In Re AMC Entertainment Holdings, Inc. Stockholder Litigation ( 2023 )

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
IN RE AMC ENTERTAINMENT )
HOLDINGS, INC. STOCKHOLDER ) Consol. C.A. No. 2023-0215-MTZ
LITIGATION )
MEMORANDUM OPINION
Date Submitted: July 26, 2023
Date Decided: August 11, 2023
Gregory V. Varallo, Daniel E. Meyer, BERNSTEIN LITOWITZ BERGER &
GROSSMAN LLP, Wilmington, Delaware; Mark Lebovitch, Edward Timlin,
BERNSTEIN LITOWITZ BERGER & GROSSMAN LLP, New York, New York;
Michael J. Barry, Kelly L. Tucker, Jason M. Avellino, GRANT & EISENHOFER,
P.A., Wilmington, Delaware; Thomas Curry, SAXENA WHITE P.A., Wilmington,
Delaware, Attorneys for Plaintiffs Allegheny County Employees’ Retirement
System and Anthony Franchi.
Raymond J. DiCamillo, Kevin M. Gallagher, Matthew W. Murphy, RICHARDS,
LAYTON & FINGER, P.A., Wilmington, Delaware; John A. Neuwirth, Joshua S.
Amsel, Tanner S. Stanley, WEIL, GOTSHAL & MANGES LLP, New York, New
York, Attorneys for Defendants AMC Entertainment Holdings, Inc., Adam M. Aron,
Denise Clark, Howard W. Koch, Jr., Kathleen M. Pawlus, Keri Putnam, Anthony
J. Saich, Philip Lader, Gary F. Locke, Lee Wittlinger, and Adam J. Sussman.
ZURN, Vice Chancellor.
Common stockholders of AMC Entertainment Holdings, Inc. (“AMC” or the
“Company”) brought direct claims on behalf of a putative class of common
stockholders, and have reached a settlement with the defendants, AMC’s directors
and the Company.
The settlement consideration consists of additional shares of common stock
awarded to current common stockholders to offset the dilutive effects of the conduct
underlying the plaintiffs’ claims. In return, the plaintiffs and defendants suggest the
class should release claims relating to that conduct. As Delaware law requires, the
parties submitted the settlement terms to the Court for approval. The plaintiffs’
counsel have also requested fees based on the settlement’s benefit to AMC’s
stockholders.
This is my second opinion considering the settlement terms. The first was
issued on July 21, 2023, and declined to approve the settlement because the release
was unsound (the “July 21 Opinion”).1 This opinion adopts the defined terms used
in the July 21 Opinion, assumes the parties’ familiarity with the July 21 Opinion,
and refers readers to that decision for the necessary background regarding the
underlying transactions and this litigation.
The day after the July 21 Opinion, the parties cut the offending provision from
1
In Re AMC Ent. Hldgs., Inc. S’holder Litig., --- A.3d ---, 2023 WL 4677722 (Del. Ch.
July 21, 2023). The July 21 Opinion is also available at Docket Item (“D.I.”) 581.
1
the release and asked the Court to consider the settlement as revised. This opinion
considers that revised settlement.
The Court’s consideration of a proposed settlement comprises four tasks.
First, the Court must determine whether the class should be certified under Court of
Chancery Rule 23, and if it should be certified as opt-out or non-opt-out. In this
opinion, I certify the class as a non-opt-out class under Rules 23(a), 23(b)(1), and
23(b)(2). I decline to afford the right to opt out.
Second, the Court must review the adequacy of notice of the proposed
settlement to the class. I conclude the notice was sufficient and its delivery was
adequate. Under Delaware law, only stockholders of record are required to receive
notice when the class is certified as a non-opt-out class. Here, comprehensive
electronic notice, coupled with supplemental but imperfect postcard notice, was
adequate notice under Delaware law.
Third, the Court must review the terms of the proposed settlement for
reasonableness, and determine whether to approve it. I conclude the settlement is
reasonable. While the plaintiffs’ fiduciary duty claim had merit, a remedy for that
claim that is equitable and beneficial to the class overall is challenging to identify.
