Monthly Archives: February 2016

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.

U.S. Supreme Court Decides Class Action “Pick Off” Case In Favor Of Plaintiff, But Leaves Open The Possibility Of A Different Result In Future Cases

View Mark Hiller’s Complete Bio at robinsonbradshaw.comLast November we previewed a case raising an important question in the class action world: If a defendant in a putative class action offers the named plaintiff complete relief on the plaintiff’s individual claim, but the plaintiff does not accept the offer, does the offer nonetheless render the case moot? On January 20, the Supreme Court answered “no,” but left open the possibility of a different result if the defendant actually deposits the amount of the plaintiff’s claim in an account payable to the plaintiff. The case is Campbell-Ewald Co. v. Gomez, and you can read the opinion here.

The case began when the plaintiff received a text message from a recruiter for the U.S. Navy. Claiming that he did not consent to receive the message, the plaintiff filed a putative class action under the Telephone Consumer Protection Act. The maximum damages the plaintiff could recover under the statute were $500 for each violation, which could be trebled if the defendant willfully or knowingly violated the statute. Before the deadline for filing class certification briefing, the defendant made the plaintiff a settlement offer of $1,503 per message—just over the maximum treble damages the plaintiff could potentially recover—plus costs and an injunction against committing further violations of the statute. The defendant also filed an offer of judgment on those terms pursuant to Federal Rule of Civil Procedure 68. The plaintiff did not accept the settlement offer and allowed the Rule 68 offer to lapse under the time deadline established in that rule.

The defendant then moved to dismiss the case. The defendant argued that because it had offered the plaintiff all the relief the plaintiff could recover under the statute, the offer rendered the plaintiff’s individual and putative class claims moot, even though the offer was not accepted. The district court and Ninth Circuit both rejected that argument.

In a decision written by Justice Ginsburg, the Supreme Court agreed with the lower courts, holding that the defendant’s unaccepted offer did not moot the plaintiff’s individual or putative class claims. The Supreme Court relied on “basic principles of contract law,” reasoning that the defendant’s offers, “once rejected, had no continuing efficacy.” “Like other unaccepted contract offers, it creates no lasting right or obligation.” Accordingly, “[w]ith the offer off the table, and the defendant’s continuing denial of liability, adversity between the parties persists.”

Significantly, however, the Supreme Court left open the possibility that it might reach a different outcome if the defendant had tendered payment to the plaintiff and judgment were entered against the defendant: “We need not, and do not, now decide whether the result would be different if a defendant deposits the full amount of the plaintiff’s individual claim in an account payable to the plaintiff, and the court then enters judgment for the plaintiff in that amount. That question is appropriately reserved for a case in which it is not hypothetical.”

That’s an important reservation. As this case illustrates, class actions often are brought under statutes that provide for modest individual damages (here, a maximum of $1,500 per violation) that are relatively easy to calculate. If a defendant can render a putative class action moot simply by depositing that sum in an escrow account or with the court, and admitting to liability, then defendants might well pursue that strategy, leaving Campbell-Ewald with little practical effect. We can expect courts soon to be faced with these issues.

Justice Ginsburg’s decision was joined by Justices Kennedy, Breyer, Sotomayor, and Kagan. Justice Thomas filed a separate opinion concurring in the judgment. He relied on the common law history of tenders, rather than contract law, to conclude that the defendant’s unaccepted offer did not moot the case. The Chief Justice filed a dissent, joined by Justices Scalia and Alito. The dissent argued that under prior Supreme Court precedents, an offer of complete relief, without any tender of the judgment amount, is itself sufficient to render a case moot. Justice Alito filed a separate dissent, stating that he might have agreed with the plaintiff that the case was not moot had there been reason to think the defendant lacked the means or intent to pay the amount of the settlement offer.

In addition to the mootness question, the Supreme Court also held that the defendant did not possess sovereign immunity on the basis of its work for the U.S. Navy.

You can read more coverage about the case here.

We will continue to keep you posted on class action cases in the Supreme Court and on other notable cases and events.