Tag Archives: Settlement

Judge Gorsuch’s Class Action Opinions After Shook

View Susan Huber's Complete Bio at robinsonbradshaw.com View Kevin Crandall’s’s Complete Bio at robinsonbradshaw.comToday we continue our analysis of Judge Gorsuch’s class action opinions from the Tenth Circuit in an effort to better understand how he may rule if confirmed for the Supreme Court. Last week, we examined Judge Gorsuch’s decision in Shook v. Board of County Commissioners, and we will take up his remaining class action opinions below.

McClendon v. City of Albuquerque, 630 F.3d 1288 (10th Cir. 2011)

In McClendon v. City of Albuquerque, decided three years after Shook, Judge Gorsuch again demonstrates judicial restraint. In McClendon, prisoners brought a class action against the City of Albuquerque, Bernalillo County, and various individuals involved in operating the Bernalillo County Detention Center. The parties entered into a pair of settlement agreements in 2005, but four years later the district court issued an order withdrawing its approval of the settlement and giving the plaintiffs permission to rescind those agreements after it found that the County misrepresented certain facts during settlement negotiations. The Tenth Circuit held that the order was not a “final decision,” subject to appeal under 28 U.S.C. § 1291. A final decision, Judge Gorsuch reasoned, dissociates the court from the case and ends the litigation on the merits, while the order withdrawing a settlement approval does “[j]ust the opposite: the order ensures litigation on the merits will continue in the district court.”

Judge Gorsuch empathized with the defendants’ desire for an appeal that might avoid further litigation in a previously settled case that was already fifteen years old: “the delays and costs associated with civil litigation in modern America are substantial and worrisome, and even the most hard-boiled litigator may raise an eyebrow at a case lasting as long as this one.” But neither the utility of the appeal nor the advanced age of the case swayed Judge Gorsuch to take an appeal beyond the bounds of the express authority in § 1291: “Congress’s direction demands our respect, not our rewriting.” Judge Gorsuch concluded his opinion by emphasizing the importance of judicial restraint:

[O]ne thing we may never do is disregard the bounds of our legal authority and assert § 1291 jurisdiction over an appeal where it doesn’t exist. To do so in this case would compound any error the defendants imagine with an impropriety of our own, making matters worse not better. It is, after all, a “central principle of a free society that courts,” no less than the other branches of government, “have finite bounds of authority.” . . . We must respect that principle and those bounds no less when it is hard to do so than when it is easy.

Hammond v. Stamps.com, Inc., 844 F.3d 909 (10th Cir. 2016)

The Tenth Circuit’s holding in Hammond v. Stamps.com, Inc.—that the minimum amount in controversy under the Class Action Fairness Act need only be legally possible and not factually probable—is hardly noteworthy, as it falls squarely in line with the law from other Courts of Appeals. But in Judge Gorsuch’s opinion, his most recent in the class action arena, we see the hallmarks of conservative jurisprudence: interpreting statutory text (here, “in controversy”) with its “traditional meaning”; citation to the Federal Judiciary Act of 1789; and a nod toward the late Justice Antonin Scalia’s textualist approach with a citation to his book, Reading Law. Indeed, it is only after a three-page textual and historical deep dive that Judge Gorsuch cites in the final paragraph of the opinion the “several courts [that] have held as we do today.”

For those of you who yearn to know the facts of the case, Elizabeth Hammond brought a putative class action in New Mexico state court, alleging that Stamps.com engaged in misleading and unlawful trade practices by insufficiently disclosing its subscription fees to customers. She alleged that “hundreds or thousands of persons” called to cancel their Stamps.com subscriptions as a result of Stamps.com alleged wrongdoing, and each class member would “likely” receive $31.98 in damages (the cost of subscribing for two months) or $300 in statutory damages. Stamps.com presented uncontested evidence that 312,680 customers had cancelled their subscriptions during the likely class period, and the company removed the case to federal court because the amount in controversy well exceeded the $5 million threshold for the Class Action Fairness Act. The trial court granted Ms. Hammond’s motion to remand, ruling that the company had not met its burden of establishing the minimum amount in controversy because it failed to exclude from its calculations those customers who cancelled their subscriptions for reasons unrelated to the allegations in the complaint, or as Judge Gorsuch put it, “without proof from Stamps.com establishing how many of its customers were actually deceived, the district court thought the company couldn’t satisfy the $5 million ‘in controversy’ requirement.” The Tenth Circuit vacated and remanded the district court’s remand order, ruling that federal jurisdiction was proper under CAFA: the proponent of jurisdiction should not have to “argue against himself, task[ed] with the job of proving his own likely liability in a sufficient number of individual cases simply to get a foot in the door of the federal courthouse.”

BP America, Inc. v. Oklahoma ex rel. Edmondson, 613 F.3d 1029 (10th Cir. 2010)

In an earlier CAFA jurisdictional decision, the Tenth Circuit in BP America granted discretionary leave for the propane gas distributor to appeal an order remanding the case to Oklahoma state court. The merits of the jurisdictional question—whether the Attorney General’s lawsuit, brought on behalf of the state and not any individual consumers, constitutes a “mass action” involving monetary relief to 100 or more people under CAFA—were not at issue at this preliminary stage of the appeal.

