The US District Court for the District of Massachusetts, in In re Smith & Wesson Holding Corp. Derivative Litigation, recently addressed an issue that many securities litigation practitioners face: how long is too long for a special litigation committee’s investigation into a shareholder’s demand?
In “Case Study: In Re Smith & Wesson” published on Law360.com, Squire Sanders lawyers Joseph P. Rodgers and Joseph C. Weinstein discuss the implications of the case in regard to the duties of a special litigation committee (SLC) and the expectations of shareholders. The case involved a derivative lawsuit filed by shareholders of Smith & Wesson Holding Corp. following their request of the board to sue a number of current and former officers and directors, and the subsequent SLC investigation. The lawsuit, filed 4 ½ months after the initial demand, was dismissed by the court.
In dismissing the case, the court agreed with the defendants’ argument that it was premature. Additionally, it determined that before pursuing a derivative lawsuit, a potential plaintiff must consider the reasonableness of the timeframe, the specificity of the demands and the plaintiff’s own good faith efforts in response to the SLC.
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