M & A Law Prof Blog

Editor: Brian JM Quinn
Boston College Law School

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Saturday, March 26, 2011

Laster is pushing buttons

David Marcus over at The Deal has a really good piece on how Vice Chancellor Travis Laster is pushing everyone's buttons these days -- in a good way!  His ruling in Del Monte got a lot of attention, but what looks the case that will define his early days his is ruling in In re Revlon from last Spring.  There he ordered a change in lead plaintiff's counsel in a ruling that got a lot of attention.  From Marcus' piece:

Actual litigation, Laster emphasized, is what he wants. Shareholder suits "serve as a valuable check on managerial conflicts of interest," he wrote in Revlon, and therefore should be treated seriously by both lawyers and courts.

"Traditional plaintiffs' law firms who bring lawsuits on behalf of stockholders without meaningful economic stakes can best be viewed as entrepreneurial litigators who manage a portfolio of cases to maximize their returns through attorneys' fees," he wrote. "A systemic problem emerges when entrepreneurial litigators pursue a strategy of filing a large number of actions, investing relatively little time or energy in any single case, and settling the cases early to minimize case-specific investment and maximize net profit." Replacing counsel who engage in such practices should encourage other lawyers to bring more meritorious cases.

Laster admitted that such an approach risks driving plaintiffs' lawyers to other jurisdictions. But, he wrote in response, "While in the short run policing frequent filers may cost some members of the bar financially, in the long run it enhances the legitimacy of our state and its law." In this view, stingy fee awards to lawyers who are generally looking to turn a quick profit for opportunistic strike suits will drive that less desirable work to other courts, while generous fee awards for good work will only make Delaware a more appealing venue for meritorious suits.

Laster shifted his focus to company-side lawyers in a case that immediately got their attention. In a piece of shareholder litigation last fall, Laster focused his ire on David Berger, a litigation partner at Wilson Sonsini Goodrich & Rosati PC in Palo Alto, Calif. Laster threatened to bar Berger from litigating in Delaware by removing his pro hac vice status because of how Berger represented NightHawk Radiology Holdings Inc. in settling shareholder litigation arising from the company's merger with Virtual Radiologic Corp. (Pro hac vice allows lawyers not admitted in a jurisdiction to appear before its courts.) Shareholders initially sued NightHawk in Chancery, and in oral argument Laster found "there were meaningful, litigable" issues in the deal that the plaintiffs opted not to pursue. Instead, they focused on weak disclosure claims.

"So imagine my surprise," Laster told lawyers at a Dec. 17 hearing in the case, upon learning that NightHawk and its shareholders had agreed to a disclosure-based settlement approved by an Arizona state court that probably didn't know about Laster's view of the case. The parties settled the claims that Laster rejected and passed over those he'd told them might have merit.

In the judge's view, the settlement raised the specter of "collusive forum shopping." Once a public company announces a sale, different shareholders often sue for alleged breaches of fiduciary duty in different jurisdictions. Defense lawyers complain about the resulting inefficiency and expense, but the multiple forums may allow defendants "to force plaintiffs to reverse-bid for the lowest possible settlement," Laster said at the hearing. In other words, the company settles with the plaintiffs' lawyer who often accepts the smallest settlement -- and, possibly, the smallest fee, but one that on an hourly basis may be quite lucrative. "Defense lawyers benefit from this game, too," Laster said. "They get to bill hours without any meaningful reputational risk from a loss. They then get a cheap settlement for their client. Disclosures are cheap."

It's worth reading the whole piece here.

-bjmq

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