A recent ruling by the District of Massachusetts Court against software firm Pegasystems could have significant implications for corporate responses to lawsuits. Judge William Young is making headlines in the legal community for holding Pegasystems accountable for asserting the baselessness of a lawsuit despite its merit. This ruling could potentially alter the commonplace, reflexive response of companies to lawsuits as being “without merit.”
Earlier this year, Pegasystems, based in Cambridge, Massachusetts, attempted to dismiss a putative class action suit. This action was initiated by investor Fort Lauderdale Police and Firefighters Retirement System (Details Here). Added to this complex scenario was the case lodged by competitor Appian Corp in a Virginia state court, in which Appian Corp accused Pegasystems of misappropriating its trade secrets and subsequently won, leading Pegasystems to a whopping $2 billion in damages (Details Here).
The Massachusetts case posited that Pegasystems’ top brass, including CEO Alan Trefler, was complicit in this theft of trade secrets. In contrast, they simultaneously assured Pegasystems investors that the Virginia case was “without merit,” a move that allegedly violated federal securities laws.
Pegasystems’ failure to reference the ongoing Virginia court action in its U.S. Securities and Exchange Commission filings between May 2020 and February 2022 has been a point of contention. In spite of this, the company noted that it had received notices claiming they had misappropriated, misused, or infringed upon others’ intellectual property rights.
General counsels of public companies, along with many corporate law firms, are expected to remain vigilant of this evolving situation, with some experts suggesting a change in verbiage when responding to lawsuits. Alternative phrases, like “will vigorously defend” or “mount a meritorious defense,” might become more prevalent in the aftermath of this ruling.
Kevin LaCroix, an attorney and executive vice president of RT ProExec, labeled the phrase “without merit” as a “form of ritual incantation” in his write-up on The D&O Diary about the Pegasystems case. He also pointed out that Judge Young’s decision emphasizes the importance of aligning public comments with actual corporate practices.
This ruling serves as an important reminder to the legal community about the importance of honest public disclosures, especially when discussing current litigation. The case of Pegasystems implies legal repercussions beyond just the lawsuit allegation itself, but also in how they are publicly handled.
The above developments were originally reported by Law.com.