High Court To Determine Whether Presuit Demand Was Necessary In Securities Lawsuit

WASHINGTON, D.C. - (Mealey's) The U.S. Supreme Court on June 24 agreed to hear an appeal of a First Circuit U.S. Court of Appeals ruling in a shareholder derivative lawsuit and determine whether the Circuit Court abused its discretion in determining that shareholders had properly shown that demand on investment funds' boards of directors was futile (UBS Financial Services Inc. of Puerto Rico, et al. v. Union de Empleados de Muelles de Puerto Rico PRSSA Welfare Plan, et al., No. 12-1208, U.S. Sup.) (lexis.com subscribers may access Supreme Court briefs for this case).

The question presented is "[s]hould, consistent with the standard of review employed by other Circuit Courts of Appeals, but in direct conflict with the decision below, the United States Court of Appeals for the First Circuit have reviewed for abuse of discretion the District Court's determination, pursuant to [Federal Rule of Civil Procedure] 23.1, that the particularized facts alleged in a shareholder derivative complaint were insufficient to excuse a pre-suit demand on the corporation's board of directors?"

Pension funds Union de Empleados de Muelles de Puerto Rico AP Welfare Plan and Union de Empleados de Muelles de Puerto Rico PRSSA Welfare Plan sued UBS Financial Services Inc. of Puerto Rico, UBS Trust Company of Puerto Rico and directors of certain closed-end investment funds that were advised by UBS Trust in the U.S. District Court for the District of Puerto Rico.

Manipulative Trading

The pension funds alleged that the defendants engaged in a scheme to manipulate trading for the investment funds in an attempt to drive up the price other investors would be willing to pay for them in violation of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, Section 12(a)(2) of the Securities Act of 1933 and Securities and Exchange Commission Rule 10b-5.

The District Court granted the defendants' motion to dismiss, ruling that the pension funds failed to show that presuit demand on the investment fund's boards of directors was futile.

The pension funds appealed to the First Circuit, which vacated the District Court's ruling and remanded for further proceedings.

The defendants then filed its petition for writ of certiorari on April 4 in the Supreme Court.

Counsel

The defendants are represented by Paul J. Lockwood of Skadden, Arps, Slate, Meagher & Flom in Wilmington, Del.

The pension funds are represented by Jay W. Eisenhofer of Grant & Eisenhofer in New York.

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