An influential Delaware judge issued a strongly worded opinion that could open the doors to more shareholder derivative lawsuits against companies alleged to have backdated stock options.

William Chandler, chancellor of the Delaware Court of Chancery, ruled Tuesday that certain claims brought by a shareholder of Maxim Integrated Products, Inc., a Sunnyvale, Calif., chip maker, against several current and former board members could go forward despite defendants' objections.

Separately, Maxim last week said an internal probe overseen by a special committee of its board found backdating of options to its employees and directors, though options for top officers were "properly granted." The company said it expects to restate results back to at least 2000.

John Donovan, a securities litigator at Ropes & Gray LLP in Boston, says the Delaware decision is surprising and is likely to be influential. "Until now, there have only been a handful of rulings on derivative suits in backdating cases," and in general they have favored defendants, he says. This decision is likely to have more weight, says Mr. Donovan, in part because the Delaware Chancery Court is among the most influential in the country on corporate law issues. And Chancellor "Chandler is the first among equals for a very influential court." Mr. Donovan represents companies or boards in suits involving alleged backdating.

The suit, brought by Walter E. Ryan, is called a derivative suit, in which a shareholder technically sues on behalf of the corporation itself. To file a successful derivative suit, a plaintiff generally must first ask the board to remedy the alleged problem. But that requirement may not apply if a plaintiff can raise a reason to doubt that board members were complicit in the alleged behavior.

Defendants moved to dismiss the case on a variety of grounds, among them that Mr. Ryan had failed to take the backdating issue to the board. Chancellor Chandler denied the motion on that point, ruling that because "one half of the current board members approved each challenged transaction," the requirement to ask for board approval wasn't necessary.

"I am convinced that the intentional violation of a shareholder approved stock option plan, coupled with fraudulent disclosures regarding the directors' purported compliance with that plan, constitute conduct that is disloyal to the corporation and is therefore an act in bad faith," Chancellor Chandler wrote. He dismissed claims concerning transactions that occurred before the plaintiff owned shares.

As part of Maxim's announcement last week, Carl Jasper, the company's chief financial officer, resigned. John F. Gifford, the company's founder, stepped down as chief executive in December, and retired as a company adviser just before the release of the special committee probe's findings last week.

Questions continue to swirl around Maxim's options-granting practices. Although the internal probe found that all options for top officers -- including Mr. Gifford -- were "properly granted," Maxim hasn't explained its pattern of past option grants. From 1995 to 2001, four grants to top officials were dated at quarterly low points in Maxim's stock price, often at the bottom of steep dips, and three others were at monthly lows.

In addition, Mr. Gifford exhibited fortunate timing when he later exercised his grants. He exercised and held onto the resulting Maxim shares seven times from 1997 through 2002, according to regulatory filings and insider-trading data from Thomson Financial. In all but one case he did so on the day Maxim's stock reached its lowest closing price of the month.

A Maxim spokesman has said the company is continuing to look into past exercises of stock options. A lawyer for Mr. Gifford didn't comment. A lawyer representing several other defendants declined to comment.

(END) Dow Jones Newswires

02-07-07 2204ET