IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

IN RE ACTIVISION BLIZZARD, INC.

STOCKHOLDER LITIGATION

)

)

Consolidated 

C.A. No. 8885-VCL

OPINION

Date Submitted: March 4, 2015

Date Decided: May 20, 2015

Date Revised: May 21, 2015

Joel Friedlander, Jeffrey M. Gorris, FRIEDLANDER & GORRIS, P.A., Wilmington, 

Delaware; Jessica Zeldin, ROSENTHAL, MONHAIT & GODDESS, P.A., Wilmington, 

Delaware; Lawrence P. Eagel, Jeffrey H. Squire, BRAGAR EAGEL & SQUIRE, PC, 

New York, New York; Attorneys for Plaintiff.

Raymond J. DiCamillo, Susan M. Hannigan, RICHARDS, LAYTON & FINGER, P.A., 

Wilmington, Delaware; Joel A. Feuer, Michael M. Farhang, Alexander K. Mircheff, 

GIBSON, DUNN & CRUTCHER LLP, Los Angeles, California; Attorneys for 

Defendants Vivendi S.A., Philippe Capron, Frédéric Crépin, Régis Turrini, Lucian 

Grainge, Jean-Yves Charlier, and Jean-François Dubos.

R. Judson Scaggs, Jr., Shannon E. German, MORRIS, NICHOLS, ARSHT & 

TUNNELL, Wilmington, Delaware; Robert A. Sacks, Diane L. McGimsey, SULLIVAN 

& CROMWELL LLP, Los Angeles, California; William H. Wagener, SULLIVAN & 

CROMWELL LLP, New York, New York; Attorneys for Defendants Robert A. Kotick, 

Brian G. Kelly, ASAC II LP, and ASAC II LLC.

Garrett B. Moritz, Eric D. Selden, ROSS ARONSTAM & MORITZ LLP, Wilmington, 

Delaware; William Savitt, Ryan A. McLeod, Benjamin D. Klein, WACHTELL, 

LIPTON, ROSEN & KATZ, New York, New York; Attorneys for Defendants Robert J. 

Corti, Robert J. Morgado, and Richard Sarnoff.

Edward P. Welch, Edward B. Micheletti, Sarah Runnells Martin, Lori W. Will, 

SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP, Wilmington, Delaware; 

Attorneys for Nominal Defendant Activision Blizzard, Inc.

LASTER, Vice Chancellor.
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Anthony Pacchia (the “Lead Plaintiff”) and his attorneys (“Lead Counsel”) 

challenged a transaction in which Vivendi S.A. divested its controlling equity position in 

Activision Blizzard, Inc. (“Activision” or the “Company”). The transaction restructured 

Activision‟s governance profile and stockholder base, so this decision calls it the 

Restructuring.

Shortly before trial, the parties entered into what this decision refers to as the 

Settlement. In exchange for a global release of all claims relating to the Restructuring, the 

defendants agreed to (i) pay $275 million to Activision, (ii) reduce a cap on the voting 

power wielded by Activision‟s two senior officers from 24.5% to 19.9%, and (iii) expand 

Activision‟s board of directors (the “Board”) to include two independent individuals 

unaffiliated with the two senior officers. 

When Lead Counsel sought court approval for the Settlement, three objectors 

appeared. Douglas Hayes, who previously sought the lead plaintiff role, lodged the only 

objection to the Settlement itself. Hayes did not argue that he could have extracted more 

monetary or non-monetary consideration from the defendants. He rather complained that 

the Settlement did not allocate any consideration to Activision‟s stockholders as a class, 

and he complained most about its failure to provide any consideration to former 

stockholders who sold their shares. Joint objectors Milton Pfeiffer and Mark Benston did 

not object to the Settlement. They sought a fee award for their counsel.

This decision approves the Settlement, awards $72.5 million to Lead Counsel, and 

authorizes Lead Counsel to make a $50,000 payment to the Lead Plaintiff from their 

award. It denies any fee award to Pfeiffer and Benston‟s counsel.
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I. FACTUAL BACKGROUND

The facts are drawn from the allegations of the Verified Fifth Amended Class and 

Derivative Complaint (the “Complaint”), which was the operative pleading at the time of 

the Settlement, and from the affidavits and supporting documents submitted in 

connection with the application court approval. Lead Counsel filed the Complaint two 

months before trial, after completing discovery. The pleading is lengthy, detailed, and 

contains quotations from the defendants‟ internal documents and depositions. The 

Complaint‟s contents provide a sound basis for evaluating the Settlement, because its 

allegations present Lead Counsel‟s claims in the strongest possible light. After trial, once 

the defendants introduced competing evidence, Lead Counsel‟s case could only become 

weaker. If the Settlement is adequate when judged against the allegations of the 

Complaint, then it should compare favorably to the range of potential outcomes post-trial. 

What follows are not formal factual findings, but rather how the court regards the record 

for purposes of evaluating the Settlement. 

A. The Parties

Nominal defendant Activision is a Delaware corporation with its headquarters in 

Santa Monica, California. Its stock trades on Nasdaq under the symbol “ATVI.”

Activision is a leading player in the interactive entertainment software industry and one 

of the largest video game publishers in the United States.

Defendant Vivendi is a société anonyme organized under the laws of France with 

its headquarters in Paris. Vivendi is a multinational media and telecommunication 

company that operates in the music, television, film, publishing, Internet, and video 
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games sectors. Before the Restructuring, Vivendi owned 683,643,890 shares of 

Activision common stock, representing 61% of the outstanding shares. Vivendi also had 

the right to appoint six members to Activision‟s eleven-member Board.

Individual defendants Philippe Capron, Frédéric Crépin, Régis Turrini, Lucian 

Grainge, Jean-Yves Charlier, and Jean-François Dubos were the Vivendi designees on 

the Board who voted in favor of the Restructuring. Individual defendants Robert Kotick, 

Brian Kelly, Robert Corti, Robert Morgado, and Richard Sarnoff were the other five 

members of the Board who voted in favor of the Restructuring. Corti, Morgado, and 

Sarnoff were outside directors. Kelly was Chairman of the Board. Kotick served as 

Activision‟s CEO.

Defendant ASAC II LP (“ASAC”) is an entity that Kotick and Kelly formed to 

participate in the Restructuring. ASAC is an exempt limited partnership established under 

the laws of the Cayman Islands. ASAC‟s general partner is ASAC II, LLC (“ASAC 

GP”), a Delaware limited liability company. Kotick and Kelly are the managers of ASAC 

GP. Through ASAC GP, Kotick and Kelly control ASAC.

B. The Impetus For The Restructuring

In 2012, Vivendi was burdened with over $17 billion in net debt and needed 

liquidity. Vivendi‟s CEO informed Kotick that given its financial situation, Vivendi 

wanted to explore strategic alternatives for Activision.

The Board retained JP Morgan to provide advice about strategic alternatives. After 

evaluating a range of possibilities, JP Morgan identified two that would be attractive to 

both Vivendi and Activision‟s unaffiliated stockholders: selling Activision to a third 
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party or having Activision redeem Vivendi‟s equity. JP Morgan advised that Activision 

could redeem nearly 80% of Vivendi‟s stake using $1.4 billion of Activision‟s available 

domestic cash plus $5.5 billion of new third-party debt. JP Morgan advised that the 

balance of Vivendi‟s stake could be monetized through a secondary offering or by selling 

it to a financial investor.

JP Morgan identified two strategic alternatives that would achieve Vivendi‟s 

liquidity needs but would not be attractive to Activision‟s unaffiliated stockholders: a 

debt-financed special dividend or a sale of Vivendi‟s shares to a third party. The former 

would limit Activision‟s strategic flexibility without reducing Vivendi‟s ownership stake.

The latter would substitute one controlling stockholder for another.

C. Kotick And Kelly See An Opportunity.

In July 2012, Vivendi announced its interest in selling its Activision stake. In 

August, Kotick and Kelly began pursuing a transaction that would benefit themselves.

They prepared a pitch book to raise $2-3 billion for an investment vehicle that would buy 

38-44% of Activision. They presented the idea to Peter Nolan, then the Managing Partner 

of Leonard Green & Partners, L.P. (“Leonard Green”). They also approached other 

parties with whom Activision had relationships, including Activision‟s strategic partners 

in China. The independent directors were unaware of Kotick and Kelly‟s efforts.

In December 2012, Vivendi‟s CEO informed Kotick that Vivendi‟s discussions 

with third parties about its Activision stake had not panned out. Vivendi‟s CEO stated 

that at the next meeting of the Board, the Vivendi representatives would propose a special 

dividend of roughly $3 billion to be funded with cash on hand and new debt.
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JP Morgan prepared a presentation analyzing the special dividend. JP Morgan

opined that the special dividend “will almost certainly destroy significant value to 

shareholders” and justified “increased investor concerns about potentially diverging 

interests between [Vivendi] and [Activision].” JP Morgan recommended a full repurchase 

of Vivendi‟s stake in three parts: (i) the majority repurchased by Activision using cash 

and debt, (ii) $2-3 billion acquired by investors “supportive of management,” and (iii) a 

marketed secondary offering of the balance of Vivendi‟s stake. JP Morgan stated that it 

was “highly confident” that the transaction could be carried out.

On January 29, 2013, Kotick and Kelly submitted an informal proposal to Vivendi 

that contemplated Vivendi selling its entire Activision stake for $9 billion (a price 

representing a 15% premium to market) with Activision buying the majority and an 

investor group led by Kotick and Kelly purchasing the balance. Vivendi asked for more 

specifics, and on February 14, Kotick and Kelly formally proposed a two-part transaction 

in which (i) Activision would repurchase two-thirds of Vivendi‟s stake for $6 billion, or 

$13.15 per share, using $4.7 billion in financing provided by JP Morgan and $1.3 billion 

in cash, and (ii) an investment vehicle controlled by Kotick and Kelly would purchase the 

remaining third for $3 billion at the same price per share. Kotick and Kelly stated that 

they were “highly confident” that they could raise the money. They attached a letter from 

Leonard Green expressing its willingness to invest up to $1 billion in their vehicle.

At a Board meeting on February 14, 2013, Kotick informed the independent 

directors about the proposal and asked that the Board form a special committee (the 

“Committee”) to oversee the transaction process. JP Morgan delivered a presentation 
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advising that Activision could support up to $5.88 billion in debt and maintain a B+ bond 

rating. Activision had no debt at the time, so the full amount could be used to repurchase 

shares from Vivendi.

The Board formed the Committee, comprising directors Corti, Morgado, and 

Sarnoff. The resolution creating the Committee gave it broad authority, including the 

ability to contact potential investors and to explore, initiate, and negotiate alternative 

transactions. The resolution provided that the Committee would remain in existence 

“until such time as the full Board concludes that no Potential Transaction is likely to 

occur or the existence of the Committee is no longer required.” The Committee retained 

Centerview Partners, LLC (“Centerview”) as its investment advisor.

During a meeting on March 18, 2013, the Committee resolved to

take care that in pursuing the proposed transaction to eliminate the current 

control shareholder (i.e., [Vivendi]), it should not create another 

shareholder or shareholder group with control or elements of control over 

the Company nor should it put the Company in a position where a new 

shareholder or shareholder group could exercise influence to the 

disadvantage of other shareholders.

Through Centerview, the Committee learned that Vivendi was open to disposing of part 

of its stake through a secondary offering and retaining a small position in Activision.

On April 3, 2013, Centerview recommended preliminarily that Activision 

repurchase Vivendi‟s controlling interest. Centerview observed that if Activision 

borrowed $5.9 billion and used its overseas cash, a full buyout of Vivendi would require 

only $2 billion of additional capital. Centerview believed that Activision could raise $1 

billion of public equity and $2 billion from convertible securities. Centerview advised 
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that Kotick and Kelly‟s proposal ran the risk that “a strong minority will have 

disproportionate influence in [the] Board room and [in] shareholder votes.” Vivendi‟s 

willingness to pursue a secondary offering and retain a small position in Activision made 

it feasible for Activision to accomplish a restructuring without Kotick and Kelly.

On April 29, 2013, the Committee approved a proposal for Activision to 

repurchase $5.9 billion of Vivendi‟s stake at $13.15 per share, with the balance of 

Vivendi‟s shares to be addressed by one or more of the following methods: (i) a 

secondary offering, (ii) a sale to an entity controlled by Kotick and Kelly, or (iii) 

retention by Vivendi under appropriate governance arrangements. On May 2, the 

Committee discussed Kotick and Kelly‟s proposal and expressed the view that “a 

transaction should not create a new shareholder or shareholder group with control or 

substantial elements of positive or negative control over the company.”

On May 7, 2013, Kotick met with Centerview. Kotick argued that a secondary 

offering would hurt Activision‟s stock price. This assertion was contrary to Centerview‟s 

view. It also conflicted with what Centerview understood to be the opinion of JP Morgan, 

the Company‟s financial advisor who was now assisting Kotick and Kelly, as well as the 

opinions of Goldman Sachs and Barclays, who were advising Vivendi. Kotick opposed 

discussing Activision‟s debt financing capacity with credit agencies, citing the risk of 

leaks. Centerview disagreed. Kotick also argued that his proposal offered Vivendi the 

most efficient tax structure. This was contrary to what the Committee understood 

Vivendi‟s view to be. In addition to his discussions with Centerview, Kotick called the 

Committee‟s legal counsel and objected to the governance terms that the Committee
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wanted, including a cap on Kotick and Kelly‟s voting power at 9.9%.

In mid-May 2013, Vivendi told the Committee that it wanted to proceed quickly 

with either Kotick and Kelly‟s proposal or with a transaction involving a secondary 

offering. Vivendi informed the Committee that otherwise it would “engage in self-help.”

Certain governance restrictions on Vivendi would expire on July 9, making Vivendi‟s 

threat credible. Kotick contemporaneously told the Committee that a secondary offering 

was not feasible, and the Committee members became concerned that Kotick might 

resign if they did not support a deal on his terms. JP Morgan backed Kotick, telling 

Centerview that it would not lend if Kotick resigned. JP Morgan later became a joint lead 

arranger and bookrunner to ASAC.

On May 16, 2013, Kelly told the Committee that he and Kotick had dropped out of 

the transaction process. Meanwhile, Vivendi told Centerview that if no deal was reached 

by the end of the week, Vivendi would cause the Board to disband the Committee and 

move forward with a debt-financed special dividend.

On May 25, 2013, the Committee discussed Kotick and Kelly‟s positions and 

decided that a debt or equity offering “would not be actionable” without Kotick‟s 

support. The Committee again discussed the risk that Kotick would resign if Activision 

agreed to a transaction he did not like, as well as JP Morgan‟s refusal to finance a deal 

without Kotick. To avoid a special dividend—the worst possible outcome for 

Activision‟s unaffiliated stockholders—the Committee asked Vivendi to propose a 

transaction that included Kotick and Kelly.

On May 30, 2013, Vivendi expressed its support for any one of three alternatives: 
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● A purchase by Activision of $5.9 billion of Vivendi‟s shares at $13.60 per 

share with ASAC buying the rest at $14.80 per share. 

● A purchase by Activision of all but $500 million of Vivendi‟s shares at 

$13.60 per share with Kotick and Kelly personally buying the remaining 

$500 million at $13.60 per share.

● A debt-financed special dividend.

The Committee provided these options to Kotick and told him that if he and Kelly did not 

pick one of them, then the Committee would have to decide between proceeding without 

them and disbanding. Kotick rejected all three and insisted on a transaction in which 

ASAC would acquire 24.9% of Activision‟s outstanding shares for $13.60 per share.

Kotick stated that he would not cooperate with a debt or equity offering or any other 

transaction and that the Board could fire him if they wished.

In light of Kotick‟s ultimatum, the Committee concluded that Activision‟s only 

actionable choice was to give in. The Committee proposed to move forward as Kotick 

wanted, but to cap ASAC‟s voting rights at 19.9%. Kotick and Kelly rejected the cap and 

told the Committee that they would not participate except on their terms.

The Committee members determined that they could not support the repurchase 

structure without a cap on ASAC‟s voting rights at 19.9%. They sent a letter to Vivendi 

and ASAC suggesting that those parties negotiate directly between themselves.

On June 2, 2013, Vivendi sent a letter to the Committee that contemplated 

Activision buying $5.4 billion of Vivendi‟s shares at $13.60 per share with Kelly and 

Kotick personally buying shares worth $500 million at the same price. This reprised the 

second choice from Vivendi‟s list of three options. Because Kotick and Kelly would not 
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support any deal except their own, the Committee did not respond to Vivendi.

At a Board meeting on June 6, 2013, Corti proposed disbanding the Committee, 

and the Board did so. Contrary to the resolution establishing the Committee, it did not 

disband because “no Potential Transaction [was] likely to occur or the existence of the 

Committee is no longer required.” Given Vivendi‟s liquidity needs, a potential 

transaction remained a virtual certainty, just not on terms the Committee believed at the 

time that it could accept. 

After the disbanding of the Committee, Vivendi negotiated with Kotick and Kelly.

On July 9, 2013, they agreed on a term sheet that specified the number of shares that 

Activision would buy, the number of shares that ASAC would buy, and the purchase 

price—a 10% discount to market.

With the terms set, the Board reconstituted the Committee on July 11, 2013. The 

revivified Committee made some slight tweaks to the deal, including obtaining a term in 

a stockholders agreement between ASAC and Activision (the “Stockholders Agreement”) 

that capped the voting power that Kotick and Kelly could exercise directly at 24.9%. The

Committee recommended the deal to the Board, and the Board approved it.

D. Activision, Vivendi, And ASAC Announce The Restructuring.

On July 25, 2013, Activision, Vivendi, and ASAC entered into the transaction 

agreement that governed the Restructuring (the “Stock Purchase Agreement”). In one 

major part of the transaction, ASAC agreed to purchase 171,968,042 shares of Activision 

common stock from Vivendi at $13.60 per share. The price represented a discount of 

10% from to Activision‟s closing stock price on July 25, 2013. 
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In the other major part of the transaction, Activision purchased the shares of 

Amber Holdings Subsidiary Co. (“Amber”), a newly formed subsidiary of Vivendi. 

Through a series of mergers called for by the Stock Purchase Agreement, Amber came to 

own 428,644,513 shares of Activision common stock and net operating losses (“NOLs”)

worth $676 million. In the Restructuring, Activision purchased the shares of Amber in 

exchange for $5.83 billion in cash. 

Activision indisputably received significant benefits from the Restructuring. 

Amber brought NOLs worth $676 million, and Activision was able to purchase 

428,644,513 shares of its common stock at 10% below the market price. That deal was 

even better than it sounded, because everyone expected that Activision‟s stock price 

would rise after the announcement of the transaction and its separation from cashstrapped Vivendi. It did. Activision‟s stock price closed at $17.46 per share on Friday, 

July 26, and at $18.27 per share on Monday, July 29. Equity analysts identified many 

positive aspects of the Restructuring, including (i) earnings accretion due to the favorable 

purchase price; (ii) the elimination of Vivendi‟s majority stake; (iii) the signaling effect 

of Kotick, Kelly, and Activision‟s Chinese strategic partner Tencent Holdings Limited 

(“Tencent”) investing in Activision; (iv) Activision‟s lowered cost of capital from issuing 

debt; and (v) Activision‟s eligibility for inclusion in the S&P 500.

The problem with the transaction was not the lack of benefit to Activision, but 

rather the extraordinary benefits that Kotick and Kelly extracted for themselves. On the 

financial front, Kotick and Kelly invested $100 million in ASAC GP; ASAC‟s various 

co-investors provided over $1.62 billion. Under ASAC‟s limited partnership agreement, 
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the returns to ASAC GP were tied to the overall gains on ASAC‟s $2.3 billion investment 

in Activision. ASAC‟s immediate unrealized gain at closing was $712.8 million, of 

which Kotick and Kelly‟s share was $178 million. Over the potential four-year lifespan 

of ASAC, Kotick and Kelly had enhanced upside and a protected downside:

● They would double their money if Activision‟s stock price remained at the postannouncement price of $17.46 per share.

● They would make nine times their money if Activision‟s stock price doubled from 

the post-announcement price to $35 per share.

● They would lose nothing if Activision‟s stock price declined by 20% from its postannouncement price.

