Debevoise & Plimpton LLP secured the dismissal of a shareholder suit against firm client Standard General. The New York Supreme Court granted the motion to dismiss in its entirety and with prejudice.

The plaintiff, Kenneth Vaughan, asserted claims on behalf of a purported class of American Apparel stockholders against Standard General, based on Standard General’s investment in and relationship to the troubled clothing retailer American Apparel. The complaint alleged that Standard General was a controlling stockholder of American Apparel, and had owed and breached fiduciary duties to minority stockholders by causing the company not to pursue an acquisition offer and taking other steps that allegedly ultimately led to the company’s bankruptcy filing last year. The Debevoise team moved to dismiss the claims for lack of standing and on the merits.

In its opinion, the New York Supreme Court granted our motion and dismissed the case without leave to amend. The court adopted Debevoise’s arguments in their entirety. Procedurally, the Court agreed that the claims were derivative and not direct, that the plaintiff had not pled shareholder derivative standing and that he could not establish such standing because his ability to assert derivative claims was extinguished by the bankruptcy. On the merits, the Court held that the plaintiff had failed to plead the central component of his claim—that Standard General was a “controlling” stockholder and thus owed fiduciary duties to other stockholders and the company.

The Debevoise team was led by partner Shannon Rose Selden and associates Derek Wikstrom, Justin C. Ferrone and Holly S. Norgard.

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