Sept 29 (Reuters) - A federal judge rejected a settlement of a lawsuit challenging longtime Abercrombie & Fitch Co Chief Executive Michael Jeffries’ pay, saying it offered little benefit to shareholders despite “serious” allegations of wrongdoing.
The Aug. 29 settlement was meant to resolve claims that Abercrombie should not have awarded Jeffries more than $140 million since 2007 and let him rack up “massive” travel expenses, amid persistent sales declines and an underperforming stock relative to other clothing chains.
But in a Friday decision, U.S. District Judge James Graham in Columbus, Ohio said shareholders appeared to give up too much in being subjected to the accord, which calls for governance changes but no monetary payment or admission of wrongdoing.
“The court is unable to conclude that the proposed settlement treats absent shareholders fairly,” Graham wrote. “The court’s fundamental concern is that, given the seriousness of the allegations ... the proposed settlement broadly releases shareholders’ claims for little, if any, consideration and provides no monetary compensation to the company.”
Mark Lebovitch, a lawyer representing the plaintiff City of Plantation Police Officers’ Employees’ Retirement System, a Florida pension plan, said: “We are acting immediately to address and hopefully resolve the court’s concerns.” Lebovitch is a partner at Bernstein Litowitz Berger & Grossmann.
Jay Kasner, a partner at Skadden, Arps, Slate, Meagher & Flom representing Abercrombie, did not immediately respond to requests for comment. Abercrombie declined to comment.
The decision came as U.S. judges more closely scrutinize settlements of shareholder derivative lawsuits, which are typically brought against executives and directors.
In a separate case, U.S. District Judge Charles Breyer in San Francisco on Friday questioned a proposed settlement with Hewlett-Packard Co officials over the botched purchase of Britain’s Autonomy Plc, saying the claims release “appears to be staggering in its breadth.”
Some of the proposed governance changes at Abercrombie called for the naming of a chief ethics and compliance officer, tying executive pay more closely to performance, and limiting access to nonpublic data by Jeffries’ partner.
The New Albany, Ohio-based company had this year already changed some pay practices; added seven independent directors, including four to resolve a proxy fight with hedge fund Engaged Capital; and cut Jeffries’ power by splitting the roles of chairman and chief executive.
Graham alluded to this in addressing whether the settlement might be seen as “collusive,” giving the claims it disposed of and legal fees awarded.
While “not branding” the settlement as collusive, Graham nonetheless said it featured “a $2,775,000 payment to counsel, a release that appears to be overbroad, no cash recovery for the company or shareholders and corporate reforms that seem to be in large part either already adopted or indefinite.”
The case is City of Plantation Police Officers’ Employees’ Retirement System v. Jefferies et al, U.S. District Court, Southern District of Ohio, No. 14-01380. (Reporting by Jonathan Stempel in New York; Editing by Meredith Mazzilli)