An illustration prepared by Kotick and Kelly‟s bankers for ASAC‟s outside investors 

projected that if ASAC liquidated on the third anniversary after the Restructuring, and 

ASAC sold its Activision shares for $27 per share, then Kotick and Kelly would receive 

profits of $586 million, or 5.9 times their invested capital for an IRR of 80.3%. Their coinvestors in ASAC would receive 2.1 times their invested capital for an IRR of 28.4%.

On the control front, Kelly continued after the Restructuring as Chairman, and 

Kotick continued as CEO. They also served as managers of ASAC GP, giving them 

control over ASAC‟s entire block of shares. Kotick beneficially owned approximately 5.5 

million shares, or roughly 0.8% of Activision‟s stock, and Kelly beneficially owned

approximately 3.3 million shares, or roughly another 0.5%. Kotick and Kelly thus had 

direct control over shares representing 26% of Activision‟s voting power, although the 

Stockholders Agreement capped what they could exercise directly at 24.9%. Two of the 

principal investors in ASAC were funds affiliated with Davis Selected Advisors, L.P. 
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(“Davis”), which invested $350 million, and Fidelity Management & Research Co. 

(“Fidelity”), which invested $542 million. As of September 30, 2013, funds affiliated 

with Davis owned over 21 million shares of Activision stock, representing a 3.1% stake, 

and funds affiliated with Fidelity owned approximately $52 million shares, for a roughly 

7.4% stake. Consequently, upon the closing of the Restructuring on October 11, the coinvestors in ASAC and their affiliates controlled approximately 35.4% of Activision‟s 

voting power.

Kotick and Kelly also enhanced their control at the Board level. Section 3.01(a) of 

the Stockholders Agreement imposed a series of standstill restrictions on ASAC. In 

addition to specific limitations in other subsections, subsection 3.01(a)(iv) stated that 

ASAC shall not, directly or indirectly,

otherwise act, alone or in concert with others, to seek representation on or 

to control or influence the management, Company Board or policies of the 

Company or to obtain representation on the Company Board of Directors 

(other than with respect to the nomination of Mr. Kotick and Mr. Kelly to 

the Company Board, as determined by the Company Board in the ordinary 

course).

The Stockholders Agreement only became effective upon the closing of the 

Restructuring, which was not expected to occur until the end of September. 

After the Stockholders Agreement was finalized but before it became effective, 

Kotick arranged for Nolan and Elaine Wynn to join the Board. As noted, Nolan was the 

Managing Partner of Leonard Green, whom Kotick and Kelly had approached privately 

about their bid and who had backed their original offer to Vivendi. Leonard Green 

invested in ASAC. Nolan‟s colleagues at Leonard Green objected to him joining the 
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Board, because one of the premises of Leonard Green‟s involvement in the Restructuring 

had been that the firm could trade in Activision stock and hedge their investment in 

ASAC. Having Nolan on the Board limited Leonard Green‟s ability to trade and hedge, 

but Leonard Green valued its relationship with Kotick and Kelly. One of Nolan‟s partners 

observed that the “[m]ain reason to even consider [joining the Board] is if Bobby/Brian 

really want it.” Nolan agreed to join.

Wynn was a longtime friend of Kotick whose personal relationship with Kotick 

rose to the level of an immediate family member. Kotick‟s relationship with Wynn dated 

back to 1982, when Kotick was a college sophomore trying to launch a computer 

company. Kotick pitched his business venture to Wynn and her then-husband, casino 

mogul Steve Wynn, at a social event in Dallas. The Wynns invited him to their home and 

then flew him back to the east coast on their private plane. Steve Wynn viewed Kotick as

a “potential son-in-law” and protégé. He financed Kotick‟s startup without signing a 

written contract, telling Kotick, “We‟re family now.” Although the startup failed, 

Kotick‟s relationship with the Wynns deepened. In a 2008 interview, Kotick stated:

Of all the things that could have happened in my life, meeting the Wynns 

was probably about the most fortunate. Not just in the way you get a second 

set of parents—my parents were divorced, so the Wynns came with none of 

the guilt—but watching what he accomplished.

Kotick refers to Wynn as “Uncle Steve” and has said Wynn is “like my dad.” Kotick 

makes a point of buying a Mother‟s Day gift for Elaine Wynn, just as he does for his 

mother and his wife. Wynn agreed to join the Board.
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By securing Nolan and Wynn‟s service on the Board, Kotick and Kelly increased 

their influence in the boardroom. Without Nolan and Wynn, the post-Restructuring Board 

would have consisted of Kotick, Kelly, and the three individuals who served on the 

Committee, resulting in a 3-2 majority of independent directors. Nolan and Wynn added 

two directors with close ties to Kotick who could be viewed as not independent and who 

might be expected to favor management, giving Kotick and Kelly a 4-3 majority.

E. Pacchia Obtains Books And Records, Then Files A Derivative Action.

Pacchia learned of the Restructuring through Activision‟s public filings and was 

disturbed by Kotick and Kelly‟s role in the transaction. He contacted Bragar Eagel & 

Squire, P.C. (“BE&S”) and used Section 220 of the Delaware General Corporation Law 

(the “DGCL”) to obtain books and records relating to the Restructuring.

On September 11, 2013, Pacchia filed a derivative action. Rosenthal, Monhait & 

Goddess, P.A. served as Delaware counsel. BE&S served as forwarding counsel. Because 

Pacchia‟s complaint relied on confidential information obtained using Section 220, it was 

filed under seal. 

Pacchia‟s complaint alleged that the individual defendants and Vivendi breached 

their fiduciary duties to Activision, committed acts of waste, and caused Kotick, Kelly, 

and Vivendi to become unjustly enriched. Based on the Section 220 production, the 

complaint alleged that Kotick vetoed a transaction structure in which Vivendi would sell 

any shares that Activision did not buy in a secondary offering, rather than to ASAC. The 

complaint also alleged that the Board dissolved the Committee on June 8, 2013, clearing
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the way for Kotick and Kelly to negotiate terms directly with Vivendi. Pacchia did not 

file an injunction application or seek an expedited schedule.

F. Hayes Files A Class And Derivative Action.

Also on September 11, 2013, Hayes filed a separate action. Prickett, Jones & 

Elliott LLP served as Delaware counsel. Kessler, Topaz, Meltzer & Check, LLP, served 

as forwarding counsel. Hayes framed his lawsuit as both a derivative action and a class 

action. Hayes had not used Section 220 to obtain books and records from Activision, so 

his complaint relied solely on publicly available information. He included claims similar 

in form to Pacchia‟s, including (i) breach of fiduciary duty against Vivendi and the 

Activision directors, (ii) usurpation of a corporate opportunity by Kotick, Kelly, and 

ASAC, and (iii) aiding and abetting against various other defendants. 

What distinguished Hayes‟ complaint was a theory that the Restructuring required 

a stockholder vote. Section 9.1(b) of Activision‟s certificate of incorporation stated:

Unless Vivendi‟s Voting Interest (i) equals or exceeds 90% or (ii) is less 

than 35%, with respect to any merger, business combination or similar 

transaction involving the Corporation or any of its Subsidiaries, on the one 

hand, and Vivendi or its Controlled Affiliates, on the other hand, in 

addition to any approval required pursuant to the DGCL and/or the 

Corporation‟s by-laws, the approval of such transaction shall require the 

affirmative vote of a majority in interest of the stockholders of the 

Corporation, other than Vivendi and its Controlled Affiliates, that are 

present and entitled to vote at the meeting called for such purpose. 

Hayes alleged that the Restructuring constituted a “merger, business combination or 

similar transaction involving [Activision] or any of its Subsidiaries, on the one hand, and 

Vivendi or its Controlled Affiliates, on the other hand,” bringing it within the ambit of 

Section 9.1(b). This decision refers to that theory as the Voting Right Claim.
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G. The Injunction Ruling

Simultaneously with the filing of his complaint, Hayes moved for a temporary 

restraining order that would prevent the defendants from consummating the Restructuring 

until the court had an opportunity to hear an application for preliminary injunction. Hayes 

sought injunctive relief solely on the Voting Right Claim. Hayes moved for an expedited 

hearing in light of Activision‟s public disclosure that the Restructuring would close by 

the end of September 2013. After Hayes filed suit, the defendants advised Hayes that they 

planned to close on September 19. 

On September 18, 2013, the court heard the TRO application. At the conclusion of 

the hearing, the court issued a thirty-six-page bench ruling granting the application. To 

facilitate prompt appellate review, the court indicated that it would certify the ruling for 

interlocutory appeal. The defendants‟ prepared the pertinent papers, and this court 

certified its order. The Delaware Supreme Court accepted the appeal.

H. The Case Almost Settles.

While the parties were briefing the interlocutory appeal, Hayes pursued settlement

discussions with the defendants. On October 7, 2013, Hayes circulated a draft 

memorandum of understanding for a proposed settlement (the “Draft MOU”). In return 

for a global release of all claims relating to the Restructuring, (i) Activision would make 

a special distribution to its public stockholders of shares of common stock with a market 

value of $70 million and (ii) Vivendi would pay $15 million to the public stockholders.

The Draft MOU also contemplated therapeutic relief in the form of nineteen cosmetic 

changes to Activision‟s bylaws. None constituted a meaningful benefit for purposes of 
18

the settlement. The Draft MOU likewise included a commitment by Activision to propose 

charter amendments. The proposals eliminated provisions tailored to Vivendi‟s majority 

ownership which no longer made sense after the Restructuring. None of those constituted 

a meaningful benefit either.

Hayes invited Pacchia to sign onto the Draft MOU. Pacchia elected not to sign. On 

October 8, 2013, Hayes circulated a draft emergency motion to consolidate the pending 

actions, appoint Hayes as lead plaintiff, and designate his lawyers as lead counsel. The 

purported exigency was the need to finalize the Draft MOU. 

On October 9, 2013, the day before oral argument before the Delaware Supreme 

Court, Hayes told Pacchia that the defendants would not sign unless he did. Hayes 

implored Pacchia to reconsider, reasoning as follows:

If we lose [the appeal], the settlement will be off, our leverage will 

dissipate, and we will move forward with the litigation. If we win [the 

appeal], the settlement will be off, the company will hold a shareholder 

vote, and we believe the shareholders may well approve the transaction.

This will give defendants a potential ratification defense in the litigation 

moving forward, and we believe will make it very hard to extract any 

consideration through settlement or trial.

Pacchia reluctantly signed on.

Hayes‟ counsel also tried to convince the law firms of Levi & Korsinksy LLP and 

Smith Katzenstein & Furlow LLP to sign the Draft MOU. They represented Pfeiffer, who 

had sent Activision a Section 220 demand in September 2013, after Hayes and Pacchia 

filed suit. Pfeiffer‟s demand remained outstanding when Hayes‟ counsel circulated the 

Draft MOU. Pfeiffer later would file a Section 220 action, only to dismiss it after 

Activision disputed whether he actually owned any stock.
19

On October 10, 2013, the Delaware Supreme Court heard argument in the 

interlocutory appeal. Later that day, the court entered the following order:

IT IS HEREBY ORDERED that the Court unanimously concludes that the 

Court of Chancery‟s judgment must be REVERSED. We hold that there is 

no possibility of success on the merits. The Stock Purchase Agreement here 

contested is not a merger, business combination or similar transaction. An 

Opinion will follow in due course. 

Activision-Blizzard, Inc. v. Hayes, No. 497, 2013 (Del. Oct. 10, 2013). The Delaware 

Supreme Court‟s ruling established that there was no merit to the Voting Right Claim. As 

Hayes predicted, the defendants‟ victory rendered the Draft MOU a dead letter. 

I. The Leadership Fight

On remand, both Hayes and Pacchia filed amended complaints. Both pleadings 

asserted class and derivative claims. Both complaints were considerably more detailed

than their original efforts, because during the short time that this court‟s injunction 

remained in effect, Activision filed a preliminary proxy statement with the SEC. The

proxy statement provided insight into the background of the Restructuring, and both 

Hayes and Pacchia relied on its contents. Pacchia continued to rely on additional, nonpublic information that he obtained by using Section 220.

The court consolidated the two actions, and a leadership fight ensued. To bolster 

his litigation team, Pacchia hired what was then the firm of Bouchard, Margules & 

Friedlander, P.A., subsequently Friedlander & Gorris, P.A. (“F&G”). After hearing 

presentations from both sides, the court found little to distinguish between the named 

plaintiffs or their legal teams. Neither Hayes nor Pacchia owned a significant equity 

stake. Pacchia was marginally more qualified by profession and experience to serve as a 
20

fiduciary in representative litigation, but not to a dispositive degree. Both sets of law 

firms were highly competent and capable. Both legal teams had track records 

demonstrating their ability to obtain excellent results in representative litigation.

As a tiebreaker, the court turned to the Delaware Supreme Court‟s ruling on 

appeal. That decision taught that Hayes had pursued the wrong legal theory and acted to 

the detriment of Activision and its stockholders by pursuing the Voting Right Claim. 

Because the Delaware Supreme Court had determined that the claim was meritless, 

Hayes‟ efforts erroneously placed the closing of the Restructuring at risk. Pacchia, by 

contrast, had followed what the Delaware Supreme Court had determined was the correct 

course by not seeking injunctive relief and permitting the Restructuring to close. Given 

the implications of the Delaware Supreme Court‟s ruling, the court designated Pacchia as 

the Lead Plaintiff and his counsel as Lead Counsel.

This ruling did not sit well with Hayes or his counsel—and understandably so. 

From their perspective, they were on the verge of a settlement worth $85 million that 

could have supported a fee award of $10-20 million. A month later, they found 

themselves empty handed and on the sidelines. Revealing how they perceived the events, 

their brief remonstrates that “Hayes and his counsel were essentially thrown out of the 

case.” Dkt. 352 at 14.

J. Lead Counsel Press Forward.

Immediately after the leadership hearing, Lead Counsel filed a second amended 

class and derivative complaint. Lead Counsel served document requests and subpoenas 

and proposed a scheduling order that would allow the case to be tried in 2014. Two 
21

disputes immediately arose. The defendants did not want trial to occur until April 2015 at 

the earliest, and Vivendi argued that its electronic documents were exempt from 

discovery. Pacchia prevailed on both issues. These rulings allowed the case to proceed on 

a prompt schedule with trial set for December 8-12, 2014.

K. Smith Katzenstein And Levi & Korsinsky Try Again To Carve Out A Role.

On March 14, 2014, Smith Katzenstein and Levi & Korsinsky filed a complaint on 

behalf of Benston. This was their second try, having first appeared with Pfeiffer. After 

using Section 220 to obtain books and records, Benston filed a lengthy complaint which, 

in substance, resembled the publicly available Hayes complaint. Benston‟s principal 

contribution was to reframe the core breach of fiduciary duty allegations as a claim for 

insider trading under Brophy v. Cities Service Co., 70 A.2d 5 (Del. Ch. 1949). Lead 

Counsel had not pled a Brophy claim. Lead Counsel believed the theory was meritless 

given that the Restructuring was negotiated by Activision fiduciaries with equivalent 

access to confidential information. 

Benston‟s counsel sought to be added to the leadership structure for the limited 

purpose of pursuing the Brophy claim. The court consolidated the new action and held a 

second leadership hearing. The court declined to give Benston‟s counsel a role, finding 

no reason to balkanize control over the case and concluding that Lead Counsel was 

capable of providing adequate representation and asserting the Brophy claim if warranted.

L. The Third Amended Complaint

Meanwhile, Lead Counsel obtained leave to file a third amended and supplemental 

complaint that took into account the early fruits of document discovery. The defendants 
22

moved to dismiss pursuant to Rule 12(b)(6). On June 6, 2014, after full briefing and oral 

argument, the court denied the motion. The only exception was a derivative claim for 

breach of the Stockholders Agreement, which the court dismissed without prejudice. On 

June 20, Lead Counsel filed an amended complaint that re-pled that count. A motion to 

dismiss the re-pled claim remained under submission when the case settled.

During fact discovery, Lead Counsel obtained and reviewed over 800,000 pages of 

documents and deposed twenty-three fact witnesses. To assist in case analysis and to 

serve as a potential expert, Lead Counsel retained J.T. Atkins of Cypress Associates 

LLC, an investment banking firm that provides litigation consulting services. After the 

close of fact discovery, Atkins submitted a lengthy expert report supporting Lead 

Counsel‟s damages claims.

The damages report focused on feasible transactional alternatives that faithful 

fiduciaries should have pursued in lieu of the Restructuring. The alternatives were 

mutually exclusive, presented different risks, and implied different forms of relief.

The leading alternative (labeled the Over-the-Wall Transaction) was for Activision 

to solicit direct equity investments, use the funds to repurchase additional shares from 

Vivendi at $13.60 per share, and then sell the newly repurchased shares at a higher price 

per share to the participating investors in a simultaneous closing. Atkins opined that the 

investors should have been willing to pay Activision more than $13.60 per share, and 

perhaps as much as $17 per share, because (i) Activision‟s stock price was expected to 

rise above $17 per share upon announcement; (ii) limited partners in ASAC deemed midteen internal rates of return to be satisfactory; (iii) limited partners in ASAC effectively 
23

paid more than $13.60 per share, given that a portion of ASAC‟s returns went to ASAC 

GP; and (iv) Activision could demand a higher effective price per share than could 

ASAC, because limited partners in ASAC had to lock up their shares for four years.

Atkins identified precedents for the Over-the-Wall Transaction, including a transaction in 

2012 when Alibaba Group repurchased a block of its shares from Yahoo! at $13.54 per 

share, financed in part by a simultaneous sale of shares to investors at $15.50 per share.

A second alternative was a series of secondary offerings by Vivendi, similar to 

what Vivendi had proposed. Activision would not profit from this alternative. The 

unaffiliated stockholders, however, would benefit, since Vivendi‟s control block would 

become widely dispersed.

A third alternative was a hybrid between the Over-the-Wall Transaction and 

secondary offerings, consistent with the three-part transaction structure outlined by JP 

Morgan in January 2013. Activision would solicit direct investment for some shares and 

facilitate a series of smaller secondary offerings by Vivendi.

A fourth alternative was a backstopped rights offering to Activision‟s then-public 

stockholders (the “Rights Offering”). Atkins opined that at $13.60 per share, the Rights 

Offering would be fully subscribed, and new stockholders would enjoy the benefits of the 

expected stock price increase.

Additionally, Atkins opined that Activision could have safely incurred another 

$500 million in debt to purchase additional shares from Vivendi, which would have 

increased the earnings-per-share accretion and Activision‟s stock price. This in turn 
24

would lead to greater damages from the failure to pursue the Over-the-Wall Transaction, 

a hybrid alternative, or the Rights Offering.

The defendants contested Atkins‟ opinions and relied on experts of their own. Paul 

Gompers opined that Kotick and Kelly‟s potential returns from ASAC GP were not 

excessive compared to returns made by general partners in private equity funds (a

different industry and different context). Daniel Fischel opined on the largely undisputed 

ways in which the Restructuring benefitted Activision. Fischel further opined that Kotick 

and Kelly‟s investment in ASAC better aligned senior management‟s interests with those 

of Activision and signaled management confidence in Activision‟s prospects. Fischel also 

questioned the feasibility of Atkins‟ transactional alternatives. Bradford Cornell opined 

that borrowing $500 million to buy additional shares from Vivendi would raise 

Activision‟s cost of equity.

M. The Settlement

The Settlement arose out of a mediation conducted by former United States 

District Court Judge Layn Phillips. The first session was held in Newport Beach, 

California on July 11, 2014, after the denial of the motion to dismiss, the production of 

documents by parties and non-parties, and several depositions. Lead Counsel had not yet 

undertaken any damages analysis, but knew the extent of ASAC‟s immediate and 

subsequent gains. The mediation ended without a settlement.

The mediation resumed on October 28, 2014, in Newport Beach, with another 

session planned for November 6, and a potential follow-up session on November 8. The 

November 6 session ended without sufficient progress to justify the follow-up session.
25

On November 10, 2014, Judge Phillips made a series of telephone calls about a 

potential global resolution. On November 13, the parties agreed to the principal terms of 

the Settlement. Lead Counsel and Activision publicly announced the basic terms after the 

markets closed on November 19. Media outlets picked up the news.

