LAKELAND – Following a complicated history of lawsuits, Florida has adopted Delaware's standard for reviewing disclosure-only settlements, which may prove to be helpful as it could limit merger objection litigation.
A July 13 ruling from the 2nd District Court of Appeals adopting the standard in a case involving Quality Distribution has experts discussing the implications.
The facts of the case begin in 2015 when Quality Distribution, the largest bulk tank truck network in North America, made an announcement regarding an agreement to be acquired by Apax Partners. Richard Delman, a shareholder with Quality Distribution, quickly filed a class action lawsuit against Quality Distribution, as well as the board and Apax, with the allegation that Quality Distribution had taken part in sketchy sales practices and agreed to a sales price that was too low, implying that the management had committed corporate fraud.
As a shareholder, Delman was concerned with the transaction as well as a common reaction, which is often referred to as a disclosure-only settlement.
Peter M. Vujin, a Miami-based attorney, explained why the Quality Distribution situation was cause for concern.
"Delman is a shareholder who seems to have been oppressed by the corporate management," Vujin told the Florida Record. "This is a species of corruption, since the management is not the owners/shareholders, and by law, owes a special duty of care to the shareholders. It is, in fact, an example of the managements' corporate fraud as a clear violation of their duties to the shareholders/owners."
According to a post on law firm BakerHostetler's website, the shareholders in these settlements allege that the executives and their respective merging companies have "failed to adequately disclose the impending transaction to the affected shareholders and failed to discharge their fiduciary duties of care and loyalty in entering into the transaction."
Instead of seeking litigation, settlements are usually the easiest ways to give everyone what they want; however, with the Quality Distribution case, the settlement was not so simple an affair. Sean Griffith, a Fordham University Law School professor and shareholder with Quality Distribution, filed an objection to the settlement that was proposed by Quality Distribution while it was pending.
Griffith alleged that additional disclosures were not materials, released claims were not investigated thoroughly enough and that the fee request from the plaintiff did not "provide substantial benefit to the shareholders," as he also pushed for the trial court to adopt Delaware's test that would review the disclosure-only settlement, according to the D&O Diary. In the end, Griffith's objection put a pause in the settlement process.
"A settlement agreement cannot be resolved without a hearing on the objection, and if denied, the denial will lead to further litigation," Vujin said.
Griffith's action did, in fact, lead to the Florida appellate decision through the 2nd District Court of Appeals in Tampa, which, according to Vujin, has an "impeccable reputation in the state."
"The 2nd District Court of Appeal decisively applied the correct law, and it is admirably famous in the state of Florida for its exemplary custom to apply the correct law," Vujin said. "Simply, the 2nd District Court of Appeal acknowledged that shareholder/owners are the masters of property, and the management, merely the shareholder/owners' servants."
Vujin explained that the ruling of the 2nd District Court of Appeals was admirable mainly due to the fact that the monetary power of management far exceeds the power of a single shareholder or owner, showing that the court truly did want to protect the individuals.
"The judges of the 2nd District Court of Appeal of the state of Florida must be commended for their exemplary devotion to the rule of law in today's political climate that gives far too much power to the corporations and their management," Vujin said. "As noted here, the 2nd District Court of Appeal applied the correct legal standard, and remanded for a new hearing on the shareholder/owners' objection."
Anthony Rickey of Margave Law in Delaware, Griffith's attorney in the Quality Distribution case, explained the summary of the case on his law firm's website.
"On July 13, 2018, Florida’s 2nd District Court of Appeal adopted a new standard for trial court review of 'disclosure settlements' in mergers and acquisitions class actions in Florida," Rickey said. "We believe the court’s adoption of a new, heightened standard for trial court review of disclosure settlements in mergers and acquisitions class actions is a very positive development for cases in Florida and elsewhere on these important legal issues.”