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Applying New Rule 23.1, Chancery Establishes Leadership Structure in Fox Derivative Litigation

In re Fox Corp. Deriv. Litig., C.A. 2023-0418-JTL (Del. Ch. Dec. 29, 2023).
The newly amended Court of Chancery Rule 23.1 identifies factors for a court to consider when resolving a litigation leadership dispute. In this case, which is the first decision to apply the amended Rule, the Court of Chancery carefully balanced those factors and identified the lead plaintiff and the lead counsel.

Pursuant to Rule 23.1, every derivative plaintiff and its counsel must be able to “fairly and adequately represent the interests of the entity in pursuing the derivative action.” When more than one team qualifies, the Court may resolve the question by assessing several factors, including counsel’s competence and experience, the quality of the pleading, and the proposed leadership structure. The most important consideration is the question of which leadership team can represent the interests of an entity in the best way while pursuing the derivative action. The Court here went through each of the factors prescribed by the Rule. The Court noted that when it came to counsels’ competence and experience, the two competing legal teams had similar expertise. Likewise, both teams had the resources to litigate a major case through trial against skilled adversaries. One of the teams presented a stronger complaint which included factual developments and incidents not mentioned in the other team’s pleading. The Court noted, however, that both complaints were well-crafted. Next, the Court analyzed the timing of the filing. The Court observed that, appropriately, neither team in this case rushed to sue, and both took their time to prepare thoroughly, including obtaining the relevant books and records. The first team served their books and records demand a bit early, in Court’s opinion, although not unreasonably so. The second team served the demand after the alleged corporate trauma occurred, which the Court found to be more suitable. The second team also proposed a superior leadership structure, which included three competent firms with “cognitively diverse” backgrounds and experience. The first team, on the other hand, consisted of five firms and seemed “more like a committee of the willing that the lawyers assembled on the fly.” Finally, the Court briefly analyzed the lead plaintiffs. The Court found that the second team’s plaintiffs may be more effective monitors given their background as governmental entities with significant resources. Even though it was a difficult decision, the Court ultimately picked the second team as the lead plaintiff and counsel.

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