Dec 27 The Delaware Supreme Court ruled on
Thursday that a large investor should be allowed to opt out of a
shareholder class action settlement, making it potentially more
difficult for companies to end litigation.
The court reversed a the lower Court of Chancery and ruled
that a large holder of shares of Celera Corp must be allowed to
pursue their claims for "substantial" monetary damages relating
to the company's sale to Quest Diagnostics Inc.
Delaware's Court of Chancery is a major venue for
shareholder class actions challenging mergers and acquisitions.
The lawsuits almost always end in settlements and rarely provide
for opt-outs by those shareholders who oppose the settlements.
The case stems from the 2011 acquisition of Celera by Quest
for $680 million.
The deal was opposed by BVF Partners LP, which argued in
letters to Celera's board that the company was undervaluing its
drug royalties. BVF had nearly a quarter of Celera's stock by
the time the deal closed on May 17, 2011.
At the same time that BVF was fighting the deal, a separate
shareholder with a smaller investment, the New Orleans
Employees' Retirement System, sued the board for breaching their
fiduciary duties by selling too cheaply.
Weeks after filing its lawsuit, the pension fund settled its
lawsuit in return for Celera reducing the deal's termination fee
and several non-monetary changes. Shareholders did not receive
additional money from the settlement, which would release all
shareholder legal claims, including those of BVF.
BVF objected to the settlement and attacked the pension fund
as an inadequate class representative, but Delaware Court of
Chancery Judge Donald Parsons overruled the fund's objections.
BVF then appealed to the state's highest court.
In its 34-page opinion, the Delaware Supreme Court said BVF
must be given an opt-out because the lower court found the class
representative was "barely" adequate and BVF was a significant
shareholder ready to pursue a clearly identified claim.
"I think it would be fair to say that the decision today in
Celera may make it easier for objectors to class action
settlements, especially those with a substantial holding, to
argue for an opt out option, which in turn may make it more
difficult to bring closure to such claims and more difficult to
'buy global peace'," said Francis Pileggi, an attorney with
Eckert Seamans Cherin & Mellott in Wilmington.
Big investors have occasionally opted out of federal class
action securities and antitrust cases as they hope to do better
on their own, adding to the legal costs for defendants.
For example, the state of Alaska said in 2007 that its $60
million securities fraud settlement with Time Warner Inc
was 50 times what it would have recovered as part of a class
action against the company. The case involved allegations that
the media company misled investors about AOL, with which it
merged in 2001.
Pileggi said the Supreme Court decision could be compounded
by a September decision by the Court of Chancery involving Hecla
Judge Travis Laster found in that case that dismissing a
shareholder lawsuit because the plaintiff was not qualified to
represent a class did not prevent a more diligent plaintiff from
bringing essentially the same case.
The Delaware Supreme Court case is In Re Celera Corporation
Shareholder Litigation No. 212, 2012.