The Future of Private Rights of Action and Shareholder Activism

Amongst legal reform, like changes to private rights of action and shareholder activism, many professionals are wondering how to approach public policy. During the Private Rights of Action & Shareholder Activism panel at the U.S. Chamber of Commerce’s ILR Summit 2022, experts discussed the history of private rights of action and the troubling trends in state legislatures.

We Have Moved Toward a More Textureless Court Without Implying Public Rights of Action

Andrew Davis, Partner at Lehotsky Keller, defined private rights of action as “the ability for somebody to sue.” 

“These are really historically based in the common law,” he said. “You had your typical trespass actions and property actions where someone had an injury, they went to court, and they were able to get recompense.”

“As we moved more towards a bigger government model, [we] started having legislatures who saw problems that they thought needed to be addressed and created new rights outside of the common law system that looked different,” Davis continued. “They looked more like they were enforcing some type of public right, or some type of public policy, separate from the individual.”

Davis noted in the current stage, we are no longer implying public rights of action because we have a more textureless court. 

“The real issue is how much can the government actually create rights of action, especially when there's no real injury or, at least, the injury is not really the point of the suit — the point of the suit is more enforcing public policy,” he said.

Environmental, Social, and Corporate Governance (ESG) Topics Are of Utmost Importance

Elizabeth Ising, Partner at Gibson, Dunn & Crutcher, noted that “there are an increasing number of mechanisms for shareholders to be active to present various demands.” In fact, according to Ising, “you only need to own $15,000 in stock to submit a shareholder proposal that will go into a company's proxy state and be voted on at the annual meeting.” 

“We've had a dramatic change in the SEC staff's interpretations on these subjects in the last couple of years, and it's really resulted in more and more of these matters being voted on,” she said. “They often are pushing for various changes at the corporate level, including more disclosures.”

“What we're seeing from a litigation perspective is, whether it's from shareholder proposals or the various proxy advisory firms, the institutional investors saying all of these ESG topics are of utmost importance,” Ising continued. “We're seeing companies be responsive and disclosing more and more about how they're operating in a sustainable manner.”

However, she noted, “no good deed goes unpunished. We're also seeing a rise in litigation over these ESG statements.”

“There's a lot of activism in the proxy statements, the annual meetings, and boardrooms being considered, but we're seeing it bleed over into the litigation space as well,” she said.

Lowering and Limiting Attorney’s Fees Is the Solution to Legal Issues

According to Kyla Christoffersen Powell, President and CEO of the Civil Justice Association of California, the easy solution to mitigate the risks and threats discussed above is lowering attorney’s fees.

“I really think the heart of it is the attorney's fees — they are the main driver,” she said. “If you're gonna have one-sided attorney's fees, at least put some sort of limitation on them where they're proportional [and] there's some sort of check.”

Powell added to make sure “it's not just about running these up as high as possible and using them as leverage to shake down businesses.”