Court Opinion

ID: 4183008
Source: CourtListenerOpinion
Date Created: 2017-07-03 10:13:14.131383+00
Date Added: 2024-06-11T14:39:12.073913
License: Public Domain

IN THE COURT OF APPEALS OF TENNESSEE
                           AT NASHVILLE
                                 May 3, 2016 Session

                     IN RE PACER INTERNATIONAL, INC.

               Appeal from the Chancery Court for Davidson County
                   No. 1439IV Russell T. Perkins, Chancellor
                     ___________________________________

                No. M2015-00356-COA-R3-CV – Filed June 30, 2017
                     ___________________________________

In this class action, stockholders sued to prevent a proposed merger alleging that the
company’s board of directors had breached their fiduciary duty. After expedited
discovery, the stockholders agreed to settle in consideration for disclosure of additional
information that could affect approval of the merger. The court preliminarily approved
the proposed settlement and ordered the company to notify all potential class members of
the proposal. Only one class member objected to the proposed settlement. After a
fairness hearing, the chancery court approved the settlement and denied the objector’s
request for access to discovery materials obtained during the litigation. The objector
appeals, arguing that the chancery court erred in denying it access to discovery and in
approving the proposed settlement. Upon review, we conclude that the chancery court
did not abuse its discretion. Accordingly, we affirm.

 Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Chancery Court Affirmed

W. NEAL MCBRAYER, J., delivered the opinion of the court, in which RICHARD H.
DINKINS and THOMAS R. FRIERSON, II, JJ., joined.

Greg Oakley, Nashville, Tennessee, and James D. Shields and Bart Higgins, Addison,
Texas, for the appellant, Black Oak Investments, LLC.

Britt K. Latham and Jamie L. Brown, Nashville, Tennessee, and James P. Smith III and
John E. Schreiber, New York, New York, for the appellees, Pacer International, Inc.,
Daniel W. Avramovich, Dennis A. Chantland, J. Douglass Coates, P. Michael Giftos,
Robert J. Grassi, Robert D. Lake, and Robert F. Starzel.

L. Webb Campbell II and John L. Farringer IV, Nashville, Tennessee, and Rachelle
Silverberg and A. J. Martinez, New York, New York, for the appellees, Acquisition Sub,
Inc., and XPO Logistics, Inc.
Douglas S. Johnston, Jr., Timothy L. Miles, and Scott P. Tift, Nashville, Tennessee, Jerry
E. Martin and Christopher M. Wood, Nashville, Tennessee, and Randall J. Baron and
David T. Wissbroecker, San Diego, California, for the appellees, Adnan Mahmutagic,
Roger Blackwell, Mark Frazier, Michael Iseman, and Joe Weingarten.

                                              OPINION

                                                   I.

       This case began as a challenge to a proposed merger between Pacer International,
Inc. and a wholly-owned subsidiary of XPO Logistics, Inc. After Pacer and XPO jointly
announced the proposed merger, individual Pacer stockholders filed five class action
lawsuits, which were ultimately consolidated into the present case, seeking to enjoin the
merger.

        The class actions were based on allegations that Pacer’s Board of Directors
breached its fiduciary duty to the stockholders, and Pacer and XPO aided and abetted the
breach.1 Specifically, Plaintiffs alleged that Pacer’s Board breached its fiduciary duty by
(1) allowing Pacer’s senior management and its financial advisor, Morgan Stanley & Co.
LLC, significant involvement in the sales process in spite of alleged conflicts of interest;
(2) accepting an inadequate price for Pacer stock; (3) agreeing to unreasonable deal
protection measures in the merger agreement; and (4) failing to disclose material
information in the proxy statement.2 Defendants maintained that Pacer’s Board fulfilled
its duty to the stockholders.

                                     A. THE MERGER PROCESS

       As part of their duties, Pacer’s Board periodically evaluated the company’s
strategic business plan with input from senior management and Morgan Stanley. At the
July 2013 board meeting, Morgan Stanley presented the results of a preliminary analysis

        1
          Plaintiffs sued Pacer, the individual members of Pacer’s Board, XPO, and the XPO subsidiary
created for the merger, seeking primarily equitable relief: a declaratory judgment that Pacer’s Board had
breached its fiduciary duty and an injunction preventing consummation of the merger. In the event the
merger took place before an injunction was issued, Plaintiffs asked for rescission and appropriate
rescissory damages.
        2
          Before Pacer’s Board could solicit approval of the proposed merger from stockholders, the
company was required to send all stockholders a proxy statement with sufficient information to allow
them to cast an informed vote. 15 U.S.C.A. § 78n (West, Westlaw through P.L. 115-40); see generally 69
Am. Jur. 2d Securities Regulation—Federal §§ 607, 670, Westlaw (database updated May 2017).

