One of the most distinctive trends in corporate and securities litigation in recent years has been the rise in litigation related mergers and acquisition activity. Cornerstone Research’s most recent year-end litigation filing study, released in conjunction with the Stanford Law School Securities Class Action Clearinghouse, documented that in M&A litigation in 2010 increased at a much greater rate than did M&A activity during the year. .
One of the factors behind this accelerated litigation growth is the fact that increasingly a merger announcement triggers multiple different lawsuits, often filed in multiple jurisdictions. This proliferation of multi-jurisdiction litigation raises a host of procedural challenges, as the nominal corporate defendant is forced to litigate on multiple fronts while at the same time attempting to press ahead with the underlying transaction.
In an interesting post on The Harvard Law School Forum on Corporate Governance and Financial Regulation entitled “Improving Multi-Jurisdiction, Merger-Related Litigation” (here), Mark Lebovitch of the Bernstein Litowitz Berger & Grossman law firm takes a look at these problems and proposes a Delaware-court based procedural solution to try to address the issues.
The article first summarizes the problems involved when mulit-jurisdiction M&A litigation arises. Lebovith states that “the current system is prone to manipulation and gamesmanship.” The defendants face duplicative costs; the shareholders interests may be subordinated as part of procedural jockeying between competing plaintiffs (and their lawyers); and plaintiffs’ lawyers may find themselves compelled to pay a “tax” to competing counsel in order to deliver a global settlement.
Lebovitch urges the adoption of “a system that centralizes deal-related litigation into a single forum.” Specially, he suggests “the adoption of an efficient, predictable and transparent rules-based system for appointing lead plaintiffs and lead counsel to settle organizational issues” in M&A litigation. He is not suggesting the approach embodied in the PSLRA, where the presumptive leadership goes to the claimant with the largest financial interest. Rather, he urges a process for the selection of lead plaintiff based on “anticipated ability to achieve the best results for the class.”
In the system Lebovitch proposes, the first plaintiff to file in the Delaware Court of Chancery would be required to publish a nationwide notice of class, which would trigger a 10-day period during which any other shareholder interested pursuing the claim would have the opportunity to submit a leadership motion detailed their theory of the case, case management plan and their counsel’s experience with similar claims. The materials would be reviewed in camera and the Court would select the lead plaintiff, with emphasis on “counsel’s track record and ability to represent the class, taking into account the nature of the action, the novelty of the issues raise, and the movant’s case-management plan.”
The contention is that with a clear, detailed and predictable leadership selection process, there would be less incentive for procedural jockeying between plaintiffs.
Lebovith correctly points out that though this approach would mitigate the problems with multijurisdictional litigation, the problems would not finally be solved. The proposed leadership selection process would ameliorate jockeying for position within Delaware but it would not eliminate the problems arising when plaintiffs in another jurisdiction attempt to press forward. The parties could still have to face a multi-front war, even if the process has been improved within Delaware.
One possible way to address these remaining issues was suggested by now-former Chancellor William Chandler in his March 28, 2011 opinion in the Allion Healthcare Shareholders Litigation. The Allion Healthcare case arose out of a proposed going-private transaction. After the transaction was announced, multiple lawsuits arose in Delaware and New York. Because the various plaintiffs refused to coordinate, the cases proceeded in both jurisdictions. After the transaction closed, the parties reached a settlement agreement, but the plaintiffs were unable to agree on allocation of fees, and the matter wound up before Chancellor Chandler.
Chandler noted at the outside the “increasingly problematic” challenges associated with multi-jurisdictional litigation, commenting that it forces defendants to “litigate the same case –often identical claims – in multiple courts.” In addition, judicial resources are “wasted” and there is a danger that different courts “would apply the law differently or otherwise reach different outcomes,” leaving “the law in a confused state and pose full fait and credit problems.”
Having posed the problem, Chandler then (in footnote 12 of the opinion) identified his own “personal preferred approach,” which is for “defense counsel to file motions in both (or however many) jurisdictions …explicitly asking the judges in each jurisdiction to confer with one another and agree upon where the case should go forward.” Of course, as Chandler notes, “judges in different jurisdictions might not always find common ground on how to move the litigation forward. “ But this approach, Chandler contends is “one (if not the most) efficient and pragmatic method to deal with this increasing problem,” adding that “it is a method that has worked for me in every instance in which it was tried.”
The approach Chandler advocated in his Allion Healthcare opinion was endorsed by Theodore Mirvis of the Wachtell Lipton law firm on an April 12, 2011 post on the Harvard Law School Forum on Corporate Governance and Financial Regulation entitled “Delaware Court of Chancery Addresses Multi-Forum Deal Litigation” (here). Mirvis comments that Chandler’s opinion “indicates that Delaware Courts will apply their practical wisdom to combat the untenable burdens imposed by multi-forum deal litigation and remain receptive to new approaches to harmonize conflicting and duplicative merger litigation.”
An additional comment about the Allion Healthcare opinion can be found on Peter Ladig’s April 25, 2011 post on the Delaware Business Litigation Report entitled “Multi-Jurisdictional Litigation a Rich Vein of Issues for Chancer Court” (here).
