Justia Securities Law Opinion Summaries

A controller orchestrated a merger that consolidated Sears, Roebuck and Co. and Kmart Corporation under Sears Holdings Corporation. The controller, through his investment funds, owned a majority of the new entity. In 2012, Sears Holdings spun off Sears Hometown and Outlet Stores, Inc. (the Company) as a separate public entity, with the controller retaining a majority stake. In 2019, the Company merged with an acquisition subsidiary, with each share converted into the right to receive $3.21. Some stockholders sought appraisal, while others pursued a plenary action alleging breaches of fiduciary duty.The Court of Chancery of the State of Delaware coordinated the appraisal proceeding and the plenary action for discovery and trial. The court certified a class in the plenary action, which was later modified to explicitly include stockholders who sought appraisal. During the appraisal proceeding, the Company and its post-merger parent became insolvent, rendering the appraisal claimants as general creditors with no prospect of recovery. The Fund, an appraisal claimant, opted to join the plenary action. The court found the merger was not entirely fair and determined a fair price of $4.06 per share, awarding incremental damages of $0.85 per share to the class members who had received the merger consideration.The Fund, having not received the merger consideration, sought to recover the full fair price damages award. The court held that under the precedent set by the Delaware Supreme Court in Cede & Co. v. Technicolor, Inc., the Fund was entitled to the full fair price damages of $4.06 per share without any offset for the merger consideration it did not receive. The court concluded that the Fund could opt out of the appraisal proceeding and participate in the plenary action remedy, ensuring it was made whole. View "In re Sears Hometown and Outlet Stores, Inc. Stockholder Litigation" on Justia Law

The case involves a group of pension funds (plaintiffs) who filed a lawsuit against Inovalon Holdings, Inc., and its board of directors (defendants), challenging an acquisition of Inovalon by a private equity consortium led by Nordic Capital. The plaintiffs claimed that the defendants breached their fiduciary duties and unjustly enriched themselves through the transaction. They also alleged that the company's charter was violated because the transaction treated Class A and Class B stockholders unequally.In the lower court, the Court of Chancery of the State of Delaware, the defendants moved to dismiss the case. They argued that the transaction satisfied the elements of a legal framework known as MFW, which would subject the board's actions to business judgment review. The Court of Chancery granted the defendants' motions to dismiss in full.On appeal, the Supreme Court of the State of Delaware reversed the decision of the Court of Chancery. The Supreme Court found that the lower court erred in holding that the vote of the minority stockholders was adequately informed. The Supreme Court determined that the proxy statement issued to stockholders failed to adequately disclose certain conflicts of interest of the Special Committee’s advisors. Therefore, the Supreme Court concluded that the transaction did not comply with the MFW framework, and the case was remanded for further proceedings. View "City of Sarasota Firefighters' Pension Fund v. Inovalon Holdings, Inc." on Justia Law

Joy Global and Komatsu agreed to merge. Joy sent its investors disclosures required under the Securities Exchange Act, 15 U.S.C. 78n. Subsequent suits contended that Joy violated the Act by not disclosing some internal projections of Joy’s future growth that could have been used to negotiate a higher price, rendering the proxy statements fraudulent, and that Joy’s directors violated their state law duties by not maximizing the price for the shareholders. The suits settled for $21 million.The district court held that the $21 million loss is not covered by insurance. The policies do not require indemnification for “any amount of any judgment or settlement of any Inadequate Consideration Claim other than Defense Costs.” An “inadequate consideration claim” is that part of any Claim alleging that the price or consideration paid or proposed to be paid for the acquisition or completion of the acquisition of all or substantially all the ownership interest in or assets of an entity is inadequate.The Seventh Circuit affirmed. The suits assert the wrongful act of failing to disclose documents that could have been used to seek a higher price and are within the definition of “inadequate consideration claim.” The claims do not identify any false or deficient disclosures about anything other than the price. The only objection to this merger was that Joy should have held out for more money, and that revealing this would have induced the investors to vote “no.” View "Joy Global Inc. v. Columbia Casualty Co." on Justia Law

A pension fund and other America Online (AOL) shareholders brought a class action against Credit Suisse First Boston (CSFB), former CSFB analysts, and other related defendants (collectively, Defendants), alleging violations of sections 10(b) and 20(a) of the Securities Exchange Act and of SEC Rule 10b-5. Specifically, Plaintiffs claimed (1) CSFB made material misstatements and fraudulently withheld relevant information from the market in its reporting on the AOL-Time Warner merger; and (2) the shareholders purchased stock in the new company at artificially inflated prices as a result of the alleged misstatements and omissions. The district court awarded summary judgment to Defendants. The First Circuit Court of Appeals affirmed, holding (1) the district court did not err in excluding the shareholders’ expert testimony for lack of reliability; and (2) without the expert’s testimony, Plaintiffs were unable to establish loss causation. View "Bricklayers & Trowel Trades Int’l Pension Fund v. Credit Suisse Secs. (USA) LLC" on Justia Law

