Barnes & Noble and Its Directors and Officers Win Dismissals of Derivative and Class Action Suits over Financial Reporting and Internal Controls

On July 3, 2014, the New York State Supreme Court granted the motion to dismiss, with prejudice, a shareholder derivative action alleging breach of fiduciary duty and abuse of control by Barnes & Noble’s directors in connection with the company’s financial reporting and inventory management systems. Cravath represented nominal defendant Barnes & Noble as well as defendants Leonard Riggio, Mark D. Carleton and Gregory B. Maffei. In his decision, Judge Melvin L. Schweitzer held that, under Delaware law, plaintiff did not have standing to sue on behalf of the company because he failed to allege facts sufficient to show that he was excused from making a pre‑suit demand on the company’s board.

Cravath also represented Barnes & Noble, Mr. Riggio and current and former officers and directors William J. Lynch, Jr., Michael P. Huseby and Allen W. Lindstrom as defendants in a related putative class action suit in the U.S. District Court for the Southern District of New York. Plaintiffs alleged that defendants misrepresented the company’s internal controls over financial reporting, the financial state of the company, the financial state of NOOK and the allocation of costs between NOOK and Retail in violation of Sections 10(b) and 20(a) of the Securities Exchange Act and Rule 10b‑5, causing the company’s stock to be traded at artificially inflated prices during the class period from February 25, 2013 through December 5, 2013. Following the dismissal of the derivative action, plaintiffs in the securities action voluntarily dismissed their suit on September 5, 2014.

The Cravath team included partner Kevin J. Orsini and associates Brian M. Jenks, Sarah M. Colombo and Christopher J. Spelman. The cases are David Shaev Profit Sharing Account v. Riggio, et al., No. 654339/2013 (N.Y. Sup.) and In re Barnes & Noble, Inc. Securities Litigation, No. 14‑cv‑0108 (S.D.N.Y.).