Source: https://www.gelaw.com/cases-pg/corporate-governance/
Timestamp: 2019-04-25 14:12:49+00:00

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This case alleged that members of the ACS Board of Directors breached their fiduciary duties by allowing the company’s founder and Chairman, Darwin Deason, to extract hundreds of millions of dollars from the company in connection with the negotiated buyout of ACS by Xerox Corp., at the direct expense of ACS’s public shareholders. G&E reached a $69 million settlement on behalf of ACS’s Class B shareholders, one of the largest settlements in the history of the Delaware Chancery Court.
American Federation of State, County & Municipal Employees, Employees Pension Plan v. American International Group, Inc.
G&E represented a public service union in litigation against insurance giant American International Group, Inc. (“AIG”). The plaintiff was seeking to compel AIG to include a proxy access proposal in the company’s proxy statement pursuant to SEC Rule 14a-8. Long considered a primary goal of corporate governance reform, proxy access would require corporations to publish the names of director candidates nominated by shareholders in the corporation’s proxy statement. The Second Circuit’s decision in favor of G&E’s client in this case reversed several years of no-action letters from the Securities and Exchange Commission’s Division of Corporation Finance that had effectively prevented shareholders from installing proxy access regimes at their corporations. This decision renewed the debate on the merits of proxy access that had stagnated following the Securities and Exchange Commission’s failure to adopt a mandatory rule in 2004, and confirmed that shareholders have an existing right under the federal securities laws to propose bylaw amendments to require their companies to publish the names of shareholder-nominated candidates.
G&E served as co-lead counsel asserting derivative claims on behalf of the shareholders of Barnes & Noble, Inc. (“B&N”) against the company’s Board of Directors for breach of fiduciary duty in connection with the Board’s approval of a related party transaction for $596 million. In 2009, as the threat of digital books and e-readers began to impact the traditional bookstore, the B&N Board approved the purchase of College, a national bricks and mortar college textbook retailer, from Leonard Riggio, B&N’s founder, Chairman and long-time CEO. Plaintiffs alleged that the acquisition, which was the largest in the history of B&N, was an overpayment for a company that essentially doubled B&N’s exposure to the growing digital threat, and that the driving purpose behind the deal was to enrich Leonard Riggio at the expense of the B&N shareholders. G&E led the plaintiffs’ team, which deposed 20 individuals, including Leonard Riggio, his brother Stephen Riggo (CEO of B&N at the time of the acquisition), each member of the B&N Board, the financial advisors to both B&N and College, and executives of both companies. Faced with the prospect of a trial after a March 27, 2012 ruling that a civil trial may move forward against him and two other members of the B&N Board, Leonard Riggio agreed to a settlement that required him to personally return $29 million gained from the sale of his College business to B&N. This is one of the largest non-insurance-funded settlements ever secured by shareholders in a derivative case.
G&E represented a renowned corporate governance expert in this action seeking to establish that shareholder-adopted bylaws that limit a board’s ability to adopt or implement a “poison pill” rights plan are legal under Delaware law.
The shareholders’ right to adopt and amend corporate bylaws is enshrined in Delaware law. Yet for many years, corporate boards have sought to limit this right by arguing that the directors’ statutory obligation to manage the day-to-day affairs of a corporation somehow restricts the shareholders’ rights to amend bylaws in areas that directors considered to be within their business judgment. A board’s ability to adopt a “poison pill” rights plan is one such area. In early 2006, G&E’s client introduced a shareholder proposal to be considered by the shareholders of CA, Inc. that would have placed restrictions on the CA Board of Directors’ ability to adopt and implement a shareholders’ rights plan. CA, in turn, stated that it intended to exclude the proposal from the company’s proxy materials on the grounds that the bylaw was illegal under Delaware law.
In this litigation, before the Delaware Chancery Court, the plaintiff sought a declaratory judgment that his proposed bylaw was legal under Delaware law. Although the Court held that the plaintiff’s specific request for a declaratory judgment was not ripe, its decision made clear that bylaws enacted by shareholders that may restrict a board’s ability to adopt and implement a “poison pill” plan are not necessarily illegal under Delaware law.
The Court’s decision in this case is noteworthy because it specifically rejected the company’s argument that the bylaw was plainly illegal, and thus rejected the very argument upon which corporate boards have relied for years to exclude important shareholder proposals from corporate proxy statements.
Louisiana Municipal Police Employees’ Retirement System, et al. v. CBOT Holdings, Inc., et al.
G&E represented a group of institutional shareholders challenging the merger agreement between Chicago Board of Trade and the Chicago Mercantile Exchange. After extensive and expedited discovery, G&E negotiated important changes to the announced transaction that resulted in an additional $485 million being paid to the shareholders of the acquired corporation.
