Posts in Class Actions

Court of Chancery Reviews Class Representative Qualifications

In re SS&C Technologies, Inc. Shareholders Litigation, C.A. No. 1525-VCL (March 6, 2008)

For a long time it has been evident that some plaintiffs show up frequently as class representatives. The recent scandal involving perhaps the major securities class action law firm has only reminded everyone of the odd "coincidence" that one person could have so many class actions to bring. Now the Court of Chancery has done something about it and a warning has been issued as a result. This decision awarded attorney fees to the defendants in a man-bites-dog twist to the ending of a class action.

Of course, the facts in this case are highly unusual. When the named plaintiff tried unsuccessfully to have the court approve a settlement basically for attorney fees alone, he then tried to just dismiss the case, conditioned upon defendants' agreement to keep certain information confidential. Instead, the defendants fought back and discovered the named class representative had a string of investment entities that in turn owned very small stakes in many publicly owned corporations. No rational financial purpose justified these investments, except as a way to pursue law suits. When the plaintiff conditioned settlement on secrecy, the court held that was bad faith and awarded attorney fees to the defendants for resisting such a dismissal.

It is now likely that we will see much more aggressive pursuit of oppositions to class certifications. Discovery of the named plaintiff and his connections to the class counsel will be the new trend. As this decision illustrates, the ability to do data searches to find all the actions filed by a plaintiff and any law firm will also aid in that effort.

 

 

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Additional Complaints Filed Against Yahoo! in Delaware

Yesterday, February 27, 2008, two new complaints were filed against Yahoo! in the Court of Chancery. The first is a class and derivative action, Plumbers and Pipefitters Local Union No. 630 Pension-Annuity Trust Fund v. Yahoo!, C.A. 3578. The second, Mercier v. Yahoo!, C.A. 3579, an additional class action to those previously filed.

The plaintiff in the second action, Vernon A. Mercier, was also the lead plaintiff in Mercier v. Inter-Tel (Delaware), Inc., 929 A.2d 786 (Del. Ch. 2007). In a decision in that action last August, Vice Chancellor Strine denied the plaintiff’s application for a preliminary injunction and found that directors fearing that stockholders are about to make an unwise decision that poses the threat that all stockholders will irrevocably lose a unique opportunity to receive a premium for their shares have a compelling justification for a short postponement in the merger voting process to allow more time for deliberation.  The decision is worth reviewing for its interesting discussion of the interplay between the Blasius and Unocal doctrines.    

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District Court Grants Summary Judgment on Consumer Fraud, Breach Claims

Millett v. Truelink, Inc., 2008 WL 345937 (D.Del. Feb. 7, 2008)

In this opinion the District Court granted the provider of a credit report monitoring service summary judgment on claims that it violated state consumer protection provisions and contractual obligations. Plaintiffs, who were spouses, had purchased a subscription to Defendant’s service, and alleged that Defendant failed to alert them to activity that resulted from theft of the husband’s social security number. Plaintiffs alleged that Defendant had violated Kansas’ Consumer Protection Act (“KCPA”) as well as breached the Credit Monitoring Member Agreement (“Member Agreement”) that Plaintiffs entered into when purchasing the service. Plaintiffs moved for class certification and summary judgment on their KCPA claims, and Defendant moved for summary judgment on the KCPA and several breach of contract claims. The Court found that neither the activity nor the advertising and marketing activities of Defendant were in violation of the KCPA provisions on unconscionable acts and practices, and Defendant was not in breach of the Member Agreement.  More ›

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District Court Denies Motion to Dismiss Fiduciary Duty Claims Under ERISA

Cannon v. MBNA Corp., 2007 WL 2009672 (D. Del. July 6, 2007)

In this class action lawsuit brought by former MBNA employees, Plaintiffs asserted various breaches of fiduciary duty arising under ERISA in connection with administration of their 401(k) plan. Plaintiffs’ claims arose out of MBNA’s 2005 announcement of expected 10% annual growth for several years. Plaintiffs’ 401(k) plan contained MBNA stock. Several months later MBNA announced lower-than-expected earnings and MBNA stock fell nearly 35%. Plaintiffs alleged that the Defendants breached various fiduciary duties that resulted in this loss. Defendants were MBNA, the former CEO of MBNA, the committee responsible for the administration of the 401(k), and the individual committee members. Defendants moved to dismiss the various claims under F.R.C.P. 12(b)(6). The District Court found that dismissal as to all counts in the complaint was inappropriate at the pleading stage, and denied the motion. More ›

