Third Circuit Reevaluates Board Compromise in Dismissal of Derivative Suit against Cognizant Technology Solutions Corp.

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.