G&E represented two institutional investors asserting derivative claims on behalf of Clear Channel Outdoor Holdings, Inc. (“Outdoor”) against the company’s Board of Directors for breach of fiduciary duty in connection with the company’s unsecured loan of nearly all its cash to its parent company and controlling shareholder, Clear Channel Communications, Inc. (“Clear Channel”).
In 2008, two private equity firms, Bain Capital Partners, LLC and Thomas H. Lee Partners, L.P, took Clear Channel private in a $24 billion leveraged buyout – one of the largest leveraged buyouts in history. Since that time, Clear Channel had been saddled with billions of dollars in debt and had been using Outdoor as a primary source of funding. Specifically, through a cash management agreement that allowed Clear Channel to sweep all cash held by Outdoor on a daily basis, Outdoor’s Board permitted Clear Channel to borrow over $700 million, nearly all of Outdoor’s cash, on an unsecured basis from Outdoor at approximately half of the going interest rate for similar loans. Meanwhile, rating agencies viewed a Clear Channel default as “imminent or inevitable,” and there was serious concern that Clear Channel could file for bankruptcy. In that case, Outdoor would have been left as an unsecured creditor, unable to recover the funds it had provided to Clear Channel.
In 2013, G&E was able to negotiate a settlement that returned $200 million to Outdoor’s shareholders, through an immediate reduction in the outstanding loan and the payment of a special dividend. In addition, the settlement included substantial changes in the cash management agreement between the companies that, among other things, permits the independent directors of Outdoor to unilaterally recall the loan and declare a special dividend in the event that the loan balance exceeds certain thresholds, and establishes several reporting requirements on Clear Channel’s financial position to assist the Outdoor Board in controlling the financial risk of the company.
Louisiana Municipal Police Employees’ Retirement System and The R.W. Grand Lodge of Free & Accepted Masons of Pennsylvania v. Crawford, et al.
G&E represented two institutional shareholders in this derivative litigation challenging the conduct of the Board of Directors of Caremark Rx, Inc. in connection with the negotiation and execution of a merger agreement with CVS, Inc., as well as the Board’s decision to reject a competing proposal from a different suitor. Through the litigation, Caremark’s Board was forced to provide substantial additional disclosures to public shareholders and renegotiate the terms of the merger agreement with CVS, providing an additional $3.19 billion in cash consideration.
G&E served as lead counsel in shareholder litigation that resulted in an unprecedented and immediate change in lending policy practices among major investment banks regarding the way the banks approach financing transactions in which they represent the seller. On February 14, 2011, the Delaware Chancery Court issued a ground-breaking order enjoining not only the shareholder vote on the merger, but the merger agreement’s termination fee and other mechanisms designed to deter competing bids. As a result of plaintiffs’ efforts, Del Monte Foods Co.’s Board of Directors was forced to conduct a further shopping process for the company. Moreover, the opinion issued in connection with the injunction has resulted in a complete change on Wall Street regarding investment banker conflicts of interests and company retention of investment bankers in such circumstances. An $89.4 million settlement against Del Monte and its investment bank Barclays Capital was reached.
G&E represented a large pension fund in class action litigation against Delphi Financial Group, its Board of Directors, Tokio Marine Holdings and TM Investment, Inc. The complaint alleged that Robert Rozenkranz, founder, CEO and Chairman of Delphi, took buyout consideration for himself at the expense of Delphi’s shareholders. In connection with the sale of Delphi to Tokio Marine, Rozenkranz influenced the Board to change the terms of certain classes of stock to obtain a premium for his personal shares. Vice Chancellor Glasscock allowed the merger to go to a shareholder vote but stated “that the Plaintiffs have demonstrated a likelihood of success on the merits” regarding the Rosenkranz allegations. The defendants agreed to settle the breach of fiduciary duties class action for $49 million to be distributed to Delphi’s Class A shareholders, excluding defendants, which was over 90% of the damages claimed in the action.
G&E initiated litigation alleging that the directors and majority stockholder of Digex, Inc. breached fiduciary duties to the company and its public shareholders by permitting the majority shareholder to usurp a corporate opportunity that belonged to Digex. G&E’s efforts in this litigation resulted in an unprecedented settlement valued at $420 million, the largest settlement in the history of the Delaware Chancery Court.
