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
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
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
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.
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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