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District Court Grants in Part, Denies in Part Motion to Dismiss Exchange Act Claims

Baker v. MBNA Corp., 2007 WL 2009673 (D. Del. July 6, 2007)

This case is a consolidated class action against MBNA and certain officers for violations of §§ 10(b) and 20(a) of the Exchange Act, as wells as regulations promulgated thereunder. Plaintiffs alleged that the Defendants violated the Act in connection with allegedly false statements made in announcements and public filings regarding restructuring charges incurred and anticipated growth. Plaintiffs further alleged that the Defendants engaged in insider trading. Defendants moved to dismiss the complaint under F.R.C.P. Rules 9(b) and 12(b)(6). The District Court granted the motion with respect to the 10(b) claims again two of the officers, but denied it in all other respects. More ›

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Court of Chancery Denies Stay In Backdating Case

Brand v. Deason, C.A. No. 2123-VCL (July 20, 2007).

When the Court is interested in the issues presented by a case and those issues are important to Delaware law, it will rarely grant an application for a stay of the proceedings in favor of another jurisdiction. When the application only comes after discovery has begun a stay is even less likely.

Here, the Court pointed out that option backdating law is still emerging in Delaware with only three decisions in this interesting area. Hence, there was good reason for a Delaware court to decide what is the law of Delaware and not stay its hand.

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Court of Chancery Rejects Class Action Settlement

In Re: TD Banknorth Shareholders Litigation, C.A. No. 2557-VCL (July 19, 2007).

It is a mistake to take for granted that the Court of Chancery will approve any class action settlement. Here, the Court rejected a settlement because it appeared that a valid theory of recovery had been overlooked by the plaintiff and the settlement gave very little to the class.

Also of interest was the Court's interpretation of a standstill term in the stock acquisition agreement that limited the acquirer from seeking to obtain even more stock in the target. The Court implied that asking the target board to initiate merger discussions was an invalid attempt to get around that standstill provision.

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Court of Chancery Rejects Inadequate Settlement

In Re SS&C Technologies, Inc. Shareholders Litigation, C.A. No. 1525-N (Del. Ch. November 29, 2006).

The Court of Chancery for over 30 years has cautioned against reaching a settlement of a class or derivative case and closing the transaction that was the subject of the litigation without having first secured court approval of the settlement. The concern is that the closing may make the court's approval a moot question. Here, the settlement involved additional disclosures in connection with the stockholder vote and payment of attorney fees, but the Court was not asked to approve the settlement before the transaction closed. After the fact, the Court declined to approve the settlement. 

There is no clear solution to the problems presented when there is a need to close a deal before a hearing may be scheduled, with the usual 45 days notice to the class. At a minimum, the Court should be notified of the settlement and probably should be asked for leave to close the deal before the settlement hearing occurs. This is particularly true when the settlement does not involve any post-closing relief, such as future corporate governance provisions. More ›

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Federal Court Denies Class Certification Predicated On Bogosian Theory Of Common Impact Injury

American Seed Co., Inc. v. Monsanto Company, Civ. No. 05-535-SLR, 2006 WL 3276831 (D. Del. Nov. 13, 2006).

Plaintiffs brought a class action alleging that the defendant and its subsidiaries illegally maintained monopolistic practices in four product markets by driving competing biotechnology corn products out of the market through illegal financial incentives and bundled rebate programs. These programs allegedly enabled the defendants to charge monopoly prices to farmers and retailers.

Plaintiffs sought to certify three categories of classes pursuant to Fed.R.Civ.P. 23(b)(3): (1) a group of national direct purchasers of the products whose claims would be brought under federal antitrust law; and (2) groups of purchasers in Iowa and Minnesota, with claims under their respective state laws. The plaintiffs further identified various subclasses within each class on the basis of certain characteristics of the corn products purchased. The Court examined the challenges connected with the procedural requirements under R.23(a) in a detailed manner. First, the Court noted that if the plaintiffs were not direct purchasers of the corn seed, they may not be proper representatives of the national direct purchasers' class nor under the plaintiffs’ own definitions of class member. Second, the Court further noted that if the plaintiffs were direct purchasers, they may still not have suffered direct injury if they passed on the excess charges to their customers. However, because the Court denied certification on alternate grounds – namely under R. 23(a)(2) and (3) - it declined to address the standing issues.  

