Legal News

Trial by Fire: A Lookback at JDSU?s Big Courtroom Win

By Dan Slater

Consider this: Since 1995, only four out of 2,105 shareholder securities-fraud suits have been tried to a verdict, according to Stanford law school. Most either get dismissed, because the case is weak, or settled, because executives seek to avoid billion-dollar verdicts. But JDS Uniphase, the Internet era phenomenon whose stock lost more than $40 billion in market cap after the bubble burst, took a different tack when faced with a shareholder suit. It decided to bet the company and go to trial.

Click here for a story by the WSJ’s Ashby Jones.

A group of JDSU shareholders, ultimately led by a Connecticut pension fund, sued in 2002. The shareholders claimed that JDSU failed to disclose info about its deteriorating business, helping to keep the stock buoyant. Meanwhile, plaintiffs alleged, executives cashed out. Given the estimated damages — one expert pegged the potential pain at $20 billion — JDSU execs initially thought they would settle.

Had the company lost, “the worst-case scenario was that the company goes out of business,” says Christopher Dewees, the JDSU’s chief legal officer. “The more realistic possibility was that we file for bankruptcy.”

Marty Kaplan, JDSU’s chairman, said the company’s nine-member board had its “hawks,” who wanted to push to trial, and others who preferred to settle. But he says the plaintiffs’ demands far exceeded even the largest settlement the board considered, meaning there was no “serious debate” about whether to go to trial. Denise Nappier, the Connecticut State Treasurer, declined to comment on the amounts discussed but says in most cases her organization reaches “settlements acceptable to both parties.”

The trial, in Oakland, Calif., lasted four weeks. After about a day and a half of deliberations, the jury returned a verdict in JDS’s favor. The plaintiffs decided not to appeal, and a final judgment was entered in March. A person familiar with the case says JDS spent around $50 million in legal fees, though insurers covered much of the tab.

But despite JDS’s win, lawyers say the case is unlikely to encourage other companies to seek trials — partly because wins are anything but a sure best. For instance, in January, a Phoenix jury in a securities-fraud suit ordered Apollo Group Inc., the owner of the University of Phoenix, to pay about $280 million to shareholders. (Apollo has filed post-trial motions, slated to be heard in August.)

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