In re Countrywide Corp. S’holders Litig., 2009 WL 2595739 (Del. Ch., Aug. 24, 2009), read letter decision here. The Chancery Court’s separate letter decision of August 28, 2009 approving legal fees relating to the settlement in this case can be read here.
The prior decision of the Chancery Court in which the court refused to approve the class action settlement in this case, In re Countrywide Corp. S’holders Litig., 2009 WL 846019 (Del. Ch., Mar. 31, 2009), was reviewed by Kevin Brady here. Other posts on this blog involving Countrywide cases can be found here.
The background facts were described in the synopsis of the March 2009 opinion by Kevin Brady at the above link. Familiarity with that opinion is presumed and a summary of the facts will not be repeated. In sum, a class action suit was filed shortly after Countrywide announced that it was merging with Bank of America in January 2008. In exchange for supplementatl disclosures prior to the vote, but no additional monetary consideration, the parties negotiated a settlement. In the March 2009 opinion, the Chancery Court refused to approve the settlement based on an objection by one shareholder that the release should not cover certain common law fraud claims that could be brought in light of a speech by the CEO of BOA, Kenneth Lewis, to the Delaware State Chamber of Commerce on January 14, 2008, in which he dismissed rumors of Countrywide’s bankruptcy and asserted that Countrywide had a "very impressive liquidity plan…." After the March 2009 opinion, the release was amended accordingly.
Now, the same shareholder objects to the release of potential federal securities laws violations based on the same statements of Lewis.
Overview of August 24, 2009 Decision
- The Court explained its duty to apply various factors to make an independent determination about whether the proposed settlement was fair and reasonable
- Rule 23(a) and Rule 23(b) must also be satisfied before the Court will conclude that this case should be certified as a class action–which must precede the Court’s approval of the proposed class action settlement.
- In certifying this case as a class action, the Court did not require an opt-out right for class members
- The Court rejected the objections to the settlement and approved the settlement based on the following rulings and reasoning:
The absence of a monetary benefit "is not fatal to a settlement which, almost by definition, confers only a therapeutic benefit." The Court found the merger price fair and that there were no other potential buyers–and that the shareholders would have done worse without the merger.
The Court reviewed the elements that must be established for a successful fraud action based on the federal securities laws (which the objector arged should not be released), and found that those claims "possess no obvious value" (based on the unlikely success in pursuing them on the facts of this case.) Thus, the Court reasoned it was fair and reasonable to release them.
The federal securities laws claims based on the Lewis statements did not predominate over the equitable claims.
The release provision in the settlement proposal is not overbroad. In reaching this conclusion, the court evaluated not only the claims in the complaint but also those that might be barred due to the release. See Raskin v. Birmingham Steel Corp., 1990 WL 193326 at *6 (Del. Ch. Dec. 4, 1990). See also In Re Philadelphia Stock Exchange, 945 A.2d at 1145-46 (Del Ch. 2008)(a settlement can release claims not specifically asserted in a settled action only if those claims are "based on the same factual predicate or the same set of operative facts as the underlying action".)
There is no requirment that a specific claim be included in a lawsuit in order for it to be released. Id., 945 A.2d at 1137
An objector is not required to present its common law fraud claims (that it wants carved out of the settlement) with the same specificity as would be needed when pleading in a complaint.
Approval of a class action settlement by the Court of Chancery only requires a cursory scrutiny of the issues presented, but the Court’s consideration must be the product of a logical and deductive process.
The Court thus concluded that the class treatment was proper, the case was certified as a class action and the proposed settlement was approved.
In its letter decision of August 28, 2009 approving attorneys’ fees (linked above), the Court recited the familar factors it must consider in reviewing an application for fees, as announced in the seminal Supreme Court opinion of Sugarland Indus., Inc. v. Thomas, 420 A.2d 142 (Del. 1980). There was no specific objection, other than a general complaint that the fees sought were too high. The Court addressed the following factors:
- Benefit Achieved. Although the benefit achieved in this case was not monetary, the supplemental disclosures benefitted the shareholders by providing them a better understanding of the transaction, and thus a fee award is warranted. The disclosures were material and beneficial to the class.
- Benefits Attributable to Plaintiffs’ Counsel. This factor was clearly satisfied.
- Contingent Fee Arrangement. The plaintiffs’ counsel took this case on a fully contingent basis.
- Time and Effort Spent. The Court observed that this was an expedited matter that included a preliminary injunction motion and depositions in several states as well as "extensive document review". Consultation with experts was also among the tasks done by plaintiff’s counsel.The time spent by plaintiffs’ counsel was about 4,000 hours. Though not part of the analysis, the Court noted that if an hourly rate were computed, it would not be excessive.
- Difficulty and Complexity of the Litigation. The Court emphasized that this was expedited litigation that "involved difficult issues" and plaintiffs’ counsel was confronted with numerous challenging issues.
- Standing and Ability of Counsel. The Court found that plaintiff’s counsel are "experienced and skilled in complex Delaware corporate class action litigation".
In sum, the Court found that $750,000 would be a fair and reasonable award for combined fees and expenses under the circumstances of this case. (Though the amount sought was initially in excess of $1.4 million, the parties later reached an agreement on an application for a combined award of fees and expensed in the amount of $750,000.)