The plaintiffs primarily relied on their expert witness to prove that common questions predominated in this case and they advanced the Bogosian presumption to demonstrate common impact injury, citing In re Linerboard Antitrust Litig., 305 F.3d 145, 151 (3d Cir. 2002)(in turn citing Bogosian v. Gulf Oil Co., 561 F.2d 434, 455 (3d Cir. 1977)). To this end they advanced their expert’s damage formulas for the dual purpose of damage measurement and common injury. The Court however rejected the plaintiffs’ claim because they did not furnish any factual basis demonstrating how the expert’s formulas could provide proof on damages and common injury. This is because the Bogosian presumption of impact requires additional evidence of class-wide impact to sustain class certification. In short, the Court rejected the plaintiffs’ expert’s common impact theory because it was not factually supported. Accordingly, the Court denied the plaintiffs’ motion for class certification.

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Superior Court Rejects Affirmative Defense of Res Judicata at Damages Stage

Gibbs v. Fairbanks Capital Corp., C.A. No. 04C-06-258-JRJ (Del. Super. Nov. 20, 2006).

In this opinion denying Defendant’s motion for summary judgment, the Superior Court rejected Defendant’s argument that the affirmative defense of res judicata barred Plaintiffs’ claims for damages. Plaintiffs, residential mortgage customers of Defendant, sued for breach of contract, consumer fraud, defamation, and violation of the Uniform Deceptive Trade Practices Act. After Defendant failed to answer the complaint, the Court entered default judgment against it, and Defendant’s subsequent motion for an order vacating that judgment was denied. Defendant then moved for summary judgment as to Plaintiffs’ damages claims, arguing that res judicata barred the claims because Plaintiffs were class members in a similar suit in Massachusetts, and could not relitigate the same damages claims in the Delaware action. The Superior Court denied Defendant’s motion for summary judgment, concluding that it “[could not] assert res judicata as an affirmative defense under the particular circumstances….”  More ›

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Superior Court Declines to Perform Post-Settlement Allocation of Class Claims and Holds Insurer Responsible for Negotiated Settlement and for Insured's Attorneys' Fees

Premier Parks, Inc. v. TIG Insurance Co., C.A. No. 02C-04-126-PLA, 2006 WL 2709235 (Del. Super. Ct. Sept. 21, 2006). The parties filed cross-motions for summary judgment on counterclaims in an ongoing declaratory judgment action. The plaintiff, TIG Insurance Company ("TIG"), sought a declaration that it was only liable to pay an allocated share of a global settlement that its insured, Six Flags, Inc. ("Six Flags") negotiated in a class action civil rights lawsuit that alleged that Six Flags had engaged in discriminatory practices at one of its amusement parks. TIG also sought a declaration that it was not responsible for covering the attorneys' fees that Six Flags incurred in defending the class action and negotiating the settlement. More › Share

Court of Chancery Awards Both Appraisal And Equitable Relief

In re PNB Holding Co. Shareholders Litigation, C.A. No. 28-N (Del. Ch. August 18, 2006). As it has several times in recent years, the Court of Chancery has decided a case combining appraisal rights and a class claim for inequitable treatment in a merger. The Court held that when directors get together to freeze out the other stockholders the entire fairness test applies even when they do not own a majority of the stock. This follows because the interests of those directors in remaining shareholders differs from the other shareholders who will be frozen out. Absent some insulating procedure such a majority of the minority vote, the directors then have the burden of proving the merger was entirely fair. More › Share

Court of Chancery Orders Parties to Modify Release Language in Settlement Agreement

Unisuper Ltd. v. News Corp., C.A. No. 1699-N, 2006 WL 1550809 (Del. Ch. May 31, 2006) News Corporation shareholder objected to settlement, arguing the release was overly broad. More › Share

District Court Denies Defendants' Motion to Dismiss Securities Class Action Pursuant to the Heightened Pleading Requirements of the PSLRA.

In re Veritas Software Corp. Securities Litig., C.A. No. 04-831-SLR (Consol.) (D. Del. May 23, 2006). Defendants moved to dismiss a consolidated securities class action that alleged violations of the Securities Exchange Act of 1934 (the "Exchange Act") and Rule 10b-5 on the grounds that the plaintiffs failed to allege fraud with particularity as required by the Private Securities Litigation Reform Act of 1995 (the "PSLRA"). More ›

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Court of Chancery Finds Merger Between Controlling Stockholder and Subsidiary Unfair

Gesoff v. IIC Indus. Inc., C.A. No. 19473, 2006 WL 1458218 (Del. Ch. May 18, 2006). Plaintiff filed a class action, claiming a merger was the subject of unfair dealing and produced an unfair price. Another plaintiff filed a statutory appraisal claim based on the same merger. More › Share