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LOS ANGELES — A federal judge in California has dismissed a shareholder derivative complaint against Computer Sciences Corp. (CSC) and several of its officers for alleged backdating of stock options. The ruling is the latest among several to dismiss backdating derivative cases based on “demand futility,” or the idea that plaintiffs, prior to filing a lawsuit, did not demand books and records from a company’s board because they believed it would have been futile. In most cases, plaintiffs have said the board’s directors were involved in the alleged backdating. In the CSC case, plaintiffs allege that backdated options were granted to company executives from 1996 to 2004. U.S. District Judge Mariana Pfaelzer, for the Central District of California, had dismissed the plaintiffs’ original complaint in March because it failed to convincingly plead “demand futility.” The plaintiffs filed an amended complaint the following month, citing filings with the U.S. Securities and Exchange Commission that said CSC would suffer $68 million in non-cash compensation expenses due to an internal backdating investigation. In her July 24 order, Pfaelzer continued to reject the plaintiffs’ argument for “demand futility.” She also found that the plaintiffs lacked standing to bring the claims because the earliest that any owned stock was in 1997, one year after the alleged backdating began. In her ruling, Pfaelzer said: “The Court is not blind to the fact that errors have been made in the granting of, and accounting for, stock options at CSC between 1996 and 2006. Some parties, whether directors, executives or both, are undoubtedly responsible, if not liable, for these errors. The following, however, remains unclear: 1) what exact errors occurred; 2) to whom, specifically, are these errors attributable, whether by commission, omission, knowledge or concealment thereof; and 3) are these errors the product of wrongdoing constituting a breach of duty or rising to the level of legal fault?” The lead defense attorney, Dean Kitchens, a partner at Los Angeles-based Gibson, Dunn & Crutcher, said the ruling reflects recent rulings by judge who are “looking very hard at plaintiffs’ cases where they are attempting to avoid the proper process of having a board of directors determine and evaluate the claims the plaintiffs want to take over.” In the CSC case, he said, the company’s high number of independent directors — those who were not officers of the company or involved in the allegations — was “crucial” to their argument to dismiss the case.

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