On December 19, 2014, the parties filed a stipulation of settlement. Dkt. 333 (the 

“Stipulation”). As noted, the consideration consisted of three principal components: 

● A payment of $275 million to Activision ($67.5 million from Vivendi; some 

portion from insurers; the remainder (at least $150 million) from ASAC).

● A reduction in the cap on Kotick and Kelly‟s voting power from 24.9% to 19.9%.

● The expansion of the Board by two spots to be filled by individuals independent of 

and unaffiliated with ASAC, Kotick or Kelly, or any limited partner of ASAC.

Vivendi and the insurers will make their payments to Activision within fifteen days after 

entry of a judgment approving the Settlement. ASAC will make its payments ten business 

days after the final disposition of any appeal. The reduction in the cap on Kotick and 

Kelly‟s voting power will take effect within ten days after entry of judgment. The 

expansion of the Board will occur on or before July 31, 2015.

N. Hayes Objects To The Settlement.

When Lead Counsel presented the Settlement for court approval, Hayes reemerged as an objector. In an initial motion challenging the procedures for considering 

the Settlement, Hayes complained that he could not access Lead Counsel‟s brief, which 

was filed confidentially, or the confidential exhibits that Lead Counsel submitted. The 

parties agreed to a stipulation that permitted Hayes to access the materials.
26

In his formal objection to the Settlement, Hayes advanced the numerous 

arguments that are the principal subject of this decision. Pfeiffer and Benston resurfaced 

as well. On behalf of their counsel, they petitioned for an award of fees and expenses on 

the theory that their counsel contributed to the Settlement. 

II. LEGAL ANALYSIS

The settlement of a class or derivative action requires court approval. See Ct. Ch. 

R. 23(e) & 23.1(c). “The law, of course, favors the voluntary settlement of contested 

issues.” Rome v. Archer, 197 A.2d 49, 53 (Del. 1964). The settlement of representative 

litigation, however, “is unique because the fiduciary nature of the [litigation] requires the 

Court of Chancery to participate in the consummation of the settlement . . . .” Prezant v. 

De Angelis, 636 A.2d 915, 921 (Del. 1994). The potential divergence between the 

personal interests of the attorneys conducting the litigation and the interests of the class 

or corporation they represent means that “the Court of Chancery must . . . play the role of 

fiduciary in its review of these settlements . . . .” In re Resorts Int’l S’holders Litig. 

Appeals, 570 A.2d 259, 266 (Del. 1990). In carrying out this role, the court “must balance 

the policy preference for settlement against the need to insure that the interests of the 

class [or corporation] have been fairly represented.” Barkan v. Amsted Indus., Inc., 567 

A.2d 1279, 1283 (Del. 1989).

The tasks assigned to the court include (i) confirming that the Settlement is 

properly structured, (ii) ensuring that adequate notice has been provided, (iii) assessing 

the reasonableness of the “give” and the “get,” as well as the allocation of the “get” 

among various claimants, (iv) approving an appropriate award of attorneys‟ fees, and (v) 
27

authorizing any payment from the fee award to the representative plaintiff. Hayes has 

raised issues under each heading. Pfeiffer and Benston have piped in on the fourth, and 

the defendants have joined Hayes in complaining about the fifth.

A. The Common Theme Underlying Hayes’ Objections

Hayes has advanced numerous objections under multiple headings, but they 

depend on a common premise. Hayes believes that the “public stockholders who held 

during the pendency of the [Restructuring] (i.e., between the announcement of the 

[Restructuring] on July 25, 2013 and the consummation of the [Restructuring] on October 

11, 2013)” have valuable damages claims, belonging to them personally, that are being 

released in the Settlement for no consideration. Dkt. 352 at 27.

Critical to Hayes‟ objections is his perception that there are strong damages claims

that belong personally to all stockholders who held shares at any time during the relevant 

period. Given what he believes to be the personal nature of these claims, Hayes contends 

that stockholders who sold their shares did not transfer their right to pursue their personal

claims and receive the benefit of any recovery. As he sees it, the personal claims 

remained with the former holders. Indeed, from Hayes‟ standpoint, these are the persons 

for whom the Settlement is most problematic. Stockholders who continue to hold their 

shares through the consummation of the Settlement at least benefit indirectly from the 

consideration that the Settlement provides. But those who sold receive nothing in the 

Settlement for the claims that Hayes believes they still possess. Because the persons 

whose interests Hayes most vigorously champions were sellers, this decision refers to 

them as the “Seller Class.”
28

Under Hayes‟ approach, the number of persons in the Seller Class could be vast. 

Millions of Activision shares trade each day. Hayes thinks anyone who bought shares 

after July 25, 2013, but before October 11, 2013, obtained personal claims. A day trader 

who purchased shares on the morning of Friday, July 26, and sold that afternoon is part of 

the Seller Class. So is any high frequency trader who held shares for a microsecond. 

Hayes argues that the personal claims held by members of the Seller Class include 

the strong causes of action under Delaware corporate law that Lead Counsel pursued and 

which led to the Settlement. Because this position is fundamental to each of his 

objections, it is worth addressing at the outset. In my view, Hayes is wrong. 

The Delaware corporate law claims that Lead Counsel pursued and which formed 

the basis for the Settlement fall into three categories: (i) corporate claims belonging to 

Activision that Lead Counsel litigated derivatively; (ii) stockholder claims associated 

with the rights carried by shares of Activision common stock that Lead Counsel litigated 

directly, and (iii) dual-attribute claims having features of both direct and derivative 

claims, which Lead Counsel asserted both directly and derivatively to cover both bases. 

For each category, the right to assert the claim and benefit from any recovery is a 

property right associated with the shares. By default, that property right travels with the 

shares. By selling their shares, the members of the Seller Class defeased to their

purchasers any right they had to bring or benefit from these claims. In doing so, the 

members of the Seller Class “made a conscious business decision to sell their shares into 

a market that implicitly reflect[s] the value of the pending and any prospective lawsuits.” 

In re Resorts Int’l S’holders Litig., 1988 WL 92749, at *10 (Del. Ch. Sept. 7, 1988); 
29

accord In re Prodigy Commc’ns Corp. S’holders Litig., 2002 WL 1767543, at *4 (Del. 

Ch. July 26, 2002).

There are admittedly theoretical causes of action under the expansive rubric of 

American law that members of the Seller Class hold personally and which the Settlement

will release. The most obvious category is claims under the federal securities laws. But to 

foreshadow the analysis of the adequacy of the Settlement and the reasonableness of the 

allocation of consideration, no one (including Hayes) has meaningfully articulated any 

personal claims or shown them to have any value whatsoever. Under controlling 

Delaware Supreme Court precedent, a settlement can release claims of negligible value to 

achieve a settlement that provides reasonable consideration for meaningful claims. In re 

Phila. Stock Exch. Inc. (PHLX I), 945 A.2d 1123, 1140 (Del. 2008). 

1. The Derivative Claims

The first category of claims that Lead Counsel litigated comprised causes of action 

belonging to Activision that were prosecuted derivatively. A corporate claim is an asset 

of the corporation, so authority over the claim ordinarily rests with the board of 

directors.1 The power and authority afforded to directors by Section 141(a) of the DGCL 

 

1

Aronson v. Lewis, 473 A.2d 805, 811 (Del. 1984). In Brehm v. Eisner, 746 A.2d 244, 

253-54 (Del. 2000), the Delaware Supreme Court overruled seven precedents, including 

Aronson, to the extent those precedents reviewed a Rule 23.1 decision by the Court of Chancery 

under an abuse of discretion standard or otherwise suggested deferential appellate review. See id. 

at 253 n.13 (overruling in part on this issue Scattered Corp. v. Chi. Stock Exch., 701 A.2d 70, 72-

73 (Del. 1997); Grimes v. Donald, 673 A.2d 1207, 1217 n.15 (Del. 1996); Heineman v. 

Datapoint Corp., 611 A.2d 950, 952 (Del. 1992); Levine v. Smith, 591 A.2d 194, 207 (Del. 

1991); Grobow v. Perot, 539 A.2d 180, 186 (Del. 1988); Pogostin v. Rice, 480 A.2d 619, 624-25 

(Del. 1984); and Aronson, 471 A.2d at 814). The Brehm Court held that going forward, appellate 

review of a Rule 23.1 determination would be de novo and plenary. Brehm, 746 A.2d at 254. The 
30

“encompasses decisions whether to initiate, or refrain from entering, litigation.” Zapata 

Corp. v. Maldonado, 430 A.2d 779, 782 (Del. 1981) (footnote omitted). In limited 

circumstances, however, a stockholder can assert the corporation‟s claims derivatively on 

its behalf. See Schoon v. Smith, 953 A.2d 196, 208 (Del. 2008). 

The stockholder‟s derivative suit was created in equity in the first half of 

the nineteenth century. Its initial purpose was to provide the stockholder a 

right to call to account his directors for their management of the 

corporation, analogous to the right of a trust beneficiary to call his trustee to 

account for the management of the trust corpus.2

“Devised as a suit in equity, the purpose of the derivative action was . . . to protect the 

interests of the corporation from the misfeasance and mal-feasance of „faithless directors 

 

seven partially overruled precedents otherwise remain good law. This decision does not rely on 

any of them for the standard of appellate review. It therefore omits the cumbersome subsequent 

history, which creates the misimpression that Brehm rejected core elements of the Delaware 

derivative action canon.

2 Maldonado v. Flynn, 413 A.2d 1251, 1261 (Del. Ch. 1980), rev’d on other grounds sub 

nom. Zapata Corp. v. Maldonado, 430 A.2d 779 (Del. 1981); accord Taormina v. Taormina 

Corp., 78 A.2d 473, 475 (Del. Ch. 1951) (“[W]henever a corporation possesses a cause of action 

which it either refuses to assert or, by reason of circumstances, is unable to assert, equity will 

permit a stockholder to sue in his own name for the benefit of the corporation solely for the 

purpose of preventing injustice when it is apparent that the corporation‟s rights would not be 

protected otherwise.”); Cantor v. Sachs, 162 A. 73, 76 (Del. Ch. 1932) (Wolcott, Jos., C.) 

(“Inasmuch however as the corporation will not sue because of the domination over it by the 

alleged wrongdoers who are its directors, the complainants as stockholders have a right in equity 

to compel the assertion of the corporation‟s rights to redress.”); 1 R. Franklin Balotti & Jesse A. 

Finkelstein, The Delaware Law of Corporations and Business Organizations § 13.10, at 13-24 

(3d ed. 2014) (“The fundamental purpose of a derivative action is to enforce a corporate right 

that the corporation has refused for one reason or another to assert.”); 4 John Norton Pomeroy, 

Equity Jurisprudence § 1095, at 278 (Spencer W. Symons ed., 5th ed. 1941) (“The stockholder 

does not bring such a suit because his rights have been directly violated, or because the cause of 

action is his, or because he is entitled to the relief sought; he is permitted to sue in this manner 

simply in order to set in motion the judicial machinery of the court.”) (emphasis in original).
31

and managers.”‟ Kamen v. Kemper Fin. Servs., Inc., 500 U.S. 90, 95 (1991) (quoting 

Cohen v. Beneficial Loan Corp., 337 U.S. 541, 548 (1949)). 

A derivative action under Delaware law joins two suits in one. “The nature of the 

[derivative] action is two-fold. First, it is the equivalent of a suit by the shareholders to

compel the corporation to sue. Second, it is a suit by the corporation, asserted by the 

shareholders on its behalf, against those liable to it.”3 Only in its second dimension does 

the derivative action assert a claim belonging to the corporation. In its first dimension, the 

claim being asserted belongs to the stockholders in their capacities as owners of shares:

Inasmuch however as the corporation will not sue because of the 

domination over it by the alleged wrongdoers who are its directors, the 

complainants as stockholders have a right in equity to compel the assertion 

of the corporation‟s rights to redress. This is their individual right. A bill 

filed by stockholders in their derivative right therefore has two phases—one 

is the equivalent of a suit to compel the corporation to sue, and the other is 

the suit by the corporation, asserted by the stockholders in its behalf, 

against those liable to it. The former belongs to the complaining 

stockholders; the latter to the corporation. 

 

3

Aronson, 473 A.2d at 811; accord Schoon, 953 A.2d at 201-202 (tracing history of 

derivative action and explaining its dual nature); Spiegel v. Buntrock, 571 A.2d 767, 773 (Del. 

1990) (citing the “two-fold” nature of the derivative action); Sternberg v. O’Neil, 550 A.2d 1105, 

1124 n.41 (Del. 1988) (“The normal derivative suit was two suits in one: (1) The plaintiff 

brought a suit in equity against the corporation seeking an order against it; (2) to bring a suit for 

damages or other legal injury for damages or other relief against some third person who had 

caused legal injury to the corporation.” (internal quotation marks omitted)); Kaplan v. Peat, 

Marwick, Mitchell & Co., 540 A.2d 726, 730 (Del. 1988) (describing the “two-fold” nature of 

the derivative action); Zapata, 430 A.2d at 784 (citing “the „two phases‟ of a derivative suit, the 

stockholder‟s suit to compel the corporation to sue and the corporation‟s suit”); Harff v. 

Kerkorian, 324 A.2d 215, 218 (Del. Ch. 1974) (“The nature of the derivative suit is two-fold: 

first, it is the equivalent of a suit by the stockholders to compel the corporation to sue; and 

second, it is a suit by the corporation, asserted by the stockholders in its behalf, against those 

liable to it.”), aff’d in pertinent part, 347 A.2d 133 (Del. 1975).
32

Cantor, 162 A. at 76. The former action “may be regarded as a „propulsive‟ one, to 

compel in one proceeding the enforcement of the obligation owed by the corporation to 

the plaintiff and to all its shareholders, to assert its right of action for their benefit.” 

Henry Winthrop Ballantine, Ballantine on Corporations § 145 at 344 (Rev. ed. 1946).

Although the derivative action originated to enable stockholders to pursue internal 

corporate claims against corporate fiduciaries, the logic of the structure was not so 

limited. The same concepts would facilitate an action to enforce any corporate right that 

the corporation “has refused for one reason or another to assert.” Balotti & Finkelstein, 

supra, § 13.9 at 13-24. “„Any claim belonging to the corporation may, in appropriate 

circumstances, be asserted in a derivative action,‟ including claims that do—and claims 

that do not—involve corporate mismanagement or breach of fiduciary duty.”4

During the nineteenth century, corporations frequently encouraged stockholders 

who were supportive of management to assert claims derivatively on the corporation‟s 

behalf, including claims for breach of contract, in order to establish diversity jurisdiction 

in federal court. See Hawes v. City of Oakland, 104 U.S. 450, 452-53 (1881).

 

4

3 Stephen A. Radin, The Business Judgment Rule 3612 (6th ed. 2009) (quoting Midland 

Food Servs., LLC v. Castle Hill Hldgs. V, LLC, 792 A.2d 920, 931 (Del. Ch. 1999) (Strine, 

V.C.)); see, e.g., First Hartford Corp. Pension Plan & Trust v. United States, 194 F.3d 1279, 

1293 (Fed. Cir. 1999) (permitting “contract actions brought derivatively by shareholders on 

behalf of the contracting corporation”); Slattery v. United States, 35 Fed. Cl. 180, 183 (1996) 

(same); Suess v. United States, 33 Fed. Cl. 89, 93 (Fed. Cl. 1995) (denying motion to dismiss a 

derivative claim for breach of contract against the United States); see also Ross v. Bernhard, 396 

U.S. 531, 542-43 (1970) (holding right to jury trial existed for breach of contract claim asserted 

by stockholder derivatively because “[t]he corporation, had it sued on its own behalf, would have 

been entitled to a jury‟s determination”).
33

[I]t was not uncommon for a corporation that had a direct claim against a 

party who was a cocitizen of the state of its incorporation to seek to have 

the claim litigated in a federal court as a derivative suit brought by a 

nominal shareholder-plaintiff who was chosen because the shareholder‟s 

citizenship was different from that of the corporation and its officers, as 

well as that of the prospective defendant. If an accommodating stockholder 

could not be found, one could be created by transferring stock to an 

individual whose citizenship enabled that person to bring the suit.

7 Charles Alan Wright, Arthur R. Miller & Mary K. Kane, Federal Practice and 

Procedure § 1830 (3d ed. 2007) (emphasis added). In Hawes, the United States Supreme

Court created the contemporaneous ownership requirement to prevent corporations from 

manufacturing diversity jurisdiction for claims against third parties. 104 U.S. at 461; see

Robert C. Clark, Corporate Law § 15.4 at 651 (1986) (“Originally the rule was designed 

simply to deter the buying of shares in order to create diversity of citizenship and thereby 

gain access to the federal courts.”).

The problem of management using a friendly stockholder to manufacture 

jurisdiction did not confront state courts (and it still doesn‟t). Consequently, “many 

courts, including Delaware, did not follow the rule of the Hawes case [viz., the 

contemporaneous ownership requirement].” Rosenthal v. Burry Biscuit Corp., 60 A.2d 

106, 111 (Del. Ch. 1948) (Seitz, V.C.). At common law, the right to sue derivatively 

passed with the shares, and “in order to maintain a derivative action, a stockholder was 

not required to be the owner of the shares at the time of the transaction of which he 

complained.” Id. at 110 (citing cases). But in 1945, the General Assembly created the 

contemporaneous ownership requirement for derivative actions by adopting what is now 

Section 327 of the DGCL. In its current form, it states:
34

In any derivative suit instituted by a stockholder of a corporation, it shall be 

averred in the complaint that the plaintiff was a stockholder of the 

corporation at the time of the transaction of which such stockholder 

complains or that such stockholder‟s stock thereafter devolved upon such 

stockholder by operation of law.

8 Del. C. § 327.

The new provision “effected a substantial change in the Delaware Corporation 

Law.” Burry Biscuit, 60 A.2d at 110. Before its adoption, both the right to sue and the 

right to benefit indirectly from any derivative recovery passed with the shares. After the 

adoption of Section 327, the right to benefit from a derivative recovery continued to pass 

with the shares, but the successor holder did not have the right to sue. 

The contemporaneous ownership requirement has been the subject of extensive 

criticism. Professor Clark has written in his respected treatise that if 

a person thinks he has a valid derivative claim against his corporation‟s 

directors and officers but is reluctant to start a lawsuit himself—perhaps 

because he lacks the time or is risk-averse—it would appear to be a good 

thing, for himself and other shareholders, if he could sell his shares to a 

more daring investor who is willing to act as prosecutor on behalf of all the 

shareholders. Thus, it is difficult to justify the continued existence of the 

contemporaneous ownership requirement.

Clark, supra, § 15.4 at 651. At the other end of the temporal spectrum, one of the earliest 

authors of an American corporate law treatise commented that

the estate of a corporation is to be treated as that of a continuing institution, 

irrespective of the members at any particular time composing it. Each share 

represents an interest in the entire concern, and the several holders are 

entitled to equal rights irrespective of the time when they acquired their 

shares. Causes of action belonging to the corporation increase the value of 

the corporate estate, and must be treated like any other assets; when 

enforced, they inure to the benefit of all the shareholders without 

distinction. It is plain, therefore, that a shareholder has an interest in all of 
35

the causes of action belonging to the corporation, whether they arose before 

or after he purchased his shares. 

Victor A. Morawetz, The Law of Private Corporations § 265 (2d ed. 1886). He 

continued: “There seems to be no good reason why a shareholder should not, as a rule, be 

permitted to sue on account of causes of action which arose before he purchased his 

shares, it being assumed, of course, that the corporation ought to sue but is unable to act.” 

Id. § 266. 

Intervening treatise authors shared these views. Henry Winthrop Ballantine 

regarded the contemporaneous ownership requirement as illogical because

[t]he transfer of shares not only conveys to the transferee the ownership of 

the shares and the right to the future dividends thereon, but also places him 

upon an equal footing with the other shareholders—provided neither he nor 

his transferrer is otherwise estopped—in respect to the right to call the 

officers and agents of the corporation to account in a derivative suit, or to 

compel the corporation to assert its rights of action against third parties. A 

shareholder has an interest in all assets and all causes of action belonging to 

the corporation, whether they arose before or after he purchased his shares.

