(Reuters) - We’ve become inured to squabbles among plaintiffs’ lawyers who want to be appointed to lead juicy securities class actions. Under the protocols Congress laid out in 1995’s Private Securities Litigation Reform Act, shareholders and their lawyers have an opportunity to tell judges why they – and not the other shareholders who want the job – will best represent the interests of all investors. That all too often entails plaintiffs’ lawyers bashing other folks ostensibly on the same side.
Defendants aren’t supposed to pick a dog in the lead counsel fight. Sure, if there are parallel cases in different jurisdictions they can manipulate the outcome by negotiating a settlement with one set of plaintiffs’ lawyers instead of another, effectively preempting the lead counsel selection process. But I can’t remember ever seeing a defendant in a federal securities class action submit a brief opposing selection of a lead plaintiff and lead lawyer.
Last week, in a brief in federal court in San Francisco on behalf of the networking and security company Gigamon, Wilson Sonsini Goodrich & Rosati opposed a motion by Robbins Geller Rudman & Dowd to lead the case. To be fair, Wilson Sonsini’s motion didn’t specifically object to Robbins Geller or its client, an investor who held 3,000 Gigamon shares on the date stockholders voted to approve the company’s $1.6 billion acquisition by Elliott Management. The firm argued, however, that no lead counsel should be appointed because the company has already reached settlements with all of the plaintiffs who first filed deal challenge suits in San Francisco federal court, after disclosing some additional information about the merger in proxy materials and agreeing to pay mootness fees to plaintiffs' lawyers.
There’s no live case or controversy, Gigamon’s brief said, so no reason to designate anyone to lead it. “The Gigamon defendants respectfully submit that the claims asserted in this action are moot, and there is no need for the appointment of a lead plaintiff to litigate moot claims,” the brief said.
It is certainly true that the six Gigamon shareholders who kicked off the M&A class action in federal court have settled and dismissed their suits. On Jan. 26, Gigamon filed a stipulation informing U.S. District Judge William Orrick that it had reached a deal with plaintiffs' lawyers from Faruqi & Faruqi, Rigrodsky & Long, RM Legal, Brodsky Smith, Glancy Prongay & Murray, Wolf Popper and WeissLaw. The plaintiffs' firms agreed that Gigamon’s supplemental disclosures adequately addressed their allegations; Gigamon agreed it would pay the firms a (yet undetermined) mootness fee.
The settlement dismissed only claims by the individual shareholders who filed suits. It wasn’t a class action deal and did not release claims by any other Gigamon investors. Wilson Sonsini nevertheless argued in its opposition to the Robbins Geller lead plaintiff motion that the settlement has mooted claims by all Gigamon shareholders.
In a scathing brief filed Tuesday, Robbins Geller said that’s preposterous. Gigamon even said in its supplemental proxy materials that the new disclosures were not material, the brief said, so it can’t turn around and claim that it has resolved accusations of failing to disclose material information. “Defendants cannot now have it both ways,” Robbins Geller said.
More pointedly, the firm accused Gigamon of striking a sweetheart deal with pliant shareholder firms looking for a quick payout. The plaintiffs' firms that settled with Gigamon filed “bare-bones” or “cookie-cutter” complaints, Robbins Geller asserted, and did virtually no additional work on their cases against Gigamon. The cases settled just before the deadline for lead plaintiff motions, the Robbins Geller brief said, presumably for fear that a more vigorous shareholder would show up. And according to Robbins Geller, the deal benefits only the company and plaintiffs' lawyers – exactly the sort of settlement the 7th U.S. Circuit Court of Appeals decried as “no better than a racket” in its 2016 ruling in In re Walgreen.
These deals, Robbins Geller said, cannot deter shareholders who didn’t release claims and still want to litigate on behalf of a class of investors. Its client, the firm said, “does not believe the claims for violation of the federal securities laws alleged in the complaints are moot and intends to vigorously prosecute the claims on behalf of the putative class,” its brief said. “Neither (the client) nor his counsel are willing to abandon the class’s claims in exchange for a private settlement or payment of a so-called mootness fee. That defendants prefer plaintiffs (and their counsel) who have agreed to compromise these claims is not surprising. Alas, defendants have no say in the lead plaintiff process.”
I emailed Gigamon counsel David Berger, Jerome Birn and Joni Ostler of Wilson Sonsini to ask about the Robbins Geller brief but didn’t hear back. I also reached out to a half-dozen of the plaintiffs’ lawyers who settled their clients’ cases against Gigamon. Only Carl Stine of Wolf Popper responded.
Stine said he wouldn’t respond to Robbins Geller’s criticism of disclosure-only settlements in exchange for mootness fees. But he said he agreed Wilson Sonsini has no business arguing that the entire case is moot because a half-dozen shareholders settled their claims individually. “It makes no sense. It’s ridiculous,” he said. “We agreed to dismiss only with prejudice to our clients. That means what it means – no release of claims by other shareholders.”
As you know, there’s been an explosion of M&A shareholder class action in federal court after Delaware Chancery Court more or less announced its hostility to deal tax litigation in 2015. Scores of cases follow the trajectory Robbins Geller scorned in its Gigamon brief: quick settlements and dismissal of individual claims; no classwide cash recovery or injunctive relief; and privately negotiated mootness fees. I’m going to be writing more about these cases in the upcoming months. Keep an eye out.
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