just one of the minefields that you have to walk through.
Charles J. Kleman, 52
Executive Vice President, CFO, and Director, Chico’s FAS, Fort Myers, Florida
Fear And Loathing
What are your biggest worries about shareholder suits?
First, it would be that the directors’ and officers’ insurance wouldn’t be sufficient. Also, that I would be distracted from my primary job because of a suit against the company whose board I serve on.
Dean Taylor, 54
CEO, Tidewater Inc., New Orleans
Whitney Holding Corp.
I worry about it getting to the point where directors will have to ante up. I’ve worked hard to accrue personal assets, and I’d hate to see them lost in a settlement or judgment.
Christopher Amenson, 53
Chairman and CEO, SBS Technologies, Albuquerque, New Mexico
Probably the greatest fear we have is the cost of compliance with all of the new requirements of the NASDAQ and the Securities and Exchange Commission. Our market cap is about $125 million, and yet we’re required to comply the same as if we were a General Motors.
John D. Kidd, 63
Chairman and CEO, Oak Hill Financial, Jackson, Ohio
If you have somebody disgruntled for the wrong reason, they can find a hack lawyer to take the case, regardless of the merits. Just filing a lawsuit can leave a scar on a good company.
G. William Caulfeild-Browne, 58
Retired COO, Swiss Re Life & Health America, Tobermory, Ontario
Scottish Annuity & Life Holdings
You’ve got to be concerned about damage to your reputation. A lawsuit, when it’s announced, attacks reputation. Later, as it moves on, it becomes a financial worry.
Louis T. Steiner, 42
Vice Chairman and CEO, Commercial National Financial Corp., Latrobe, Pennsylvania
Battle Scars
Have you or someone you know been involved in a suit?
I was one of two directors not sued at Adaptec when all of the other directors and executive officers were sued. The charges, in effect, had to do with insider trading. We two, as independents, had to investigate our colleagues, and in the end our report showed that the company was incredibly clean. But we ended up—after a huge amount of time and expense—settling in mediation because it was cheaper than going forward with the trial. We knew we’d win in the trial, but who wants to subject people to that? In effect, the dollar amount of the settlement and statements surrounding it were to save face for the opposition, and we ended up paying some legal fees. It wasn’t a trivial amount, but it seemed trivial against what it would have been if we had gone to trial.
Ilene H. Lang, 59
Independent Consultant, Arlington, Massachusetts
Adaptec, Art Technology Group
Ventana Medical was subject to a shareholder suit that became a class-action suit. We fought both to the end and won both at trial and on appeal. That went on for a period of five years and cost a lot of money. We thought we had a strong case and wouldn’t be a party to greenmail. A lot of companies think it’s better to write a check. But we think it’s a better corporate policy to show that we’re not a good place to file your frivolous lawsuits.
John Patience, 55
Co-Founder and Partner, Crabtree Partners, Lake Forest, Illinois
Stericycle, Ventana Medical Systems
Semitool and the individual directors were sued. Some stockholders said we made misleading statements when six directors sold their stock at its peak. That was a flat-out lie, but our attorneys said to settle it to save time and money, and we did. It was cheaper to settle.
Dick Dasen Sr., 61
Owner, Peak Development, Kalispell, Montana
Semitool
Suits were brought against the board of Avista Corp. by a group of shareholders that alleged the directors’ and management’s actions resulted in the substantial deterioration of company stock over a 36-month period. It was at a high of $63 and dropped to as low as $9.50. The allegations were that negligence and improper decision-making created a loss of shareholder value. The judge dismissed the suit, but by that time we had already spent about $500,000 on outside counsel to defend it. Lawsuits have increased the cost of doing business.
Roy Eiguren, 51
Senior Partner, Givens Pursley LLP, Boise, Idaho
Avista Corp., Idaho Independent Bank
Sensible Solutions
What changes would you like to see in the laws regulating shareholder suits?
The government and its agencies need to put more muscle behind all the talk about reform. I don’t think the federal response has been strong at all. They have not been proactive in putting in place the assurances, the safeguards, the regulations that investors need or want to feel more comfortable with the market. It puts all of us at risk.
Patricia A. Buffler, 64
Professor of Epidemiology, School of Public Health, University of California at Berkeley
FMC Corp.
I have been involved in a number of suits in the 23 years I’ve served on public-company boards. I have been deposed a number of times. Often these depositions are nothing more than a fishing expedition on the part of the plaintiffs’ counsel.
First, I believe sanctions for bringing frivolous suits should be made meaningful enough so as to discourage all but meritorious cases, and second, I believe that in order to accelerate the disposition of suits, plaintiffs should be made to demonstrate a high probability of success.
In addition, lack of specificity about the measure of punitive damages can result in very costly litigation and appeals. Runaway juries can render awards that are based upon passion, not fact. Punitive damages should have some measurable relation to the actual damage caused. Remember, all these costs fall upon the shareholder ultimately.
Robert E. La Blanc, 69
Founder and President,
Robert E. La Blanc Associates, Ridgewood, New Jersey
Chartered Semiconductor Manufacturing, Computer Associates International, Salient 3 Communications, Storage Technology Corp., Titan Corp.
I think there should be a limit on the fees that the plaintiffs’ lawyers get. I don’t think they need to receive hundreds of millions of dollars in order to have an incentive to bring these actions.
Dan L. Goldwasser, 63
Partner, Vedder Price Kaufman & Kammholz, New York City
Forest Laboratories
We need to make it financially painful to file unjustified suits.
Clyde Nixon, 68
Chairman, Sun Hydraulics, Sarasota, Florida
If the plaintiff loses, then they should have to shoulder the costs. That should go for the individual and the attorney who files such a claim.
Ben Winters, 82
Business Consultant, Beverly Hills, California
Arden Group
Loser pays. I’d love to see that.
William H. T. Bush, 54
Chairman, Bush-O’Donnell & Co., St. Louis
Engineered Support Systems, WellPoint Health Networks