Ballantine, supra, § 148 at 353. George D. Horstein wrote that “[r]ejection of the 

contemporaneous ownership doctrine appears logically sound since the shareholder sues 

in the right of the corporation and the corporation‟s right should not be affected by the 

date when shares were acquired by an individual who sets in motion the judicial 

machinery.” 2 George D. Horstein, Corporation Law & Practice § 712 at 195 (1959). As 
36

in Delaware, a majority of jurisdictions refused to adopt a contemporaneous ownership 

requirement in the absence of a statute.5

For reasons discussed at length elsewhere, I do not believe that a coherent and 

credible policy justification has ever been offered for Section 327‟s limitation on the 

ability of stockholders to assert pre-transfer claims. See J. Travis Laster, Goodbye to the 

Contemporaneous Ownership Requirement, 33 Del. J. Corp. L. 673 (2008). The purposes 

that have been proffered for Section 327‟s limitation on stockholder standing (i) ignore 

the two-fold nature of the derivative action, id. at 676-77, (ii) conflict with Delaware law 

on the assignability of claims, id. at 680-81, (iii) do not match up with how the statute 

operates, id. at 682-84, 688-91, or (iv) stand in tension with financial and economic 

theory, id. at 685-88. Nevertheless, Section 327 is obviously the law of Delaware, and 

this court is bound to apply it. 

 

5

Id. at 194; accord Note, Negotiability of Shares—Right of Subsequent Transferee To 

Sue, 23 Minn. L. Rev. 484, 488 n.30 (1939) (explaining that “a subsequent transferee of shares in 

a corporation should be able to maintain a derivative suit” and stating that “[t]his appears to be 

the majority position”); Note, Stockholder’s Suit For Wrong Which Occurred Before 

Complainant Acquired Stock, 68 U.S. L. Rev. 169, 169 (1934) (noting that “[i]n most of the 

jurisdictions in which the question has been presented, it has been held that in the absence of 

special circumstances a stockholder‟s suit may be brought by one who was not a stockholder at 

the time of the transaction of which he complains”); see id. at 172-75 (drawing on reasoning of 

cases to criticize contemporaneous ownership requirement); 6 Seymor D. Thompson & Joseph 

W. Thompson, Commentaries on the Law of Corporations § 4638 at 538 (3d ed. 1927) (“The 

general rule in the state courts undoubtedly is that the stockholder who pleads a good cause of 

action may maintain the same, although he was not an owner of the stock at the time the breach 

of duty was committed . . . .”). For a representative decision rejecting the imposition of a 

contemporaneous ownership requirement at common law, see Pollitz v. Gould, 94 N.E. 1088 

(N.Y. 1911).
37

The question for present purposes is whether by cutting off the right to sue, 

Section 327 transmutes the lost ability to bring a derivative claim into a personal claim 

belonging to the selling stockholder such that the Seller Class could have a claim for 

damages. But for Section 327, it would be clear that both the right to assert the derivative 

claim and the ability to benefit from any recovery traveled with the shares when they 

were sold. The plain language of Section 327 only addresses the right to assert the claim. 

Nothing in Section 327 limits the ability to benefit from any derivative recovery. And 

achieving that result would be difficult. The recovery in a derivative action belongs to 

and is almost inevitably awarded to the corporation, so all current stockholders benefit, 

notwithstanding the contemporaneous ownership requirement. It seems plain to me that 

to the extent the Seller Class retains personal claims, they do not encompass or derive 

from the derivative claims that Lead Counsel asserted.

The claim in the case that was most obviously and purely derivative was Count XI 

of the Complaint, which alleged that ASAC breached the Stockholders Agreement. Count 

XI alleged that ASAC breached the contractual limit on its Board representation by 

seeking and obtaining Board seats for Nolan and Wynn. The claim to enforce the 

Stockholders Agreement belonged to Activision, which was a party to that agreement.

The other claims that the Complaint styled as derivative are more properly viewed 

as having dual attributes. In Counts VI through X, the Complaint described the alleged 

wrongs associated with the Restructuring in which the defendants had engaged and 

framed the theories as derivative claims brought on behalf of Activision. In Counts VI 
38

through X, the Complaint described the same alleged wrongs and framed the theories as 

direct claims brought on behalf of the Class. 

For purposes of evaluating the underlying premise of Hayes‟ objections, what 

matters presently is that any right to benefit from the derivative claims belongs to the 

current holders of shares. Anyone who sold their shares “chose to dissociate their 

economic interests from the corporation and, by doing so, to forego the opportunity to 

benefit from . . . the potential benefit to the corporation from the derivative claims.” In re 

Triarc Cos., Inc. Class & Deriv. Litig., 791 A.2d 872, 875 (Del. Ch. 2001). The Seller 

Class has no right to benefit from the derivative claims.

2. Direct Claims

A similar analysis applies to the second category of Delaware corporate law 

claims, namely the direct claims. Shares of stock carry with them particular rights that a 

holder of the shares can exercise by virtue of being the owner. A stockholder can invoke 

these rights directly, rather than derivatively. First Hayes and then Lead Counsel litigated 

direct claims belonging to holders of Activision common stock.

Direct claims include the causes of action conferred on stockholders by specific 

statutory provisions of the DGCL.6 Direct claims also include causes of action to enforce 

contract rights that stockholders possess under the corporation‟s certificate of 

 

6

See, e.g., 8 Del. C. §§ 168, 205, 211, 219, 220, 223, 225, 226, 262, 273, 291.
39

incorporation and bylaws,7recognizing that the DGCL forms a part of every Delaware 

corporation‟s charter.8 Classic examples included the right to vote, the right to compel 

payment of a contractually specified dividend, and the right to own and alienate shares.9

Stockholders similarly can sue directly to enforce contractual constraints on a board‟s 

authority under the charter, bylaws, and provisions of the DGCL.10 The availability of a 

direct cause of action in these situations comports with the Delaware Supreme Court‟s 

longstanding recognition that the DGCL, the certification of incorporation, and the 

 

7

See Tooley v. Donaldson, Lufkin & Jenrette, Inc., 845 A.2d 1031, 1037-39 (Del. 2004); 

Rich Realty, Inc. v. Potter Anderson & Corroon LLP, 2011 WL 743400, at *4 (Del. Super. Feb. 

21, 2011); Ruffalo v. Transtech Serv. P’rs Inc., 2010 WL 3307487, at *9 (Del. Ch. Aug. 23, 

2010); MCG Capital Corp. v. Maginn, 2010 WL 1782271, at *7, *13-14 (Del. Ch. May 5, 2010); 

Manzo v. Rite Aid Corp., 2002 WL 31926606, at *5 (Del. Ch. Dec. 19, 2002), aff’d, 825 A.2d 

239 (Del. 2003) (TABLE). As Tooley specifically held, stockholders suffer direct injury and may 

sue individually for breach of their contractual rights, even when all stockholders had the same 

right and suffered the same injury. Tooley, 845 A.2d at 1039. See generally Allen v. El Paso 

Pipeline GP Co., L.L.C., 90 A.3d 1097, 1105-1109 (Del. Ch. 2014).

8

8 Del. C. § 394 (“This chapter and all amendments thereof shall be a part of the charter 

or certificate of incorporation of every corporation.”); STAAR Surgical Co. v. Waggoner, 588 

A.2d 1130, 1136 (Del. 1991) (“[I]t is a basic concept that the General Corporation Law is a part 

of the certificate of incorporation of every Delaware company.”); Hartford Acc. & Indem. Co. v. 

W. S. Dickey Clay Mfg. Co., 24 A.2d 315, 321 (Del. 1942) (“[T]here is impliedly written into 

every corporate charter as a constituent part thereof the pertinent provisions of the State 

Constitution and statutes.”); Fed. United Corp. v. Havender, 11 A.2d 331, 338 (Del. 1940) (“It is 

elementary that these provisions [of the DGCL] are written into every corporate charter.”).

9

See Lipton v. News Int’l, Plc, 514 A.2d 1075, 1078-79 (Del. 1986) (right to vote); In re 

Gaylord Container Corp. S’holders Litig., 747 A.2d 71, 78-79 (Del. Ch. 1999) (Strine, V.C.) 

(right to own and alienate shares); Moran v. Household Int’l, Inc., 490 A.2d 1059, 1070 (Del. 

Ch.) (discussing classic examples), aff’d, 500 A.2d 1346 (Del. 1985); see also Turner v. 

Bernstein, 768 A.2d 24, 33 n.20 (Del. Ch. 2000) (Strine, V.C.) (observing that the right to 

declare or compel a dividend has been recognized as a classic example of an action suitable to 

certification under Rule 23(b)(1)).

10 See Grimes, 673 A.2d at 1213; Grayson v. Imagination Station, Inc., 2010 WL 

3221951, *5 (Del. Ch. Aug. 16, 2010).
40

bylaws together constitute a multi-party contract among the directors, officers, and 

stockholders of the corporation.11 As parties to the contract, stockholders can enforce it.12

Section 327 does not apply to direct claims. When a share of stock is sold, the 

property rights associated with the shares, including any claim for breach of those rights 

and the ability to benefit from any recovery or other remedy, travel with the shares.13

“This is the general rule embodied in 6 Del. C. § 8-303(a), which provides that upon 

delivery of a . . . security to a purchaser, the purchaser acquires all rights in the security 

 

11 Boilermakers Local 154 Ret. Fund v. Chevron Corp., 73 A.3d 934, 940 (Del. Ch. 2013) 

(Strine, C.) (“[O]ur Supreme Court has long noted that bylaws, together with the certificate of 

incorporation and the broader DGCL, form part of a flexible contract between corporations and 

stockholders.”); accord Airgas, Inc. v. Air Prods. & Chems., Inc., 8 A.3d 1182, 1188 (Del. 2010) 

(“Corporate charters and bylaws are contracts among a corporation‟s shareholders . . . .”); 

STAAR Surgical, 588 A.2d at 1136 (“[A] corporate charter is both a contract between the State 

and the corporation, and the corporation and its shareholders.”); Centaur P’rs, IV v. Nat’l 

Intergroup, Inc., 582 A.2d 923, 928 (Del. 1990) (“Corporate charters and by-laws are contracts 

among the shareholders of a corporation . . . .”); cf. Lawson v. Household Fin. Corp., 152 A. 723, 

726 (Del. 1930) (“The same rules which govern the construction of statutes, contracts and other 

written instruments, are made use of in construing the provisions and determining the meaning of 

charters and grants of corporate powers and privileges.”).

12 See Grimes, 673 A.2d at 1212; Grayson, 2010 WL 3221951, at *6; see also Blasius 

Indus., Inc. v. Atlas Corp., 564 A.2d 651, 660 (Del. Ch. 1988) (Allen, C.) (noting that the scope 

of a restriction on a fiduciary‟s authority is “not . . . a question that a court may leave to the 

[fiduciary] finally to decide so long as he does so honestly and competently; that is, it may not be 

left to the [fiduciary‟s] business judgment”).

13 Schultz v. Ginsburg (PHLX II), 965 A.2d 661, 667 (Del. 2009) (“As a matter of law, a 

Charter Violation claim transfers to a later purchaser because the injury is to the stock and not 

the holder.”); Prodigy, 2002 WL 1767543, at *4 (“[W]hen Beoshanz sold his shares in the 

marketplace, the claim relating to the fairness of the then-proposed transaction passed to his 

purchaser, who enjoyed the benefits of the settlement.”); Triarc, 791 A.2d at 878-79 (explaining 

owners of stock who sell their shares are “viewed as having sold their interest in the claim with 

their shares”); In re Sunstates Corp. S’holder Litig., 2001 WL 432447, at *3 (Del. Ch. Apr. 18, 

2001) (“I can see little reason why the claim for breach of the preferred stock charter provisions 

would not ordinarily transfer with the shares.”). But see Omnicare, Inc. v. NCS Healthcare, Inc., 

809 A.2d 1163, 1169 (Del. Ch. 2002) (applying judicially created version of contemporaneous 

ownership requirement to direct claims as a matter of public policy).
41

that the transferor had or had power to transfer.” Sunstates, 2001 WL 432447, at *3

(internal quotation marks omitted). More generally, Delaware has a longstanding rule that 

claims are freely assignable and can be asserted by the acquirer if the right of action is the 

type of claim that would survive the death of the transferor and pass to his personal 

representative. See Indus. Trust Co. v. Stidham, 33 A.2d 159, 160-61 (Del. 1942). By 

statute, “[a]ll causes of action, except actions for defamation, malicious prosecution, or 

upon penal statutes, shall survive . . . .” 14 Direct claims survive and are transferrable.15

 

14 10 Del. C. § 3701. Because Delaware law generally permits parties to acquire and 

assert claims, and in light of Section 18-303 of title 6, there does not seem to be support for the 

statement that “Delaware law recognizes a policy against buying a lawsuit.” PHLX II, 965 A.2d 

at 668. As the only authority for this proposition, the PHLX II opinion cited this court‟s decision 

granting a motion to dismiss a bidder‟s claims for breach of fiduciary duty. See Omnicare, 809 

A.2d at 1169. The Omnicare opinion asserted that before the adoption of Section 327, there was 

“a longstanding Delaware public policy against the „evil‟ of purchasing stock in order „to attack 

a transaction which occurred prior to the purchase of the stock.‟” Id. (quoting Burry Biscuit, 60 

A.2d at 111). The Omnicare opinion also asserted that “[t]he policy against purchasing lawsuits 

involving the internal relations of Delaware corporations was codified in the derivative suit 

context by [Section 327].” Id. (emphasis added). As support, the Omnicare decision relied on 

Burry Biscuit and authorities traceable to Burry Biscuit. But on both points, Burry Biscuit said 

exactly the opposite. As to the state of the law before the adoption of Section 327, then-Vice 

Chancellor Seitz wrote: “Under the Delaware Law as it existed prior to the enactment of [Section 

327], in order to maintain a derivative action, a stockholder was not required to be the owner of 

the shares at the time of the transaction of which he complained.” Burry Biscuit, 60 A.2d at 111. 

As to the supposed codification of existing law, then-Vice Chancellor Seitz wrote that Section 

327 “effected a substantial change in the Delaware Corporation Law.” Id. The change was that 

before its passage, a stockholder could sue for wrongs pre-dating the acquisition of stock, but 

“[a]fter its passage, a stockholder filing a derivative action was required to allege and therefore 

to prove that he was a stockholder at the time of the transaction of which he complained, or that 

his stock devolved upon him by operation of law.” Id. Delaware also did not view a lawsuit 

brought by an after-acquiring stockholder as champerty—the common law doctrine that guarded 

against the purchase of a lawsuit, “for champerty cannot be charged against one having an 

interest in the matter in controversy.” Eshleman v. Keenan, 181 A. 655, 658 (Del. Ch. 1935) 

(Wolcott, Jos., C.). Delaware law does not limit the ability of investors in the other half of the 

corporate capital structure—debt—to assert direct claims that arose before they purchased their 

securities. Imagine what it would mean for negotiable instruments if an after-acquiring 

debtholder could not sue for breach. Perhaps PHLX II suggests that the Delaware Supreme Court 
42

The claim in this case that was most obviously direct was the Voting Right Claim 

which the Delaware Supreme Court held was meritless. The other claims styled as direct 

are better viewed as having dual attributes.

What again matters for present purposes is that the direct claims asserted in this 

case, along with the right to benefit from any remedy, belong to the current holders of 

shares. Persons who sold their shares “chose to dissociate their economic interests from 

the corporation and, by doing so, to forego the opportunity to benefit from . . . the class 

claims.” Triarc, 791 A.2d at 872. The Seller Class has no right to pursue or benefit from 

the direct claims.

3. The Dual Claims

The principal claims that Lead Counsel litigated had attributes that permitted them 

to be pled either as derivative claims or direct claims.16 Corporate transactions that 

 

would recognize that Delaware has a public policy against a stockholder buying property rights 

that include choses in action, but any such policy should rest on reasons why the law would 

disfavor the property rights of stockholders relative to those of other similarly situated claimants.

15 In re Emerging Commc’ns, Inc. S’holders Litig., 2004 WL 1305745, at *29 (Del. Ch. 

May 3, 2004, revised June 4, 2004) (Jacobs, J. by designation) (“In this case, the choses in action 

are breach of fiduciary duty and fraud claims. Those claims survive to (or against) a personal 

representative under 10 Del. C. § 3701.”); accord Puma v. Marriott, 294 F.Supp. 1116, 1119 (D.

Del. 1969) (holding that claim for breach of fiduciary duty survived under Section 3701); St. 

Search P’rs, L.P. v. Ricon Int’l, L.L.C., 2006 WL 1313859, at *3 (Del. Super. May 12, 2006)

(“[C]laims for breach of fiduciary obligations and resultant unjust enrichment have been held to 

survive”).

16 See Gatz v. Ponsoldt, 925 A.2d 1265, 1268 (Del. 2007); (“[T]he claims before us are 

not exclusively derivative and could be brought directly.”); Gentile v. Rossette, 906 A.2d 91, 99-

100 (Del. 2006); Grimes, 673 A.2d at 1212 (“Courts have long recognized that the same set of 

facts can give rise both to a direct claim and a derivative claim.”); Sagarra Inversiones, S.L. v. 

Cementos Portland Valderrivas, S.A., 2011 WL 3371493, at *5 n.31 (Del. Ch. Aug. 5, 2011) 

(“Although the Tooley formulation provides a two-part analysis for determining whether an 
43

reallocate stock ownership percentages and voting rights often give rise to dual-attribute 

claims.17

 

asserted claim is direct or derivative, there are some limited exceptions where the same facts may 

support both direct and derivative claims.”); San Antonio Fire & Police Pension Fund v. 

Bradbury, 2010 WL 4273171, at *9 n.68 (Del. Ch. Oct. 28, 2010) (“The same facts may support 

both direct and derivative claims.”); Thornton v. Bernard Techs., Inc., 2009 WL 426179, at *3 

n.28 (Del. Ch. Feb. 20, 2009) (“It is possible for a claim to be both derivative and direct.”); Big 

Lots Stores, Inc. v. Bain Capital Fund VII, LLC, 922 A.2d 1169, 1181 n.54 (Del. Ch. 2006) 

(acknowledging the “common sense principle” that the same set of facts can set forth both direct 

and derivative claims seeking different forms of relief); Odyssey P’rs v. Fleming Co., 1998 WL 

155543, at *3 (Del. Ch. Mar. 27, 1998) (“[I]n some circumstances, the same conduct (or aspects 

thereof) may give rise to both derivative and direct claims.”).

17 See Gatz, 925 A.2d at 1281 (concluding that transaction in which stockholder gained 

controlling position and public stockholders were diminished to a minority position were not 

exclusively derivative and could have been brought directly); Gentile, 906 A.2d at 90 (discussing 

dual attribute claims based on expropriation caused by a dilutive stock issuance); Carsanaro v. 