G&E represented a public pension fund and was appointed co-lead counsel in a class action against El Paso’s Board of Directors, Goldman Sachs, and Kinder Morgan, Inc. alleging that the Board, aided and abetted by Goldman Sachs and Kinder Morgan, breached its fiduciary duties by agreeing to sell El Paso to Kinder Morgan for a less-than-value-maximizing price. Plaintiffs alleged that the merger was tainted by significant conflicts of interest, including (i) Goldman’s serving as financial advisor to El Paso’s Board despite Goldman’s $4 billion buy-side interest in the deal stemming from its 19% ownership stake in Kinder Morgan, and (ii) the undisclosed interests of El Paso’s sole negotiator for the deal – CEO and Chairman, Douglas Foshee – in acquiring El Paso’s exploration and production assets for himself in a management buyout. Although the Delaware Chancery Court “reluctantly” declined to enjoin the merger, it found that the plaintiffs had a reasonable likelihood of success in proving that the merger was “tainted by disloyalty” and that they had uncovered some “disturbing” behavior in connection with the negotiations. The case settled for $110 million.
G&E served as co-lead counsel for plaintiffs, alleging that Facebook Chairman and CEO Mark Zuckerberg, as well as other officers and directors, breached their fiduciary duties to the class by approving the reclassification of Facebook stock. The reclassification, if implemented, would have allowed Mark Zuckerberg to maintain majority voting control while reducing his economic stake in the company by over 65%. Just days before the trial was set to begin with Mark Zuckerberg’s testimony, the Facebook Board of Directors met and decided to abandon the reclassification. Because G&E was seeking to enjoin the reclassification, the Board’s abandonment of it was a complete win for the plaintiffs and the class.
In 2009, when Swiss healthcare company Roche offered to buy out biotech leader Genentech, Inc. for $43.7 billion, or $89 per share, some minority shareholders of the San Francisco-based company objected to the proffered amount. Although a 1999 affiliation agreement between the two companies permitted such a purchase by Roche as majority shareholder—even in the face of minority shareholder opposition—G&E filed a derivative claim on behalf of institutional investors opposed to the buyout, contending that the 1999 affiliation agreement was invalid as a matter of Delaware law. Without the contractual limitations of the affiliation agreement, Genentech’s Board was able to extract a significantly higher price that Roche had originally offered and which otherwise would have been permitted under the 1999 affiliation agreement. With the pressure of the pending litigation, therefore, G&E was able to reach a settlement that provided for Roche to pay $95 per share, representing an increase of approximately $3 billion for minority shareholders.
G&E served as co-lead counsel representing the plaintiff in this class action alleging that the members of the Board of Directors of Jefferies Group, Inc. breached their fiduciary duties in connection with their agreement to sell Jefferies to Leucadia National Corporation. The complaint alleged that Jefferies’ CEO and President were both conflicted in their negotiation of the merger price based on their desire to ascend to leadership positions within Leucadia once the merger closed, and as a result did not secure the best price available for Jefferies’ stockholders. After the Chancery Court denied defendants’ motions to dismiss, Leucadia and the individual defendants agreed to settle the litigation by causing Leucadia to pay former Jefferies stockholders, whose Jefferies shares were exchanged for Leucadia shares in the merger, a total of $70 million in additional consideration. Including fees and administrative expenses, which under the terms of the settlement are borne by Leucadia and not deducted from the class distribution, this settlement represents one of the top ten settlements of a post-closing action challenging the fairness of a merger in the history of the Delaware Chancery Court.
This litigation involved two sets of claims concerning two separate attempts by Tilman J. Fertitta, CEO and the largest individual shareholder of Landry’s, to take the company private. The plaintiff alleged that Fertitta attempted to steal control of Landry’s by systematically reducing the offering price and then buying the company’s stock on the open market instead of purchasing shares pursuant to and in the merger; it also alleged that Landry’s directors breached their fiduciary duties by failing to protect the public shareholders from real and obvious threats to corporate welfare and complicity in Fertitta’s improper actions. Through a two-part settlement, G&E obtained for the shareholder class a $14.5 million settlement fund as well as the right to sell their shares in a going-private transaction providing at least $24 per share, representing a 62% increase over the merger agreement’s $14.75 per share price. The settlement also provided a virtually unprecedented 45-day go-shop process that could be extended for an additional 15 days, and in order to create an active go-shop process, Landry’s was required to reimburse up to $500,000 in actual out-of-pocket due diligence costs for each of up to the two highest bidders, provided the bidders submitted proposals to acquire the company at a price exceeding $24 per share.
California Public Employees’ Retirement System v. Coulter, et al.
G&E filed a derivative lawsuit on behalf of a large public pension fund against Lone Star’s former CEO, Jamie Coulter, and six other Lone Star directors. The suit alleged that the defendants violated their fiduciary duties in connection with their approval of the company’s acquisition of CEI, one of Lone Star’s service providers, from Coulter, as well as their approvals of certain employment and compensation arrangements and option repricing programs. Before filing the suit, G&E had assisted the plaintiff in filing a demand for books and records pursuant to Section 220 of the Delaware General Corporation Law. The company’s response to that demand revealed the absence of any documentation that the Board of Directors ever scrutinized transactions between Lone Star and CEI, that the Board negotiated the purchase price for CEI, or that the Board analyzed or discussed the repricing programs. In August 2005, the Court approved a settlement negotiated by G&E whereby Lone Star agreed to a repricing of options granted to certain of its officers and directors, repayments from certain of the officers and directors related to option grants, and a $3 million payment from Lone Star’s director and officer insurance policy. Lone Star further acknowledged that the lawsuit was one of the significant factors considered in its adoption of certain corporate governance reforms.
