On Friday, the Third Circuit ruled that investors of Cognizant Technology Solutions Corp. had not effectively pressured the company’s board to pursue legal action regarding alleged anti-bribery misrepresentations. As a result, their derivative suit was dismissed. The viability of the suit hinged on whether the board members were too compromised to file a lawsuit. The Third Circuit chose to reevaluate this issue independently, rather than simply reviewing the lower court’s decision.
By overturning a circuit precedent and examining the case from scratch, the Third Circuit joined other court decisions that prioritize a comprehensive examination of the facts. This approach aimed to ensure a fair and thorough analysis of the situation at hand. Ultimately, the Third Circuit upheld the dismissal of the derivative suit, as investors failed to provide a legitimate reason for not directly requesting legal action from the company’s board.