The plaintiffs’ statutory claim had no merit. The release of those claims, and others
with the identical factual predicate to the plaintiffs’ complaints, is sufficiently
supported by the settlement consideration.
2
And finally, if the settlement is approved, the Court must resolve the
plaintiffs’ petition for an award of attorney’s fees and expenses. I award plaintiffs’
counsel fees worth 12% of the settlement consideration. The plaintiffs’ requests for
modest incentive awards is granted.
An objector moved for a stay pending appeal if the settlement was approved,
indicating an intention to appeal the July 21 Opinion’s holding that the release does
not improperly release future claims. This opinion concludes such a stay would not
be appropriate.
I. BACKGROUND2
The day after the July 21 Opinion, the parties amended the release in the
2
Citations in the form of “D.I. —” refer to docket items in In re AMC Entertainment
Holdings, Inc. Stockholder Litigation, C.A. No. 2023-0215-MTZ (Del. Ch.), formerly
Allegheny County Employees’ Retirement System v. AMC Entertainment Holdings, Inc., et
al., C.A. No 2023-0215-MTZ (Del. Ch.). Citations in the form of “2023-0216, D.I. —”
refer to docket items in Usbaldo Munoz, et al. v. Adam M. Aron, et al., C.A. No.
2023-0216-MTZ (Del. Ch.). Citations in the form of “Hr’g Tr. —” refer to the Settlement
Hearing held on June 29 and 30, 2023. D.I. 578; D.I. 579.
The facts are drawn from the allegations of the Allegheny complaint, the operative
complaint, “from the affidavits and supporting documents submitted in connection with
the application for court approval,” and public filings. D.I. 1 [hereinafter “Non-Op.
Compl.”]; 2023-0216, D.I. 1 [hereinafter “Op. Compl.”]; In re Activision Blizzard, Inc.
S’holder Litig., 124 A.3d 1025, 1030 (Del. Ch. 2015); In re Rural Metro Corp. S’holders
Litig., 2013 WL 6634009, at *7 (Del. Ch. Dec. 17, 2013) (“Applying [Delaware] Rule [of
Evidence] 201, Delaware courts have taken judicial notice of publicly available documents
that ‘are required by law to be filed, and are actually filed, with federal or state officials.’”
(quoting In re Tyson Foods, Inc. Consol. S’holder Litig., 919 A.2d 563, 584 (Del. Ch.
2007))); accord Wal–Mart Stores, Inc. v. AIG Life Ins. Co., 860 A.2d 312, 320 n.28 (Del.
2004) (holding that the court may take judicial notice of public documents such as SEC
filings that are required by law to be filed).
3
Proposed Settlement.3 They filed a joint letter asking the Court to take the revised
terms under advisement without requiring additional formal notice to the putative
class, to continue to stay proceedings against the defendants, and to ultimately
approve the Proposed Settlement.4 AMC announced the amendment the next
business day, July 24.5
That same day, objector Rose Izzo filed a “Motion for Clarification of the
Scheduling Order or, Alternatively, for Maintaining of Status Quo Order Pending
Appeal.”6 Izzo reiterated her desire to become lead plaintiff and sought clarification
as to whether the July 21 Opinion was a “final determination” so she could “file a
prompt motion to intervene.”7 If the July 21 Opinion was not a “final
3
D.I. 582.
4
Id. at 2–3 & n.1.
5
AMC Entertainment Holdings, Inc., Current Report (Form 8-K) (July 24, 2023) (“On July
22, 2023, the parties filed an addendum to the Stipulation in an effort to address the issues
with the scope of the release raised by the Court and requested that the Court approve the
settlement with the revised release set forth in the addendum.”). AMC and Plaintiffs’
counsel posted the parties’ July 22 letter on their respective websites. Presentations, AMC
THEATRES INVESTOR RELATIONS, https://investor.amctheatres.com/financial-
performance/presentations/default.aspx (last visited Aug. 9, 2023); Settlement Information,
GRANT & EISENHOFER, P.A., https://www.gelaw.com/settlements/amc (last visited
Aug. 9, 2023); AMC Case Documents, FIELDS KUPKA & SHUKUROV LLP,
https://fksfirm.com/case-notices/ (last visited Aug. 9, 2023); Related Cases, BERNSTEIN
LITOWITZ BERGER & GROSSMAN LLP, https://www.blbglaw.com/news/updates/2023-04-
03-blbg-secures-additional-shares-for-amc-stockholders-in-landmark-recapitalization-
settlement (last visited Aug. 9, 2023).