Bloodhound Techs., Inc., 65 A.3d 618, 655 (Del. Ch. 2013) (discussing direct and derivative 

claims caused by a dilutive stock issuance); Robotti & Co., LLC v. Liddell, 2010 WL 157474, at 

*6-7 (Del. Ch. Jan. 14, 2010) (noting that claims alleging overpayment and subsequent common 

stock dilution are typically regarded as derivative but claims alleging that a controlling 

stockholder caused the corporation to overpay for stock thereby increasing the controllers 

ownership and decreasing minority stockholders‟ ownership are direct); Dubroff v. Wren Hldgs., 

LLC (Dubroff I), 2009 WL 1478697, at *3 (Del. Ch. May 22, 2009) (“Gentile and its progeny 

make clear that a shareholder‟s claim can be both derivative and direct in a unique situation: 

where a controlling shareholder causes the corporate entity to issue more equity to the 

controlling shareholder at the expense of the minority shareholders.”); Oliver v. Bos. Univ., 2006 

WL 1064169, at *17 (Del. Ch. Apr. 14, 2006) (characterizing claim alleging equity dilution 

following a preferred stock issuance as a derivative claim but noting that “[v]oting power 

dilution may constitute a direct claim, because it can directly harm the shareholders without 

affecting the corporation, and any remedy for the harm suffered under those circumstances 

would benefit the shareholders.”); In re JP Morgan Chase & Co. S’holder Litig., 906 A.2d 808, 

818 (Del. Ch. 2005), aff’d, 906 A.2d 766 (Del. 2006) (noting that dilution claims alleging the 

diminishment of voting power may be considered direct claims “where a significant 

stockholder‟s interest is increased at the sole expense of the minority” (quoting In re Paxson 

Commc’n Corp. S’holders Litig., 2001 WL 812028, at *5 (Del. Ch. July 12, 2001)); Triarc, 791 

A.2d at 874 (discussing direct and derivative claims resulting from the issuance of cash bonuses 

and stock options in excess of what was permitted by a stockholder approved compensation 

arrangement). See generally 3 Edward P. Welch et al., Folk On The Delaware General 

Corporation Law § 327.02[A][7] (6th ed. 2015).
44

Under Delaware law, to determine whether a claim is derivative or direct, a court 

must consider “(1) who suffered the alleged harm (the corporation or the suing 

stockholders, individually); and (2) who would receive the benefit of any recovery or 

other remedy (the corporation or the stockholders, individually)?” Tooley, 845 A.2d at

1033. When a transaction reallocates ownership percentages at the stockholder level, the 

first question in the Tooley test can be answered either way. Because the board of 

directors has exclusive authority to issue stock, see 8 Del. C. §§ 152-157, shares of stock 

are deemed an asset of the corporation. Stock is a form of currency that can be exchanged 

for other forms of currency or used for a variety of corporate purposes, including paying 

off debts, acquiring assets, compensating employees, or acquiring other entities. If a 

complaint contends that the corporation received too little for its shares, then in one 

sense, the injury is suffered by the corporation because it did not receive greater value.18

But in another sense, the effects of reallocating ownership are felt at the 

stockholder level. A stock certificate does not have intrinsic value; it is a piece of paper 

with ink on it. An electronic book entry has even less physical substance. A share is 

simply a convenient means of tracking proportionate ownership, and the property rights 

that shares carry have greater or lesser value depending on the relative and absolute 

 

18 See, e.g., Gentile, 906 A.2d at 99 (“[C]laims of corporate overpayment are treated as 

causing harm solely to the corporation and, thus, are regarded as derivative. The reason . . . is 

that the corporation is both the party that suffers the injury (a reduction in its assets or their 

value) as well as the party to whom the remedy (a restoration of the improperly reduced value) 

would flow.”); Dubroff I, 2009 WL 1478697, at *3 (“[B]ecause the corporation has suffered an 

injury (inadequate payment for its shares) . . . any recovery would flow to the corporate 

treasury”); JP Morgan, 906 A.2d at 819 (noting that “if the [director] defendants are found 

liable, the remedy will accrue to JPMC”).
45

percentage of ownership that they represent.19 Transactions involving stock reallocate 

power and ownership at the stockholder level. A dilutive issuance that raises the 

recipient‟s ownership stake increases that holder‟s relative power and ownership at the 

expense of the non-recipients. Because of these stockholder-level effects, sophisticated 

investors bargain for anti-dilution protection and pre-emptive rights. See Joseph W. 

Bartlett & Kevin R. Garlitz, Fiduciary Duties In Burnout/Cramdown Financings, 20 J. 

 

19 Delaware law recognizes this reality in many ways. Delaware case law acknowledges 

that the owner of a controlling block legitimately can insist on a premium for its shares that is not 

shared with the remaining stockholders. See, e.g., Thorpe by Castleman v. CERBCO, Inc., 676 

A.2d 436, 442 (Del. 1996) (noting a “basic precept[] of corporate law” that “controlling 

shareholders have a right to sell their shares, and in doing so capture and retain a control 

premium”); Paramount Commc’ns Inc. v. QVC Network Inc., 637 A.2d 34, 43 (Del. 1994) (“The 

acquisition of majority status and the consequent privilege of exerting the powers of majority 

ownership come at a price. That price is usually a control premium which recognizes not only 

the value of a control block of shares, but also compensates the minority stockholders for their 

resulting loss of voting power.”); In re Synthes, Inc. S’holder Litig., 50 A.3d 1022, 1039 (Del. 

Ch. 2012) (Strine, C.) (“It is, of course, true that controlling stockholders are putatively free 

under our law to sell their own bloc for a premium or even to take a different premium in a 

merger.”); Mendel v. Carroll, 651 A.2d 297, 305 (Del. Ch. 1994) (Allen, C.) (“The law has 

acknowledged, albeit in a guarded and complex way, the legitimacy of the acceptance by 

controlling shareholders of a control premium”). Delaware case law also empowers directors to 

use defensive measures to limit a party‟s ability to assemble a controlling block. See eBay 

Domestic Hldgs., Inc. v. Newmark, 16 A.3d 1, 29 (Del. Ch. 2010) (noting proper use of rights 

plan “to block a creeping takeover”); Yucaipa Am. Alliance Fund II, L.P. v. Riggio, 1 A.3d 310, 

359 (Del. Ch. 2010) (Strine, V.C.), aff’d, 15 A.3d 218 (Del. 2011) (same); Gaylord Container 

Corp., 753 A.2d at 481 (“The primary purpose of a poison pill is to enable the target board of 

directors to prevent the acquisition of a majority of the company‟s stock through an inadequate 

and/or coercive tender offer”). The DGCL imposes statutory limitations on transactions between 

a corporation and an interested stockholder, defined as someone beneficially owning 15% or 

more of the entity‟s voting power, for three years after the stockholder became an interested 

stockholder (subject to several exceptions). See 8 Del. C. § 203. Numerous federal statutes 

similarly impose consequences based on a stockholder‟s level of equity ownership. See, e.g., 15 

U.S.C. § 78m (requiring “beneficial owners” to disclose the acquisition of beneficial ownership 

of more than five percent of a company‟s equity securities within ten days of purchase); id. § 78p 

(treating as an insider “[e]very person who is directly or indirectly the beneficial owner of more 

than 10 percent of any class of any equity security (other than an exempted security)”).
46

Corp. L. 593, 595-96 (1995). The answer to Tooley‟s first question—who suffered the 

harm (the corporation or the stockholders, individually)—is either and both.

The second question under Tooley—who would receive the benefit of any 

recovery or other remedy (the corporation or the stockholders, individually)—likewise 

can be answered either way. One remedy is to require the recipient of the increased stake 

to pay more to the corporation, fixing the harm at the corporate level. Another remedy is 

to adjust the relative rights of the stock or invalidate a portion of the shares, fixing the 

harm at the stockholder level.20

The principal claims for breach of fiduciary duty and aiding and abetting in this 

case had dual attributes. In response to first question under Tooley—who suffered the 

harm—the answer could be either Activision or the unaffiliated stockholders. In one 

sense, Activision was harmed by the Restructuring because the defendants‟ misconduct 

prevented Activision from repurchasing a greater percentage of its shares from Vivendi.

Rather having Activision buy the shares and benefit all of its stockholders indirectly, 

ASAC bought them. But in another sense, Activision‟s unaffiliated stockholders were 

harmed because they lost the opportunity to have control return to the market. The 

Committee sought a transaction that would have eliminated Vivendi‟s control block 

without a replacement controller. Kotick and Kelly took advantage of Vivendi‟s situation 

 

20 See In re Loral Space & Commc’ns Inc., 2008 WL 4293781, at *32 (Del. Ch. Sept. 19, 

2008) (Strine, V.C.) (reforming the securities purchase agreement to convert the preferred stock 

into non-voting common stock), aff’d, 977 A.2d 867 (Del. 2009); Linton v. Everett, 1997 WL 

441189, at *7 (Del. Ch. July 31, 1997) (invaliding shares that directors issued to themselves for 

inadequate consideration).
47

to engineer a transaction where they emerged with practical control and substantial 

financial benefits. Only the unaffiliated stockholders suffered this injury. Kotick, Kelly, 

and ASAC benefitted. Precedent exists that supports characterizing the injury suffered by 

the unaffiliated stockholders as direct, not derivative.

21

In response to second question under Tooley—who would receive the benefit of 

any remedy—the answer again could be either Activision or the unaffiliated stockholders. 

One set of possible remedies would operate at the corporate level and include damages in 

favor of Activision, disgorgement of the defendants‟ profits, an order requiring ASAC to 

transfer its shares to Activision, or a constructive trust over the shares for Activision‟s 

benefit. These remedies would have addressed the injury Activision suffered. But another 

set of possible remedies would operate at the stockholder level, such as an order 

invalidating some or all of ASAC‟s shares, a permanent injunction blocking ASAC‟s 

ability to exercise some or all of its voting rights, or an order adjusting the voting rights 

directly. See, supra, n.20.

For the present purpose of evaluating Hayes‟ principal objection, the critical 

question is whether dual-attribute claims travel with the shares. Because both direct and 

 

21 See, e.g., Gaylord, 747 A.2d at 84 (holding that challenges to poison pill and charter 

and bylaw amendments were individual in nature, because when a board takes actions “that 

diminish the ability of non-management stockholders to elect a new slate of directors, entertain 

sales proposals, and to amend the corporation‟s charter and bylaws, the resulting injury to the 

non-management stockholders is independent of and distinct from any injury to the corporation” 

and “is to the stockholders within the corporate structure that have lost relative power, not to the 

corporation as an entity”); Carmody v. Toll Bros., Inc., 723 A.2d 1180, 1189 (Del. Ch. 1998) 

(holding challenge to adoption of dead hand poison pill is individual because it involves claimed 

wrongful interference “with the shareholders‟ right to elect a new board” and “the right to vote is 

a contractual right and an attribute of the Toll Brothers shares”).
48

derivative claims travel with the shares, claims that have both attributes also logically 

travel with the shares. That was the conclusion reached in Triarc, where the defendants 

approved executive compensation awards that violated the terms of a stockholderapproved compensation arrangement. 791 A.2d at 874. The court noted that the wrong 

gave rise both to derivative and direct claims and held that all of the claims traveled with 

the shares. Id. at 874-75, 878-79. 

There is an ambiguous reference in PHLX II that could support a different rule. 

The Court of Chancery had approved a complex settlement comprising both direct and 

derivative claims, which allocated the per share consideration across a class of 

stockholders as follows:

100% per share to the Continuous Holders; 80% per share to the First 

Period Buyers; 20% per share to the First Period Sellers; 60% per share to 

Second Period Buyers; 40% per share to Second Period Sellers; and 20% 

per share to In and Out Traders who bought in the First Period and sold in 

the Second Period.

965 A.2d at 666. The Court of Chancery evaluated the strength of the different groups‟ 

claims and “found the allocation plan to be a rational assessment of the competing 

interests.” Id. Several objectors appealed. Most pertinently, certain sellers argued that 

they suffered damage because of economic dilution from a challenged stock issuance and 

should have received a larger allocation. Id. at 667. 

The Delaware Supreme Court reviewed the Court of Chancery‟s approval of the 

allocation under an abuse of discretion standard and found no error. When describing the 

nature of the economic dilution claim, however, the Delaware Supreme Court deployed 

inconsistent terminology. Initially, the Delaware Supreme Court stated that “as [the lead 
49

plaintiff] admitted, the Economic Dilution claim was personal [and thus] would remain 

with the Seller and not transfer to the Buyer.” Id. at 668. But in the very next paragraph, 

the Delaware Supreme Court stated that the lead plaintiff “predicted that the Chancellor 

would likely find the Economic Dilution claim to be derivative” and that, as a result, the 

objecting sellers “would not be able to recover because the corporation would receive the 

relief.” Id. And in PHLX I, an earlier decision in the case, the Delaware Supreme Court 

suggested that the dilution claim was direct, noting that “[i]t is at least arguable that only 

the Class A shareholders who were the original PHLX seatholders, or their successors in 

interest, could legitimately claim to have been diluted.” 945 A.2d at 1141 n.34.

Given the inconsistent observations in PHLX I and II, I do not regard PHLX II as 

holding definitively that a dilution claim is personal and remains with the sellers. Other 

Delaware decisions consistently treat dilution claims as direct, derivative, or both, but 

never as personal. See, supra, nn. 16 & 17. Nor does the effect of a dilutive issuance fit 

with a personal characterization. For the non-recipients, the dilutive issuance affects the 

holders in proportion to their ownership stake in the corporation. That injury can be 

regarded as derivative or direct because it has attributes of both, but it is not personal. 

In my view, the dual-attribute claims—like the direct and derivative claims—

travelled with the shares. The Seller Class has no right to pursue or benefit from them.

4. Personal Claims

The foregoing discussion of the direct, derivative, and dual-attribute claims does 

not mean that an individual holder of shares cannot have personal claims. There simply 
50

were not any advanced or litigated in this case, and Hayes has not relied on any to 

support his objections to the Settlement.

Quintessential examples of personal claims would include a contract claim for 

breach of an agreement to purchase or sell shares or a tort claim for fraud in connection 

with the purchase or sale of shares. One major distinction between these types of claims

and the Delaware corporate law claims discussed previously is that for the personal 

claims, the nature of the underlying property does not matter. The property happens to be 

shares, but the cause of action is not a property right carried by the shares, nor does it 

arise out of the relationship between the stockholder and the corporation. For the breach 

of contract claim, the cause of action arises out of the contract between the buyer and the 

seller. For the fraud claim, the cause of action arises out of the false representations made 

by the buyer or seller on which the counterparty relied to her detriment, suffering 

causally related damages as a consequence. The underlying property could just as easily 

be land or a car.

A Rule 10b-5 claim under the federal securities laws is a personal claim akin to a 

tort claim for fraud. The right to bring a Rule 10b-5 claim is not a property right 

associated with shares, nor can it be invoked by those who simply hold shares of stock. 

See Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Dabit, 547 U.S. 71 (2006). It arises 

only when there has been fraud in connection with the purchase or sale of a security. 15 

U.S.C. § 78j(b); 17 C.F.R. § 240.10b-5; Blue Chip Stamps v. Manor Drug Stores, 421 

U.S. 723 (1975). As such, the Rule 10b-5 claim is personal to the purchaser or seller and 

remains with that person; it does not travel with the shares. The personal nature of federal 
51

securities claims manifests itself in the fact that class certification generally must be 

obtained under Rule 23(b)(3).22 By contrast, because Delaware corporate law claims are 

tied to the shares themselves, they are certified under Rules 23(b)(1) and (b)(2).23

It is theoretically possible that the Seller Class might possess federal securities law 

claims or other personal claims. For purposes of evaluating the premise of Hayes‟ many 

objections, two points matter. First, none of the Delaware corporate claims are personal 

claims. Second, Hayes has not provided any reason to believe that any of the Class‟s 

personal claims, including hypothetical federal securities law claims, have any value.

B. The Objection To The Structure Of The Settlement

Initially, Hayes relies on his (in my view, flawed) premise to challenge the 

definition of the Class. The parties, conversely, ask the court to re-certify the Class. This 

 

22 See, e.g., Glosser v. Cellcor Inc., 1995 WL 106527, at *3 n.6 (Del. Ch. Mar. 10, 1995) 

(Allen, C.) (“Numerous federal courts have certified actions alleging federal securities violations 

as class actions under Federal Rules of Civil Procedure Rule 23(b)(3).”). See generally 7A 

Wright, Miller & Kane, supra, § 1781.1 (noting that “Rule 23(b)(3) has been used quite 

frequently in cases involving securities frauds”).

23 See, e.g., Leon N. Weiner & Assocs., Inc. v. Krapf, 584 A.2d 1220, 1227 (Del. 1991) 

(finding class action properly maintainable under Rule 23(b)(1)(A) and 23(b)(2)); In re Mobile 

Commc’ns Corp. of Am., Inc., Consol. Litig., 1991 WL 1392 (Del. Ch. Jan. 7, 1991) (Allen, C.)

(“Typically an action challenging the propriety of director action in connection with a merger 

transaction is certified as a (b)(1) or (b)(2) class because . . . all members of the stockholder class 

are situated precisely similarly with respect to every issue of liability and damages”), aff’d, 608 

A.2d 729 (Del. 1992) (ORDER); see also Turner v. Bernstein, 768 A.2d 24, 31 (Del. Ch. 2000) 

(Strine, V.C.) (declining to certify a class under Rule 23.1(b)(3) where “any monetary remedy 

due to the Proposed Class will be calculated on a per share, rather than per shareholder, basis”); 

Joseph v. Shell Oil Co., 1985 WL 21125, at *5 (Del. Ch. Feb. 8, 1985) (declining to certify a 

class under Rule 23.1(b)(3) because “if a finding of damages occurs, the damages will be 

mathematically allocated on a per share basis to all the stockholders in similar circumstances”).
52

decision does neither. The Class was properly certified, and this court‟s earlier 

certification order remains in effect.

After a contested motion for class certification, the court certified a class 

comprising “the holders of shares of Activision common stock that were outstanding as 

of July 25, 2013 (the „Class Shares‟), in their capacities as holders of Class Shares, 

together with their heirs, assigns, transferees, and successors-in-interest in each case in 

their capacity as holders of Class Shares.” Dkt. 330 ¶ 1 (the “Class”). The date selected 

was when the Board approved the Restructuring and entered into the Stock Purchase 

Agreement. The class certification order stated that “[t]he defendants and their affiliates 

are excluded from the Class.” Id. ¶ 2. The certification order further provided that 

notwithstanding the general exclusion of the defendants and their affiliates, “limited 

partners in ASAC and their affiliates are included in the Class, but only to the extent they 

own Class Shares outside of ASAC and ownership of those shares is not attributable to 

ASAC.” Id. ¶ 3. This exception permitted funds managed by limited partners in ASAC, 

such as Fidelity, to qualify as Class members for shares owned outside ASAC.

1. Hayes’ Request That The Class Focus On The Sellers

Relying on his general premise, Hayes argues that the definition of the Class “does 

not fit the class who suffered damages.” Dkt. 352 at 25. According to Hayes, the Class 

definition

provides for a “one-size-fits-all” Class, when many current and former 

public stockholders stand in different positions. . . . This Class definition

treats those who held on July 25, 2013, but sold at any time after July 25, 

2013, as having no interest in the claims. On the other hand, purchasers 

who bought after the [Restructuring] closed, with full knowledge of its 
53

terms and effects, are considered the Class members with a live interest in 

the claims.

Dkt. 352 at 27. According to Hayes, “[t]he stockholders who were harmed [by the 

Restructuring] were those who were denied the opportunity to benefit from Vivendi‟s 

below-market sale.” Id. at 27-28. Hayes does not request any specific relief based on this 

objection, but he presumably would like (i) a separate class or subclass defined as those 

stockholders who held shares at a particular instant on July 25 and (ii) for some or all of 

the Settlement consideration to flow directly to those holders.

In my view, the Class is defined properly. PHLX I, 945 A.2d at 1139-40. “[T]he 

law recognizes that when a claim is asserted on behalf of a class of stockholders 

challenging the fairness of the terms of a . . . transaction under Delaware law, the class 

will ordinarily consist of those persons who held shares as of the date the transaction was 

announced and their transferees, successors and assigns.” Prodigy, 2002 WL 1767543, at 

*4. “[I]t is commonplace for class certification orders entered by this Court in actions 

involving the internal affairs of Delaware corporations to define the relevant class as all 

persons (other than the defendants) who owned shares as of a given date, and their 

transferees, successors and assigns.” Triarc, 791 A.2d at 878-79. 

For reasons that this decision has discussed at length, it is correct to treat “those 

who held on July 25, 2013, but sold at any time after July 25, 2013, as having no interest 

in the claims.” Those persons “chose to dissociate their economic interests from the 

corporation and, by doing so, to forego the opportunity to benefit from . . . the class 

claims [and] the potential benefit to the corporation from the derivative claims.” Id. at 
54

875; accord Sunstates, 2001 WL 432447, at *3. They “made a conscious business 

decision to sell their shares into a market that implicitly reflect[s] the value of the 

pending and any prospective lawsuits.” Resorts Int’l, 1988 WL 92749, at *10; accord 

Prodigy, 2002 WL 1767543, at *4. Those claims passed to the buyers, who are properly 

considered Class members with a live interest in the claims.

As this decision already has noted, it is theoretically possible that members of the 

Seller Class might have some personal claims, such as federal securities law claims, that 

the Settlement releases. The possible existence of those claims does not require a separate 

class or subclass.24

2. Hayes’ Objection To The Ambiguity Of The Class

Hayes next contends that the Class is ambiguous. Dkt. 352 at 25. He identifies two 

categories of shares, currently trading in the market, that are not Class Shares. The first 

comprises shares held by defendants or their affiliates on July 25, 2013. The second 

comprises shares issued after July 25. Hayes points out that millions of shares trade each 

day, that Class Shares cannot be distinguished from non-Class Shares, and that some 

purchasers will have acquired shares that were not Class Shares. 

