Key Takeaway: The state high court concludes that due process concerns outweigh Delaware's pro-settlement policy.
The Delaware Supreme Court Dec. 27 affirmed the Delaware Chancery Court's settlement of a class lawsuit over the allegedly unfair acquisition of Celera Corp. by Quest Diagnostics Inc.,(DGX) but held that the lower court abused its discretion by not providing a shareholder with the right to opt out of the class (In re Celera Corp. Shareholder Litigation, Del. C.A. No. 6304-VCP, 12/27/12).
In reversing the Chancery Court's refusal to provide a right to opt out of the class, the en banc high court concluded that due process concerns outweigh Delaware's pro-settlement policy.
In particular, BVF disputed the accuracy of Credit Suisse Securities (USA) LLC's valuation of Celera, which opined that Quest's offer of $8 per share was well within a fair acquisition price. Believing that $8 per share was substantially below Celera's actual value, the court related, BVF continued to buy up Celera stock a in an effort to boost the market price and obtain voting control to prevent the merger.
Less than a week after the merger was announced in March 2011, Celera shareholder New Orleans Employees' Retirement System filed a would-be class action in the Delaware Chancery Court, alleging breach of fiduciary duty by Celera executives. The Celera-Quest deal, however, successfully went through and approximately four months after the merger, NOERS and the defendants entered into a settlement agreement.
According to the court, the accord named NOERS class representative, defined the class, and expressly conditioned the agreement on the class being certified without opt-out rights, thereby preventing other class members from independently pursuing other legal claims.
First, addressing the challenge against the class representative, the Delaware Supreme Court found that although NOERS sold all of its shares in Celera four days before the merger was consummated and 10 months before the settlement was approved, NOERS still owned the shares when the merger was approved and when the memorandum of understanding defining the class period was executed. Declining to adopt a rule of law that a class representative “must own stock in the corporation continuously through the final class certification,” the court held that NOERS satisfied the test of standing.
Next, the court rejected BVF's challenges against the certification of the class and held that the “Chancery Court relied on 'well-settled Delaware precedent'” in certifying the class under Delaware Chancery Court Rule 23(b)(1) and (b)(2).
Explaining that BVF was a “significant shareholder” wishing to pursue a “supportable claim for substantial money damages,” the court held that “due process concerns permeate any settlement of claims . . for monetary damages” through a settlement agreement dealing only with equitable claims. Accordingly, the court held that the Chancery Court should not have denied a discretionary opt-out right where the “policy favoring a global settlement was outweighed by due process concerns.”
Accordingly, the court remanded the judgment of the Chancery Court for further proceedings.
NOERS was represented by Stuart M. Grant (argued), Michael J. Barry, and John C. Kairis, Grant & Eisenhofer P.A., Wilmington, Del.; Mark Lebovitch, and Jeremy Friedman, Bernstein Litowitz Berger & Grossmann LLP, New York; and Marlon E. Kimpson and William S. Norton, Motley Rice LLC, Mt. Pleasant, S.C.
The defendants were represented by Gregory P. Williams and Kevin M. Gallagher, Richards, Layton & Finger, P.A., Wilmington, Del.; Alan S. Goudiss, Brian H. Polovoy (argued), and Michael S. Carucci, Shearman & Sterling LLP, New York; Kevin G. Abrams, Abrams & Bayliss LLP, Wilmington, Del.; and Patrick E. Gibbs and Andrew M. Farthing, Latham & Watkins LLP, Menlo Park, Calif.
To see the Delaware Supreme Court's opinion, go to /uploadedFiles/Content/News/Legal_and_Business/Bloomberg_Law/Legal_Reports/IN-re-Celera-Corp.-Shareholder-Litigation(1).pdf
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