WILMINGTON, Del. (Legal Newsline) – Class action lawyers might not get a chance to break open the books of JUUL Labs, which has been the target of litigation over the health effects of its vaping products.
The Delaware Court of Chancery ruled Aug. 13 that former employer and current shareholder Daniel Grove did not waive his rights to inspect corporate records under the California Corporations Code but that under the internal affairs doctrine, he has no right to do so because that right exists only under Delaware law.
Grove is represented by Bernstein Litowitz – one of the leading plaintiffs firms for class actions against companies that suffer drops in their values. They will have to try to make their inspection request again, this time under Delaware law.
“Historically, Delaware decisions have rejected efforts by corporations to limit or eliminate inspection rights,” Vice Chancellor Travis Laster wrote.
“But there are strong countervailing considerations, including Delaware’s broad recognition of parties’ ability to waive other important rights, whether constitutional or statutory.”
Private citizens and school districts are suing JUUL en masse, and their complaints have been consolidated in a multidistrict litigation proceeding in San Francisco federal court. The cases claim JUUL’s products are defective and dangerous due to their attractiveness to minors.
Securities class actions often pop up when a company experiences a loss in value. They allege the company failed to disclose its problems to investors before the drop.
JUUL is a private company, though part of it was purchased by Altria - a publicly traded company whose stock price cratered earlier this year upon releasing information on losses tied to JUUL.
Thus far, only one such case has been filed against JUUL and Altria. It is in Virginia federal court and was filed by Bernstein Litowitz rivals like Pomerantz LLP, Cohen Milstein and Robbins Gellar.
Under JUUL’s certificate of incorporation, if Bernstein Litowitz wants to get a leg up by inspecting the company’s books, it will have to do so in Delaware, Laster wrote.
Grove had threatened to bring an action in California to enforce inspection, and JUUL filed a case against Grove in Delaware seeking to declare he had no right to the books. It was JUUL’s lawsuit that led to Laster’s ruling.