dukeenergyOne of the hot topics in the world of corporate and securities litigation in recent years has been the rise of M&A-related litigation. Among the many themes that are part of the discussion of this topic has been the fact that the M&A lawsuits often settle for the defendant company’s agreement to additional disclosures about the merger, with no cash payment to shareholders. The disclosure-only settlements continue to be a concern, but at the same time there recently have been a number of merger-related lawsuit settlements in which there has been very significant cash components.


On March 10, 2015, in the latest of these merger-related lawsuits with a significant cash component, Duke Energy announced that it had reached agreed to pay $146.25 million to settle the consolidated lawsuit filed in the wake of its $26 billion merger in 2012 with Progress Energy. Notably, the consolidated Duke Energy lawsuit was filed as a securities class action lawsuit, by contrast to many of the merger objection lawsuits that have been filed in recent years, which often are filed as shareholder derivative lawsuits. But while the consolidated Duke Energy lawsuit was a securities class action lawsuit rather than a shareholder derivative lawsuit, its settlement is noteworthy in a number of significant respects, as discussed below. The settlement is subject to Court approval.


Duke Energy’s March 10, 2015 press release about the settlement can be found here. The parties’ stipulation of settlement of the lawsuit can be found here. Liz Hoffman’s March 11, 2015 Wall Street Journal article about the settlement can be found here.



The dispute about Duke Energy’s merger with Progress Energy involved the change in management that occurred shortly after the merger closed. When the merger had been proposed to the companies’ shareholders, it had been stated that Bill Johnson, the head of Progress Energy, would be the CEO of the merged company. However, within hours of the merger closing, the board of the combined company voted to make Jim Rogers, the CEO of Duke Energy, the head of the combined company.


This development, which the Wall Street Journal called at the time a “boardroom coup,” proved to be highly controversial. The Journal quoted former Progress Energy directors as saying they would never have approved the deal if they had known what was going to happen with the CEO position. Progress Energy’s former lead director took the extraordinary step of writing a Letter to the Editor of the Wall Street Journal in which he described the post-merger vote to make Rogers the CEO of the combined company “an incredible act of bad faith” with regard to the undertakings in the Merger Agreement and “one of the greatest corporate hijackings in U.S. business history.” He also described it as “the most blatant example of corporate deceit I have witness during a long career on Wall Street and as a director of ten publicly traded companies.”


As detailed here, in July 2012, shareholders filed the first of several securities class action lawsuits against Duke Energy and certain of its directors and officers. Among other things, the plaintiffs’ consolidated complaint alleged that:


the representations made in the Merger Registration Statement and Prospectus Materials regarding Johnson’s role as CEO were materially untrue and misleading, and omitted material facts. Investors were never informed that for months prior to the filing of those materials – and even before the Merger Agreement was signed in January 2011 – Defendants were already discussing amongst themselves purportedly serious and irreconcilable concerns about Johnson and had adopted the view that Johnson’s appointment as CEO was merely a technical requirement of the Merger Agreement necessary to get the deal approved, and that the Duke board could simply get rid of Johnson once the Merger was complete.

The consolidated complaint was filed on behalf of shareholders who purchased or acquired shares of Duke common stock between July 11, 2012 and July 9, 2012, including former Progress Energy shareholders who acquired Duke shares directly in the merger of Duke and Progress.


In its March 10 press release about the settlement of the consolidated lawsuit, Duke Energy stated that it “maintains insurance coverage that would apply to most of the settlement amount.” The press release added that “company shareholders, not customers, would pay the remaining portion.” The press release also stated that the company previously recorded a $26 million reserve for the estimated portion not covered by insurance – which obviously suggests that the company expects insurance to cover around $120 million of the settlement amount.



According to Liz Hoffman’s Wall Street Journal article about the settlement to which I linked above, Rogers stepped down as Duke Energy’s CEO in 2013 as part of a settlement with North Carolina regulators about the “leadership shuffle.”


While the Duke Energy lawsuit was filed in the form of a securities class action, by contrast to many of the plethora of merger objection lawsuits which are filed as shareholders derivative lawsuit, its settlement is the latest in a series of recent very large cash settlements arising out of lawsuits filed by shareholders in the wake of corporate mergers.


The settlement follows just weeks after Leucadia National Corp. agreed in January 2015 to pay $70 million to former Jeffries Group to settle allegations that Leucadia underpaid when it bought the investment bank two years ago.


These settlements in turn follow the $137.5 million settlement in January 2015 over two by Freeport-McMoRan Inc., which I discussed in a prior post, here. These settlements in turn follow the November 2014 settlement of the lawsuit arising out of the acquisition of Activision Blizzard shares from Vivendi, which is discussed here.


The Duke Energy case obviously involved some highly unusual, case-specific facts. But like the other recent cases mentioned in the preceding paragraphs that resulted in significant cash settlements, the Duke Energy case arose out of a merger transaction. Even though the Duke Energy case was filed in the form of a securities class action lawsuit rather than a shareholders derivative lawsuit, the case’s settlement still underscores how merger and acquisition activity can give rise to serious shareholder litigation. All of these recent settlements highlight the fact that while many of the merger related lawsuits are resolved on the basis of a disclosure only settlement, there are certain merger related cases that result in very substantial cash settlements.


One final note about these settlements is that, as I have discussed elsewhere, the cash value of these settlements is being funded in whole or in substantial part by D&O insurance. With the upsurge in recent years of merger-related litigation, the D&O insurance industry has had to get used to the fact that merger-related litigation represents a significant D&O claims frequency risk. With the sudden upsurge in recent months of settlements of merger cases with very significant cash components, the D&O insurance industry is now having to adjust to the fact that these merger-related cases represent a significant severity risk as well.


Class Action Lawsuit with Three- Day Class Period Filed: I think for any of us that follow securities class action litigation ,we are very accustomed to the idea that the length of the class periods identified in the lawsuit complaints vary widely. However, a lawsuit filed earlier this week has a class period with an unusual length – three days.


As discussed in the March 10, 2015 press release (here), plaintiffs’ lawyers have filed a lawsuit in the Southern District of California against Orexigen Therapeutics, Inc. and certain of its directors and officers. The lawsuit purports to be filed on behalf of those who purchased the company’s stock between March 3, 2015 and March 5, 2015, inclusive. (If each trading day is counted and the period is inclusive, that makes a total of three days.)


According to the press release, on March 3, 2015, the company released details of an ongoing interim study, “despite, the complaint alleges, having been previously admonished by the FDA for inappropriately releasing interim study data in the past.” The press release says that the complaint alleges that the company’s share price rose “significantly” on the information in the March 3 press release. Then, the press release states, on March 5, 2015, after the close of business, Forbes Magazine published a report entitled “Top FDA Official Says Orexigen Study Result ‘Unreliable,’ ‘Misleading.” The press release states that the complaint alleges that the price of Orexigen stock “fell substantially” when trading resumed on March 6, 2015.