A New York state court, in rejecting plaintiffs' attorneys' efforts to cadge themselves some fees out of JP Morgan Chase, have provided us all with an opportunity to walk down memory lane and review the shotgun marriage of JPM and Bear Stearns almost two years ago now.
On Sunday evening, March 16, 2008, in the face of a run on Bear Stearns, the board of that storied broker-dealer agreed under Federal Reserve pressure to a "stabilizing transaction" in which it would disappear as an independent entity. It was to be effectively acquired by JPM for $2 a share. When I first saw that figure, I thought it was a type. Surely what was meant was $20. It couldn't possibly be only $2, thought I (and several other observers, some considerably more canny than I). After all, the stock had closed at $30 a share at the end of business Friday. Surely, it couldn't have lost $28 of that value of the course of a not-quite-concluded weekend, could it?
But it wasn't a typo. The agreement was that Bear Stearns would sell itself for $2 a share. Naturally, what came as a shock to onlookers like myself came as a much uglier shock to folks who had a substantial chunk of their nest eggs in Bear Stearns stock. And plaintiffs' attorneys filed a lawsuit on their behalf almost immediately, In Re Bear Stearns, 21 Misc. 3d 447 (Sup Ct., New York County 2008), claiming that the directors had violated their fiduciary duty by low-balling this.
On Tuesday, (as the usual story goes) lawyers for JPM discovered flaws in the hastily-compiled documentation they had prepared for this deal. They discovered language that "inadvertently" would require JPM to be responsible as a backstop for Bears' deals even if the deal didn't close. In other words, even after signing of to the $2, Bears' execs and lawyers discovered that the wording left them with a neat blackmail weapon. They could breach the contract, file bankruptcy as an independent entity, and leave JPM stuck dealing with a variety of angry counter-parties.
It was in reaction to that threat, and a promise to change the disturbing language about backstopping deals, that JPM agreed reluctantly a week later to raise the $2 price to a munificent $10. So, everybody was playing hardball all around. You might ask: so what?
The amusing point here is that the class action lawyers sought to take credit for this twist in fate. They said: because we filed the lawsuit, the defendants decided they had to be better fiduciaries, so they pressed for the increase from $2 to $10. Accordingly, we provided great assistance to the class we represented, and we are entitled to layers' fees.
Well, the court had earlier decided against the plaintiffs on the merits: that the directors did the best they could be expected to in the crisis circumstances they faced. This brings us back to where we started. On Dec. 28, 2009, the court also ruled against the lawyers on the issue of fees. "Here, there is not an iota of evidence in the record to suggest that the shareholder suits filed by plaintiffs after the announcement of the Initial Merger Agreement, had any causal impact on the negotiations that eventually resulted in the Amended Merger Agreement."
A bit more on this tomorrow.
Showing posts with label class action lawsuits. Show all posts
Showing posts with label class action lawsuits. Show all posts
Sunday, January 24, 2010
Monday, October 27, 2008
More BCE Excitement
Common shareholders of BCE Inc., the holding company of telecomm giant Bell Canada, have filed a class action lawsuit demanding the payment of a dividend they had expected this summer.
Black-letter law is that no one can claim a right to a dividend. If an investor wants regular payments as a matter of right, the instrument he wants isn't a stock, it's a bond. Dividend policy is a matter within the business judgment, i.e. the nearly-unlimited discretion, of the board of directors.
The real point of the lawsuit, it would seem, is to derail the underlying deal. What the owners of equity do get, instead of a guarantee of payments, is a right to have a say in the major corporate decisions. That right is the basis for the existence of this blog, after all. I'm not entirely clear on how, in the plaintiffs' view, they've been deprived of that right here, but it seems that "pay us the dividends" is more a measure of damages in their eyes than the alleged legal injury.
The privatization of BCE will be (if the teachers'-pension folk behind it manage to pull it off) the largest leveraged buy-out ever. The deal was signed more than a year ago, though the closing has had to be delayed because the prevailing buisness climate has hardly been conducive to such wheeling-dealing.
A bond rating agency has estimated that if the deal does go through this December as now scheduled, BCE's consolidated debt will be C$42 billion, which is more than twice last year's revenue.
The deal has already generated some fascinating litigation. If you follow that link, you'll get to my earlier discussion of a challenge to this same transaction by bondholders.
So it may yet generate more.
Black-letter law is that no one can claim a right to a dividend. If an investor wants regular payments as a matter of right, the instrument he wants isn't a stock, it's a bond. Dividend policy is a matter within the business judgment, i.e. the nearly-unlimited discretion, of the board of directors.
The real point of the lawsuit, it would seem, is to derail the underlying deal. What the owners of equity do get, instead of a guarantee of payments, is a right to have a say in the major corporate decisions. That right is the basis for the existence of this blog, after all. I'm not entirely clear on how, in the plaintiffs' view, they've been deprived of that right here, but it seems that "pay us the dividends" is more a measure of damages in their eyes than the alleged legal injury.
The privatization of BCE will be (if the teachers'-pension folk behind it manage to pull it off) the largest leveraged buy-out ever. The deal was signed more than a year ago, though the closing has had to be delayed because the prevailing buisness climate has hardly been conducive to such wheeling-dealing.
