Posts tagged Class Actions

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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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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