In the most cynical view of the shareholder lawsuit,
managers are happy to settle even spurious claims because the global release
and settlement generates effectively a 'get out of jail free' card absolving
them of any fiduciary failings that may have come before the settlement.
That's a pretty cynical view, mind you, but I suppose I can envision facts
where it might be true.
Now comes J. Crew. The process employed to take the company
private has been ... to put it charitably ... less than perfect. Read
about it here and here and here. In any event, the J. Crew board ended up on the
receiving end of a well-deserved shareholder lawsuit for their apparent
inability to comply with their fiduciary obligations in connection with the
going-private transaction. It appeared two weeks ago that the parties
were near settlement. In fact, they reached a settlement, but had yet to
bring it before Vice Chancellor Strine for approval. According to a
letter filed with the court yesterday and reported by Bloomberg this morning, plaintiffs counsel are accusing
management of undermining the settlement from almost before the ink was dry
JCrew Settlement letter). The plaintiff's letter to Vice Chancellor
Strine updating him on the situation reads like the J. Crew board was hoping to
use the settlement like a 'get out of jail free' card while they pursued their
The Special Committee, however, flatly refused to even
discuss or respond to Plaintiff's objections on these issues. Defendants
took very aggressive positions concerning the terms of the settlement
stipulation. For example Defendants' revision to the settlement
stipulation included an overly board release that would prevent shareholders
from challenging Defendants' future actions related to the sale of J.Crew,
inclding any alternative transaction that might arise. Plaintiffs never
agreed to release claims related to Defendants' future conduct, and could never
do so in good faith, especially in light of Defendants' recent actions,
which Plaintiffs believe show a disregard for their fiduciary duties.
A copy of the settlement stipulation was attached to the
letter as an exhibit and you can download it here (Download
JCrew Settlement MOU). This settlement stipulation has not yet been
approved by Vice Chancellor Strine and now looks like it won't be as the
plaintiffs are gearing up for a trial.
This case is extremely interesting for those of us
thinking about the developing doctrine with respect to transactions involving
managers and control persons. Along those lines, The Deal Professor will
be sponsoring an important symposium in Delaware on this topic in April.
If this case ends up going to trial there might be a nice confluence of
events in April that will make Wilmington the place to be somebody this Spring.
Visit the M&A Law Prof
Blog, hosted by Brian JM Quinn, for blogs on legal developments in
corporate governance and mergers & acquisitions.