As to the first category—shares held by defendants or their affiliates on July 25, 

2013—Hayes is incorrect. Those shares are Class Shares. The certification order defined 

the Class Shares as the “shares of Activision common stock that were issued and 

 

24 PHLX I, 945 A.2d at 1140 (reviewing and approving Court of Chancery case law); see, 

e.g., Triarc, 791 A.2d at 878-79 (certifying class that included former holders despite absence of 

benefits to former holders); Prodigy, 2002 WL 1767543, at *4 (same); Resorts Int’l, 1988 WL 

92749, at *10-11 (same).
55

outstanding on July 25, 2013.” Under that definition, all shares outstanding as of July 25

are Class Shares, regardless of whether or not they were held by the defendants or their 

affiliates. The certification order excluded defendants and their affiliates from the Class 

because the court could have found that the defendants were wrongdoers and ordered 

them to pay damages to the Class. If that occurred, then the exclusion ensured that the 

defendants and their affiliates would not share in the recovery. But that did not mean that 

the shares were not Class Shares or that an unaffiliated successor could not participate in 

the recovery. For example, Vivendi owned over 41 million shares on July 25 that Vivendi 

later sold to the public. Those shares were Class Shares, but if there had been a class 

recovery while Vivendi or its affiliates still owned them, then Vivendi and its affiliates 

could not have participated. Any amount that would have gone to Vivendi or its affiliates 

would have been redistributed among the other members of the Class. Once Vivendi sold 

its shares, however, Vivendi‟s unaffiliated successors could receive their pro rata share 

of any recovery. In my view, the certification order properly excluded the defendants 

from participating in any recovery and is not ambiguous in this respect.

As to the second category of shares—those issued by Activision after July 25, 

2013—Hayes is correct. Those shares are not Class Shares. But for the purposes of the 

strong Delaware corporate law claims that were advanced in this litigation and formed 

the basis for the Settlement, the distinction does not matter. The Delaware causes of 
56

action arose when Board approved the Stock Purchase Agreement on July 25, 2013.

25

Stockholders as of that date possessed those causes of action, and when they sold their 

shares, the claims and the right to participate in any recovery passed with them. Holders 

of shares issued after July 25 did not have any Delaware corporate law claims, so there is 

no need to identify holders of non-Class Shares for purposes of the release.

As discussed, it is possible that some persons might have personal claims, such as 

federal securities law claims. It is likewise possible that some of those persons might 

have bought or sold non-Class Shares. If that subset of persons has claims that are not 

released by the Settlement, then so be it. The defendants did not bargain for a release of 

those claims (likely because the claims are at best hypothetical). The time to address any 

administrative issues associated with litigating those claims would be in the next case, not 

this one, and only if the claims (whatever they might be) could survive a motion to 

dismiss. It is passing strange for Hayes to object to the Class definition as being too 

 

25 See Kahn v. Seaboard Corp., 625 A.2d 269, 270 (Del. Ch. 1993) (Allen, C.) (“The 

wrong attempted to be alleged is the use of control over Seaboard to require it to enter into a 

contract that was detrimental to it and beneficial, indirectly, to the defendants. Any such wrong 

occurred at the time that enforceable legal rights against Seaboard were created.”); accord In re 

Mobilactive Media, LLC, 2013 WL 297950, at *10 (Del. Ch. Jan. 25, 2013); Sutherland v. 

Sutherland, 2010 WL 1838968, at *9 (Del. Ch. May 3, 2010); Hokanson v. Petty, 2008 WL 

5169633, at *5 (Del. Ch. Dec. 10, 2008) (Strine, V.C.); In re Coca-Cola Enters., Inc., 2007 WL 

3122370, at *5 (Del. Ch. Oct. 17, 2007), aff’d sub nom. Int’l Bhd. Teamsters v. Coca-Cola Co., 

954 A.2d 910 (Del. 2008) (ORDER); see also Albert v. Alex Brown Mgmt. Servs., Inc., 2005 WL 

1594085, at * 18 (Del. Ch. June 29, 2005) (“[A] claim accrues at the time of the alleged 

wrongdoing, and not when the plaintiff suffered a loss.”); Schreiber v. R.G. Bryan, 396 A.2d 

512, 516 (Del. Ch. 1978) (“[W]hat must be decided is when the specific acts of alleged 

wrongdoing occur, and not when their effect is felt.”).
57

narrow. This shows that Hayes is really just trying to gum up the works, not raise 

legitimate objections. In my view, the Class definition is not ambiguous.

3. Recertification

For their part, the parties to the Stipulation ask the court to recertify the Class to 

add the following language to the definition: “For avoidance of doubt, the Class includes 

anyone who acquired a Class Share after July 25, 2013.” Stipulation, ¶ 1.1. This sentence 

is superfluous. As indicated by the prepositional phrase “[f]or avoidance of doubt,” the 

language is confirmatory. Anyone who acquired a Class Share after July 25 is an assignee 

or transferee of, or a successor-in-interest to, a holder of a Class Share on July 25. There 

is no need to recertify the Class on that basis.

C. The Adequacy Of Notice

Court of Chancery Rules 23(e) and 23.1 require that notice of a proposed 

compromise of a representative action be provided to stockholders or class members “in 

such manner as the Court directs.” Ct. Ch. R. 23(e) & 23.1. Adapting his premise to the 

notice phase, Hayes argues that the Seller Class did not receive a mailed notice. He also 

argues that the notice did not adequately describe the claims or the fact that the Seller 

Class is not receiving any consideration. These objections lack merit.

1. The Adequacy Of Mailing

“[I]n the context of a proposed settlement, the Court typically enters a scheduling 

order that, in addition to setting a date for a settlement hearing, tentatively approves the 

form and content of the notice and sets forth the manner in which notice is to be given.” 

Donald J. Wolfe, Jr. & Michael A. Pittenger, Corporate and Commercial Practice in the 
58

Delaware Court of Chancery § 9.04[e] at 9-193 (2012). There is no requirement to mail a 

settlement notice to every single class member who ever owned a share of a publicly held 

company. Cf. Ct. Ch. R. 23(e) (permitting notice “by mail, publication or otherwise”).

In the current case, the court entered a scheduling order which addressed the 

giving of notice. Paragraph 7 stated:

The Court approves, in form and content, the Notice of Pendency and of 

Settlement of Action (the “Notice”) filed by the parties with the Stipulation 

as Exhibit B and finds that the giving of notice substantially in the manner 

set forth herein meets the requirements of Court of Chancery Rules 23 and 

23.1 and due process, is the best notice practicable under the circumstances 

and shall constitute due and sufficient notice to all persons entitled thereto. 

No later than sixty (60) calendar days prior to the Settlement Hearing (the 

“Notice Date”), Activision shall mail, or cause to be mailed, by first class 

U.S. mail or other mail service if mailed outside the U.S., postage pre-paid, 

the Notice, substantially in the form annexed as Exhibit B to the 

Stipulation, to all persons who are current stockholders of record or were 

on July 25, 2013 record holders of common stock of Activision at their last

known address appearing in the stock transfer records maintained by or on 

behalf of Activision. All Current Stockholders and all members of the Class 

who are record holders of Activision common stock on behalf of beneficial 

owners shall be directed to forward the Notice promptly to the beneficial 

owners of those securities. Additionally, Activision shall use reasonable 

efforts to give notice to all beneficial owners of common stock of 

Activision by providing additional copies of the Notice to any record holder 

requesting the Notice for purposes of distribution to such beneficial owners. 

Dkt. 334 ¶ 7. The scheduling order further provided that “[n]o later than the Notice Date, 

Activision shall also file a copy of the Notice as an exhibit to a Form 8-K with the 

Securities and Exchange Commission. Id. ¶ 8.

Paragraph 7 of the scheduling order required that notice of the Settlement be 

mailed to “all persons who are [i] current stockholders of record or [ii] were on July 25, 

2013 record holders of common stock of Activision.” Id. ¶ 7. The notice thus went to two 
59

readily identifiable stockholder lists that Activision‟s transfer agent could generate:

record holders on July 25, 2013, and record holders as of the date of mailing. Paragraph 7 

also required that Activision use “reasonable efforts to give notice to all beneficial 

owners of common stock of Activision by providing additional copies of the Notice to 

any record holder requesting the Notice for purposes of distribution to such beneficial 

owners.” Id.

Hayes argues that the use of two record dates created a gap that omitted the Seller 

Class. In my view, the scheduling order could have required mailing only to a single list 

of record holders as of the date of mailing. Notice need only be sent to record holders. 

Am. Hardware Corp. v. Savage Arms Corp., 136 A.2d 690, 692 (Del. 1957). Delaware 

law contemplates the use of a record date for delivering notice. See 8 Del. C. § 213; see 

also id. §§ 211(c), 222, 228(e), 262(d). Using two record dates went beyond what 

Delaware law requires. 

Hayes also challenges the sufficiency of the mailing because the affidavit recites 

that the notice went to (i) record holders based on “a list from counsel” and (ii) to a 

database of “the largest and most common” nominees. Hayes questions the accuracy of 

counsel‟s list, but he has not offered any specifics. Absent evidence to the contrary, the 

court can rely on counsel to assist the Company in performing its obligations under the 

scheduling order. Returning to his focus on the Seller Class, Hayes posits that some 

members of the Seller Class might hold stock through nominees that were not in the 

database. “If an owner of stock chooses to register his shares in the name of a nominee, 
60

he takes the risks attendant upon such an arrangement, including the risk that he may not 

receive notice of corporate proceedings.” Am. Hardware, 136 A.2d at 692.

Activision used reasonable efforts to give notice to nominees and other beneficial 

owners. The use of a large database of common nominees accomplished this, as did the 

availability of additional notices for nominees who requested them. The settlement 

administrator caused over 180,000 copies of the notice to be mailed. The filing of a copy 

of the notice as an exhibit to a Form 8-K provided an additional means for beneficial 

owners to receive notice.

The record at the settlement hearing provided further evidence of the adequacy of 

notice. The public announcement of the basic terms of the Settlement in November 2014 

was national news. ASAC promptly filed with the SEC an amended Schedule 13D setting 

forth the basic terms. Soon thereafter, the monetary portion of the Settlement was ranked 

as the largest cash derivative settlement in history. In addition to the Form 8-K, 

Activision has been featured the Stipulation and Notice prominently on the Investor 

Relations tab of its website.

Hayes himself did not require notice, and he timely objected. No one in the Class 

joined Hayes in objecting to notice or to the merits of the Settlement. In my view, notice 

was adequately distributed.

2. The Contents Of The Notice

A notice of settlement “need not adhere to the stringent disclosure requirements 

governing prospectuses for the marketing of securities under the federal disclosure laws.” 

Wolfe & Pittenger, supra, § 9.04[e] at 9-194; see also Prince v. Bensinger, 244 A.2d 89, 
61

92 (Del. Ch. 1968). A notice of settlement is sufficient if it “contains a description of the 

lawsuit, the consideration for the settlement, the location and time of the settlement 

hearing, and informs class members that additional information can be obtained by 

contacting class counsel.” PHLX I, 945 A.2d at 1135 n.13. A notice is “not required to 

eliminate all occasion for initiative and diligence on the part of the stockholders.” Braun 

v. Fleming-Hall Tobacco Co., 92 A.2d 302, 309 (Del. 1952). An adequate notice 

describes the settlement, “puts stockholders upon notice as to the general nature of the 

subject matter, and warns them that their substantial interests are involved.” Geller v. 

Tabas, 462 A.2d 1078, 1080 (Del. 1983). Armed with this information, any party 

interested in learning more can contact class counsel or “easily obtain all the details of 

the terms by examining the file in the Court of Chancery.” Braun, 92 A.2d at 309. 

According to Hayes, the most glaring deficiency is what he believes to be an 

inadequate description of the Class damages claim. The Notice states that

[t]he Complaint seeks derivative and direct relief against the Vivendi 

Defendants, the Special Committee Defendants, the Management 

Defendants, and the ASAC Defendants with respect to the [Restructuring].

The Complaint alleges that the Vivendi Defendants, the Special Committee 

Defendants and Management Defendants breached their fiduciary duties by 

entering into the [Restructuring], and that the ASAC Defendants aided and 

abetted those alleged breaches. Among other things, the Complaint alleges, 

and the Defendants deny, that the Management Defendants usurped a 

corporate opportunity in purchasing shares of stock from Vivendi at a 

discount to the market price and obtained control over Activision, and that 

Vivendi assented to the [Restructuring] to obtain desired liquidity. The 

Complaint also challenges the initial appointment and subsequent renomination and reelection by some or all of the Special Committee 

Defendants and Management Defendants of directors Peter Nolan and 

Elaine Wynn to the Activision Board as a breach of fiduciary duty and a 

breach of the Stockholders Agreement by ASAC.
62

Notice ¶ 19. In my view, this paragraph adequately describes the claims. A stockholder 

that wished to find out more information about the particular claims being asserted could 

contact Lead Counsel or consult the docket.

Hayes also objects to the Notice‟s statement that the benefits of the Settlement 

inure directly to Activision and indirectly to the Class. In particular, Hayes criticizes the 

following language:

Because this Action was brought as a class and derivative action on behalf 

of and for the benefit of a class of stockholders and Activision, the benefits 

of the Settlement will go to both Activision and the Class, as defined 

below. Individual Class members will not receive any direct payment of 

funds from the Settlement, but will obtain the benefits from the Settlement 

that are described in paragraph 29 below.

Notice at 2. This statement is not only non-objectionable; it is accurate.

Last, Hayes contends that the Notice contains confusing descriptions of who can 

object to the Settlement and when objections are due. Experience demonstrates that 

objecting stockholders are not sticklers about complying with the procedures for filing 

objections, and the court generally considers objections on the merits. “[I]n the absence 

of resulting prejudice to other participants, the Court‟s general practice has been to hear 

and consider all such objections and to deal with them substantively, notwithstanding the 

objector‟s failure to comply with the letter of the notice.” Wolfe & Pittenger, supra, § 

9.04[d] at 9-192. In the current case, I am confident that if anyone other than Hayes had 

objected to the quality of notice or the substantive terms of the Settlement, they would 

have come forward. The Settlement was too widely publicized and represents too 
63

significant a development for Activision to reach any other conclusion. In my view, the 

contents of the Notice were adequate.

D. The Adequacy Of The Settlement Consideration

Perhaps the most important task that the court has when considering a settlement 

in a representative action is to evaluate the adequacy of the settlement consideration. 

Determining adequacy does not require a definitive evaluation of the case on its merits. 

“To do so would defeat the basic purpose of the settlement of litigation.” Rome, 197 A.2d 

at 53. The reviewing court instead should consider multiple factors including “(1) the 

probable validity of the claims, (2) the apparent difficulties in enforcing the claims 

through the courts, (3) the collectability of any judgment recovered, (4) the delay, 

expense and trouble of litigation, (5) the amount of the compromise as compared with the 

amount and collectability of a judgment, and (6) the views of the parties involved, pro 

and con.” Polk v. Good, 507 A.2d 531, 536 (Del. 1986). “The Court must especially 

balance the value of all the claims being compromised against the value of the benefit to 

be conferred . . . by the settlement.” In re MCA, Inc., 598 A.2d 687, 691 (Del. Ch. 1991).

In framing the standard that this court should apply when evaluating a settlement, 

the Delaware Supreme Court has used interchangeably concepts of fairness, 

reasonableness, and business judgment.26 When applied to fiduciaries making decisions 

 

26 See In re Infinity Broad. Corp. S’holders Litig., 802 A.2d 285, 289 (Del. 2002) (“Any 

decision of the Court of Chancery regarding the fairness of a proposed settlement is within the 

discretion of that court and requires an application of its own business judgment”); Ala. ByProds. Corp. v. Cede & Co. ex rel. Shearson Lehman Bros., Inc., 657 A.2d 254, 260 (Del. 1995) 

(“The unique fiduciary nature of the class action requires the Court of Chancery to participate in 

the consummation of any potential settlement to determine its intrinsic fairness”); Kahn v. 
64

in other contexts, each concept ties to a different standard of judicial review: respectively, 

the entire fairness test, the intermediate standard of enhanced scrutiny, and the business 

judgment rule. The burdens on the parties and the court would vary greatly depending on 

which standard of review the Delaware Supreme Court intended.

 

Sullivan, 594 A.2d 48, 59 (Del. 1991) (describing trial court‟s determination as whether the 

settlement is “fair and reasonable”); Resorts Int’l, 570 A.2d at 266 (explaining that “[i]n essence, 

the trial court‟s function is to exercise its business judgment in deciding whether the settlement is 

reasonable in light of the factual and legal circumstances of the case”; calling on trial court to 

consider “[a]ll challenges to the fairness of the settlement” when “deciding whether the 

settlement is reasonable”; further stating that the Supreme Court reviews deferentially the trial 

court‟s determination of “the reasonableness of the settlement” and that the Supreme Court does 

not independently judge “the intrinsic fairness of the settlement”); Barkan v. Amsted Indus., Inc., 

567 A.2d 1279, 1284 (Del. 1989) (stating that “when the Court of Chancery reviews the fairness 

of a settlement, it must evaluate all of the circumstances of the settlement by using its own

business judgment”; noting that “the Court of Chancery‟s most important yardstick of a 

settlement‟s fairness is its business judgment”; describing the trial court‟s task as evaluating “the 

fairness of the settlement” and stating that the Supreme Court does not “evaluate independently 

the intrinsic fairness of the settlement”); Nottingham P’rs v. Dana, 564 A.2d 1089, 1102-1103 

(Del. 1989) (stating that “[t]he reasonableness of a particular class action settlement is addressed 

to the discretion of the Court of Chancery, on a case by case basis, in light of all of the relevant 

circumstances”; also stating that the Court of Chancery must determine whether to approve the 

settlement “as reasonable through the exercise of sound business judgment”); Polk, 507 A.2d at

536 (stating that the trial court must determine whether the settlement is “fair and reasonable”; 

explaining that the trial court “exercises a form of business judgment to determine the overall 

reasonableness of the settlement”; noting that the Supreme Court does not independently 

“determine the intrinsic fairness of the settlement”); Fins v. Pearlman, 424 A.2d 305, 308-309 

(Del. 1980) (stating that “the Court of Chancery is to use its own business judgment to determine 

whether the settlement is intrinsically fair” and that “[t]he Court of Chancery‟s responsibility and 

function is to examine the proposed settlement‟s intrinsic fairness”); Neponsit Inv. Co. v. 

Abramson, 405 A.2d 97, 100 (Del. 1979) (“In determining whether or not to approve a proposed 

settlement of a derivative stockholders‟ action in these circumstances, the Court of Chancery is 

called upon to exercise its own business judgment.”); Rome, 197 A.2d at 53-54 (Del. 1964) 

(stating that “[b]ecause of the fiduciary character of a class action, the court must participate in 

the consummation of a settlement to the extent of determining its intrinsic fairness”; further 

stating that the court discharges its function by determining if the settlement is “reasonable”; 

citing factors for trial court to consider “through the exercise of sound business judgment”; 

noting that on appeal the Supreme Court does not “determine the intrinsic fairness of the 

settlement in the light of [its] own business judgment”).
65

I have attempted to distill a single, practical standard from the various 

formulations deployed in the Delaware Supreme Court opinions. In my view, the court‟s 

role when acting as a fiduciary in the settlement context is

to determine whether the settlement falls within a range of results that a 

reasonable party in the position of the plaintiff, not under any compulsion 

to settle and with the benefit of the information then available, reasonably 

could accept. In this sense, the Court‟s task is analogous to that of an 

attorney (also a fiduciary) who is asked by a client whether a settlement 

seems reasonable. The ultimate decision whether or not to settle rests with 

the client—indeed, it falls within the client‟s “business judgment”—but the 

lawyer appropriately can apply legal knowledge and experience to make an 

assessment of the likely outcomes so as to advise the client on whether the 

settlement is one that the lawyer believes the client legitimately could 

accept. The resulting judicial inquiry is most akin to range-ofreasonableness review, and the submissions and presentations received by 

the Court in a settlement hearing are consistent with that standard.

Forsythe v. ESC Fund Mgmt. Co. (U.S.), 2013 WL 458373, at *2 (Del. Ch. Feb. 6, 2013).

