In re Delphi Financial Group Shareholder Litigation, Consol. C.A. No. 7144-VCG(Del. Ch. Feb. 7, 2012).
The Court of Chancery in this decision addressed a motion to vacate the stipulated leadership structure and to appoint a new lead plaintiff and new lead counsel in a class action.
The Court addressed a motion by plaintiff, Oklahoma Firefighters Pension and Retirement System, seeking appointment as lead plaintiff representing the Class A stockholders of Delphi Financial Group and the appointment of its counsel as co-lead counsel, alongside current lead counsel. At the conclusion of a teleconference regarding the motion, the Court requested that the parties attempt in good faith to negotiate a leadership structure that will be acceptable to all involved, in recognition of the fact that the participating law firms should have a better idea than Court on what structure they can employ to best serve the plaintiff class. The Court was notified, however, that counsel were not able to reach an amicable result.
The Court granted the motion to the extent that it agreed to appoint the Oklahoma Firefighter Pension and Retirement System’s counsel as co-lead counsel alongside the existing lead counsel for the consolidated plaintiffs. The Court asked counsel to file an amended consolidated complaint incorporating the strongest statement of the case of the plaintiff class.
In resolving the dispute over lead counsel, the Court’s “overriding goal is to establish a leadership structure that will provide effective representation to the stockholder class”. The well-known Hirt factors provide “guidance in reaching a decision that achieves that objective.” See footnotes 2 and 3 (citing Hirt v. U.S. Timberland Service Co. LLC, 2002 WL 1558342, at *2 (Del. Ch. July 3, 2002) and In re Del Monte Foods Co. S’holders Litig., 2010 WL 5550677, at *6 (Del. Ch. Dec. 31, 2010)).
The Court also emphasized that the Hirt factors are not a checklist that will serve as a scorecard to determine a winner, but rather a guidepost in the analysis by the Court of the primary issue regarding which leadership structure will ensure the most effective representation of the plaintiff class. The Court also explained that a firm “does not win the lead counsel’s spot by accumulating the most points” as it might by demonstrating that its client owns the most shares or that it has litigated the most cases….
The ultimate focus in selecting lead counsel is to determine the best interests of the plaintiff class. The Court then reviewed each of the factors. For example, the Court rejected any notion that the experience of one firm in this type of case gives it any advantage over the other competing firms. Also, the Court explained that to avoid rushes to the courthouse, the court gave no special weight to the status of first-filing plaintiff. The Court discounted the argument that the existing counsel for the plaintiffs should have any preference because they were the first filers, and also rejected the argument that adding a co-counsel would interfere with the leadership structure currently in place.
The Court was not persuaded by the arguments of existing counsel for plaintiffs who opposed further additional lead counsel, “questioning the ability of all counsel to work productively together”.
In closing, the Court vacated its prior order appointing lead counsel and expressed its optimism that the parties could work productively together as co-lead counsel, and directed that the parties should supply an appropriate form of order.