                                                   2
of potential strategic alternatives available to the company, which included a sale of the
whole business. As part of the analysis, Morgan Stanley, in conjunction with senior
management, identified 28 potential buyers that might have interest in acquiring Pacer.
Based on the information presented, Pacer’s Board agreed that Morgan Stanley could
conduct further analysis to ascertain whether the group contained “potential strategic
partners for Pacer.”

       Thereafter, Pacer’s Board authorized Morgan Stanley to contact 14 potential
buyers.3 Of the 14 parties approached, 11 expressed preliminary interest. Pacer
exchanged limited private information with the interested parties under confidentiality
agreements. Ultimately, three parties submitted written, non-binding indications of
interest to acquire Pacer. XPO was among the three.

       Pacer’s Board held a special meeting on October 7, 2013, to discuss the three
potential bidders. After discussion, the determination was made to move forward.
During a regular board meeting conducted later that month, Morgan Stanley advised
Pacer’s Board of its prior relationships with each of the potential bidders. After these
disclosures, Pacer’s Board agreed it would be necessary to engage a second financial
advisor to give an additional fairness opinion if XPO became the leading bidder in light
of Morgan Stanley’s relationship with XPO. In the meantime, representatives of Pacer
and the three bidders began conducting due diligence.

       From October to November of 2013, the market price of Pacer’s common stock
increased without explanation from $6.98 to $8.95 per share. XPO became the sole
potential bidder when the two others withdrew, citing Pacer’s rising stock price as a
concern. At a special board meeting in November, Morgan Stanley discussed the
possibility that the unexplained increase in the stock price was due to a leak concerning
the merger talks.

       Apparently unfazed by the rising stock price, XPO offered to purchase Pacer for
$9.00 per share, payable in cash and shares of XPO common stock. Pacer’s Board
discussed XPO’s offer and Pacer’s other strategic alternatives at two separate meetings in
November and December with Morgan Stanley and senior management. At the
conclusion of these discussions, Pacer’s Board instructed Morgan Stanley to negotiate a
more favorable proposal from XPO. Specifically, Pacer’s Board requested a higher
purchase price, a greater percentage of cash consideration, and changes in other
provisions of the proposed merger agreement. Pacer’s Board also authorized the
retention of a second financial advisor.
        3
         Pacer’s Board, with input from Morgan Stanley and senior management, narrowed the original
group of 28 potential bidders to 14 based on factors such as previous industry investment expertise,
perceived ability to recognize the value of Pacer’s business, potential synergies, financial capability to
complete a transaction, and likelihood of execution.

                                                    3
       XPO submitted a revised bid on December 5, 2013. While not increasing the
overall purchase price, the revised bid included a different consideration mix and
protections related to the value of XPO’s stock. Pacer’s Board discussed the revised bid
and directed Morgan Stanley to continue to seek an increased purchase price from XPO.
The Board also directed Morgan Stanley to approach one of the potential bidders that had
withdrawn to gauge interest in making an offer in light of a recent decline in Pacer’s
stock price.4 At this stage, the Board engaged Houlihan Lokey Financial Advisors, Inc.
to provide an additional fairness opinion.

       On December 12, 2013, a previously unknown entity, having heard rumors of a
merger, contacted Morgan Stanley and expressed interest in “taking a look” at Pacer.
Morgan Stanley reported the contact to Pacer’s Board. But, based on the advice of
Morgan Stanley and Houlihan Lokey, Pacer’s Board declined to enter into negotiations
with the new potential bidder.

       Negotiations between Pacer and XPO resulted in a number of changes to the
merger agreement and a firm offer of $9.00 per share, with Pacer stockholders to receive
$6.00 in cash and a fraction of a share of XPO common stock equal to $3.00 for each
share of Pacer stock. Throughout the month, negotiations on the details of the stock
component and potential employment agreements with key members of Pacer
management continued.

       On January 5, 2014, Pacer’s Board met and reviewed the documentation and terms
of the proposed merger. Morgan Stanley and Houlihan Lokey advised Pacer’s Board that
the proposed consideration was fair, from a financial point of view, to stockholders.
Pacer’s Board unanimously adopted and approved the merger agreement. Both Pacer and
XPO executed the merger agreement that same day.

       On January 6, 2014, Pacer and XPO announced the proposed merger. The class
actions followed within days after the merger announcement. Pacer and XPO filed a
proxy statement detailing information about the merger with the Securities and Exchange
Commission on January 29, 2014.

                                      B. THE CLASS ACTIONS

       On February 20, 2014, the Chancery Court for Davidson County, Tennessee,
appointed lead counsel for Plaintiffs with authority to conduct discovery and settlement
negotiations (“Lead Counsel”). The parties negotiated the terms of a protective order and
agreed to conduct expedited, limited discovery. Pacer produced internal business
documents, and Plaintiffs deposed Pacer’s chief executive officer, an outside member of

      4
          The bidder remained uninterested.
                                               4
Pacer’s Board, and a representative of Morgan Stanley. Plaintiffs also retained their own
financial consultant to provide another fairness opinion on the proposed merger.

