Though the subprime and credit crisis-related securities litigation wave is now well into its third year, relatively few of the cases have yet settled or otherwise finally been resolved. However, the parties to one of the securities lawsuits filed in the earliest stages of the litigation wave have announced that they have settled the case, in a development that potentially may have significance for the many other pending cases.
On May 5, 2009, Beazer Homes announced (here) the settlement of the securities lawsuit that had been filed in the Northern District of Georgia in March 2007 against the company and certain of its directors and officers. In the settlement, the plaintiffs agreed to dismiss the case with prejudice and release all claims against the defendants in exchange for the payment of $30.5 million. According to the press release, the settlement is to be “funded from insurance proceeds” on behalf of the Company and the individual defendants and “there will be no financial contribution by the Company.” The settlement agreement is subject to court approval.
As reflected in the May 5, 2009 memorandum the plaintiffs’ filed in support of their request for judicial approval of the settlement (here), the settlement apparently also applies to the company’s auditor, Deloitte and Touche, which had been named as a defendant in the case.
Beazer Homes is a residential home builder that also provided home loan and mortgage finance services to home buyers. As reflected at greater length here, in quick succession in March 2007, the company announced the resignation of its CFO and that the company had received inquiries regarding its mortgage lending practices. The company’s share price declined and plaintiffs filed several securities class action lawsuits. On May 12, 2008, Beazer restated its financial statements for the previous nine years.
As reflected in their amended complaint, the plaintiffs’ alleged that the audit committee of the company’s board concluded that the company’s mortgage practice violated certain federal and/or state origination requirements and also discovered accounting and financial reporting errors or irregularities that required restatement because of improper accumulation of reserves, improper revenue recognition and other accounting and financial misstatements. The plaintiffs allege that the company’s disclosures during the class period had misled investors about the company’s origination practices and financial condition.
Relatively few of the many subprime and credit crisis-related securities lawsuits filed to date have yet been settled or otherwise resolved to date. (A complete list of the subprime and credit crisis-related lawsuit settlements, dismissals, and dismissal motion denials can be accessed here.) The outsized Merrill Lynch settlement (about which refer here) is noteworthy for its sheer size, but otherwise may have relatively little to say about many of the other pending cases that involve relatively smaller companies, and relatively smaller investment losses. In this context then, the Beazer Homes settlement may be significant for a number of reasons.
First, the case appears to have been settled before the court had ruled on the plaintiffs’ motions to dismiss. Particular cases may settle for any number of reasons, so that fact that the Beazer Homes case settled prior to the dismissal motion ruling may or may not imply anything about other cases – but nevertheless, the settlement prior to dismissal motion ruling does at least raise the possibility for other cases. Along those lines it should be noted that the memorandum the plaintiffs filed in support of their request for settlement approval reports that the parties settled the case as a result of mediation in April 2009, while the dismissal motions were fully briefed by not yet argued.
The Beazer Homes case is also significant because it represents a substantial settlement funded entirely with proceeds of the company’s insurance. If the number of aggregate dollars required to resolve the many other pending subprime and credit cases is extrapolated out from the Beazer settlement, the implied resulting figure – even allowing for the likelihood that a substantial number of the cases will be dismissed – is potentially huge. There have in fact been some noteworthy estimates of the likely aggregate cost to the insurance industry required to resolve all of these cases; whether or not these estimates ultimately prove accurate, the Beazer settlement suggests at least for now that the final resolution of these cases could in the aggregate required some truly impressive sums from insurers.
All of that said, there are some material attributes of the Beazer case that might suggest that its settlement may not necessarily be representative of what to expect from other subprime and credit crisis cases. The first is that the company’s own audit committee concluded that it had violated certain applicable mortgage origination laws. The second is that (at least according to the amended complaint) the company remains under investigation from governmental and regulatory authorities, including the SEC. These circumstances may distinguish Beazer from many of the other cases that have been drawn into the subprime and credit crisis litigation wave, and to that extent at least the settlement may or may not provide a useful indication of likely future settlements in other cases.
I have in any event added the Beazer Homes settlement to my list of subprime and credit crisis-related lawsuit settlements and other case resolutions, which can be accessed here.
Delaware Amends Corporations Code to Address Indemnification and Advancement Concern: As I noted in an earlier post (here), in a March 2008 decision in the Schoon v. Troy case, the Delaware Chancery Court raised concerns when it held that a subsequent board may retroactively eliminate the advancement rights of a prior director.
As explained in the April 2009 issue of the Tressler, Soderstrom firm’s Special Lines Advisory (here, see page 3), the Delaware legislature has now amended Section 145 of the state’s General Corporation code to provide that “rights to indemnification may not be eliminated after the date an act giving rise to a claim takes place, unless a corporation’s indemnification provisions expressly preserve the right to retroactively eliminate the individual’s right to indemnification as permitted by the court in Schoon.“ The amendments are effective August 1, 2009.
Special thanks to my good friend Joe Monteleone for providing me with a copy of his firm’s memo.
Elliptically Speaking Awards (Euphemism Category): I might have considered this a bad parody if I had not seen for myself that this is an actual press release on the website of Nokia Siemens Networks. On November 11, 2008, the company announced (here) the following update on its “synergy-related headcount-adjustment goal.”
Nokia Siemens Networks has completed the preliminary planning process to identify the proposed remaining headcount reductions necessary to reach its previously announced synergy-related headcount adjustment goal. … To date, the company has achieved an adjustment of more than 6,000 employees and continues to expect a total synergy-related adjustment of approximately 9,000 employees. …Simon Beresford-Wylie, chief executive officer of Nokia Siemens Networks, [said] “With the successful completion of these plans, we will have the vast majority of the synergy-related headcount reductions completed and we can then start to put this chapter of our history behind us and focus on creating a world-class company.”
The proposed headcount adjustments are a result of merger-related synergies, including changes to the product portfolio; site optimization; streamlining of various functions; strategic, long-term R&D and workforce balancing; and other factors designed to build a competitive Nokia Siemens Networks. “We have now completed the preliminary planning necessary to identify the specific areas where we have additional synergy-related reduction needs,” said Bosco Novak, head of human resources at Nokia Siemens Networks. “It is our goal to engage constructively with employee representatives in Finland, Germany and other countries to quickly and fairly achieve these needed changes so we are able to remove the ongoing uncertainty that our employees have about synergy-related headcount reductions.”
Hat tip to Harper’s Magazine, which reproduced the press release in its May 2009 issue (here).