Stay current on changes and developments in corporate law with a wide variety of resources and tools.
Aug. 10 — The settlement of a shareholder class action over the deal that created Walgreens Boots Alliance Inc. was rejected by a divided federal appeals court Aug. 10 ( In re Walgreen Co. Stockholder Litig. , 2016 BL 258303, 7th Cir., No. 15-3799, 8/10/16 ).
The U.S. Court of Appeals for the Seventh Circuit, in a 2-1 decision, reversed a lower court's approval of the settlement that released the shareholder plaintiffs' disclosure claims and awarded $370,000 in fees to the plaintiffs' counsel.
The decision may be the first by a federal appeals court to apply the Delaware Chancery Court's In re Trulia Inc. Stockholder Litig. standard.
Judge Richard Posner, writing for the Seventh Circuit majority, found that the supplemental disclosures sought by the plaintiffs didn't address a plainly material misrepresentation or omission by the defendants. “The value of the disclosures in this case appears to have been nil,” he said.
The plaintiffs' attorneys and Walgreens Boots representatives declined to comment on the ruling.
In January, the Delaware Chancery Court said in Trulia that it will be “increasingly vigilant” in reviewing disclosure-only settlements of shareholder class actions challenging merger and acquisition deals (31 CCW 25, 1/27/16).
In such settlements, shareholders agree to broadly release the company from their lawsuit in exchange for supplemental disclosures. While they don't receive any money in the resolution, their lawyers are paid attorneys' fees by the defendants.
Ted Frank, director of the Competitive Enterprise Institute’s Center for Class Action Fairness, which objected to the settlement, described the Seventh Circuit decision as a “tremendous victory” for shareholders.
Lawsuits challenging proposed mergers that are brought for the purpose of quickly obtaining fees for plaintiffs’ lawyers rather than producing any benefit for shareholders cost companies millions of dollars, Frank said in a statement. “We hope other courts follow Delaware and the Seventh Circuit in taking steps to shut down this racket,” he said.
Since the Trulia ruling, the landscape for M&A-related litigation has changed substantially (31 CCW 241, 8/10/16).
According to recent Cornerstone Research reports, there has been a significant decrease in M&A-related claims filed in Delaware and a corresponding increase in such actions brought in federal court.
Walgreen Co. acquired a 45 percent stake in Alliance Boots GmbH in 2012. Walgreen agreed to purchase the rest of the Swiss company in 2014. The reorganization was approved by 97 percent of Walgreen's shareholders.
The Seventh Circuit majority said the district court judge who approved the settlement should have appointed her own expert to explain the significance of the supplemental disclosures given her doubts about the lawyers' explanation.
“The district judge was handicapped by lack of guidance for judging the significance of the disclosures to which the parties had agreed,” Posner wrote.
The court majority also faulted the award of plaintiffs' counsel fees in the settlement, noting that they “devoted less than a month to the litigation, a month’s activity that produced no value” for shareholders.
To contact the reporter on this story: Michael Greene in Washington at firstname.lastname@example.org
To contact the editor responsible for this story: Yin Wilczek at email@example.com
The opinion is available at http://src.bna.com/hC2.
Copyright © 2016 The Bureau of National Affairs, Inc. All Rights Reserved.
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to firstname.lastname@example.org.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).
This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to email@example.com.
Put me on standing order
Notify me when new releases are available (no standing order will be created)