      Settlement negotiations began in March. The parties orally agreed to settle if
Defendants disclosed additional information about the merger before the stockholder
vote. Defendants filed supplemental disclosures with the SEC on March 18, 2014. On
March 27, 2014, Pacer stockholders approved the proposed merger, and the merger was
consummated on March 31, 2014.

      On August 6, 2014, Plaintiffs moved for preliminary approval of the settlement.5
The court preliminarily approved both the settlement and notice of settlement on October
14, 2014, set December 31 as the deadline for class members to file any objections, and
scheduled a fairness hearing for January 15, 2015. Ultimately, 6,306 potential class
members were notified of the proposed settlement.

       On December 23, 2014, the parties moved for final approval of the proposed
settlement. In a sworn declaration filed with the court, Lead Counsel opined that the
proposed settlement would be the most beneficial result for the class. Lead Counsel
described the discovery and settlement negotiation process and explained the basis for his
determination that any claim for monetary compensation lacked significant value. An
exculpatory clause in Pacer’s charter shielded Pacer’s Board from liability for money
damages as a result of any breach of the duty of care, and discovery failed to uncover any
evidence of a breach of the duty of good faith or loyalty. As a result, settlement
negotiations focused on obtaining additional disclosures about the merger process to
enable stockholders to make an informed decision about the proposed merger. Lead
Counsel also certified that the supplemental disclosures made as part of the settlement
were accurate and provided sufficient information for stockholders to cast an informed
vote on the proposed merger.6

                          C. OBJECTION TO THE PROPOSED SETTLEMENT

      On December 31, 2014, Black Oak Investments, LLC filed written objections to
the proposed settlement and certification of the settlement class. Black Oak owned
approximately three percent of Pacer’s stock, making it one of Pacer’s largest
stockholders. Black Oak was the only class member to object to the proposed settlement.

       5
           The parties executed a written settlement agreement on July 28, 2014.

       The supplemental disclosures included additional information about Morgan Stanley’s
       6

compensation arrangement in connection with the merger, the methodology and financial data used by
Morgan Stanley and Houlihan Lokey in their fairness opinions, and the financial projections of senior
management.

                                                     5
        Black Oak contended that Pacer’s Board breached its fiduciary duty to Black Oak
“by not entertaining all credible offers to get a bid over XPO Logistic’s bid of $9.00 per
share.” Black Oak also claimed that $9.00 per share was below market value at the time
of the transaction and that Black Oak would have paid a higher price per share for Pacer,
“if warranted after receiving the necessary information and documents to properly value
and evaluate the transaction.”

       Black Oak requested that the court order the parties to share all discovery
materials acquired during the litigation. Without the requested documents, adequate time
to review those documents, and “potentially discover[] and develop evidence on its own,”
Black Oak claimed it would be denied its right to meaningfully participate in the fairness
hearing. Nevertheless, Black Oak objected7 to the lack of monetary compensation for the
class and the breadth of the released claims and contended that the settlement was not
negotiated at arm’s length.

        At the fairness hearing, Black Oak argued that the stockholders were releasing a
valuable claim for monetary damages without receiving a commensurate benefit. Based
on its “extensive industry knowledge,” Black Oak claimed that it realized in 2012 that
Pacer stock was undervalued. Since Black Oak already owned stock in HIG Capital, a
Pacer competitor, Black Oak began to purchase stock in Pacer with an eye toward
merging the two companies to further increase shareholder value. Black Oak also
claimed that it induced HIG Capital to make an offer to acquire Pacer for $7.50 per share
in 2012, which represented a premium over the share price. Pacer’s Board, however,
rejected the offer and notified HIG Capital that it was not interested in further discussions
at that time.

       According to Black Oak, Pacer stock was still undervalued in 2013.8 And it noted
that XPO’s offer was not significantly higher than the market price. Black Oak argued
that Pacer’s Board should have realized that HIG Capital would have made a higher offer
based on its 2012 bid. Thus, according to Black Oak, the court could assume that Pacer’s
Board failed to obtain the highest possible price.

        7
           Black Oak’s written objection included a number of additional grounds, including objections to
the non-opt out structure of the proposed settlement, certification of the class, and inadequacy of the
representative plaintiffs and their counsel. Although Black Oak originally appealed the court’s
certification of a non-opt-out class, Black Oak’s counsel informed the court at oral argument that his
client was abandoning that issue.
        8
          XPO’s stock price increased after the merger, and according to Black Oak, the rise in XPO’s
stock price indicated the market’s perception that Pacer had been acquired at a bargain price.
                                                   6
                          D. THE CHANCERY COURT’S DECISION

       After a lengthy fairness hearing during which both the settlement proponents and
the objector were allowed to present their views, the court issued its memorandum and
final order denying Black Oak’s objections on January 27, 2015. The court specifically
found:

              The Court appointed lead plaintiffs and their counsel at a contested
       hearing. Plaintiffs’ counsel has an established track record in the litigation
       of merger-related cases. Plaintiffs aggressively prosecuted this case. Black
       Oak has presented the Court with no basis to conclude that plaintiffs were
       inadequate representatives.

