Feb 6 A group of lawsuits by shareholders
objecting to the sale of the New York Stock Exchange has put
state judges in Delaware and New York on a collision course,
highlighting a recent boom in a chaotic and sometimes costly
type of litigation.
Almost as soon as mergers are announced, they are met with
legal challenges from shareholders, with similar lawsuits often
appearing in two different state courts. The lawsuits usually
settle quickly, but nevertheless they have become a growing
headache for companies that are being bought out.
This proliferation prompted Leo Strine, the chief judge on
Delaware's Court of Chancery, to publish a detailed proposal
last month for corralling such cases in his court. But as the
lawsuits over the New York Stock Exchange sale show, the biggest
opposition to his proposal may come not from plaintiffs'
attorneys but from other judges.
NYSE Euronext announced on Dec. 20 it had agreed to
be bought by IntercontinentalExchange Inc for $8.2
billion. NYSE shareholders immediately sued, saying its
directors had breached their duties by selling the company too
The first lawsuit was filed by an individual investor in the
Court of Chancery in Delaware, where NYSE is incorporated. Soon
afterwards, a union pension fund filed a similar lawsuit in
state court in New York, where the NYSE does business. Several
more cases were soon filed in each court.
The cases, which seek class action status, are proceeding in
parallel, in what is known as multiforum litigation, raising the
possibility of duplicate discovery, depositions, hearings and
PLEASE TELL ME IT'S NOT STRINE
While federal courts have procedures to prevent overlapping
litigation, there is no easy way to coordinate state-level
cases, and the two judges overseeing the cases have very
different views of which case should take precedence.
Last month, Strine, who is hearing the Delaware case,
co-authored a 104-page paper arguing that such cases should be
in the court that specializes in the law governing the dispute.
For merger class actions, which are internal corporate
disputes between directors and shareholders, that would
generally be Delaware, which is home to about two-thirds of the
largest U.S. corporations.
Strine argued that the "first-filed" system, which in many
states gives precedence to the oldest lawsuit, just encourages
hastily drafted complaints and a race to the courthouse by
On Jan. 10, the same day that Strine's paper was published
by Harvard Law School, Justice Shirley Kornreich was holding a
hearing to consolidate five class actions filed in New York over
the NYSE sale.
According to a transcript, when she learned of the parallel
cases in Delaware, she said: "Who - please tell me it's not
Chancellor Strine who has the Delaware cases?"
In a subsequent interview with Reuters, Kornreich said that
the court in the state of incorporation may be trumped by the
court in the state with the actual operations, which she said
has "an economic interest" in the litigation.
"As a matter of policy they are going to hold onto it," she
said, referring to states where businesses operate. Kornreich
said she was talking about parallel cases in general and not
specifically about the NYSE cases.
AVOIDING A FOOD FIGHT
Kornreich acknowledged parallel cases are a problem, but she
said it should be possible for two state courts to work
side-by-side, issuing identical orders and coordinating
"What I think is, there shouldn't be a food fight. It
demeans the court," she said.
Strine declined to comment. But in his paper, he said that
judges in different states are often unable to work together.
Some judges might find the class actions "intellectually and
reputationally more rewarding than a more standard diet of
routine civil or criminal cases," he wrote. He said a judge may
also, out of loyalty, want to keep cases in the bar where they
had practiced as attorneys.
Kornreich, who said she had not seen Strine's paper,
bristled at the suggestion that other judges were to blame.
"What is he doing, pointing the finger at another jurisdiction's
judges and blaming them for this?" she asked.
Defendants often describe these cases as meritless, but they
generally settle them quickly so they can move to close their
deals. The settlements typically provide added information for
investors and fees for the plaintiffs' attorneys, which average
around $1.2 million according to Cornerstone Research.
The U.S. Chamber of Commerce, which has long pushed for
limiting class actions, in a recent paper called the cases
"extortion through litigation, plain and simple."
Plaintiffs' attorneys, however, say the cases serve as a
kind of private regulation ensuring deals are fair, and lawsuits
over the sales of Del Monte Foods and El Paso Corp unearthed
One of the most notorious parallel class actions involved
the sale of Topps Co. In that instance, in 2007, the New York
cases were filed first, but Strine refused to stay lawsuits in
Delaware. The New York judge, Herman Cahn, also refused to back
down, leading to actively litigated parallel cases until a
settlement was reached.
Cahn has since returned to private practice with the Milberg
law firm and he is leading the NYSE cases before Kornreich in
New York. At the Jan. 10 hearing, he offered support to
Kornreich after she said her views differed from Strine's.
"Chancellor Strine seems to believe he covers the road,"
Cahn said, in what may be a reference to Strine's frequent
admonition that other courts should "stick to their lane."
Cahn did not immediately respond to a request for a comment.
Strine has appointed attorneys from five law firms as
co-lead counsel to direct the Delaware litigation, including
Jeffrey Golan, of Barrack, Rodos & Bacine, who declined to
The defendants, represented by Wachtell, Lipton, Rosen &
Katz, have asked Kornreich to put her cases on hold in favor of
the Delaware cases. While this tactic is aimed at reducing
litigation, Strine said in his paper it is often useless if
another judge is determined to hold onto a case.
Kornreich has not yet ruled on the motion.
At her hearing on Jan. 10, Kornreich said that she was going
to hold off trying to coordinate with Strine because she did not
want to "walk into the fire."
The Delaware cases are In Re: NYSE Euronext Shareholder
Litigation, Delaware Court of Chancery, No. 8136
The New York case is NYSE Euronext Shareholders/ICE
Litigation, Supreme Court of New York, County of New York, No.