Law prof objects to Dela. M&A settlement, could be first of many

July 14, 2015

(Reuters) – If Fordham law professor Sean Griffith wanted his newly-filed objection to the settlement of shareholder litigation over Thoma Bravo’s $3.6 billion acquisition of Riverbed Technologies to provoke debate on the dubious benefit to shareholders from disclosure-only settlements of M&A class actions, his timing could not have been better.

As I reported Friday, there seems to be burgeoning resistance among the judges of Delaware Chancery Court to M&A settlements in which plaintiffs grant defendants broad releases of shareholder claims in exchange for just additional disclosures in deal proxy materials (and, of course, a few hundred thousand dollars in fees for shareholder lawyers).

Last week, Vice-Chancellors John Noble and Travis Laster both refused to approve disclosure-only settlements. Noble told both sides in a shareholder class action over Roche’s $8.3 billion acquisition of the biotech company InterMune that he has been “struggling” with the idea that Chancery Court’s approval of these settlements is akin to selling “deal insurance.” He said he wanted some time to reflect on the appropriate scope of releases. Laster, meanwhile, flat-out rejected an agreement to resolve litigation over Cobham PLC’s $1.5 acquisition of the microelectronics company Aeroflex, in a hearing in which the vice-chancellor mused about the last several years of reflexive deal-tax litigation and concluded, “What we’ve learned is that routine approval of these settlements carries real consequences, all of them bad.”

One of Judge Laster’s touchstones is Griffith’s 2015 paper, “Confronting the Peppercorn Settlement in Merger Litigation: An Empirical Analysis and a Proposal for Reform,” co-authored with law profs Jill Fisch of the University of Pennsylvania and Steven Davidoff Solomon of Berkeley. The paper hypothesized that if shareholders considered the additional deal proxy disclosures from M&A class actions to be material, fewer of them would vote to approve transactions. The professors found shareholder voting behavior didn’t change, leading them to conclude that beefed-up disclosures don’t actually provide a substantial benefit to shareholders and courts shouldn’t reward plaintiffs lawyers for disclosure-only settlements.

But now Griffith is turning academic theory into real-world litigation as an objector protesting a disclosure-only settlement that, in his view, doesn’t deliver benefits to shareholders but requires them to release all of their claims. And his objection in the Riverbed case is only a start.

In an interview, the Fordham professor said that since the beginning of 2015, he has been buying shares of companies that have announced their sales to acquirers — the corporations typically sued in M&A shareholder class actions. Griffith’s pre-closing stock buys are intended to make him a member of the prospective M&A classes, which means that if he doesn’t like proposed settlements, he has standing to object. So far, Griffith said, his portfolio includes shares in 30 acquired companies. With the help of his Fordham law students, Griffith said, he has been monitoring litigation over the deals. Riverbed is the first case in which one of Griffith’s companies has announced a settlement.

Griffith told me his role as an objector will be to bring the adversary process to class action settlement proceedings in which the interests of defendants and plaintiffs lawyers are aligned. He said he realized when he served as an expert witness opposing a Verizon class action settlement in New York state court that the adversary system collapses when plaintiffs lawyers and defendants agree to settle.

Judges sometimes step up with skeptical questions, as Vice-Chancellor Laster did last month when he rejected a proposed disclosure-only settlement in a case involving Harbinger Capital’s sale of stock to Leucadia. (Laster had previously proposed bringing Griffith into the Harbinger case as an amicus to evaluate the settlement.) But Griffith told me “it’s not really the American tradition” to rely on judges, so it’s up to objectors to argue against inadequate settlements. And until now, he said, such objections have been Delaware Chancery Court cases.

Griffith said he will not accept a payment to drop his objection in Riverbed or future cases and is considering whether to file an affidavit attesting that he’s not in this for money. Nor is the sole practitioner representing him, Joseph Christensen, a former securities defense lawyer at Paul, Weiss, Rifkind, Wharton & Garrison and Richards, Layton & Finger. Christensen told me he has pledged to represent Griffith at no charge in all of the professor’s future objections (assuming he’s not conflicted) because he believes corporate litigation should be “meaningful” and disclosure-only settlements are too often not.

He and Griffith both said they do not expect the objection campaign to make them friends in the Delaware bar, where both plaintiffs lawyers and defendants have learned to get what they need from M&A settlements: fees for plaintiffs lawyers and litigation releases for defendants. Griffith emphasized, however, that his objection in the Riverbed case is tightly focused on the specific disclosures in that proposed settlement, not framed as a public policy screed. He plans to stick with the same strategy in future objections, he said.

Griffith and Christensen have already gotten a hint of how their objections will be greeted. Plaintiffs lawyers in the Riverbed case asked for a court order requiring Griffith to sit for a deposition unless he agreed to be deposed. But on Tuesday afternoon, Vice-Chancellor Sam Glasscock, who is overseeing the case, denied the motion. Co-lead counsel Jason Leviton of Block & Leviton declined to comment on the merits of Griffith’s objection until class counsel file a response next week.

I left a message with Riverbed counsel at Wilson Sonsini Goodrich & Rosati but didn’t hear back.

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