Judge Gorsuch’s opinion adopts multiple factors to consider in deciding whether to grant discretionary leave to appeal under CAFA § 1453, including whether the appeal presents an important, unsettled, or at least “fairly debatable” CAFA-related question and a weighing of the relative harms to the parties should an appeal be refused or entertained.

Heller v. Quovadx, Inc., 245 F. App’x 839 (10th Cir. 2007)

Although it actually predates Shook, the unpublished decision of Heller v. Quovadx, Inc., is worth noting, if only to highlight the wry humor employed by Judge Gorsuch in dismissing a non-class member’s argument that denying him standing to object to a settlement would violate his Fifth Amendment rights. In addition to the fact that the non-class member presented “no evidence or relevant legal argument to support his contentions,” he also “spen[t] the bulk of his brief noting the inefficiencies and burdens of paper-based litigation.” Perhaps a sentiment with which class action lawyers and judges can relate all too well.

Substantively, the Tenth Circuit affirmed the district court’s determination that the non-class member lacked standing to object to the proposed settlement. Non-class members opposed to a proposed settlement cannot object directly and instead must seek to intervene under Rule 24.

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Business Court Warns of Enhanced Scrutiny for Disclosure-Only Merger Settlements

View David Wright's Complete Bio at robinsonbradshaw.com We have previously commented about “disclosure only” settlements in class action merger cases, and the increasing scrutiny provided to them by courts here and in Delaware. Judge Bledsoe entered the fray yesterday, approving a settlement of litigation involving the merger of Yadkin Financial Corporation and NewBridge Bancorp in a 44-page order. In a stark preamble to his findings, Judge Bledsoe gave warning that the Business Court would likely be joining their brethren in Delaware in strictly reviewing such settlements in the future. The Court characterized such a shift as a “marked departure from [the Business Court’s] past practices in connection with the consideration of such motions,” and therefore “decline[d] to apply enhanced scrutiny to its consideration of the Motions” in the case before it.

But that reprieve is likely short-lived. In the next sentence, Judge Bledsoe “expressly advises the practicing bar that judges of the North Carolina Business Court, including the undersigned, may be prepared to apply enhanced scrutiny of the sort exercised in In re Trulia Stockholder Litigation, to the approval of disclosure-based settlements and attendant motions for attorneys’ fees hereafter.” We characterized this Delaware authority as “sound[ing] a trumpet of skepticism concerning ‘disclosure only’ settlements.”

The Settlement Agreement reviewed by the Business Court in the NewBridge Bancorp case provided that the Defendants would not object to a fee petition up to $300,000, and—to a penny—that’s what Plaintiffs’ counsel sought in the case. In this space, we have observed that the entry into a disclosure-only settlement “is a ‘kumbayah’ occasion for plaintiffs’ and defense counsel,” and Judge Bledsoe reiterates this point, albeit it in a less colloquial manner, agreeing with the Delaware courts that “the trial court’s assessment typically occurs, as it does here, without the benefit of an adversarial process.”

The Court, after reviewing applicable authority, cut the requested fee award from $300,000 to about $160,000. There were two principal reasons for the reduction. First, the Court concluded that “collectively, the Supplemental Disclosures were only of marginal benefit to the Class.” Indeed, the Court found no “substantial evidence that any of the Supplemental Disclosures were significant to a reasonable shareholder’s decision in voting on the Proposed Transaction.” Second, the Court observed that the average hourly rate charged by Plaintiffs’ counsel was “above the hourly rate customarily charged in North Carolina for similar services” and that “the demands of the Consolidated Action did not require Plaintiffs to retain counsel from outside North Carolina in order to prosecute” the case.

The Court, in contrast to Delaware decisions like Trulia, did not closely scrutinize the claims released by class members as part of the settlement. Judge Bledsoe, in two footnotes, indicated that future requests for approval of disclosure-based settlements will involve such consideration. He stated that the scope of the release needs to be an express factor in the Court’s analysis in future cases, but that the Court was “reluctant to set aside the settlement in light of the approval of prior similar settlements by the Business Court.” In this regard, Judge Bledsoe’s Newbridge Bancorp decision is similar to the Chancery Court’s ruling in In re Riverbed Technology, Inc. Stockholders Litigation, where Chancellor Glasscock explained that, “given the past practice of this Court in examining settlements of this type, the parties in good faith negotiated a remedy—additional disclosures—that has been consummated, with the reasonable expectation that the very broad, but hardly unprecedented, release negotiated in return would be approved by this Court.”

In Delaware, the Chancery Court—having apparently concluded that counsel and the parties were sufficiently on notice following its warning in Riverbed—refused to approve a settlement outright in Trulia, just four months later. Merger challenges in Delaware have significantly declined in the months since that decision.