              Instead, Black Oak asserts that the settlement terms themselves
       somehow show inadequacy of representation. But Black Oak has identified
       no term of the settlement that deviates from common practice or violates
       any rule of law. The settlement is fair, reasonable, and adequate.

              To begin with, the consideration in this settlement was appropriate
       and in line with relevant precedent. It consisted of numerous supplemental
       disclosures that addressed plaintiffs’ allegations that defendants failed to
       disclose adequate information about the merger. Courts routinely recognize
       that “[i]mproved disclosures may certainly prove beneficial to class
       members and may constitute consideration of a type which will support a
       settlement of claims.” In re FLS Holdings, Inc. S’holders Litig., [No.
       CIV.A.12623,]1993 WL 104562, at *5 (Del. Ch. Apr. 2, 1993). And the
       parties submitted numerous orders entered by Tennessee courts approving
       settlements of merger cases where, like here, the consideration consists of
       additional disclosures. See Exhibits to Defendants’ Memorandum. The
       consideration here was fair because the settlement gave Pacer’s
       stockholders access to information that they did not have and could not
       otherwise have obtained to evaluate the transaction.

(internal footnote omitted).

        With regard to any potential claim for money damages, the court was
satisfied that Lead Counsel adequately investigated any damages claim and
determined that such a claim would not be viable under the circumstances. The
court concluded:

              In short, Black Oak has provided the Court with no basis in fact or
       law to second-guess the investigation of the Court-appointed class
       representatives or their judgment that the settlement provided the class with
                                             7
       substantial consideration in view of the weakness of the claims. There is no
       basis to reject the settlement, which is fair, reasonable, and adequate.

       The court denied Black Oak’s request for access to previously discovered
materials and to conduct its own discovery into settlement negotiations. The court
determined that Black Oak had no right to discovery before it filed its objections and,
after filing, was entitled to discovery only if it presented a colorable claim that the
settlement should be disapproved. The court denied Black Oak’s request for discovery of
settlement negotiations because it had not produced any evidence of collusion.

                                            II.

       Black Oak argues that the trial court erred in approving this class action settlement
and in denying it access to discovery materials. We review both decisions for an abuse of
discretion. UAW v. Gen. Motors Corp., 497 F.3d 615, 625 (6th Cir. 2007); see also
Denver Area Meat Cutters & Emp’rs Pension Plan v. Clayton, 209 S.W.3d 584, 590
(Tenn. Ct. App. 2006). A court abuses its discretion when it applies an incorrect legal
standard, reaches an unreasonable result, or bases its decision on a clearly erroneous
assessment of the evidence. Lee Med., Inc. v. Beecher, 312 S.W.3d 515, 524 (Tenn.
2010).

        Tennessee Rule of Civil Procedure 23.05 does not specify the legal standard for
trial court approval of a class action settlement, and our case law provides scant guidance.
Tenn. Civ. P. 23.05 (“A certified class action shall not be voluntarily dismissed or
compromised without approval of the court.”). We have directed trial courts to consider
various factors, such as “the ‘risk and likely return to the class of continued litigation’,
the range of possible outcomes and probability of each, [and] whether class counsel’s
fees are proportional to the incremental benefits conferred on the class members.” Posey
v. Dryvit Sys., Inc., No. E2004-02013-COA-R9-CV, 2005 WL 17426, at *2 (Tenn. Ct.
App. Jan. 4, 2005) (quoting Reynolds v. Beneficial Nat’l Bank, 288 F.3d 277, 280 (7th
Cir. 2002)). We have also focused on the level of investigation of the plaintiffs’ claims,
whether settlement negotiations were at arm’s length, the number of objectors, the
objectors’ access to information, and the experience of the parties’ counsel. In re High
Pressure Laminate Antitrust Litig., No. M2005-01747-COA-R3-CV, 2006 WL 3681147,
at *4-5 (Tenn. Ct. App. Dec. 13, 2006). In the only published Tennessee opinion, we
focus on the fairness of the proposed settlement. Denver Area Meat Cutters & Emp’rs
Pension Plan, 209 S.W.3d at 591. And we indicated that “[t]he most important
consideration [in determining whether a settlement is fair] is the strength of plaintiffs’
case on the merits weighed against the amount offered in settlement.” Id. (quoting In re
Agent Orange Product Liab. Litig., 597 F. Supp. 740, 762 (E.D.N.Y. 1984)).

