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Robert F. Booth Trust v. Crowley oral argument

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Under Rule 23.1(a), a derivative action may only be maintained if the plaintiff adequately represents the shareholders. But many shareholder derivative actions hurt shareholders; they're brought solely to vindicate the ability of plaintiff's counsel to collect dramatic fees. Robert F. Booth Trust v. Crowley, in the Northern District of Illinois, was such a case; its only value was the threat of harassment of Sears Holding Company and its directors with expensive discovery. I have long argued that this abuse of the legal system is not a loophole; it reflects the failure of judges to enforce the "adequacy" requirements of Rule 23 and Rule 23.1. As a Sears shareholder, I had the opportunity to move to intervene to dismiss Robert F. Booth Trust when it settled; the district court judge disagreed, and I appealed. Yesterday was oral argument in the Seventh Circuit—in front of a dream panel of Chief Judge Frank Easterbrook and Judges William Bauer and Richard Posner.

As the oral argument indicates, I am cautiously optimistic that we're going to see an important precedent about the duty of courts to rein in abusive strike suits. Michael Greve analyzes with tongue in cheek.

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Rafael Mangual
Project Manager,
Legal Policy

Manhattan Institute


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The Manhattan Insitute's Center for Legal Policy.