Sciabacucchi Decision a Victory for Public Companies
Woodruff Sawyer leads effort to ease securities lawsuits
SAN FRANCISCO, March 19, 2020 /PRNewswire/ -- Woodruff Sawyer, one of the largest insurance brokerages and risk advisory firms in the US, congratulates our client Stitch Fix and co-defendants Roku and Blue Apron as well as law firm Wilson Sonsini on yesterday's victory in the Delaware Supreme Court. The case—the appeal of Sciabacucchi vs Salzberg—deals a blow to shareholders attempting to sue companies in multiple jurisdictions, especially recent IPOs, by limiting suits to federal court.
In yesterday's decision, the Delaware Supreme court in Sciabacucchi held that Delaware companies have the ability to put in the charter documents provisions requiring that shareholders bring securities class action suits against IPO companies in federal court only—instead of both federal and state court. Ever since the US Supreme Court's March 2018 decision in Cyan, there has been a dramatic escalation in the number of suits brought against IPO companies in state court, a trend Woodruff Sawyer has tracked as part of the D&O Databox, Woodruff Sawyer's proprietary database of D&O litigation.
The result of this increase in litigation frequency and severity has been a dramatic and unprecedented escalation in the price of D&O insurance for IPOs, on average more than quadrupling in the last few years.
"Everyone understands that shareholders have to be able to sue companies that make misrepresentations in registration statements," observes Woodruff Sawyer partner Lauri Floresca, "but there is no reason for devastatingly expensive duplicative litigation. The entire business community was looking for a solution and the provisions at issue in Sciabacucchi turned out to be that solution."
Woodruff Sawyer partner Priya Huskins notes, "What's at stake is the cost of doing an IPO. Before this historic win, IPO companies had no way to stop duplicative securities class action suits brought against them in both state and federal court. The result has been the quadrupling of D&O insurance prices for IPO companies in the last few years. The Delaware Supreme Court today affirmed that Delaware companies have the right to insist that these cases only be brought in federal court."
The funding for this appeal was organized by Woodruff Sawyer. Participants in the funding group included insurance carriers and two insurance brokers. "This is a terrific example of a business community rallying around a cause for the sake of their clients and our economy," says Woodruff Sawyer CEO Andy Barrengos. "None of the defendants had any underlying litigation and the Delaware case was a purely facial challenge. The defendants could have saved themselves time and trouble by merely accepting the original chancery court decision. Instead, the defendants were willing to pursue the appeal because it was the right thing to do. Recognizing this, the funding group stepped up to pay for the work that Wilson Sonsini did so well. Without the funding, we couldn't have the victory we just won today."
About Woodruff Sawyer
As one of the largest insurance brokerage and consulting firms in the US, Woodruff Sawyer protects the people and assets of more than 4,000 companies. We provide expert counsel and fierce advocacy to protect clients against their most critical risks in property and casualty, management liability, cyber liability, employee benefits, and personal wealth management. An active partner of Assurex Global and International Benefits Network, we provide expertise and customized solutions where clients need it, with headquarters in San Francisco, offices throughout the US, and global reach on six continents. For more information, call 844.972.6326, or visit woodruffsawyer.com.
SOURCE Woodruff Sawyer
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