Posts tagged Class Actions

Court Of Chancery Upholds No Trading Rule

Steinhardt v. Howard-Anderson,  C.A. 58787-VCL (January 6, 2012)

A class representative may not trade in the stock held by his class members based on information he learns in the litigation.  That is the usual rule reflected in the typical confidentiality order entered in such cases in Delaware.  This decision collects several other unreported decisions following that rule and shows how to calculate the trading profits that must be returned to the class when the rule is violated.

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Court Of Chancery Analyizes Class Conflicts

Garrett v. Zon Capital Partners LP,  C.A. 5607-CS (November 10, 2011)

This is a rare Court of Chancery decision discussing when a class should be certified. The Court reviewed and dismissed the claim that there was a conflict of interest among class members, based on a funds flow analysis.

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Court Of Chancery Explains Lead Counsel Selection Process

Nierenberg v CKx, Inc., C.A. 5545-CC (May 27, 2011)

This decision involves the application of the familiar standards governing the appointment of lead counsel, but with a twist.  When multiple suits are filed over the same alleged misdeed, the Court of Chancery has encouraged the litigants to file a so-called "Savitt Motion."  That motion asks the various courts involved to confer as to which case should go forward while the others are stayed. Here, when the New York court decided the Delaware case should be the one to proceed, the lead lawyer in New York agreed to drop his suit and go to Delaware with his claim. That drew praise from the Delaware court and may have tipped the balance in having that lawyer appointed lead counsel.

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Court Of Chancery Explains Class Certification Rules

In re Lawson Software Inc. Shareholder Litigation, C.A. 6443-VCN (May 27, 2011)

This decision explains in a clear way how the class certification process is to work and when the members of the class should receive more direct notice of the class action.

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Superior Court Refuses to Permit "Pick Off" Of Class Representative

Stratton v. American Independent Insurance Company, C.A. 082-12-12 JRS CCLD ( May 11, 2011)

In this unusual fact pattern, a defendant paid the class representative the most the representative might have received for himself if the class claim were won and then argued the class action was moot.  The Court disagreed and did a careful analysis of why the class action could proceed despite the defense effort to "pick off" the class representative.

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Court Of Chancery Explains Selection Of Lead Counsel

In re Del Monte Foods Company Shareholders Litigation, C.A. 6027-VCL (December 31, 2010)

This decision applies the so-called Hirt factors to select lead counsel and the lead plaintiff in class action litigation.  The size of the proposed lead plaintiff's stake in the company and the experience of its proposed lead counsel are given the greatest weight.

The care and expedition given to this decision are particularly noteworthy.

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Court Of Chancery Clarifies Rules On Class Action For Fraud Claims

Dubroff v. Wren Holdings LLC, C.A. 3940-VCN (August 20, 2010)

This decision clarifies when a class action may be brought arising out of a claim based on the duty of disclosure.  Briefly, when there was no request for the stockholders to vote [such as when they just receive notice of a completed corporate action], then a plaintiff must prove "reliance, loss causation and damages."   As those elements of the claim may vary for each individual plaintiff, a class action is inappropriate.  Delaware does not recognize the "fraud on the market" theory in those instances.

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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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