The Delaware Supreme Court has recognized that when evaluating a settlement, a 

trial court can determine initially whether the settlement consideration as a whole 

provides adequate consideration for a global release. PHLX I, 945 A.2d at 1136. If it 

does, the trial court can approve the settlement and then evaluate separately whether the 

settlement reasonably allocates the pool of available consideration among various 

claimants. Id. In my view, the Settlement easily warrants approval. 

1. The Monetary Consideration

The monetary consideration of $275 million is the largest cash recovery ever 

achieved on stockholder derivative claims. The magnitude of the Settlement reflects that 

Lead Counsel advanced strong claims for breach of the duty of loyalty. That does not 

mean that the claims were without risk. Articulate witnesses, skilled counsel, and 
66

polished experts would contend that (i) the Restructuring was highly beneficial to 

Activision and its stockholders, (ii) Kotick and Kelly‟s personal investment of $100 

million was instrumental to putting a deal together and the positive stock price reaction, 

(iii) it was beneficial to take the stock that ASAC purchased off the market for one to 

four years, (iv) the secondary offering proposed by Vivendi was not viable, was 

presented for tactical reasons, and posed the risks that Vivendi might retain a large stake 

or the stock price might not increase as much as it did, (v) it was unreasonable to 

negotiate an alternative transaction structure given the billions of dollars needed to 

eliminate Vivendi‟s controlling stake, and (vi) any hypothetical alternative structure 

would be too speculative to credit.

In addition to the risks of losing on liability, there was risk associated with the 

possible remedies. Lead Counsel sought three potential monetary remedies: restitution, 

damages to Activision, and damages to unaffiliated stockholders. Lead Counsel correctly 

perceived that the court would be unlikely to require restitution from Kotick and Kelly 

and award damages against them. See Bomarko, Inv. v. Int’l Telecharge, Inc., 794 A.2d 

1161, 1190 (Del. Ch. 1999) (concluding on the facts of the case that “any order requiring 

disgorgement would constitute a double recovery for the plaintiffs”).

Restitution was the most likely and straightforward remedy. When the 

Restructuring closed, Kotick and Kelly achieved an immediate unrealized net profit of 

$178 million, and the present value of ASAC GP‟s projected gains after four years 

(assuming a 9.0x trading multiple) was $253.1 million (after deducting Kotick and 

Kelly‟s initial investment and without considering their entitlement to interest). An order 
67

requiring disgorgement of these gains to Activision was a logical and plausible outcome, 

but it could have had collateral consequences for Activision. A final judgment holding 

Kotick and Kelly liable for breaching their duty of loyalty might have led to questions 

about their future with Activision and generated uncertainty about the Company‟s 

prospects. The certainty of the $275 million settlement payment compares favorably with 

the disgorgement remedy and avoids this risk.

An award of damages to Activision based on a disloyal failure to pursue the Overthe-Wall Transaction provided another logical remedy. The operative question was what 

price the court would find that an equity investor would have paid to buy a large block of 

Activision stock in advance of the public announcement of a repurchase transaction by 

Activision at $13.60 per share. Assuming the court used the then-current market price of 

$15.18 per share, this measure would translate into a damages award of $271.7 million. If 

the court used a higher figure, the damages would be greater, but if the court found that 

Activision would sold fewer shares in the Over-the-Wall Transaction than ASAC 

purchased in the Restructuring, then the damages would be less. The certainty of the $275 

million settlement payment compared favorably with this outcome as well.

The least likely alternative was an award of damages to the Class based on the 

failure to pursue the Rights Offering, secondary offerings, or other alternatives. The 

defendants had a strong argument that as a matter of Delaware law, the unaffiliated 

stockholders had no right to be included in a particular form of alternative transaction. 

Lead Counsel would have had to establish that a loyal Board would have pursued a 
68

transaction involving the public stockholders as the best available option, such that it was 

disloyal for the Board to follow an alternative course. 

It would have been difficult for Lead Counsel to establish that a loyal Board would 

have pursued the Rights Offering. The factual record did not contain any references to a 

Rights Offering, suggesting that it was not consciously avoided, and Lead Counsel‟s 

expert did not find any strong transactional precedent. The Rights Offering would have 

required public registration of the rights, creating potential delay and risk of nonconsummation, and pricing the rights at a discount to market to facilitate exercise was not 

viable because of restrictions imposed on Vivendi by French law. The amount of value 

that the stockholders might have obtained through a Rights Offering, and hence the 

potential quantum of damages, would have been lower than a restitutionary award or a 

damages recovery calculated based on the Over-the-Wall Transaction. The magnitude of 

the $275 million settlement payment to Activision and the indirect benefits that 

stockholders receive compare favorably with the risk-adjusted prospect of a damages 

award to the Class based on a Rights Offering.

It would have been more straightforward for Lead Counsel to establish that a loyal 

Board would have pursued at least some form of secondary offering, but that alternative 

would not have supported as large a damages award as the Over-The-Wall Transaction. 

As with the Rights Offering, there was no reason to suppose that Vivendi would price the 

secondary offering below market, rather than at a higher market-clearing price. Nor was 

it clear that only Activision‟s existing stockholders would have purchased the shares. 

Third parties could have bought them, raising additional questions about the quantum of 
69

damages. Once again, the certainty of a $275 million settlement payment to Activision 

compares favorably to the alternative.

The monetary consideration provided by the Settlement also compares favorably 

with what Hayes bargained for in the Draft MOU. Hayes has claimed that his settlement 

was worth $85 million to Activision‟s public stockholders, but its actual value was less 

than that headline figure. If the shares were equivalent to $70 million in cash, as Hayes 

seemed to think, then the settlement was comparable to Activision making a $70 million 

payment to the public stockholders. Paragraph 1(a) of the Draft MOU contemplated that 

the issuance would take place within thirty days after the effective date of the 

Restructuring. Once the Restructuring closed, the public stockholders would own 63% of 

Activision, so the public stockholders would end up funding 63% of the $70 million. The 

defendants only would fund 37% of the $70 million, or $25.9 million. The incremental 

value that the settlement transferred to the public stockholders was therefore $25.9 

million + $15 million, for a total of $40.9 million. 

Another way to view the settlement contemplated by the Draft MOU is to measure 

the public stockholders‟ share of the post-dilution value of Activision. Paragraph 1(a) of 

the Draft MOU called for Activision to

[i]ssue a number of shares of common stock . . . equal to $70,000,000 

(seventy million) USD divided by the average, i.e. mean, closing price, 

rounded to the nearest cent, of a share of common stock of Activision on 

the NASDAQ Global Select Market on the ten trading days (i.e., a day on 

which a closing price for Activision common stock was quoted on 

NASDAQ) preceding and including the Effective Date (the “Stock Price”) 

on a pro rata basis to the members of the Class (as defined below) . . . .
70

Once the Restructuring closed, Activision would have 695.29 million shares of common 

stock outstanding. Using for purposes of illustration a stock price of $16.28, which was 

the closing price on October 9, 2013 (the date the Draft MOU was circulated), Activision 

would have to issue approximately 4.3 million shares to provide the public stockholders 

with nominal value of $70 million. After that number was added to the shares 

outstanding, the percentage of stock owned by the public would increase by 0.22%. As of 

October 9, Activision‟s stock price implied a total equity value for Activision of $11.319 

billion. The settlement would not increase Activision‟s intrinsic value, only the public 

stockholders‟ share of it. By increasing the public stockholders equity stake by 0.22%, 

the settlement would increase their share of Activision‟s value by 0.22% of $11.319 

billion, or approximately $25 million. The value of the settlement to the public 

stockholders was again $25 million + $15 million, or approximately $40 million.

Compared to the consideration contemplated by the Draft MOU, the Settlement 

provides an implied benefit to Activision‟s public stockholders of $173.25 million, given 

their ownership of approximately 63% of the entity. Admittedly the comparison is not so 

simple. The Draft MOU would have delivered its consideration a year earlier, and 

because of the endowment effect, parties prefer actual ownership. See generally Daniel 

Kahneman, Jack L. Knetsch & Richard H. Thaler, Anomalies: The Endowment Effect, 

Loss Aversion, and Status Quo Bias, 5 J. Econ. Perspectives 193 (1991). Mathematically 

speaking, the remedial equivalent of a direct payment of $40 million to the unaffiliated 

stockholders would be a payment of $63.5 million to Activision ($63.5 * 0.63 = $40). But 

because of the endowment effect and the time-value of money, stockholders would not be 
71

indifferent between $40 million in cash paid to them in 2014 and $63.5 million paid to 

Activision in 2015. For stockholders to regard those as equivalent, the amount paid to 

Activision would have to be higher. Here, it is multiples higher. The Settlement yields an 

indirect benefit for the public stockholders more than four times greater than the value 

that would have been provided by the Draft MOU. In my view, the Settlement is superior

to the consideration that Hayes and his counsel championed as adequate.

The manner in which the Settlement was reached provides further evidence of its 

reasonableness. It resulted from a protracted mediation conducted by a highly respected 

former United States District Court Judge, with the negotiations taking place in the 

shadow of an impending trial. See Ryan, 2009 WL 18143, at *5 (“The Settlement was 

reached after . . . . hard fought motion practice before this court, and . . . a mediation 

session with Judge Weinstein. The diligence with which plaintiffs‟ counsel pursued the 

claims and the hard fought negotiation process weigh in favor of approval of the

Settlement.”). The negotiation process falls at the opposite end of the spectrum from the 

routine disclosure-only settlements, entered into quickly after ritualized quasi-litigation, 

that plague the M&A landscape.

2. The Non-Monetary Consideration

The non-monetary consideration provided important additional benefits. The 

defendants‟ agreement to expand the Board by two seats and fill them with independent 

individuals unaffiliated with Kotick and Kelly or any limited partner of ASAC is a form 

of relief that Lead Counsel could not have obtained at trial. The addition of two new 

independent directors in July 2015 creates a facially independent Board majority.
72

The reduction of Kotick and Kelly‟s voting power from 24.9% to 19.9% similarly 

helps ensure that control over Activision shifts away from Kotick and Kelly and towards 

the public stockholders. The Committee tried to cap Kotick and Kelly‟s voting power at 

19.9%, but Kotick and Kelly refused. Lead Counsel had argued that Kotick and Kelly‟s 

block of 24.9%, coupled with the sizeable stakes owned by ASAC limited partners, gave 

them working control, especially so long as Vivendi needed Activision‟s cooperation to

sell down its block through registered offerings. During the litigation, Lead Counsel 

learned that one of the ASAC limited partners—Fidelity—had counterbalancing interests, 

and Vivendi sold off its stake, increasing the public float and putting more shares in play 

for purposes of any stockholder vote. Together, these events support the reasonableness 

of capping Kotick and Kelly‟s voting power at the level desired by the Committee.

3. The Court’s Assessment Of The Adequacy Of The 

Consideration

The consideration provided by the Settlement in exchange for a global release for 

the defendants falls within a range of results that reasonable parties on the plaintiffs‟ side 

(encompassing both Activision and the Class), not under any compulsion to settle and 

with the benefit of the information then available, reasonably could accept. The 

Settlement is therefore approved.

E. The Allocation Of Settlement Consideration

The Settlement compromises both derivative and class claims. No consideration is 

passing directly to the Class. All of the monetary consideration flows to Activision, 

benefitting the Company directly and its current stockholders indirectly. The non-
73

monetary consideration likewise benefits the current stockholders indirectly. Hayes 

objects to the failure to pay any consideration directly the Class, but this is hardly an 

altruistic position. Hayes hopes that by reallocating the consideration, his counsel can 

justify a fee award and partially rectify the injustice they feel they suffered in the 

leadership dispute.

An allocation plan must be reasonable. PHLX I, 945 A.2d at 1137-38. A plan does 

not have to compensate all potential claimants equally. “A reasonable plan may consider 

the relative values of competing claims.” PHLX II, 965 A.2d at 667. The claims in this 

case consist of (i) personal claims belonging to the Class, including the Seller Class, that 

have not been articulated and are hypothetical at best, and (ii) strong Delaware corporate 

law claims belong to Activision and its current stockholders.

The Settlement allocates no consideration to the unarticulated personal claims 

belonging to the Class. This is reasonable. The Settlement was driven by the Delaware 

corporate law claims. The probable validity of the unidentified personal claims is nonexistent, and the possibility that they might have led to a monetary recovery is entirely 

hypothetical. “If it appears that those claims are weak or of little or no probable value or 

would not likely result in any recovery of damages by individual stockholders, it is fair to 

bar those claims as part of the overall settlement.” Triarc, 791 A.2d at 876. The court‟s 

ability to bar weak personal claims extends to federal securities claims, even though the 

claims could not be litigated in this court. Matsushita Elec. Indus. Co. v. Epstein, 516 

U.S. 367 (1996).
74

The Settlement allocates all of the monetary consideration to Activision. This also 

is reasonable. The Delaware corporate law claims that led to the monetary component of 

the Settlement were the dual-attribute claims relating to the Restructuring. The only 

purely direct claim that existed in the case was the Voting Right Claim that the Delaware 

Supreme Court found meritless. Once that claim was rejected, the remaining claims were 

either purely derivative, like Count XI, or had dual attributes. I believe that when 

granting a remedy for dual-attribute claims, a court can impose a remedy at either the 

corporate or the stockholder level as the facts and equities of the case requires. See, 

supra, n.20. The same flexibility should exist when settling dual-attribute claims. 

Hayes effectively contends that when settling dual-attribute claims, some form of 

consideration must flow to the stockholders directly. At the same time, Hayes argues that 

the claims that were asserted and the resulting damages theories were the same.27 If so, 

then in light of the one-for-one correspondence between the holders of the direct claims 

(Activision‟s current stockholders) and the indirect beneficiaries of the derivative claims 

(Activision‟s current stockholders), there is very little (if any) practical difference 

between the two forms of settlement. If the consideration goes to Activision, current 

stockholders receive their proportionate share of the benefits indirectly. If a proportionate 

amount of the consideration goes to the unaffiliated stockholders directly, as Hayes 

prefers, they receive approximately the same amount, after the deduction of more 

 

27 See Dkt. 352 at 2 (“The class and derivative damages claims had the same liability and 

damages theories.”); id. at 43 (“The class damages claims . . . tracked the derivative damages 

claims.”).
75

significant administrative costs. Once again, the endowment effect must be considered, 

but in my view, assuming the claims and recoveries are functionally equivalent, the 

indirect benefits of the consideration adequately compensate the Class for the dualattribute claims. The advantage of using the derivative remedy is primarily one of 

efficiency. Clark, supra, 289 (noting that the derivative action “elegantly sidesteps” 

administrative issues associated with class litigation).

The foregoing analysis accepts Hayes‟ assumption that the derivative and class 

remedies would be functionally equivalent. In reality, the prospects for a corporate-level 

recovery were much stronger than the prospects for a stockholder-level recovery. 

Derivative damages depended on the feasibility of the Over-the-Wall Transaction.

Restitution to Activision depended largely on the feasibility of (i) the Over-the-Wall 

Transaction, (ii) the secondary offering alternative, or (iii) a hybrid of the two. Class 

damages, by contrast, rested on establishing the feasibility of the Rights Offering, which 

was an unlikely alternative. If Lead Counsel had focused on obtaining a Settlement that 

provided consideration directly to the Class, Lead Counsel could not have obtained as 

favorable a resolution of the case.

Perhaps ironically, the relief that Lead Counsel obtained on Count IX, the purely 

derivative claim, inures predominantly to the Class. By reducing the cap on Kotick and 

Kelly‟s voting power and by obtaining two additional Board seats for independent, 

outside directors, Lead Counsel effectively increased the voting power and influence of 

the unaffiliated shares. Although these corporate governance measures can be viewed as 

good for Activision, they are primarily good for the Class.
76

In my view, the allocation of consideration in the Settlement is reasonable. Under 

the circumstances of the case, the fact that the Class is not receiving any direct payment 

does not provide grounds for disapproval or warrant reallocation.

F. The Fee Award For Lead Counsel

“Under the „common benefit‟ exception [to the general rule that a party must pay 

its own counsel fees], a litigant may . . . receive an award of attorneys‟ fees if: (a) the 

action was meritorious at the time it was filed, (b) an ascertainable group received a 

substantial benefit, and (c) a causal connection existed between the litigation and the 

benefit.” Dover Historical Soc’y, Inc. v. City of Dover Planning Comm’n, 902 A.2d 1084, 

1089 (Del. 2006). The doctrine is “founded on the equitable principle that those who have 

profited from litigation should share its costs.” Goodrich v. E.F. Hutton Gp., Inc., 681 

A.2d 1039, 1044 (Del. 1996). “Otherwise, „persons who obtain the benefit of a lawsuit 

without contributing to its cost [freeriders] are unjustly enriched at the successful 

litigant‟s expense.‟” Id. (alteration in original; quoting Boeing Co. v. Van Gemert, 444 

U.S. 472, 478 (1980)).

The power to award fees for a common benefit “is a flexible one based on the 

historic power of the Court of Chancery to do equity in particular situations.”

Tandycrafts, Inc. v. Initio P’rs, 562 A.2d 1162, 1166 (Del. 1989). When awarding fees, 

the Court of Chancery “must make an independent determination of reasonableness.”

Goodrich, 681 A.2d at 1046. When evaluating the reasonableness of a fee award, the 

Court of Chancery considers the factors identified by the Delaware Supreme Court in 

Sugarland Industries, Inc. v. Thomas, 420 A.2d 142 (Del. 1980). In Sugarland, the 
77

factors appear diffusely throughout the opinion. The Delaware Supreme Court has since 

summarized them concisely as follows: “1) the results achieved; 2) the time and effort of 

counsel; 3) the relative complexities of the litigation; 4) any contingency factor; and 5) 

the standing and ability of counsel involved.” Ams. Mining Corp. v. Theriault, 51 A.3d 

1213, 1254 (Del. 2012). 

1. The Benefits Conferred

“Delaware courts have assigned the greatest weight to the benefit achieved in 

litigation.” Id. “When the benefit is quantifiable, . . . Sugarland calls for an award of 

attorneys‟ fees based upon a percentage of the benefit.” Id. at 1259. The Delaware 

Supreme Court has cited with approval this court‟s practice of “awarding lower 

percentages of the benefit where cases have settled before trial” and awarding greater 

percentages as the litigation progresses. Id.

When a case settles early, the Court of Chancery tends to award 10-15% of 

the monetary benefit conferred. When a case settles after the plaintiffs have 

engaged in meaningful litigation efforts, typically including multiple 

depositions and some level of motion practice, fee awards in the Court of 

Chancery range from 15-25% of the monetary benefits conferred. . . . 

Higher percentages are warranted when cases progress to a post-trial 

adjudication.

Id. at 1259-60 (footnotes omitted). “Delaware case law supports a wide range of 

reasonable percentages for attorneys‟ fees, but 33% is the very top of the range of 

percentages.” Id. (internal quotation marks omitted).

The incentive effect of using percentages that increase depending on the stage of 

the litigation counteracts a natural human tendency towards risk aversion.
78

Just as it is human nature to regard your personal accomplishments and 

performance as above-average (even exceptional), it is human nature to be 

risk-averse. For plaintiffs‟ counsel, risk aversion manifests itself as a 

natural tendency to favor an earlier bird-in-the-hand settlement that will 

ensure a fee, rather than pressing on for a potentially larger recovery for the 

class at the cost of greater investment and with the risk of no recovery.28

The promise of a larger potential share of the benefit nudges representative counsel‟s 

incentives towards greater alignment with the class or entity on whose behalf they are 

litigating.

