Monday, July 14, 2008

A Review of Schering's Motion to Dismiss Cain v. Hassan, et al., shareholder derviative action -- Lowenstein Sandler PC, and Mayer Brown, LLP

Ordinarily, a motion of the above-sort reveals a fair bit about the defendants' strategy and tactical advantages/disadvantages -- in a shareholders' derivative action. This time?

"Not. so. much."

These two firms, representing essentially Schering-Plough's whole board, and several
officers of Schering, in Cain v. Hassan, et al., take about 32 pages, proper (and well-over 120 pages, if one includes exhibits) to essentially ask "a big nothing" of the lawyers for Ms. Cain -- other than that they send a simple demand-letter to the board. A demand letter like this one, one on the very-same predicate facts, that the board admits it had received back in early-February of 2008. Click image, at right, to enlarge. [Also, remember to vote in the new poll on this, at left!]

I say so because, despite Schering's lawyers' positioning the filing made today as a "Motion to Dismiss" -- it would seem rather unlikely that it would achieve anything more than a few months' delay in the Cain v. Hassan derivative action, or some substantially identical one (as yet unfiled, by Roy L. Jacobs, on behalf of Steven Waldman -- see at right) -- moving forward.

While so-called "demand futility" is an important concept in the law here applicable, it can hardly be said that Schering's directors would have been "taken by surprise" when Ms. Cain filed her action in the federal court-house in New Jersey. Indeed, counsel for Schering admits that Schering's board had, by the time the Amended Complaint in Cain was filed, apparently formed an allegedly independent special committee to investigate Mr. Jacobs' letter, above. Note that (in orange highlighting, at top) Fred Hassan's office, or Mr. Hassan himself, routed it to legal ("SW" is undoubtedly Schering Corporate Secretary Susan Ellen Wolf) with a handwritten note, and it was stamped "received" by some assistant in his office February 7, 2008. Where a special committee was already meeting on this topic (by the time of the amended Cain complaint filed), it should come as no surprise that Ms. Cain's lawyers might want to know about these developments -- especially if Schering, in good faith, was in fact seeking a reasonable resolution of the Cain matter. Yet only now -- Mid-July 2008, as part of a Motion to Dismiss, does Schering make this fact known. To be clear, that course of conduct is clearly permissible -- it just seems rather inefficient -- if the overarching goal here is to conserve the shareholders' resources (and reduce the associated legal fees).

If, on the other hand, the goal is actually only to protect the directors. . . . then, I think the futility of demand is evident from this little thumbnail of a chronology.

I just checked, and as of this afternoon, Mr. Jacobs had not filed a derivative action, at least not in the New York or New Jersey federal court-houses -- despite having asked for a 60-day turnaround on his letter -- which would fairly suggest that he is in negotiations with Schering-Plough about whether he will have to file such a suit, or whether he will have his demands met without having to do so. [He -- Jacobs -- is one of the lawyers listed on the Grand Theft Auto videogame securities litigation matters.]

In any event, it would seem highly likely that someone's derivative action will move forward, in a few months, in the federal District Courts sitting in Newark, New Jersey. Said another way, is it likely that Schering's directors and officers will personally return to the company all these losses? -- that is over $10 billion of market-capitalization. No, that's not likely to happen, voluntarily.

And so -- this simply looks a bit like 120-plus pages of delay, at least to my experienced eye.

Your mileage may vary, but I'd bet the plaintiffs' firm in Cain v. Hassan will solve this purported "problem" by sending a letter, like the one Mr. Jacobs sent.

Should Judge Cavanaugh grant the motion filed today, he almost certainly would do so only in part -- only insofar as he would grant Cain leave to make a specific demand, and further leave to re-file the action, should that demand actually prove to be futile.

Sheesh. what a waste of time -- judicial resources -- energy and talent, here.

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