The effect of Judge Bledsoe’s decision on merger litigation in North Carolina remains to be seen, but this admonition from the Business Court must be reckoned with by shareholders considering class filings in future North Carolina merger litigation.

(Adam Doerr and Tommy Holderness of our firm represented the members of the NewBridge Bancorp Board of Directors in this litigation.)

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Merger Litigation Continues in North Carolina

View Adam Doerr's Complete Bio at robinsonbradshaw.comLast month, we previewed the challenge to a settlement of litigation involving the Reynolds-Lorillard merger. The Business Court has helpfully made available the transcript of the hearing on approval of the settlement, which took place on February 12. At the hearing, the Court made clear that it was quite familiar with recent changes in merger litigation in Delaware, including the Trulia case, and stated that it was reviewing the settlement under “strict scrutiny,” not a “rubber stamp standard.” Notwithstanding a shareholder objection supported by Professor Sean Griffith, a Fordham professor who has been involved in the recent Delaware cases, the Court approved the settlement.

During the hearing, the Court also raised an interesting issue regarding the risk that plaintiffs’ counsel face in bringing merger cases in North Carolina. As we have previously discussed,  North Carolina does not recognize the common benefit doctrine, meaning that plaintiffs’ counsel in a class action can only receive attorneys’ fees by obtaining a monetary award for the class or entering into a settlement agreement. The Court indicated that this distinction from Delaware law might create a higher contingent risk in bringing such cases in North Carolina. The Court did not rely on this point because the negotiated fee in Reynolds was equivalent to an hourly rate of $325, well within the range the Court has previously approved, but it will be interesting to see whether the Business Court takes an approach similar to the Delaware Chancery Court, which appears inclined to award significant fees for meritorious claims while cutting down or eliminating fees for routine merger challenges.

Merger cases continue to be filed in North Carolina. Just last week, a shareholder sued PowerSecure, an electric and utility technology company incorporated in Delaware and headquartered in Wake Forest, over its proposed merger with Southern Company. See Michael Morris v. PowerSecure International Inc. et al. We will continue to keep you posted on new developments in this interesting and rapidly changing area.

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Disclosure-Only Settlements Face Scrutiny in Business Court

View David Wright's Complete Bio at robinsonbradshaw.comWhen two public companies announce an intention to merge, class litigation follows like the night the day. These complaints usually request some sort of preliminary injunctive relief which, if successful, can derail the merger. Rarely, however, do plaintiffs press for this relief. Instead, they opt to resolve the claims, which requires court approval under Rule 23. The resolution can involve the payment of money to shareholders, but many times it does not and instead takes the form of “programmatic relief,” consisting principally of additional disclosures to the class members regarding information related to the merger. Accompanying that resolution, inevitably, is a request for attorney’s fees on behalf of plaintiffs’ counsel and – on the defendants’ side – a release of claims.

The entry into such a settlement frequently is a “kumbayah” occasion for plaintiffs’ and defense counsel: the plaintiffs’ counsel gets a pay day and defense counsel is able to validate the merger and obtain a release against future claims. That’s not to say that such settlements are necessarily collusive: disclosure of material information is the life-blood of the securities laws and can represent real value to shareholders. But it can be hard to distinguish sometimes between information that is truly valuable and minutiae that is simply redundant. A recent case from Delaware’s Chancery Court,  involving the Trulia and Zillow merger, sounds a trumpet of skepticism concerning “disclosure only” settlements.

By design, one person sits betwixt and between these opposing forces: the trial judge. Judge Gale will soon confront this issue at a hearing in the Business Court. James Snyder, the former General Counsel for Family Dollar, submitted an objection to a proposed disclosure-only settlement in the Reynolds-Lorillard merger litigation. Citing the Trulia decision, Snyder asks the Court to eliminate or reduce the fee award proposed by Plaintiffs and not to approve the form of the release. A law professor at Fordham Law School, Sean J. Griffith – who has actively opposed many of these settlements — has supported Snyder’s objection with his own affidavit.

Judge Gale declined Snyder’s request to postpone the fairness hearing, so we should get the benefits of his views on the subject soon. He recently touched on the subject, noting that “the value of such disclosure-only settlements . . . has generated substantial debate.” Stay tuned.

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Fourth Circuit Upholds (B)(2) Settlement Covering 200 Million People

View David Wright's Complete Bio at RBH.com Since the Supreme Court’s decision in Wal-Mart, courts have been struggling to breathe life into Rule 23(b)(2) when monetary damages are a possibility. Wal-Mart held that back pay constituted the kind of individualized monetary relief that was hardly “incidental” to claims of injunctive relief, upon which (b)(2) classes are essentially founded. In Berry v. LexisNexis Risk and Information Analytics Group, Inc., No. 14-2006 (4th Cir. Dec. 4, 2015), the Fourth Circuit grappled with this issue, albeit in the context of a nonmonetary (b)(2) settlement that, by its terms, continued to allow class members to pursue certain claims for monetary relief. Continue reading Fourth Circuit Upholds (B)(2) Settlement Covering 200 Million People

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