The two approaches are not mutually exclusive and they are not incompatible. Indeed, it would appear that the two approaches together would significantly advance the possibility of avoiding many of the ills associated with the multi-jurisdictional litigation. To be sure, as Chancellor Chandler noted in his Allion Healthcare opinion, the practical approach between courts might not always eliminate the possibility that identical cases could go forward in different jurisdictions. But the approach creates an opportunity to avoid the problem. And the procedural mechanism Lebovitch advocate would increase the likelihood that the proceeding in Delaware would go forward in an orderly way.
None of these procedural issues addresses the central underlying problem, which is that opportunistic plaintiffs’ lawyers have identified what seems like a sure-fire profit opportunity in creating litigation obstacles to announced transactions. Lebovitch’s blog post explains the growth in this type of litigation as due to “the high-profile success achieved by certain members’ of the plaintiffs’ bar” which has “triggered a wave of new entrants to the field.” Moreover, “the dramatic decrease in securities class actions has further increased the number of firms willing to pursue M&A litigation.” As “more law firms enter this already crowded field” the consequence is that “the number of lawsuits stemming from each deal continues to increase.”
Reasonable minds may differ as to the value of the M&A litigation. But regardless of the theoretical value, the multiplication of costs and the imposition of increased procedural inefficiencies resulting from the escalating litigation activity represent an enormous burden on business. The concerns are all the more apparent when the increasing amounts of litigation is not the result of increased numbers of injustices crying out for redress but simply reflect increasing numbers of plaintiffs lawyers looking for a piece of the action.
Colonel Roosevelt: Colonel Roosevelt, the third and final volume of Edmund Morris’s epic biography of Theodore Roosevelt covers Roosevelt’s personal and professional life following the conclusion of his second term as President. Among other things, the book details Roosevelt’s ill-fated bid for the Presidency in 1912, in which his candidacy arguably succeeded in splitting the Republican vote sufficiently to ensure Woodrow Wilson’s election.
The political aspect of Roosevelt’s post-Presidency are interesting enough, but it is the personal side of the story that makes this fascinating and well-written book worth reading. Even though there are critical parts of Roosevelt’s persona that do not translate well into our culturally different era, what does come through in Morris’s account is what an extraordinary person Roosevelt was.
Roosevelt was a man of astonishing ambition. He was also a man of unusual personal courage, strength and perseverance. During the 1912 election, he was struck at close range by an assassin’s bullet (his folded speech and glasses case, stuffed in his breast pocket, probably saved his life). When he found that the shot had not killed him, he proceeded to deliver his planned speech, while bleeding from the gunshot wound, with the would-be assassin’s bullet lodged against his ribs.
Perhaps his most extraordinary feat of personal courage came during the scientific expedition in which he participated in 1913-14. Roosevelt was 55 years old at them. The 17-person expedition’s purpose was to map the Brazilian river ominously called Rio da Dúvida — the River of Doubt.
Almost from the start, the expedition was plagued with problems. Insects, disease, unsuitable supplies and equipment created innumerable difficulties. The expedition’s long and troubled journey turned dangerous as the expedition encountered a seemingly endless series of cascades. The torrents required repeated portages through hostile, forbidding jungle and nearly impassible terrain. When they were able to return to the water, their canoes were battered and damaged. In the midst of these difficulties disaster struck. A canoe carrying Roosevelt’s son, Kermit, and another member of the expedition capsized in a whirlpool. Before help could arrive, the other man had drowned.
A few days later, when one of the expedition’s pontoon boats capsized in a rapid, several people, including Roosevelt, rushed to rescue the men who fell in the water. The men were saved, but Roosevelt cut his leg on a rock. The wound soon became infected. The infection led to coronary stress. Roosevelt was in mortal danger:
The next morning, Roosevelt had reason to believe he was in the valley of the shadow of death. … Rock walls that could have been sliced by civil engineers blocked the sky. Kermit and Lyra lost yet another canoe, reducing the flotilla once more to two pontoons. A reconnaissance party came back with news of rapids continuing as far as the eye could see.
At this very moment, the expedition was stunned by the sound of gunfire. A disaffected member of the support team, overcome by privation and stress, had ambushed another member of the team and shot him dead. The murderer fled into the jungle.
After they had buried the murder victim, Roosevelt was overcome with fever and he became delirious. Fortunately, the fever subsided but at the same time his son became ill. Roosevelt wrote in his journal “The expedition is in a state of peril.” With damaged canoes, diminished supplies, two men dead, one man missing and two others deathly ill, the expedition stumbled ahead. As the cascades finally diminished, the expedition was able to advance, and within a matter of days, the expedition reached a military outpost that had been established a month before in anticipation of their eventual arrival.
When Roosevelt finally arrived back in New York, he arrived “haggard, malaria-yellow, limping on a cane, his belt hauled in six inches.” Even so, just five weeks later, Roosevelt was in Madrid for Kermit’s wedding, finding time to meet with the King and Queen of Spain. He made time to meet with Wilson on his return to Washington.
The tale of the expedition’s survival of their ordeal on the River of Doubt (now renamed Rio Roosevelt), with its drowning, murder, privation and disease, is remarkable enough by itself. But the fact that this tragic, nearly disastrous mission included (and almost led to the death of) a former President of the United States, makes this story nothing short of astonishing. In our time, we have had some ex-Presidents attempt and even accomplish some remarkable things. But for my money, nothing compares to Roosevelt’s participation in the descent of the River of Doubt.