January 12, 2012
Davidoff on Airgas
Steven Davidoff has just posted a nice case study of the Airgas decision forthcoming in the Columbia Business Law Review. Steven had a front-row view of the Airgas hostile offer and subsequent litigation. (Google Deal Prof and Airgas if you don't believe me.) In this paper, Steven revisits the class through the prism of Delaware's judges as strategic actors. The role of Delaware's judiciary is fascinating and this paper - and the Airgas episode - is an important contribution to understanding how and why Delaware's courts decide as they do. It's well worth a read.
Abstract: When is it appropriate for Delaware judges to act strategically? This case study documents and analyzes Air Products’ $5.8 billion unsuccessful, hostile offer for Airgas, reviewing the decisions made by the Delaware courts in adjudicating the most prominent takeover bid of 2010. The three court opinions in Air Products v. Airgas show how Delaware courts strategically decide cases and the effect of this decision-making on the course of Delaware corporate law and Delaware’s constituencies. The Airgas case ultimately provides a useful lesson for when, if ever, strategic considerations should influence the outcome of individual Delaware corporate law disputes.
January 11, 2012
Representative plaintiff sanctioned for improper trading
After Calix, Inc. announced its acquisition of Occam Networks, Inc. in September 2010 the by now usual lawsuit appeared to challenge the transaction. One of the representative plaintiffs in this case was Michael Steinhardt, a hedge fund investor, described as "one of the most successful investors in the history of Wall Street" and an Occam shareholder. The suit alleged that the directors of Occam violated their fiduciary duties to the corporation when they agreed to sell the corporation to Calix at an "unfair price." OK, so far, so good. Well, not good, but expected. You know what I mean. In any event, the plaintiffs pursued their case and were permitted to take discovery subject to a confidentiality order. That order read, in part:
Confidential Discovery Material, or information derived therefrom, shall be used solely for purposes of this Litigation and in an appraisal proceeding that Plaintiffs in this Litigation may file . . . . Confidential Discovery Material shall not be used for any other purpose, including, without limitation, for any business or commercial purpose or for any other litigation or proceeding. Confidential Discovery Material Parties and non-parties who receive Confidential Discovery Material shall not purchase, sell, or otherwise trade in the securities of any company, including but not limited to Occam and Calix, on the basis of confidential information contained in the Confidential Discovery Material to the extent such information is still confidential at the time of such purchase, sale or trade.
Of course, with an order like this and with sophisticated investors like Steinhardt, you can only guess what happened next. That's right, after Steinhardt was in possession of confidential information (via one of his co-plaintiffs) he began to short Calix common stock. When the Calix defendants found out that Steinhardt had shorted their stock they moved in the Delaware Chancery Court for sanctions against him.
Last Friday, Vice Chancellor Laster sanctioned Steinhardt for trading in violation of the confidentiality order (Steinhardt Sanctions Opinion). The sanctions Steinhardt and his funds for improper trading include:
(i) dismissal from the case with prejudice and barred from receiving any recovery from the litigation;
(ii) requirement to self-report their improper trading to the SEC;
(iii) requirment to disclose their improper trading in any future application to serve as lead plaintiff; and
(iv) an order to disgorge their trading profits (approximately $500,000).
Lesson? If you are going to be a representative plaintiff in one of these transaction related lawsuits, you can't trade in the stock of the either the acquirer or the target during the pendancy of the litigation. That seems pretty straightforward. You'd have thought Steinhardt would have already known that.
January 10, 2012
Challenging the conventional wisdom on hostile offers
The WSJ Deal Journal posts some excellent thoughts on how Martin Marietta's hostile offer for Vulcan Materials challenges the conventional wisdom on hostile offers. Take read.
Olympus goes after its own directors
You'll remember last Fall when the whole Olympus accounting scandal came to light? Olympus was using merger-related transaction fees to hide its nearly 2 decades of accounting shenigans. It was only when Olympus' new CEO Michael Woodford started asking questions about the inexplicably large transaction fees that the whole thing fell apart. Now, Olympus has announced that it has filed suit in the Tokyo District Court against 19 current and past Olympus directors seeking more than 3.6 billion Yen (plus interest) in damages. That's about $45 million. That's not much, given the amount of damage caused to Olympus by the accounting scandal. According to Reuters, the internal investigation panel recommended seeking 90 billion Yen ($1.17 billion) in damages from the directors. Even in Japan I don't think D&O insurance covers accounting fraud.
Olympus expects all the current directors who have been sued to resign at the next shareholder meeting in April 2012.
January 9, 2012
Johnson on transaction related litigation
Jennifer Johnson has a new article, Securities Class Actions in State Court, appearing on the problem of multi-forum transaction-related litigation. This paper is consistent with my paper on the same issue. Johnson suggests that unless action is taken at the state level to manage this issue, we shouldn't be surprised if the result is ultimately that Delaware loses the "carve-out" provided in SLUSA.
Abstract: Over the past two decades, Congress has gradually usurped the power of state regulators to enforce state securities laws and the power of state courts to adjudicate securities disputes. This Paper evaluates the impact of Congressional preemption and preclusion upon state court securities class actions. Utilizing a proprietary database, the Paper presents and analyzes a comprehensive dataset of 1500 class actions filed in state courts from 1996-2010. The Paper first examines the permissible space for state securities class actions in light of Congressional preclusion and preemption embodied in the 1998 Securities Litigation Uniform Standards Act (SLUSA) and Class Action Fairness Act of 2005 (CAFA). The Paper then presents the state class action filing data detailing the numbers, classifications, and jurisdictions of state class action cases that now occupy the state forums. First, as expected, the data indicates that there are few traditional stock-drop securities class actions litigated in state court today. Second, in spite of the debate over the impact of SLUSA and CAFA on 1933 Act claims, very few plaintiffs attempt to litigate these matters in state court. Finally, the number of state court class actions involving merger and acquisition (M&A) transactions is skyrocketing and now surpasses such claims filed in federal court. Moreover, various class counsel file their M & A complaints in multiple jurisdictions. The increasingly large number of multi-forum M&A class action suits burden the defendants and their counsel, the judiciary and even plaintiffs’ lawyers themselves. The paper concludes that absent effective state co-ordination, further Congressional preemption is possible, if not likely.
Back from the grading hiatus. Classes starting again, so expect a more normal posting routine.