                                             8
       The parties urge us to apply the standard used in federal court for approving class
action settlements. See Fed. R. Civ. P. 23(e).9 Under the Federal Rules of Civil
Procedure, when a proposed settlement is binding on all class members, the “court may
approve it only after a hearing and on finding that it is fair, reasonable, and adequate.”
Id. The Sixth Circuit has directed federal district courts to consider several factors when
making a fairness determination: “(1) the risk of fraud or collusion; (2) the complexity,
expense and likely duration of the litigation; (3) the amount of discovery engaged in by
the parties; (4) the likelihood of success on the merits; (5) the opinions of class counsel
and class representatives; (6) the reaction of absent class members; and (7) the public
interest.” UAW, 497 F.3d at 631.

       When Tennessee and federal procedural rules are identical, we view case law
construing the analogous federal rule as persuasive authority. Meighan v. U.S. Sprint
Commc’ns Co., 924 S.W.2d 632, 637 n.2 (Tenn. 1996). But the current federal
counterpart to Tennessee Rule 23.05 is markedly different.10 Even so, our previous
opinions have referenced federal case law in evaluating class action settlements. See
Denver Area Meat Cutters & Emp’rs Pension Plan, 209 S.W.3d at 591 (quoting In re
Agent Orange Product Liab. Litig., 597 F. Supp. at 762); Posey, WL 17426, at *2
(quoting Reynolds, 288 F.3d at 280). Thus, while we may consider federal law,
Tennessee’s common law must control the outcome of this case. See Vythoulkas v.
Vanderbilt Univ. Hosp., 693 S.W.2d 350, 358 (Tenn. Ct. App. 1985), superseded on
other grounds by Tenn. R. Civ. P. 26.02(4)(B) (explaining that any doubt concerning

        9
            Federal Rule of Civil Procedure 23(e) provides as follows:

                 (e)The claims, issues, or defenses of a certified class may be settled, voluntarily
        dismissed, or compromised only with the court's approval. The following procedures
        apply to a proposed settlement, voluntary dismissal, or compromise:
                 (1) The court must direct notice in a reasonable manner to all class members who
        would be bound by the proposal.
                 (2) If the proposal would bind class members, the court may approve it only after
        a hearing and on finding that it is fair, reasonable, and adequate.
                 (3) The parties seeking approval must file a statement identifying any agreement
        made in connection with the proposal.
                 (4) If the class action was previously certified under Rule 23(b)(3), the court may
        refuse to approve a settlement unless it affords a new opportunity to request exclusion to
        individual class members who had an earlier opportunity to request exclusion but did not
        do so.
                 (5) Any class member may object to the proposal if it requires court approval
        under this subdivision (e); the objection may be withdrawn only with the court's
        approval.

Fed. R. Civ. P. 23
        10
           In 2003, Federal Rule 23(e) was amended “to strengthen the process of reviewing proposed
class-action settlements.” See Fed. R. Civ. P. 23 advisory committee’s note to 2003 amendment.
                                                      9
“whether federal construction of the Federal Rules of Civil Procedure or Tennessee’s
common law controls a question of procedure should be resolved in favor of Tennessee’s
common law.”). Therefore, we review the fairness of the settlement in light of the
Tennessee common law.

                        A. FAIRNESS OF PROPOSED SETTLEMENT

        Black Oak contends that the settlement was unfair because Plaintiffs did not
receive any monetary compensation, the supplemental disclosures did not include all the
allegedly omitted information, and Black Oak was not satisfied that the price XPO paid
for Pacer stock was adequate. As we address these objections, we bear in mind that
“[t]he law favors the settlement of disputes.” First Nat. Bank v. Union Ry. Co., 284 S.W.
363, 364 (Tenn. 1926); accord Denver Area Meat Cutters & Emp’rs Pension Plan, 209
S.W.3d at 590. A settlement is by its very nature a compromise. Leonhardt v.
ArvinMeritor, Inc., 581 F. Supp. 2d 818, 835 (E.D. Mich. 2008). The court must
determine, not whether the settlement represents the best outcome, but whether it falls
within the “range of reasonableness.” Id. (quoting IUE-CWA v. Gen. Motors Corp., 238
F.R.D. 583, 596 (E.D. Mich. 2006)).

        In evaluating a class action settlement, both Tennessee and federal courts weigh
the “‘plaintiffs’ likelihood of success on the merits against the amount and form of the
relief offered in the settlement.’” UAW, 497 F.3d at 631 (quoting Carson v. Am. Brands,
Inc., 450 U.S. 79, 88 n.14, (1981)); see Denver Area Meat Cutters & Emp’rs Pension
Plan, 209 S.W.3d at 591. This class action is premised on alleged breaches of fiduciary
duty by Pacer’s Board in connection with the proposed merger of a publicly held
company. As such, this case would be relatively complex and expensive to take to trial,
involving issues of securities regulation and corporate governance. The court appointed
Lead Counsel for Plaintiffs with extensive experience in this type of litigation. In view of
the fact that Plaintiffs were seeking to stop the proposed merger, Lead Counsel acted
quickly to negotiate an agreed protective order and discover nonpublic documents and
key deposition testimony. Lead Counsel reviewed voluminous SEC filings and the
results of discovery before determining that any claim for breach of fiduciary duty had no
real monetary value.