State of Wisconsin Investment Board v. Bartlett, et al.
In January 2000, G&E filed a shareholder derivative action on behalf of a large public pension fund against the directors of Medco Research, Inc., allegeing breach of fiduciary duty in connection with the directors’ approval of a proposed merger between Medco and King Pharmaceuticals, Inc. G&E was successful in obtaining a preliminary injunction requiring Medco to make supplemental and corrective disclosures. Because of G&E’s efforts, the consideration to Medco’s stockholders increased by $4.08 per share, or over $48 million on a class-wide basis.
G&E served as co-lead counsel in a class action in New York state court, brought on behalf of a class of seat holders of the New York Stock Exchange (“NYSE”) challenging the proposed merger between the NYSE and Archipelago Holdings, LLC. The complaint alleged that the terms of the proposed merger were unfair to the NYSE seat holders, and that by approving the proposed merger, the members of the NYSE Board of Directors violated their fiduciary duties of care, loyalty and candor, because the transaction was the result of a process that was tainted by conflicts of interest, and the directors failed adequately to inform themselves of the relevant facts. The court denied the defendants’ motion to dismiss, and after expedited discovery, including over 30 depositions in a five week period, a preliminary injunction evidentiary hearing was held in which plaintiffs sought to postpone the vote on the merger until a new current fairness opinion was obtained from an independent financial advisor. On the second day of the hearing, the defendants agreed to the relief being sought, namely a fairness opinion from an independent financial advisor.
G&E served as lead counsel in a case regarding PepsiCo’s offer to acquire two of its distributors, PepsiAmericas (“PAS”) and Pepsi Bottling Group (“PBG”). The company, which essentially dominated and controlled the boards of both distributors, made offers that were inadequate. In addition to other considerations, G&E obtained significantly higher acquisition prices that provided PBG shareholders as a group with $1.022 billion more in value ($36.50 per PBG share) and PAS shareholders as a group with $290 million more in value (increasing its offer from $23.27 to $28.50 per PAS share).
G&E represented the lead plaintiff, an institutional investor, in this class action suit against Sprint Corporation and its former CEO and directors for breach of fiduciary duty in the consolidation of two separate tracking stocks. In December 2007, a $57.5 million settlement was approved.
Teachers’ Retirement System of Louisiana v. Greenberg, et al.
In one of the largest settlements of derivative shareholder litigation in the history of Delaware Chancery Court, G&E reached a $115 million settlement in a shareholder lawsuit against former executives of American International Group, Inc. (“AIG”) for breach of fiduciary duty. The case challenged hundreds of millions of dollars in commissions paid by AIG to C.V. Starr & Co., a privately held affiliate controlled by former AIG Chairman Maurice “Hank” Greenberg and other AIG directors. The suit alleged that AIG could have done the work for which it paid Starr and that the commissions were simply a mechanism for Greenberg and other Starr directors to line their pockets.
G&E represented a bank in a lawsuit involving the timing of stock option grants in which G&E obtained historic rulings from the Delaware Chancery Court clarifying the fiduciary duties of corporate directors in connection with the administration of these grants. Ultimately, G&E negotiated a $4.5 million cash settlement that required the company to install significant reforms in the nomination and appointment of directors, and that provided limitations on transactions between the company and members of the Tyson family.
UniSuper Ltd., et al. v. News Corp., et al.
In a case followed closely by corporate governance experts, G&E won a huge governance settlement with media giant News Corp. regarding the contested extension of the company’s anti-takeover “poison pill” defense, written to defend against a takeover bid by Liberty Media. G&E represented a group of international institutional investors from Australia, the United States, the United Kingdom, and the Netherlands. After News Corp.’s motion to dismiss the case was denied, and just prior to the deposition of News Corp. Chairman and majority owner Rupert Murdoch, the company capitulated to the plaintiffs’ demands and agreed to put the controversial extension of the poison pill defense provision to a full shareholder vote at its next annual meeting. The company further agreed to 20 years’ worth of limitations on the Board of Directors’ ability to adopt poison pills. In addition, the Delaware Chancery Court ruled that shareholders may contractually limit board authority without amending the corporation’s charter. The ruling has been widely hailed as a milestone in corporate governance reform, particularly in light of the line of decisions analyzing, and, often upholding, unilateral amendment of bylaws by boards of directors.

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