K2 and its board of directors have been sued by a union pension fund for allegedly breaching their fiduciary obligation by accepting a $1.2 billion cash and stock buyout bid from Jarden Corp. The case was brought in San Diego Superior Court by the Pittsburgh-based Steamfitters Local 449 Pension and Retirement Security Fund.
The complaint, which seeks class-action status, says, among other things, that K2 and its board of directors accepted the deal on April 24 at an unreasonable and insufficient price. The case asks the court to stop the transaction from going forward. K2 confirmed that it believes the complaint has no substance and that it will respond accordingly.
K2 Inc. and its board of directors (two of whom are K2 executive officers) were named as defendants in a putative shareholder class action litigation involving the sale of K2 pursuant to the merger agreement signed on April 24, 2007 between K2 and Jarden Corporation and a wholly-owned subsidiary of Jarden Corporation. The case was brought in the Superior Court of San Diego County, California.
A securities class action (SCA), also known as a securities fraud class action, is a case brought by investors who purchased or sold publicly traded securities of a corporation within a particular time span (known as a “class period”) and incurred economic harm as a result of securities law violations.
A class period begins in cases involving false statements or omissions when a business renders an untrue statement of material fact about the company or fails to disclose a material fact sufficient to render other statements not misleading.
When the fact is completely revealed to the investing public, the class duration usually ends. A “corrective disclosure” is a statement or action that exposes the truth about a particular alleged misstatement or omission. Typically, one final corrective disclosure and, in some complex situations, multiple partial corrective disclosures that disclose partial truths relevant to the alleged misstatements or omissions are made during the class period.
In other words, boards of directors are allowed to make poor business decisions as long as they can show they were operating in good faith. There are two forms of shareholder litigation available if you believe the board or a board member has participated in one of these wrongful practices: a direct lawsuit (also known as a shareholder class action lawsuit) or a derivative lawsuit.
“A shareholder is named to represent a class of claimants, including the other shareholders of the company who have been injured by the defendant director’s actions,” according to direct litigation. The appointed shareholder-plaintiff seeks to establish a degree of personal injury caused by the company in this form of lawsuit.
“An employee or shareholder of the company would bring suit against the corporation on behalf of the corporation, rather than as an individual person,” according to derivative litigation. Derivative cases are typically filed against corporate insiders such as directors, officers, and board members who have been convicted or suspected of causing damage to the corporation.”
Iss scas: leading the class actions industry
Shareholders sue management and the board of directors on behalf of all shareholders in a shareholder derivative case. Shareholders who aren’t part of the class end up paying the damages to those who are, while management and directors incur the damages in a derivative action.
And that brings us to the second benefit of this sort of case: reforms. It’s not that class action lawsuits can’t provide corporate governance changes in their settlements; they always do, but the main goal is to get money. Derivative suits, on the other hand, are mainly concerned with avoiding the problems that contributed to the case in the first place, whether they are data breaches, incorrect prescription drug labeling, or sexual assault (the three most common subjects of this type of lawsuit).
And, unlike shareholder resolutions, which must be based on a specific issue to get through the Securities and Exchange Commission’s gatekeepers, derivative suits may propose a much wider collection of changes.