Complaint Dismissed – Delaware Court Issues Significant Backdating Decision


Complaint Dismissed – Delaware Court Issues Significant Backdating Decision

On June 7, Vice Chancellor Strine of the Delaware Chancery Court issued a significant 75-page decision in a

stockholder’s derivative action alleging stock option manipulation. See Desimone v. Barrows, C.A. No. 2210-

VCS (Del. Ct. Ch. June 7, 2007) (“Sycamore Networks”). This decision is important for at least two key reasons: (1) it sets a high bar for plaintiffs to plead a derivative case; and (2) it casts serious doubt on two theories derivative plaintiffs have been asserting in stock option cases.

The Court, which dismissed plaintiff’s complaint for failure to make a demand on the board and failure to state

a cause of action, confirmed that under Delaware law, plaintiffs will be required to plead demand futility and

stock option timing manipulation with a high degree of particularity. The Court also suggested that claims for

breach of fiduciary duty based on “spring loading” (the practice of intentionally timing option grants to occur

shortly before the release of good news to the market) and “bullet dodging” (the process of awarding grants

shortly after the public disclosure of bad news) were unlikely to succeed absent unusual facts.

LOADING PDF: If there are any problems, click here to download the file.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Morrison & Foerster LLP | Attorney Advertising

Written by:


Morrison & Foerster LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:

Sign up to create your digest using LinkedIn*

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.

Already signed up? Log in here

*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.