Tuesday, February 1, 2011
In the most cynical view of the shareholder lawsuit, managers are happy to settle even spurious claims because the global release and settlement generates effectively a 'get out of jail free' card absolving them of any fiduciary failings that may have come before the settlement. That's a pretty cynical view, mind you, but I suppose I can envision facts where it might be true.
Now comes J. Crew. The process employed to take the company private has been ... to put it charitably ... less than perfect. Read about it here and here and here. In any event, the J. Crew board ended up on the receiving end of a well-deserved shareholder lawsuit for their apparent inability to comply with their fiduciary obligations in connection with the going-private transaction. It appeared two weeks ago that the parties were near settlement. In fact, they reached a settlement, but had yet to bring it before Vice Chancellor Strine for approval. According to a letter filed with the court yesterday and reported by Bloomberg this morning, plaintiffs counsel are accusing management of undermining the settlement from almost before the ink was dry (Download JCrew Settlement letter). The plaintiff's letter to Vice Chancellor Strine updating him on the situation reads like the J. Crew board was hoping to use the settlement like a 'get out of jail free' card while they pursued their preferred transaction:
The Special Committee, however, flatly refused to even discuss or respond to Plaintiff's objections on these issues. Defendants took very aggressive positions concerning the terms of the settlement stipulation. For example Defendants' revision to the settlement stipulation included an overly board release that would prevent shareholders from challenging Defendants' future actions related to the sale of J.Crew, inclding any alternative transaction that might arise. Plaintiffs never agreed to release claims related to Defendants' future conduct, and could never do so in good faith, especially in light of Defendants' recent actions, which Plaintiffs believe show a disregard for their fiduciary duties.
A copy of the settlement stipulation was attached to the letter as an exhibit and you can download it here (Download JCrew Settlement MOU). This settlement stipulation has not yet been approved by Vice Chancellor Strine and now looks like it won't be as the plaintiffs are gearing up for a trial.
This case is extremely interesting for those of us thinking about the developing doctrine with respect to transactions involving managers and control persons. Along those lines, The Deal Professor will be sponsoring an important symposium in Delaware on this topic in April. If this case ends up going to trial there might be a nice confluence of events in April that will make Wilmington the place to be somebody this Spring.