Legal News

Wilson Sonsini Named in Shareholder Suit Against Brocade

By Dan Slater

Of all the companies caught up in the backdating mess, Brocade Communications has been especially hard hit — with both its CEO and a human resources exec going down in the scandal. But now responsibility for Brocade’s stock options backdating could ripple out as far as its law firm. A shareholder derivative suit filed recently in California district court names Wilson Sonsini, accusing the law firm of malpractice for blessing backdating at Brocade. Here’s the story from The Recorder.

According to the story, the plaintiff alleges that WSGR signed off on a part-time program for new Brocade hires that was really set up to grant stock options for the new employees at low points. The complaint also claims the firm gave bad legal advice on a settlement proposal that didn’t give enough to Brocade in another derivative case. Aside from a case brought by a pro se investor in Rambus, this is the first time that WSGR has been named in a backdating suit, although the firm’s chairman, Larry Sonsini, has been named in such suits for his role as a company director, the article says.

Francis Bottini Jr., the lead plaintiff lawyer in the case, said “The obvious reason that people don’t sue [WSGR] is because they’re going to have a lot of cases with Wilson Sonsini in the future. But if there’s a valid claim, it’s our duty as lawyers to bring them for the company.”

A Wilson Sonsini spokeswoman said the firm had no comment on the case. Ralph Ferrara, a Dewey & LeBoeuf lawyer representing Brocade’s special litigation committee, which will decide whether to pursue the derivative claims, did not return a phone call, The Recorder said.

One lawyer, Kenneth Philpot, a defense-side securities litigator at Reed Smith, told The Recorder that, “given the sophisticated relationship between outside counsel and the company,” plaintiffs might not be able to meet the requirements of a derivative suit, such as “demand futility,” since it would be hard to argue that a majority of the board was too conflicted to assess claims against an outside law firm and take action.

Bottini said those aren’t obstacles in this case. He said he thinks the reason that other plaintiffs firms haven’t gone after law firms like Wilson is because they don’t want to pay for it down the road when opposing the firm in securities cases.

Full post as published by Law Blog - WSJ.com on May 02, 2008 (boomark / email).