Dell Lawsuit Dismissed, then Dell Settles for $40 Million

By Tanya Roth, Esq. on December 09, 2009 | Last updated on March 21, 2019

This is the case that just wouldn't die. After Dell thought it was out, with the dismissal of its 2006 shareholder suit, arguments before the 5th Circuit Court of Appeals pulled them back in. That is correct, the Dell lawsuit settled after it was dismissed.

Some commentators feel that the impetus for settlement of the Dell lawsuit occurred after arguments before the 5th Circuit hearing the appeal of the dismissal went seriously awry for Dell. Others suggest that it was the shareholders who felt the their last chance slipping away and would talk numbers they would not entertain previously. Regardless of the reason, the parties sat down and hammered out a $40 million settlement payment for shareholders before the court even reached its decision on the appeal.

This suit originated with a 241 page complaint by shareholders claiming that Dell executives, including company founder Michael Dell, made misleading statements about the company's financials and propped up the share price with false information in company reports, including info given to the SEC. The shareholders allege that executives, sold off more than 90% (this figure has not been absolutely verified) of their personal stock before the bad news about the company's true status broke. 

It is unclear whether Dell threw in the towel because it truly thought it would lose the appeal or if it just wanted to end the nearly perpetual litigation and the mounting expense that came with it. In a statement Dell said, "Because such litigation can be protracted, expensive, could involve significant management time and attention...Dell believes resolving this matter is in the best long-term interests of the company and its shareholders."

On the other hand, as one plaintiff's counsel told AmLaw Litigation Daily, "generally speaking, you don't pay unless you're concerned you're going to lose....Otherwise, why pay a dime?"

It might be worth noting that what the shareholders' complaint calls Dell's "culture of deception" might be sen as continuing in some fashion. The well researched blog Footnoted, discovered that the settlement pay-out did not make it onto Dell's earning announcement in November, it came to light quietly last week in the company's 10-Q , filed with the SEC.

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