       Plaintiffs had a heavy burden to overcome to succeed on the merits. Tennessee
courts are loathe “to substitute their judgment for that of a corporation’s board of
directors.” Lewis ex rel. Sav. Bank & Trust Co. v. Boyd, 838 S.W.2d 215, 220 (Tenn. Ct.
App. 1992). “[W]e presume that a corporation’s directors, when making a business
decision, acted on an informed basis, in good faith, and with the honest belief that their
decision was in the corporation’s best interests.” Id. at 220-221. Discovery failed to
reveal evidence of bad faith or disloyalty, and Plaintiffs could not recover for a breach of
the duty of care in light of the exculpatory clause in Pacer’s charter. See Tenn. Code
Ann. § 48-12-102(b)(3) (Supp. 2016).
                                             10
        Black Oak argues, however, that once Pacer was “on the auction block,” Pacer’s
Board had one duty: to obtain the best possible price for the stockholders. See Bayberry
Assocs. v. Jones, 783 S.W.2d 553, 561 (Tenn. 1990). According to Black Oak, the failure
to obtain a higher price was a breach of the duty of loyalty. See Summers v. Cherokee
Children & Family Servs., Inc., 112 S.W.3d 486, 504 (Tenn. Ct. App. 2002) (“The
officers and directors of a for profit corporation are to be guided by their duty to
maximize long term profit for the benefit of the corporation and the shareholders.”) Even
so, Plaintiffs would bear the burden of proving that Pacer’s Board could have obtained a
higher price.11 Although Black Oak claims that HIG Capital would have made a higher
offer, on this record, that is pure speculation. Pacer’s Board accepted the highest offer it
received from a qualified bidder. Black Oak’s argument merely highlights the
evidentiary difficulties facing Plaintiffs in this litigation and is not convincing evidence
that Plaintiffs’ monetary claims had significant value.

       Plaintiffs’ remaining claim was that the proxy statement omitted material
information. Although Defendants maintained that the proxy statement was not
misleading, they agreed to additional disclosures to avoid the expense of proceeding to
trial. The chancery court found that these disclosures provided information to the
stockholders that was previously unavailable. For instance, the supplemental disclosures
provided additional information about the methodology and financial information used by
both Morgan Stanley and Houlihan Lokey and the financial projections made by Pacer
management in October of 2013. Courts have held that supplemental disclosures can be
valuable to stockholders. See In re Xoom Corp. Stockholder Litig., No. CV 11263-VCG,
2016 WL 4146425, at *5 (Del. Ch. Aug. 4, 2016) (holding that the supplemental
disclosures “worked a modest benefit on the stockholders”).

       We find Black Oak’s argument that the supplemental disclosures lacked sufficient
value because they did not address every alleged omission unavailing. As we stated
previously, settlements are the result of compromise. Leonhardt, 581 F. Supp. 2d at 835.
Thus, it is unsurprising that Plaintiffs settled for less than they requested. See Gordon v.
Verizon Commc’ns, Inc., 46 N.Y.S.3d 557, 567 (N.Y. App. Div. 2017) (“It would be
speculative, at best, to assume that plaintiff could have obtained any more helpful
disclosures from Verizon by proceeding to trial.”).

      The court’s job in weighing the likelihood of Plaintiffs’ success is not to pick a
winner. “The question rather is whether the parties are using settlement to resolve a
       11
            Black Oak opined that Pacer stock was undervalued, and Pacer’s Board should have demanded
an offer that provided a significant premium to stockholders. The settlement proponents countered that,
in reality, Pacer stockholders received a premium because the Pacer share price was falsely elevated by
merger rumors, and the XPO offer included shares of XPO common stock, which have increased in value
since the merger.

                                                  11
legitimate legal and factual disagreement.” UAW, 497 F.3d at 632. This record lacks
evidence of collusion or improper behavior by Plaintiffs or Lead Counsel. See UAW, 497
F.3d at 628 (explaining that objectors must produce evidence to overcome the normal
presumption that Plaintiffs’ counsel “handled their responsibilities with the independent
vigor that the adversarial process demands”). While the settlement did not alter the
purchase price, the supplemental disclosures did provide value. Lead Counsel admitted
at the fairness hearing that, upon discovery, it became clear that Plaintiffs faced
substantial obstacles in obtaining a favorable judgment.

