No lodestar for failed M&A class action objectors – Delaware judge

December 4, 2015

(Reuters) – There is no doubt that Fordham law professor Sean Griffith has contributed to Delaware Chancery Court’s deepening skepticism about disclosure-only settlements in M&A class actions. Griffith was co-author of the influential 2015 Texas Law Review paper, “Confronting the Peppercorn Settlement in Merger Litigation,” which Vice-Chancellor Travis Laster cited at the July 8 hearing that touched off a series of decisions questioning settlements that granted defendant corporations broad releases from claims in exchange only for beefed-up proxy disclosures.

Griffith also put his money where his scholarly mouth is. At the beginning of 2015, the law prof began purchasing shares in recently acquired companies with the express intention of filing objections if class actions over the deals resulted in disclosure-only settlements. The idea, Griffith told me, was to make sure these settlements are poked and prodded in an adversary proceeding that tests their fairness. He brought his first objection in July, challenging a disclosure-only settlement over Thoma Bravo’s 2014 acquisition of the software company Riverbed Technology.

Griffith’s lawyer, Delaware solo Joseph Christensen, spent nearly 250 hours, or nearly $150,000 in lodestar billings on the objection. In the end, it failed. Vice-Chancellor Sam Glasscock approved the settlement in September, though he cut fees for plaintiffs’ lawyers from the agreed-upon $500,000 to $300,000. More importantly, however, Glasscock put in writing what his Chancery Court colleagues had just been saying from the bench, putting plaintiffs and defendants on notice that Delaware judges will no longer routinely approve disclosure-only settlements.

Griffith counsel Christensen believed his work on the Riverbed case was valuable to Vice-Chancellor Glasscock and to the shareholder class. As he explained in a fee application, “counsel submits that his efforts benefitted the class by providing the court with adversarial briefing that improved the informational base from which the court could make its decision as a fiduciary for the class, contributed to a move in the law in a direction favorable to the class and contributed to the reduction in fees awarded to plaintiffs’ counsel.”

The application didn’t specify a dollar amount, but Christensen did cite his hourly billings. Riverbed’s lawyers at Wilson Sonsini Goodrich & Rosati opposed any award to Christensen, arguing that whatever Griffith’s contributions to the policy debate over disclosure-only settlements, his objection did not specifically benefit Riverbed shareholders. Class counsel from Block & Leviton and two other firms said in their opposition to the fee application that if Glasscock rewarded Griffith’s counsel, the judge would encourage professional objectors to adopt the law professor’s tactic of buying shares in recently acquired companies just to object to M&A settlements.

Vice-Chancellor Glasscock ruled Thursday, in an opinion first reported by the Chancery Daily. He agreed with Christensen that Griffith’s “elucidation of issues” contributed to his decision in the case, so, even though the objection was ultimately unsuccessful, Christensen was entitled to a modest reward. But the judge also said he didn’t want to foster “a perverse incentive to object.” He granted Christensen a mere $10,000 – less than 7 percent of his billings on the case.

“It’s not much,” Christensen told me Friday.

Clearly, Christensen said, Vice-Chancellor Glasscock does not support Griffith’s vision of objectors policing proposed M&A settlements on behalf of shareholders. The small award, he said, will discourage objectors from coming forward unless a settlement is obviously inadequate – exactly the cases judges can decide without help from an objector. Objectors will be reluctant to litigate close calls, according to Christensen, “because they’re not going to invest a lot of time to suss out problems.”

Christensen was traveling when the opinion came down and received an email informing him of the $10,000 award before he saw the actual ruling. “I went through the various stages of grief when I read the opinion,” he said. Riverbed’s opposition argued that Christensen has already been rewarded for litigating Griffith’s objection because he’s raised his public profile. Christensen said in response, “Hard work is its own reward, but this particular matter was not undertaken on a pro bono basis.”

Though Griffith said when he filed the Riverbed objection that it could be the first of many, the law professor has not objected to any additional proposed M&A settlements, according to Christensen. He has submitted an amicus brief in In re Trulia, addressing a Delaware settlement under evaluation by Chancellor Andre Bouchard, but that is a true pro bono matter.

I asked Christensen if the paltry award in Riverbed will dissuade him and Griffith from bringing subsequent objections. “I don’t think so,” he said. “Settlements are in flux. We want to see how things look when they settle down.”

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