Posts in Class Actions

Court Of Chancery Upholds Stockholder Representative Standing

Coughlan v. NXP B.V. , C.A. 5110-CC (April 15, 2010)

When a payout in an M&A  deal is dependent on post closing events, somehow the former stockholders must be represented if there are to be any adjustments.  Appointment of a stockholder representative is often done for that purpose. Here the Court held that the stockholder representative may also sue to enforce the rights of a class of stockholders to such payments.

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Court of Chancery Dumps Class Counsel

In re Revlon, Inc. Shareholders Litigation, Consol. C.A. No. 4578-VCL  (March 16, 2010)

Vice Chancellor Laster took the unusual step of removing and replacing co-lead counsel and Delaware liaison counsel in a proposed settlement of a class action challenging a proposed merger by a controlling stockholder and a subsequent exchange offer by the target company.   Despite the refusal of the Special Committee's financial advisor to render a fairness opinion on the proposed merger and the refusal of the Special Committee to recommend the original transaction, plaintiffs' counsel engaged in minimal litigation efforts and quickly reached a settlement with the defendants.  Vice Chancellor Laster was highly critical of the actions of the New York and Delaware firms representing the class and proposing the settlement.  Among other things, Vice Chancellor Laster noted the New York and Delaware law firms' extensive history of filing and settling representative cases in the Court of Chancery, the existence of significant discrepancies between the plaintiff counsel's actions as set forth in the memorandum of understanding and the exchange offer, the strong possibility of the entire fairness standard applying to the exchange offer, the failure of the exchange offer to receive a majority of the minority shares and the lack of litigation by the plaintiffs' counsel.  Although the new counsel had only sought to represent stockholders who exchanged their shares in the exchange offer, Vice Chancellor Laster appointed that counsel to represent the entire class and take over the litigation.  Interestingly, Vice Chancellor Laster rejected the leadership structure proposed by new counsel, which would have consisted of two non-Delaware firms known for performing the same type of work as former counsel as lead counsel and a Delaware firm less known for performing similar work as Delaware liaison counsel.  Instead, Vice Chancellor Laster appointed the Delaware firm to act as lead counsel along with the non-Delaware firms and gave the Delaware firm decision-making authority in the event of disagreements.

Plaintiffs' counsel and defense counsel should pay close attention to this decision in negotiating settlements, drafting disclosures related to such settlements and defending such settlements in the Court of Chancery.  This decision could also encourage law firms not traditionally associated with frequent representative litigation in the Court of Chancery to bring such actions and seek appointment as lead counsel.

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Court of Chancery Appoints Lead Counsel

Dutiel v. Tween Brands Inc., C.A. 4743-CC (October 2, 2009).

The Court has recently explained the criteria to determine who should be appointed lead counsel in a class action. In this decision it added a new twist, giving advantage to counsel that has shown it gets along best with co-counsel in the case. This just makes sense, if only to avoid the Court supervising the play in the sandbox.

Note, however, that on a motion for reargument, the Court stressed that not too much should be made of its re ference to coorperation among some counsel as a factor to be consided. Moreover, in that October 28, 2009 opinion the Court detailed how to assess the relative stockholder interest in deciding whose counsel should lead.

Recently, at least one fellow Delaware attorney has suggested that the way to win such favor from your co-counsel is to known as generous with the fee splitting that occurs when the case ends. Given that the division of the fee awarded by the Court among all the plainitff attorneys is not done publicly, that may be an insight into the world of plainitffs counsel that is worth remembering.

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Court of Chancery Explains Scope of Permitted Release

In Re Countrywide Corporation Shareholders Litigation, C.A. 3464-VCN (August 24, 2009)

This is another in a series of decisions explaining the limits of a release in settlement of a class action. The opinion particularly focuses on when a common law fraud or federal securities law claim may be released.

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Court of Chancery Finds Plaintiff Caused Transaction to be Withdrawn

Kuo v. Genius Products Inc., C.A. 3329-CC (July 30, 2009).

It is settled law that, when a corporation abandons a proposed corporate transaction after a suit is filed, to avoid payment of fees, the corporation must prove the litigation was not the cause of the transaction's termination. That burden was not carried here and, as a result, fees were awarded. The decision is also interesting because it shows that it is possible that the amount of the fees will be reduced when there is some doubt the litigation was the sole cause of the end of the transaction.

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Court of Chancery Extends Claim Filing Deadline

CME Group Inc.v. Chicago Board Options Exchange Inc., C.A. 2369-VCN (June 25, 2009)

Class action settlements often have a claim procedure that is complicated. Class members miss the deadlines and mess up their filings. However, as this decision illustrates, the Court is liberal in extending deadlines and forgiving filing mistakes.

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Court of Chancery Signals Concern Over Fees to be Paid by the Benefited Company

Gatz v. Ponsoldt, C.A. 174-CC (June 12, 2009)

This decision raises an interesting question over whether attorneys fees should be paid when the fees in a way that does not benefit the company for whom the suit was filed. Briefly, the facts were that the defendant directors were found to be entitled to have the settlement of the claims against them paid by their company under their rights to be indemnified. The settlement balance was to go to the stockholder class. The Court's concern was that this meant the company's stockholders were not really benefiting if they, in effect, were funding the settlement by their company.