       We recognize that disclosure-only settlements are disfavored in some courts.12
But, in this instance, when weighed against the relative weakness of Plaintiffs’ claims, we
conclude that the additional disclosures provided adequate consideration. See In re Cox
Radio, Inc. Shareholders Litig., No. CIV.A. 4461-VCP, 2010 WL 1806616, at *13 (Del.
Ch. May 6, 2010), aff’d, 9 A.3d 475 (Del. 2010), and aff’d, 9 A.3d 475 (Del. 2010)
(holding that the modest benefit of supplemental disclosures outweighed the cost of
releasing claims without significant value); In re Dr. Pepper/Seven Up Cos., Inc.
Shareholders Litig., No. CIVIL ACTION 13109, 1996 WL 74214, at *4 (Del. Ch. Feb. 9,
1996), aff’d 683 A.2d 58 (Del. 1996) (approving “meager” settlement when plaintiffs’
claims were admittedly weak and supplemental disclosures provided some tangible
benefit).

       Black Oak was the only objector out of a class of over 6000. The small number of
objectors relative to the overall class size is strong evidence of the fairness of the
settlement. In re High Pressure Laminate Antitrust Litig., 2006 WL 3681147, at *5. The
chancery court found that Lead Counsel sufficiently investigated Plaintiffs’ claims and
negotiated the settlement at arm’s length and in good faith. After considering the
objectors’ arguments and the documentary evidence, the court determined that the
settlement was fair, reasonable, and adequate. We conclude that the court’s decision was
not an abuse of discretion.

        12
            Delaware courts have expressed concerns that disclosure-only settlements provide insufficient
benefit to stockholders. In re Trulia, Inc. Stockholder Litig., 129 A.3d 884, 898 (Del. Ch. 2016) (“To be
more specific, practitioners should expect that disclosure settlements are likely to be met with continued
disfavor in the future unless the supplemental disclosures address a plainly material misrepresentation or
omission, and the subject matter of the proposed release is narrowly circumscribed to encompass nothing
more than disclosure claims and fiduciary duty claims concerning the sale process, if the record shows
that such claims have been investigated sufficiently.”). The Delaware approach has been adopted in at
least one other jurisdiction. See In re Walgreen Co. Stockholder Litig., 832 F.3d 718, 725 (7th Cir. 2016);
but see Roth v. Phoenix Companies, Inc., 50 N.Y.S.3d 835, 838 n.4 (N.Y. Sup. Ct. 2017) (explaining that
New York has rejected the Trulia standard and adopted a “some benefit” approach).
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                          B. ACCESS TO DISCOVERY MATERIALS

         Finally, Black Oak contends that its ability to demonstrate that the settlement was
unfair was “greatly diminished” by its lack of access to the discovery obtained by Lead
Counsel. Black Oak paints its request in broad strokes, seeking to review any and all
documents produced by Pacer, the deposition transcripts, and any information relied on
by Plaintiffs’ fairness expert, as well as the expert’s work product. Black Oak has made
little attempt to explain precisely how the requested materials would enhance its ability to
present its objections other than a vague claim that the discovery materials might contain
information on Pacer’s stock value. Defendants objected to revealing competitively
sensitive information to an objector who admitted to having an equity interest in a
competing entity. We conclude that it was not an abuse of discretion to deny Black Oak
access to discovery materials under the circumstances of this case.

       As a class member, Black Oak had the right to object to the proposed settlement
and to participate in the fairness hearing. UAW, 497 F.3d at 635. But the trial court
retains “wide latitude” in controlling the nature of an objector’s participation. Id. Due
process is satisfied when an objecting party is allowed to “present evidence and have its
objections heard.” Tenn. Ass’n of Health Maint. Orgs., Inc. v. Grier, 262 F.3d 559, 567
(6th Cir. 2001) (quoting United States v. City of Hialeah, 140 F.3d 968, 989 n.12 (11th
Cir. 1998)). An objector is not entitled to “dictate to the court the precise manner in
which he is to be heard.” Rutter & Wilbanks Corp. v. Shell Oil Co., 314 F.3d 1180, 1187
(10th Cir. 2002) (quoting Jones v. Nuclear Pharm., 741 F.2d 322, 325 (10th Cir. 1984)).
Thus, the trial court “may limit the fairness hearing to whatever is necessary to aid it in
reaching an informed, just and reasoned decision” and need not endow objecting class
members with “the entire panoply of protections afforded by a full-blown trial on the
merits.” UAW, 497 F.3d at 635 (quoting Tenn. Ass’n of Health Maint. Orgs., 262 F.3d at
567).

       Objectors are not “automatically entitled to discovery.” In re Gen. Tire & Rubber
Co. Sec. Litig., 726 F.2d 1075, 1084 n.6 (6th Cir. 1984). “While the court must extend all
objectors fair opportunity to challenge a proposed settlement, this does not translate in all
cases into unfettered access to an existing and voluminous discovery record.” Hershey v.
ExxonMobil Oil Corp., No. 07-1300-JTM, 2012 WL 4758040, at *1 (D. Kan. Oct. 5,
2012). Only if an objector makes “a colorable claim that the settlement should not be
approved” will the court consider an objector’s request for discovery. UAW, 497 F.3d at
635. Because the courts favor settlements, objectors are not entitled to thwart the
settlement process without “a clear and specific showing that vital material was ignored”
by the trial court. Id. (citing Geier v. Alexander, 801 F.2d 799, 809 (6th Cir. 1986)).

