Faruqi & Faruqi, LLP Successful in Sixth Circuit Reversal of Dismissal of Shareholder Derivative Action
Faruqi & Faruqi, LLP, a national law firm concentrating on investors rights, consumer rights and enforcement of federal antitrust laws, on behalf of its client Alfred Freed, won reversal of a dismissal of a shareholder derivative action on behalf of Abercrombie & Fitch Co. (“Abercrombie” or “Company”) (NYSE: ANF). The case is The Booth Family Trust, et al. v. Jefferies, et al., No. 09-3443, 2011 WL 1237583 (6th Cir. Apr. 5, 2011). On April 5, 2011, the United States Court of Appeals for the Sixth Circuit reversed the district court’s dismissal of the shareholder derivative action. On May 11, 2011, the Sixth Circuit denied the defendants’ petition for rehearing en banc. The litigation will now proceed before the United States District Court for the Southern District of Ohio.
Represented by Faruqi & Faruqi attorneys Beth A. Keller and Jamie R. Mogil, Alfred Freed alleges, on the Company’s behalf, that certain of Abercrombie’s officers and directors caused the Company to make misleading public statements. The Company touted its high gross margin business model while, the complaint alleges, it was amassing a large surplus of inventory. Ultimately, the Company marked-down its merchandise dramatically to clear out its inventory. Company insiders, the complaint alleges, were aware that share prices would fall and sold their personal shares on this inside information.
Abercrombie’s board of directors created a Special Litigation Committee (the “SLC”) to investigate the plaintiffs’ claims. The SLC recommended that the Company seek to dismiss the plaintiffs’ shareholder derivative action. The United States District Court for the Southern District of Ohio granted Abercrombie’s motion to dismiss, finding that the SLC was independent, proceeded in good faith and had a reasonable basis for its conclusions. Plaintiffs appealed.
The Sixth Circuit reversed, holding that because of certain interlocking relationships between one of its members and Abercrombie’s President, COO and CFO, the SLC had lacked the independence necessary to assess the plaintiffs’ claims. According to Faruqi & Faruqi’s Beth A. Keller, “This decision confirms that Delaware corporations that empower an SLC to investigate derivative allegations must ensure that any potential SLC members are conflict free and that a recusal of a conflict-laden member will not cure a potential independence issue.”
Beth A. Keller, Esq.
Jamie R. Mogil, Esq.
Faruqi & Faruqi, LLP
369 Lexington Avenue, 10th Floor
New York, NY 10017
Telephone: (877) 247-4292 or (212) 983-9330
bkeller@faruqilaw.com
jmogil@faruqilaw.com