This issue was resolved when it turned out that under the odd circumstances of this case that the stockholders who were receiving the benefit of the settlement were largely different from those who now owned the company. Had that not been the case, however, the result may not have been the same. This means that there is a potential issue when defendant directors are indemnified for the damages. Whether the amount of fees will be affected in those circumstances remains to be seen.

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Court of Chancery Resolves Unclaimed Settlement Proceeds

Oliver v. Boston University, C.A. 16570-VCN (May 29, 2009)

What to do about unclaimed funds from a class action settlement is often a problem.  While the funds should not go back to the defendants, thereby rewarding them, the funds otherwise might be escheated to the State or sent to a charity.  Here the Court has the unclaimed finds going to Boston University, and the discussion will serve as guidance in future cases.

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Chancellor Warns of the Perils of Inaction

Tooley v. AKA Financial Inc., C.A. 18414-CC (April 29, 2009)

While it is well known that the failure to prosecute a class action may lead to the case being dismissed, many practitioners just do not believe in the need to move a case along or risk losing it. Here, the Chancellor of the Delaware Court of Chancery sends a clear message that delay in litigating a case will lead to the dismissal of the claims in the future.

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Court of Chancey Explains Class Release Rules

In re Countrywide Corporation Shareholders Litigation, C.A. No. 3464-VCN (Del. Ch. March 31, 2009)

This decision provides an excellent outline of what claims may be released in a class action settlement. Here the objectors to the settlement had a damage claim unique to them but that the proposed settlement would have released. The Court held that the objectors needed to be given the right to opt out of the settlement or the release that was part of the settlement must be more limited so as to not affect their rights in their individual claim.

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Court of Chancery Approves Opt Out Settlement

Marie Raymond Revocable Trust v. MAT Five LLC, C.A. 3843-VCL (Del. Ch. Dec. 19, 2008)

 

This decision has a good summary of the law governing certification of a class and when to approve a class settlement. Here the settlement permitted class members to opt out without the loss of any rights to pursue other related litigation. Thus, this decision distinguished the recent decision in Off v. Ross that had disapproved a settlement without opt out rights.

 

The interesting question is whether these two cases now mean that opt out classes are favored in Delaware.  We doubt it.  However, it is certainly the case that settlements with hardly any benefits to class members are receiving even greater scrutiny.

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Court of Chancery Appoints Class Representative with Close Relationship to Class Counsel

In Re: TD Banknorth Shareholders Litigation, C.A. 2557-VCL (Del. Ch. July 29, 2008)

It has long been known that some pension funds and other institutional investors use the same counsel over and over to bring their class actions. This decision recognizes that fact and holds that it is not a reason to disqualify the proposed class representative.

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Court of Chancery Divides Settlement Among Shareholders In Class Action Suit

The plan of allocation approved in Ginsburg v. Philadelphia Stock Exchange et. al., C.A. No. 2202-CC is a landmark decision for those in the business of litigation arbitrage, buying shares of a company that is involved in a class action that may lead to substantial settlement proceeds. More ›

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Supreme Court Affirms PHLX Settlement

In The Matter Of The Philadelphia Stock Exchange Inc., Del. Sup., C.A. 613/615, 2007 (Del. March 27, 2008)

This comprehensive decision explains Delaware law on the settlement of a class action when the proceeds of a settlement will involve buyers, sellers, and holders of stock in a Delaware corporation. This allocation problem is a difficult one and the Supreme Court held that allocation issues may be resolved in a separate hearing after the settlement with the defendants is approved.

The opinion is also important in explaining the scope of a release that the court will approve in connection with a settlement. There is often a tension between the interests of the defendants who ask for the broadest release possible and the interests of other litigants who want the release limited. Here, for example, objectors to the settlement had a federal case pending that arose out of the same core facts involved in this settlement. The Delaware Supreme Court permitted the release to include a claim arising out of those core facts even if it might affect the federal litigation.

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Class Action Filed Against Bear Stearns in Delaware Seeking to Enjoin Acquisition by JPMorgan

See latest developments on 03/31/08 above: Last Thursday, a class action complaint was filed against Bear Stearns and its directors in the Court of Chancery.  The complaint alleges that the company has failed to maximize shareholder value by agreeing to be purchased by JPMorgan Chase for $2 per share.  The complaint further alleges that, by agreeing to the deal, the company has favored numerous constituencies over the shareholders. 

 

Update: The New York Times reports  that JPMorgan Chase raised its offer to $10 per share.  Professor Ribstein has commented , along with Pileggi. 

 

Further Update: An additional class action was filed against Bear Stearns on Monday by the Wayne County Employees' Retirement System .  And, yesterday a TRO was filed on behalf of the plaintiffs in both actions, seeking to enjoin the sale, which is set to close on April 8.  Both actions, and the accompanying TRO, have been assigned to Vice Chancellor Parsons. 

 

 

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