29

The incentive effects of the sliding scale apply equally to large and small 

settlements. Risk aversion can be most problematic when entrepreneurial counsel are 

negotiating for incremental dollars after investing much uncompensated time and 

expense. As Chief Justice Strine explained while serving as a member of this court, “I‟ve 

said this before and I will continue to say it—that, you know, you don‟t reduce people‟s 

 

28 In re Orchard Enters., Inc. S’holders Litig., 2014 WL4181912, at *8 (Del. Ch. Aug 22, 

2014); see also John C. Coffee, Jr., Understanding the Plaintiff’s Attorney: The Implications of 

Economic Theory for Private Enforcement of Law Through Class and Derivative Actions, 86 

Colum. L. Rev. 669, 690 (1986) (“[P]laintiff‟s attorneys have an incentive to settle prematurely 

and cheaply when they are compensated on the traditional percentage of the recovery basis.”); 

Alon Harel & Alex Stein, Auctioning for Loyalty: Selection and Monitoring of Class Counsel, 22 

Yale L. & Pol‟y Rev. 69, 71 (2004) (“The class attorney‟s egoistic incentive is to maximize his 

or her fees—awarded by the court if the action succeeds—with a minimized time-and-effort 

investment. This objective does not align with a both zealous and time-consuming prosecution of 

the class action, aimed at maximizing the amount of recovery for the class members.”). For nowclassic treatments of this problem, see Kevin M. Clermont & John D. Currivan, Improving on the 

Contingent Fee, 63 Cornell L. Rev. 529, 543-46 (1978); Geoffrey P. Miller, Some Agency 

Problems in Settlement, 16 J. Legal Stud. 189, 198-202 (1987); and Murray L. Schwartz & 

Daniel J.B. Mitchell, An Economic Analysis of the Contingent Fee in Personal-Injury Litigation, 

22 Stan. L. Rev. 1125, 1133-39 (1970).

29 See Forsythe v. ESC Fund Mgmt. Co., 2012 WL 1655538, at *5 (Del. Ch. May 9, 

2012); In re Emerson Radio S’holder Deriv. Litig., 2011 WL 1135006, at *3-4 (Del. Ch. Mar. 

28, 2011).
79

fees because they gain much. You should, in fact, want to create an incentive for real 

litigation.” In re Am. Int’l Group, Inc. Cons. Deriv. Litig., C.A. No. 769-VCS, tr. at 9-10 

(Del. Ch. Jan. 25, 2011).

This case settled one month before trial. “While there are outliers, a typical fee 

award for a case settling at this stage of the proceeding ranges from 22.5% to 25% of the 

benefit conferred.” Orchard, 2014 WL 4181912, at *8. Selecting an appropriate 

percentage requires an exercise of judicial discretion. Ams. Mining, 51 A.3d at 1254. 

Nevertheless, “from a systemic standpoint, departures from the precedential ranges 

should be rare.” Orchard, 2014 WL 4181912, at *8.

If counsel can take the lesser bird-in-the-hand and get a greater percentage 

from the court, then the incentive to press on is undermined. The reward for 

an exceptional result comes not from a special appeal for case-specific 

largesse, but rather from the percentage calculation itself. A percentage of a 

low or ordinary recovery will produce a low or ordinary fee; the same 

percentage of an exceptional recovery will produce an exceptional fee. The 

wealth proposition for plaintiffs‟ counsel is simple: If you want more for 

yourself, get more for those whom you represent.

Id. (citation omitted). As the Delaware Supreme Court has stated, the “common fund is 

itself the measure of success.” Ams. Mining, 51 A.3d at 1259.

An award of 20% of the $275 million would be $55 million. An award of 22.5% 

would be $61.88 million. An award of 25% would be $68.75 million.

In addition, Lead Counsel obtained substantial non-monetary relief. The 

Settlement adds two independent directors and reduced Kotick and Kelly‟s voting power 

from 24.9% to 19.9%. Establishing an independent Board majority and reducing the 

stockholder-level control of insiders at a corporation with a market capitalization in 
80

excess of $15 billion is a valuable non-monetary benefit. Precedent suggests that an 

award of $5-10 million could be justified.30

2. The Complexity Of The Litigation

One of the secondary Sugarland factors is the complexity of the litigation. All else 

equal, litigation that is challenging and complex supports a higher fee award. 

The litigation in this case was more complex than the typical Court of Chancery 

case. The legal issues were more complex because the Restructuring was a bespoke 

transaction; it was not a familiar scenario such as a controller squeeze-out or a third-party 

M&A deal. Vivendi‟s status as a foreign issuer raised additional complications. The 

remedial issues were unique and forced Lead Counsel and their expert to develop 

potentially precedent-setting theories of damages. 

The factual issues in the case were particularly challenging. As noted, Lead 

Counsel obtained and reviewed in excess of 800,000 pages of documents from the 

defendants and numerous non-parties, as shown by the following table:

Producing Party Pages

Activision Blizzard, Inc. 220,325

Allen & Company 12,410

 

30 See In re Google Inc. Class C S’holder Litig., Cons. C.A. No. 7469-CS, tr. at 19-20 

(Del. Ch. Oct. 28, 2013) (awarding $8.5 million plus expenses for a “largely corporate 

governance settlement” in which “the benefits are substantial” and “somewhere between a solid 

single and a double”); In re Yahoo! S’holders Litig., C.A. 3561-CC, let. op. at 1 (Del. Ch. Mar. 6, 

2009) (awarding $8.4 million for “substantial benefit” of amending employee severance plan in a 

manner that “made it less expensive to sell Yahoo, making the company a more attractive target 

to potential suitors”); Minneapolis Firefighters’ Relief Assoc. v. Ceridian Corp., C.A. No. 2996-

CC (Del. Ch. Feb. 25, 2008) (awarding $5.4 million for empowering a potential buyer to present 

a leveraged recapitalization proposal and eliminating a termination right for the merger partner in 

the event a new slate of directors was elected before the merger closed).
81

ASAC II LP 4,479

Bank of America Merrill Lynch 967

Barclays Bank PLC 59,357

Centerview 60,327

Covington & Burling LLP (counsel to Tencent) 4,708

Davis Selected Advisors 7,974

FMR LLC 16,039

Goldman Sachs & Co. 74,903

JP Morgan 156,733

Brian Kelly 2,419

Robert Kotick 9,195

LGP 13,137

Special Committee 18,569

Vivendi 151,303

To obtain, review, and analyze these documents required significant effort, including 

extensive and numerous follow-up communications with the producing parties to ensure 

timely and comprehensive productions. Vivendi initially resisted production of its 

electronic documents, resulting in a motion to compel and a written decision. See In re 

Activision Blizzard, Inc. S’holder Litig., 86 A.3d 531 (Del. Ch. 2014). All defendants 

asserted privileges and generated mammoth privilege logs, requiring extensive follow up.

Obtaining documents also required third party practice. For example, Lead 

Counsel initially served a subpoena in Massachusetts on a Fidelity affiliate. After the 

affiliate objected and moved to quash, Lead Counsel served a new subpoena on a 

Delaware affiliate. Fidelity again objected, forcing Lead Counsel to move to enforce.

That motion was resolved when Fidelity relented and agreed to produce all responsive, 

non-privileged documents.

Language issues further complicated matters. After this court overruled Vivendi‟s 

objections, Vivendi produced numerous documents written in French. Lead Counsel had 
82

to identify the documents warranting unofficial and official translation, obtain the 

translations, and review them.

Piecing together the chronology required mixing and matching documents from 

multiple sources. In the ordinary course, Kotick and Kelly routinely deleted emails and 

electronic files. Kotick often preferred receiving documents by fax rather than email and 

considered it a good business practice to vet any communication orally before anything 

was sent to him. Lead Counsel had to engage in careful detective work to understand 

what happened, given the wholesale assertions of privilege and the contemporaneous 

destruction of documents.

Also as noted, Lead Counsel deposed twenty-three fact witnesses, as shown by the 

following table: 

Name Affiliation Date

Joseph Tuite Brian Kelly‟s family office June 11, 2014

Danton Goei Davis Selected Advisors June 18, 2014

Andrew Boyd Fidelity June 20,2014

Kris Galashan LGP June 25, 2014

Mark Fiteny JP Morgan July 1, 2014

Jean-François Dubos Director Defendant July 2, 2014

Frédéric Crépin Director Defendant July 3, 2014

Robert Pruzan Centerview July 8, 2014

Richard Sarnoff Director Defendant July 9, 2014

Régis Turrini Director Defendant July 9, 2014

Robert J. Corti Director Defendant July 15, 2014

Brian Kelly Director Defendant July 15, 2014

Gregory Dalvito Barclays Bank PLC July 16, 2014

Robert Morgado Director Defendant July 17, 2014

Robert Kotick Director Defendant July 22, 2014 &

Sept. 12, 2014

Jean-Rene Fourtou Vivendi July 23, 2014

Nancy Peretsman Allen & Company, LLC July 24, 2014

Philippe Capron Director Defendant July 24, 2014
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Michael Ronen Goldman Sachs & Co. July 29, 2014

Anwar Zakkour Former JP Morgan July 31, 2014

Peter Nolan LGP July 31, 2014

Jonathan Mattern Centerview August 7, 2014

Ian The Centerview August 8, 2014

The complicated legal issues and the need for extensive discovery made this case 

more complex than most. This factor supports an award at the higher end of the range.

3. The Contingent Nature Of The Representation

Another secondary Sugarland factor is the contingent nature of the representation. 

It is the “public policy of Delaware to reward risk-taking in the interests of shareholders.” 

In re Plains Res. Inc., 2005 WL 332811, at *6 (Del. Ch. Feb. 4, 2005). Not all contingent 

cases involve the same level of contingency risk. 

Unlike the now-ubiquitous pre-closing expedited challenges to mergers that 

are routinely settled with supplemental disclosures, [Lead] Counsel did not 

enter the case with a ready-made exit. [Lead] Counsel faced risk in 

pursuing a damages remedy, including the realistic possibility that [Lead] 

Counsel would receive nothing for their time and effort.

Orchard, 2014 WL 4181912, at *9.

The prosecution of the litigation by co-lead counsel was a largely undiversified, 

entrepreneurial undertaking. F&G and BE&S are both small firms, with two partners and 

three partners respectively. Two partners from each firm were deeply involved in all 

stages of the litigation and took or defended all of the depositions. Both firms had limited 

ability to work on other cases and turned away potential new business. A partner of 

BE&S took out a personal loan due to the litigation expense of this case. In addition, 

F&G recapitalized itself effective April 30, 2014. In part to ensure that the firm could 
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finance this litigation and operate regardless of its outcome, F&G took out a five-year 

loan secured by personal guarantees from its two partners.

This case involved true contingency risk. This factor supports an award at the 

higher end of the range.

4. The Time And Effort Expended

“The time and effort expended by counsel serves [as] a cross-check on the 

reasonableness of a fee award.” In re Sauer-Danfoss Inc. S’holders Litig., 65 A.3d 1116, 

1138 (Del. Ch. 2011). “This factor has two separate but related components: (i) time and 

(ii) effort.” Id. “The time (i.e. hours) that counsel claim to have worked is of secondary 

importance.” Id. “[M]ore important than hours is effort, as in what plaintiffs‟ counsel 

actually did.” Ams. Mining, 51 A.3d at 1258 (internal quotation marks omitted).

As demonstrated by the discussion of the complexities of the litigation, Lead 

Counsel did a lot. And they did it all under the pressure of a schedule designed to get the 

case to trial within one year. Lead Counsel did not throw a horde of junior timekeepers at 

the matter that would have inflated the overall number of hours. It created efficiencies for 

the four senior lawyers who comprised the trial team to take all of the depositions, work 

with the expert, and immerse themselves in all facets of the case. While the size of the 

award implies a generous hourly rate, in this case it is justified by the effort.

5. The Standing And Ability Of Counsel

No one disputes the standing or ability of counsel or argues that the award should 

be adjusted downward because of this factor. To the contrary, Lead Counsel brought a 

particular blend of expertise, initiative, and ingenuity to the case. In my view, few 
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litigation teams could have achieved this result against the determined, well-represented, 

and aggressive adversaries that Lead Counsel faced.

6. Deference To A Negotiated Agreement

The Delaware Supreme Court has held that “the Court of Chancery must make an 

independent determination of reasonableness on behalf of the common fund‟s 

beneficiaries, before making or approving an attorney‟s fee award.” E.F. Hutton, 681 

A.2d at 1046. As this court has observed, E.F. Hutton “unequivocally” requires that 

“where plaintiffs and defendants agree upon fees in settlement of a class action lawsuit, a 

trial court must make an independent determination of reasonableness of the agreed to 

fees.” In re Nat’l City Corp. S’holders Litig., 2009 WL 2425389, at *5 (Del. Ch. July 31, 

2009) (internal quotation marks omitted), aff’d, 998 A.2d 851 (Del. 2010). “The fact that 

a fee is negotiated . . . does not obviate the need for independent judicial scrutiny of the 

fee because of the omnipresent threat that plaintiffs would trade off settlement benefits 

for an agreement that the defendant will not contest a substantial fee award.” Id. at *5. 

Notwithstanding these statements, some of this court‟s decisions speak of giving 

deference to a negotiated fee agreement.31 In my view, any apparent tension can be 

harmonized by differentiating between evaluating a range of reasonableness and 

determining a specific amount. Under Delaware Supreme Court precedent, the court must 

 

31 See Prodigy, 2002 WL 1767543, at *6 (“Where, as here, the fee is negotiated after the 

parties have reached an agreement in principle on settlement terms and is paid in addition to the 

benefit to be realized by the class, this court will also give weight to the agreement reached by 

the parties in relation to fees.”); In re AXA Fin., Inc., 2002 WL 1283674, at *7 (Del. Ch. May 22, 

2002) (same).
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determine that the award falls within a reasonable range. If it does, then a court can defer 

to the parties‟ negotiated amount. See Forsythe, 2012 WL 1655538, at *7 (remarking that 

a negotiated fee application which “falls within a reasonable range [warrants] deference 

to the parties‟ negotiated amount”).

After reaching agreement with defendants on the substantive terms of the 

settlement, Lead Counsel and Activision negotiated an agreement whereby defendants 

would not oppose an application for a fee award up to $72.5 million. Assuming that the 

non-monetary benefits support an award of $5-10 million, the agreed-upon fee ranges 

from 22.7% to 24.5% of the monetary benefit. This falls within the range of 

reasonableness for the stage at which the litigation settled. This decision therefore 

approves as reasonable the fee award of $72.5 million that was negotiated after 

agreement on the substantive settlement terms.

G. No Fee Award For Pfeiffer And Benston’s Counsel

Pfeiffer and Benston have sought a fee award for their counsel. They have made 

this claim jointly, because neither was involved for the duration of the case. In 

September, after Hayes and Pacchia filed suit, Pfeiffer made a Section 220 demand. 

When Hayes‟ counsel circulated the Draft MOU, Pfeiffer‟s demand was still outstanding. 

After the Delaware Supreme Court‟s decision, Pfeiffer filed a Section 220 action, but he 

dismissed it when Activision challenged his status as a stockholder. Pfeiffer‟s counsel 

then found Benston, who made a Section 220 demand, followed up with a Section 220 

action, and obtained documents in February 2014, after Lead Counsel was already deep 

into the merits.
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According to Pfeiffer and Benston, their counsel deserves a fee award of $7.25 

million. They should get this amount because when Hayes‟ counsel tried to settle the 

case, they attempted to get Pfeiffer‟s counsel on board. Pfeiffer‟s counsel declined to sign 

the Draft MOU. Pfeiffer and Benston claim that their counsel “prevented an inferior 

settlement from being consummated, paving the way for the . . . Settlement currently 

before the Court.” Dkt. 349 at 7.

The power to award fees for a common fund or benefit “is a flexible one based on 

the historic power of the Court of Chancery to do equity in particular situations.”

Tandycrafts, 562 A.2d at 1166. “Not everyone who contributes to a benefit gets a fee 

award.” Orchard, 2014 WL 4181912, at *9. 

One of the factors identified in Sugarland is “whether the plaintiff can rightly 

receive all the credit for the benefit conferred or only a portion thereof.”32 The law has 

long recognized a distinction between an abstract causal connection and a proximate 

cause. “[H]arm flowing from an event in the but-for sense at some point becomes too 

attenuated to give rise to liability. Our law will not award damages for a kingdom when 

the wrong concerns a two-penny nail.” NACCO Indus., Inc. v. Applica Inc., 997 A.2d 1, 

 

32 Plains Res., 2005 WL 332811, at *3; accord Allied Artists Pictures Corp. v. Baron, 

413 A.2d 876, 878 (Del. 1980) (explaining that Delaware public policy is to compensate counsel 

“for the beneficial results they produced” and requiring both a meritorious claim and “a causal 

connection to the conferred benefit”); Aaron v. Parsons, 139 A.2d 365, 367 (Del. Ch.) 

(“[C]ounsel for plaintiffs are entitled to be compensated for the part played by this suit insofar as 

it contributed to the benefits received by the corporation in the settlement”), aff’d, 144 A.2d 155 

(Del. 1958).
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32 (Del. Ch. 2009). Sufficient causal attenuation similarly can result in the denial of an 

application for a fee award.

Pfeiffer and Benston claim that the defendants would have signed the Draft MOU 

if their counsel had signed. That is not credible. At that point, Benston had not yet 

appeared, and Pfeiffer only had made a Section 220 demand. He claimed to own a total of 

two shares of stock, and Activision disputed whether he owned stock at all. Rather, the 

defendants refused to sign because they were bullish on their chances before the 

Delaware Supreme Court. They had written highly aggressive briefs and made new 

factual and legal arguments that Hayes had not been able to counter fully for the first time 

on appeal. As Hayes‟ counsel anticipated, the successful appeal killed the Draft MOU 

because it removed the bargaining leverage that was a byproduct of this court‟s 

injunction. Pfeiffer‟s counsel was not a meaningful threat.

Assuming Pfeiffer and Benston‟s counsel did play some attenuated role in the 

defendants‟ decision not to sign, they can claim to have contributed causally to the 

Settlement only in the metaphysical sense that the flap of a butterfly‟s wings in Beijing 

may lead to a thunderstorm in Delaware, or that a stone thrown into the ocean off the 

Canary Islands creates a wave which may someday wash the beaches of Lewes. This is 

not a situation in which peer-reviewed statistical studies provide a responsible foundation 

for awarding fees based on a contingent event. Cf. In re Compellent Technologies, Inc. 

S’holder Litig., 2011 WL 6382523, at *22 (Del. Ch. Dec. 9, 2011) (relying on statistical 

studies and expert report when exercising discretion regarding amount of award for 

modifications to defensive measures).
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Pfeiffer and Benston mention halfheartedly their counsel‟s effort to get a piece of 

the action on remand, but their application for an issue-specific role was denied. They did 

not make any substantive contribution to the case. Because they did not generate benefits 

for Activision or the Class, Pfeiffer and Benston‟s counsel are not entitled to a fee award.

H. The Special Award For The Lead Plaintiff

The defendants and Hayes object to the Lead Plaintiff receiving a special award of 

$50,000. The defendants‟ objection will not be considered. They agreed not to “object to 

or otherwise take any position on” the negotiated $72.5 million fee application. 

Stipulation § 4.1. Elsewhere in the Stipulation, they purported to reserve their right to 

object to the Lead Plaintiff award. Id. § 4.3. In my view, they lack standing to do so. The 

defendants agreed not to oppose a deduction of up to $72.5 million from the total amount 

that otherwise would go to Activision. They cannot legitimately quibble about whether 

0.0069% of the $72.5 million is allocated to the Lead Plaintiff, any more than they could 

object to how the balance of the fee award is allocated among F&G, BE&S, and the 

Rosenthal firm.

Hayes returns to his basic premise. He contends that when the Class only receives

benefits from the Settlement indirectly, the Lead Plaintiff should not get money directly. 

The short answer to this objection is that Pacchia served as the Lead Plaintiff and is 

receiving a payment in that capacity. The other stockholders did not.

Delaware decisions have approved similar awards for lead plaintiffs under similar 

circumstances. See Orchard, 2014 WL 4181912, at *13 n.8 (collecting cases). The 

amount is reasonable and will be paid out of Lead Counsel‟s fee, so the award does not 
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harm Activision or the Class. The award has been fully disclosed and is not so large as to 

raise the specter of a conflict of interest or an improper lawyer-client entanglement. The 

Lead Plaintiff participated meaningfully in the case, sat for a deposition, and attended 

hearings and the mediation. He has been subjected to vigorous attacks throughout these 

proceedings, first by Hayes and his counsel during the leadership fight, next by the 

defendants at the class certification phase, and now by both during the settlement phase. 

The special award provides him with reasonable compensation for taking on the 

additional burden of serving as lead plaintiff.

III. CONCLUSION

The Settlement is approved. Lead Counsel is awarded fees and expenses of $72.5 

million. Pfeiffer and Benston‟s counsel are not entitled to any fee award. Lead Counsel 

has permission to pay Pacchia a special award of $50,000 out of the amount of the fee.