On The Case

Business as usual is ‘implausible, impracticable and unethical’ now: Wachtell exec

(Reuters) - On Monday, William Savitt of Wachtell Lipton Rosen & Katz signed a particularly provocative client memo. Savitt’s language was moderate but his point was not. Even in the midst of a crisis that has forced state and federal courts across the country to postpone nonessential proceedings, the memo said, “certain corners of the bar” have persisted in filing class actions and demands for corporate records, as if COVID-19 had not upended the whole premise of business as usual. “Whatever might be said about this sort of litigation in normal times,” wrote Savitt, the co-head of Wachtell’s litigation department, “it seems plain that it should be suspended in circumstances, such as we have today, where responding will divert time, attention and resources from the business of managing through a worldwide emergency.”

In other words, Savitt told me on the phone Tuesday, “In the past two or three weeks we’ve seen day by day that it is absolutely implausible and impracticable and, I’m increasingly coming to think, unethical to seek to pursue offensively or defensively, any sort of active litigation in cases that are not expedited and not urgent. That wasn’t clear at the beginning. But it’s really become clear.”

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Savitt was driving from his apartment in Manhattan to Philadelphia to “exfiltrate” his oldest child. His other two college-aged kids are already home. Savitt’s reunited family intends to hunker down in a city that he said has become “weird and scary” as the COVID-19 case count escalates. “The oddity is that I have no idea if I have this illness or not,” Savitt told me. “No one does. What can you do, except hope you don’t get too sick and do your best not to infect anyone.”

Savitt emphasized that the overwhelming majority of the lawyers he’s dealt with in the last couple of weeks, on both the plaintiffs and defense side, have acknowledged the magnitude of COVID-19’s disruption of the civil litigation system. But not everyone is behaving accordingly, he said. Mundane class actions challenging proxy disclosures in M&A deals keep being filed, for instance – at least a half-dozen in the last week, Savitt said. The volume of demands to inspect corporate books and records – often a precursor to derivative breach-of-duty suits – is even higher. On Tuesday morning alone, Savitt said, he received two books-and-records demands and a letter warning his client to get moving on a previously-served demand.

“I just find it startling that that activity is persisting,” Savitt said. “It really just underscores how inappropriate and opportunistic and destructive it can be.” Plaintiffs’ lawyers file the suits and demands in the name of shareholders, but when corporate directors and officers are attempting to address an ever-expanding and mutating crisis, Savitt said, these purported shareholder cases – on matters predating COVID-19 shutdowns – are, at best, a distraction. “Plaintiffs seeking to advance these cases now only underscores how counterproductive they can be,” he said.

I should note that several shareholder class action lawyers told me last week that they’re in no rush to file suits accusing companies and corporate officers of bungling their response to the virus. In fact, two of them said it would be unseemly to file disclosure class actions alleging that corporations didn’t provide adequate warnings about COVID-19’s impact on their businesses. Those are not exactly the kind of suits that prompted Savitt to write his client memo, but it shows that plenty of shareholder lawyers are on the same page as Savitt.

And Savitt isn’t arguing, of course, that shareholders don’t have a right to second-guess board decisions. He said he’s sure that when the crisis abates, litigation will follow, as it always does when boards attempt to address corporate traumas. (Most of those cases, he predicted, will be doomed by courts’ deference to boards’ decisionmaking: “This is where the business judgment rule really needs to earn its keep,” he said.)

But Savitt’s point is that right now is not the time for routine civil litigation. Courts and jurisdictions are changing their rules to suspend filing deadlines and timeliness rules, he said, in a recognition that limited judicial resources should be devoted to emergencies. In the Delaware courts where so much shareholder litigation takes place, for instance, Chancellor Andre Bouchard of Chancery Court issued an administrative order on Monday, declaring that the judges in his court would entertain any reasonable request for an extension because “our nation is confronting a crisis.” So, as Savitt put it: “If it can be put off, it should be put off.”