       While acknowledging the “colorable claim” standard would apply to a request to
conduct its own discovery, Black Oak maintains that it had an absolute right to review all
of the materials acquired under the agreed protective order based on the Sixth Circuit’s
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decision in Cohen v. Young, 127 F.2d 721, 724 (6th Cir. 1942). Black Oak’s reliance on
Cohen is misplaced.13 The objector in Cohen was not requesting access to discovery
materials but was seeking to present evidence at the fairness hearing. Id. at 724. The
Cohen court reaffirmed the trial court’s inherent discretionary authority over the
presentation of evidence at a fairness hearing but held that it was an abuse of discretion to
deny the objector the opportunity to present evidence. Id.

       We find the remaining authority Black Oak cites equally unpersuasive. Simply
because the parties in other class actions chose to share discovery materials with
objectors does not create a right to access the requested materials. At best, these
authorities suggest a best practice for settlement proponents. See Hertzberg v. Asia Pulp
& Paper Co., 197 Fed. Appx 38, 41 (2d Cir. 2006) (holding that the trial court did not
abuse its discretion in denying objector additional discovery “in light of the fact that
OCM acknowledged . . . having failed to review the documents that had already been
produced.”); In re Prudential Ins. Co. Am. Sales Practice Litig. Agent Actions, 148 F.3d
283, 325 (3d Cir. 1998) (holding the district court did not abuse its discretion in denying
additional discovery when the objector “had ample opportunity to avail himself of the
substantial discovery provided to Lead Counsel but failed to do so, and that additional
discovery was unnecessary because [objector] focused primarily on legal issues.”); see
also Manual for Complex Litigation (Fourth) § 21.643 (2004) (“Parties to the settlement
agreement should generally provide access to discovery produced during the litigation
phases of the class action (if any) as a means of facilitating appraisal of the strengths of
the class positions on the merits.” (emphasis added)).

       This is not a case in which Black Oak lacked sufficient information14 to determine
whether it had any objections to the settlement. To the contrary, Black Oak filed detailed
objections to the settlement and the class certification. At the fairness hearing, the court
allowed Black Oak to present all of its objections, including the basis of its theory that
the price XPO paid for the Pacer stock was too low, and respond to every argument
presented by the settlement proponents.

       To access the confidential discovery materials obtained by Lead Counsel over the
objections of Defendants, Black Oak had to present a colorable claim. The need to be

        13
           In spite of the fact that the objector was ready to proceed, the trial court “approved the
compromise upon the sole ground that it was recommended by the attorneys of record.” Cohen, 127 F.2d
at 724. The Sixth Circuit held that the trial court had improperly ceded its responsibility to the attorneys
for the parties. Id. at 726. Judicial discretion required the trial court to determine whether the proposed
settlement was fair, reasonable, and adequate, not the attorneys. Id.
        14
          Black Oak had access to all materials in the court record including the settlement agreement,
the proxy statement, the supplemental disclosures, and the sworn declaration of Lead Counsel. The proxy
statement included the merger agreement, the fairness opinions provided by Morgan Stanley and
Houlihan Lokey, and the financial projections of Pacer’s senior management.
                                                    14
personally assured that the settlement was reasonable is an insufficient reason. Robertson
v. Nat’l Basketball Ass’n, 72 F.R.D. 64, 70-71 (S.D.N.Y. 1976), aff’d 556 F.2d 682 (2d
Cir. 1977). Otherwise, “no class action would ever be settled, so long as there was at
least a single lawyer around who would like to replace counsel for the class and start the
case anew.” Geier, 801 F.2d at 809 (quoting City of Detroit v. Grinnell Corp., 495 F.2d
448, 449 (2d Cir. 1974), abrogated on other grounds by Goldberger v. Integrated Res.,
Inc., 209 F.3d 43 (2d Cir. 2000)).

        Here, the settlement proponents submitted ample evidence to enable the court to
evaluate the proposed settlement, including the process Pacer’s Board followed to obtain
the best offer for the company and the criteria used to narrow the field of potential
bidders. A significant amount of financial data, such as the financial projections from
senior management and the values used by the two financial consultants in their fairness
opinions, was also provided. Lead Counsel, who had extensive experience in merger-
related litigation, provided the court with the basis for his conclusion that Plaintiffs’
claims had no significant monetary value and that the supplemental disclosures benefited
the class. All sides submitted voluminous legal memoranda and were allowed to argue
their positions at length. On this record, we cannot say that the chancery court ignored
vital information in approving this settlement.

                                           III.

       For the foregoing reasons, we affirm the chancery court decision approving the
class action settlement and denying the objector access to discovery materials.

                                                  _________________________________
                                                  W. NEAL MCBRAYER, JUDGE

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