March 23, 2006
A Tidbit on Derivative Litigation
Posted by Gordon Smith

In my Business Organizations casebook, the case on the demand requirement in derivative litigation is In re The Limited, Inc Shareholders Litigation, in which Vice-Chancellor Noble goes into great detail analyzing the independence of the board of directors. The defendants attempted to get the case dismissed, but they failed. The following is from the Company's 2004 Form 8-K:

On February 25, 2004, the parties agreed to a settlement of the litigation pending in the Delaware Court of Chancery styled In re The Limited, Inc. Shareholders Litigation. Under the terms of the settlement, Leslie H. Wexner, his immediate family members and affiliated entities agreed not to tender any shares in the issuer tender offer commenced by the Company on February 26, 2004 and not to sell any shares of Limited Brands Common Stock for a period commencing February 25, 2004 and ending six months after the March 26, 2004 completion of the tender offer. In addition, Mr. Wexner agreed to contribute to Limited Brands an amount equal to one half of plaintiffs' counsel fees and expenses awarded by the Court, with Mr. Wexner to contribute more than one half to the extent necessary to limit Limited Brands' contribution to $3,000,000. This contribution may be effected through the forfeiture of stock options, the payment of cash or other consideration. The Company, Mr. Wexner and the other defendants have agreed not to object to aggregate plaintiffs' counsel fees and expenses of up to $10,000,000. The settlement is subject to several conditions, including approval by the Delaware Court of Chancery.

Just a reminder, in case you forgot about the incentive structure of derivative litigation. Unfortunately, Westlaw does not have the court's order approving the settlement. Also, I am trying to track down whether Wexner's contribution was covered by D&O insurance.

Thanks to Larry Hamermesh for digging up this nugget.

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