On November 13, the New York Supreme Court, New York County, granted a motion to dismiss a stockholder derivative action filed against the directors, officers and controlling stockholders of Weil client Fairway Group Holdings Corporation. Plaintiffs alleged that Fairway issued false and misleading statements in connection with the company’s initial public offering and other public filings. Specifically, plaintiffs claimed that Fairway’s IPO registration statement “obscured” that (i) “same store sales were declining,” (ii) “direct store expenses were increasing,” and (iii) “financial forecasts were wholly unrealistic.”
The Court, in a decision written by Justice Melvin L. Schweitzer, relied on a forum selection provision in Fairway’s certificate of incorporation making the Delaware Court of Chancery the exclusive forum for derivative actions and other actions involving the internal affairs of Delaware corporations. The decision marks the second time that a New York court – joining trial courts in Delaware, California, Illinois, Louisiana, and Texas – has upheld forum selection provisions requiring litigation concerning the fiduciary duties of directors of Delaware corporations to be brought in Delaware courts. A federal court in California and a state court in Oregon have declined to enforce such provisions.
The Weil team included partners Joseph Allerhand, Stephen Radin, and Stacy Nettleton and associates Justin D’Aloia and Larkin Kittel.