A bond rating agency has estimated that if the deal does go through this December as now scheduled, BCE's consolidated debt will be C$42 billion, which is more than twice last year's revenue.
The deal has already generated some fascinating litigation. If you follow that link, you'll get to my earlier discussion of a challenge to this same transaction by bondholders.
So it may yet generate more.
Tuesday, February 12, 2008
"Gimme the sports section, cellmate"
According to a front-page story in today's Wall Street Journal, William Lerach is hoping that newspaper subscriptions will put him in a good bargaining position in prison.
Yesterday, Lerach, formerly a prominent class-action plaintiffs' attorney, who has pleaded guilty to rent-a-plaintiff accusations, received his sentence. He'll do two years in federal prison, pay $8 million, and accept disbarment.
Fortunately, he has been in the habit of reading up to six newspapers a day. He figures that'll help him get along. "A sports section is supposed to win you a lot of favors." Good luck with that.
It is amusing to me that the government stumbled into the case against Lerach and his former colleagues at Milberg Weiss in the course of pursuing a bit of insurance fraud involving two extremely valuable paintings -- a Monet and a Picasso, no less.
The works were: Monet's "The Customs Officer's Cabin at Pourville," from 1882, and Picasso's "Nude Before a Mirror," painted in 1932. They were both purchased by a fellow named Stephen Cooperman, then insured in 1991 for a total of $12.5 million. The following year he reported them stolen and made his insurance claim. This was suspicious from the get-go. The Cooperman home had a burglar alarm, which had not been set off by the alleged thief. There was no sign of break-in at all, other than the reportedly missing paintings. But the insurance company, after contesting the matter initially, settled in time. (I don't know off hand whether the amount of the settlement has ever been made public.)
Anyway, the paintings were found undamaged in a storage locker in a Cleveland suburb on Feb. 2, 1997. For the story of how that recovery came about, go here. The short version ... a Clevelander apparently had stored the paintings in the locker as a favor to his buddy, Cooperman. The insurance company took title to the paintings when they were found, and Cooperman now faced fraud charges.
Cooperman cut a deal for a lighter sentence by telling authorities that he had some (unrelated) dirt on Milberg Weiss. He had been a lead plaintiff of theirs in class-actions against corporations. They'd have him buy stock in a company that might be vulnerable to such a lawsuit. This is where the business sections of six daily newspapers might be helpful. Then, if the the stock price fell dramatically, Cooperman would serve as the lead plaintiff, allowing Milberg Weiss to win a "race to the courthouse" against other attorneys and their clients, and allowing it to be first in line for as lead counsel for the class. Cooperman would receive payment for his part in this, and that payment would in turn be very hush-hush, because the courts are rather vigilant about intra-class conflicts of interest.
So that's the want-of-a-horseshoe-nail type story that led to the fall of King Lerach.
Seek edification elsewhere.
Yesterday, Lerach, formerly a prominent class-action plaintiffs' attorney, who has pleaded guilty to rent-a-plaintiff accusations, received his sentence. He'll do two years in federal prison, pay $8 million, and accept disbarment.
Fortunately, he has been in the habit of reading up to six newspapers a day. He figures that'll help him get along. "A sports section is supposed to win you a lot of favors." Good luck with that.
It is amusing to me that the government stumbled into the case against Lerach and his former colleagues at Milberg Weiss in the course of pursuing a bit of insurance fraud involving two extremely valuable paintings -- a Monet and a Picasso, no less.
The works were: Monet's "The Customs Officer's Cabin at Pourville," from 1882, and Picasso's "Nude Before a Mirror," painted in 1932. They were both purchased by a fellow named Stephen Cooperman, then insured in 1991 for a total of $12.5 million. The following year he reported them stolen and made his insurance claim. This was suspicious from the get-go. The Cooperman home had a burglar alarm, which had not been set off by the alleged thief. There was no sign of break-in at all, other than the reportedly missing paintings. But the insurance company, after contesting the matter initially, settled in time. (I don't know off hand whether the amount of the settlement has ever been made public.)
Anyway, the paintings were found undamaged in a storage locker in a Cleveland suburb on Feb. 2, 1997. For the story of how that recovery came about, go here. The short version ... a Clevelander apparently had stored the paintings in the locker as a favor to his buddy, Cooperman. The insurance company took title to the paintings when they were found, and Cooperman now faced fraud charges.
Cooperman cut a deal for a lighter sentence by telling authorities that he had some (unrelated) dirt on Milberg Weiss. He had been a lead plaintiff of theirs in class-actions against corporations. They'd have him buy stock in a company that might be vulnerable to such a lawsuit. This is where the business sections of six daily newspapers might be helpful. Then, if the the stock price fell dramatically, Cooperman would serve as the lead plaintiff, allowing Milberg Weiss to win a "race to the courthouse" against other attorneys and their clients, and allowing it to be first in line for as lead counsel for the class. Cooperman would receive payment for his part in this, and that payment would in turn be very hush-hush, because the courts are rather vigilant about intra-class conflicts of interest.
So that's the want-of-a-horseshoe-nail type story that led to the fall of King Lerach.
Seek edification elsewhere.
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