Petitioner and Ajmal Khan, principal of Verus Investment Holdings, purchased securities in a company to arbitrage a merger between that company and another company (the trade). Petitioner and Khal used Verus' account at Jefferies & Co. and Winton Capital Holding to complete the purchase. After the merger, Jefferies wired to Verus the original investment and profits attributable to the Winton funds. Verus wired the investment money to Winton and the profits to Doris Lindbergh, a friend of Petitioner. Tax authorities later informed Jefferies it owed withholding tax on the trade. Pursuant to an arbitration clause in an agreement between Jefferies and Verus, Jefferies commenced an arbitration against Verus for the unpaid taxes. Verus, in turn, asserted thirty-party arbitration claims against Petitioner, Lindbergh, and others for their share of the taxes. After a hearing, Supreme Court determined that nonsignatories Petitioner and Lindbergh could not be compelled to arbitrate. The Appellate Division reversed, concluding that Petitioner should be estopped from avoiding arbitration because he knowingly exploited and received direct benefits from the agreement between Jefferies and Verus. The Court of Appeals reversed, holding that Petitioner did not receive a direct benefit from the arbitration agreement and could not be compelled to arbitrate.View "Belzberg v. Verus Invs. Holdings Inc." on Justia Law

Plaintiffs brought their Verified Complaint asserting claims for breach of contract and breach of the implied covenant of good faith and fair dealing against defendant. J.P.Morgan also asserted a claim for attorneys' fees and costs under an option agreement that J.P. Morgan and defendant entered into, which was the contract central to the dispute. Defendant moved to dismiss pursuant to Court of Chancery Rule 12(b)(6). The court held that J.P. Morgan has failed to state a claim that defendant breached the express terms of the Option Agreement and therefore, defendant's motion to dismiss was granted as to Count I. Defendant's motion to dismiss was denied as to Count II because J.P. Morgan's allegations, taken together, were sufficient to state a claim of the implied covenant. Finally, defendant's motion to dismiss was denied as to Count III where J.P. Morgan could eventually be the prevailing party in this action.View "JPMorgan Chase & Co. v. American Century Co." on Justia Law

Plaintiffs filed this lawsuit on behalf of a class of stockholders of Occam. Defendants moved for sanctions against all plaintiffs other than Derek Sheeler for trading on the basis of confidential information obtained in this litigation. With respect to Michael Steinhardt and the funds, the motion was granted. Consistent with prior rulings by this court when confronted with representative plaintiffs who have traded while serving in a fiduciary capacity, Steinhardt and the funds were dismissed from the case with prejudice, barred from receiving any recovery from the litigation, required to self-report to the SEC, directed to disclose their improper trading in any future application to serve as lead plaintiff, and ordered to disgorge profits. With respect to Herbert Chen, the motion was denied.View "Steinhardt, et al. v. Howard-Anderson, et al." on Justia Law

This case involved a dispute over earn-out payments related to a merger between Viacom and Harmonix where plaintiff was one of the selling stockholders of Harmonix. Plaintiff sued on behalf of the selling stockholders, alleging that Viacom and Harmonix purposefully renegotiated the distribution contract with EA so as to reduce the earn-out payments payable to the Harmonix stockholders, and thus breached the covenant of good faith and fair dealing implied in the Merger Agreement. The court dismissed plaintiff's claim and held that it would be inequitable for the court to imply a duty on Viacom and Harmonix's part to share with the selling stockholders the benefits of a renegotiated contract addressing EA's right to distribute Harmonix products after the expiration of the earn-out period. View "Winshall v. Viacom Int'l, Inc., et al." on Justia Law

This case involved the interpretation of two provisions in a merger agreement between defendant corporation and a company whose former stockholders were represented by plaintiff. The two provisions at issue dealt with contingent payments due in certain circumstances from defendant to those stockholders. The court found that the language of the merger agreement was unambiguous, and that per its provisions, defendant's obligations under the merger agreement were assumed by the acquiring company, thus avoiding the acceleration of the remaining revenue contingent payments. Therefore, the court denied plaintiff's motion for summary judgment and granted summary judgment in favor of defendant.View "Coughlan v. NXP B.V." on Justia Law

Plaintiff contended that holders of common stock of Wesco were entitled to appraisal rights under Section 262 of the General Corporation Law, 8 Del. 262, in connection with a forward triangular merger among Wesco, its parent, and an acquisition subsidiary. The parties cross-moved for partial summary judgment on the availability of appraisal rights. The court held that because Wesco common stockholders were not required to accept consideration other than stock listed on a national securities exchange and cash in lieu of fractional shares, they were not entitled to appraisal rights. Accordingly, summary judgment on this issue was entered in favor of defendants.View "Krieger v. Wesco Financial Corp., et al." on Justia Law