Opinion ID: 2371008
Heading Depth: 2
Heading Rank: 1

Heading: The Second Period Allocation was Orderly and Logical.

Text: An allocation plan must be fair, reasonable, and adequate. [9] The plan does not need to compensate Class members equally to be acceptable. [10] A reasonable plan may consider the relative values of competing claims. [11] Ginsberg considered the merits and the potential trial outcome of the various shareholder constituencies. The Buyers argued that the Charter Violation claim had a better chance of success, whereas the Objector Sellers argued for the Economic Dilution claim, and complain that they did not receive a proper degree of relief. The Chancellor did not abuse his discretion by permitting Ginsberg to consider the merits of the claims when allocating portions of the fund. 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. [12] Therefore, under a Charter Violation claim, the Buyer would suffer the injury. Conversely, and as Ginsberg admitted, the Economic Dilution claim was personal. Thus, under an Economic Dilution claim, the claim for damage suffered would remain with the Seller and not transfer to the Buyer. PHLX's Certificate of Incorporation is a contract between the stockholders and the corporation. [13] Violation of this contract resulted in a direct claim for the Buyers. [14] In contrast, Ginsberg predicted that the Chancellor would likely find the Economic Dilution claim to be derivative. [15] The importance of that distinction  whether a claim is direct or derivative  is that shareholders would not be entitled to a money recovery resulting from a successful derivative action. [16] Thus, if a chancellor determined the Economic Dilution claim was derivative, the Objector Sellers would not be able to recover because the corporation would receive the relief and they no longer held stock in the corporation. Ginsberg was also concerned about the impact of the 102(b)(7) exculpatory provision in PHLX's Certificate of Incorporation on the Economic Dilution claim. The exculpatory provision would bar a money damages remedy for the Economic Dilution claim unless Ginsberg could prove that the PHLX board breached their duty of loyalty or acted in bad faith. Ginsberg, as an unbiased Continuous Stockholder, determined that on the merits a Charter Violation claim had a better likelihood of success than Economic Dilution claim. He therefore proposed allocating a greater percentage of the fund to the Buyers. The Chancellor found support for that conclusion and approved the allocation as the product of a rational, fair, and reasonable process. He recognized that [r]eliance on the Charter Violation claim was indeed essential to my reasoning in denying the defendant's motion to dismiss. What's more, it has been demonstrated clearly in other actions that the Demutualization claims have little or no chance of succeeding and, thus, have limited, if any, value. The Objector Sellers claim that they, unlike the Buyers, suffered actual damages and thus should receive monetary damages. They argue that allocating settlement proceeds is equivalent to monetary relief, and that the Buyers are not entitled to such relief because they bought into the suit. Delaware law recognizes a policy against buying a lawsuit; [17] however, that did not occur here. This action returns the class to the status quo. [18] The Objector Sellers rely on Wit Capital to support the view that actual damages are required in order to recover money from a settlement fund. [19] Wit Capital, a Rule 23(b)(3) opt out action, involved a claim for monetary damages based on a breach of contract. [20] Wit Capital was decided under New York law, where injury in fact is a prima facie requirement for a breach of contract claim. [21] This action in contrast was for equitable relief. We have already concluded that $82 million of the settlement proceeds constituted equitable relief aside from the legal fees and costs. [22] Ordering rescission or awarding rescissory damages are forms of equitable relief. [23] Rescissory damages restore a plaintiff to the position occupied before the defendant's wrongful acts. [24] In further support of their proposed alternative allocation plan, the Objector Sellers argue that, in footnote 34 of our previous opinion, we distinguished between class members that suffered actual damages and those that did not. [25] In the first appeal, we did not address the merits of the underlying claims or determine issues relating to allocation. Footnote 34 merely attempted to explain how the different underlying claims might affect the outcome if brought to trial, and thus, affect the value of each claim during the allocation phase of the settlement. The Chancellor could not have abused his discretion by not following our instruction because we gave no such instruction. The Objector Sellers' actual damages argument misapplies the law and the facts of this case. The Chancellor did not abuse his discretion by granting equitable relief from the settlement proceeds and permitting Ginsberg's allocation plan to give greater emphasis to the equitable relief flowing from the Charter Violation claim.
[A] decision whether or not to certify a class or divide the class into subclasses calls for the sound exercise of discretion. [26] The Objector Sellers argue that Ginsberg did not fairly and adequately represent their interests. [27] They claim that Ginsberg did not invite them to his allocation meeting, and that when they discovered the meeting, Objector Sellers Schultz and Benedik showed up without invitation. They insist that the Chancellor should have created subclasses to represent economically antagonistic groups, including the Objector Sellers. On October 30, 2007, Ginsberg held an allocation meeting. He invited the various constituencies. Schultz and Benedik, two of the Objector Seller appellants here, attended that meeting. Their counsel did not enter an appearance in the matter until after the meeting, however; through no fault of Ginsberg. Like the other objecting class members, the Objector Sellers could have sought representation at Ginsberg's allocation meeting. Their counsel had notice of the allocation meeting: the Objectors attended the meeting and the record reflected a significant number of emails and telephone conversations about the allocation plan. Furthermore, their counsel attended the Chancellor's allocation meeting on July 2, 2008, along with counsel for the other class constituencies. We recognize that in this allocation process, there were competing interests but we do not find that the Chancellor abused his discretion when he rejected the subclass concept. In PHLX I, we wrote that [i]f during the course of that review it appears that different shareholder groups are advancing conflicting claims, that can be remedied by the Court dividing the class into subclasses, or by other means. [28] The conflicts were between the competing claims of the Buyers and Sellers. Ginsberg had no conflict because he was a Continuous Stockholder. Though we might have decided to create subclasses when this conflict arose, we do not find that the Chancellor abused his discretion by relying on the thorough and unconflicted process of the unbiased class representativeGinsberg.