6
D.I. 583.
7
Id. ¶¶ 2–3, 5.
4
determination,” Izzo sought a stay pending appeal if the Proposed Settlement were
approved.8
Later that day, the Court granted the parties’ request to stay proceedings
against the defendants pending this Court’s consideration of the Proposed
Settlement; concluded no additional notice was necessary; explained the July 21
Opinion was not a final determination; directed the parties to respond to Izzo’s
motion to stay this action pending appeal; and requested supplemental briefing “on
the effect of the Delaware Supreme Court’s June 28, 2023 decision in Coster v. UIP
Companies, Inc. on the Proposed Settlement and [P]laintiffs’ breach of fiduciary
duty claim.”9 I also asked the parties to “advise, with as much detail as possible, as
to any events or circumstances compelling a decision by a certain date.”10 On July
25 and 26, the parties responded.11 On July 31, Izzo filed her reply in support of her
8
Id. ¶¶ 6, 15.
9
D.I. 587 at 6 (citing Coster v. UIP Cos., Inc. (Coster IV), --- A.3d ---, 2023 WL 4239581(Del. 2023)).
10
Id. at 5.
11
D.I. 589; D.I. 591; D.I. 592; D.I. 593; D.I. 595. My letter also highlighted the parties’
delay in addressing the issue with the Release that I had raised at the hearing on June 29.
The parties did not respond on that point; instead, the defendants requested a decision on
the recut settlement by “the late part of July or early August.” D.I. 595 at 2, 4. This is the
most recent example of the parties’ habit of moving slowly while pressing this Court for
expedited treatment. See, e.g., D.I. 163 (writing to the parties to ask if they were going to
file the settlement papers for the proposed settlement they had announced nearly two weeks
prior), with D.I. 217 at 18–19 (asking the Court to “truncate” the settlement schedule);
D.I. 59 ¶ 3 (asking the Court to lift the status quo order “so the issuance of new shares to
Common Stockholders can take place at the earliest possible date”); id. ¶¶ 20, 32 (seeking
5
motion.12
Aside from the addendum to the Stipulation and the supplemental briefing I
requested, the record closed on June 30.13 I have not considered efforts to cure
noncompliant Objections or other submissions after that date.14
II. ANALYSIS
“Although Delaware law has traditionally favored a voluntary settlement of
contested claims, the settlement of claims raised in a class action require certain
safeguards to ‘insure that the interests of parties who are before the Court only
vicariously are not inequitably abrogated.’”15 Under Court of Chancery Rule 23(e),
“class action[s] shall not be dismissed or compromised without the approval of the
performance of the proposed settlement “at the earliest possible date,” including before
noticing the settlement and receiving Court approval under Rule 23). Despite the parties’
torpor, I have done my best to issue this opinion quickly.
12
D.I. 604.
13
D.I. 570.
14
See, e.g., D.I. 603.
15
Rinaldi v. Iomega Corp., 2001 WL 34890424, at *5 (Del. Super. June 29, 2001) (citations
omitted) (citing Nottingham P’rs v. Dana, 564 A.2d 1089, 1102 (Del. 1989), and Polk v.
Good, 507 A.2d 531, 535 (Del. 1986), and then quoting Donald J. Wolfe, Jr. and Michael
A. Pittenger, Corporate and Commercial Practice in the Delaware Court of Chancery § 9-
4[a] (2000))); id. (“If settlements of pending litigation are the cherished offspring of the
law, settlements of representative actions are no doubt the least ingratiating of the brood.”
(quoting Donald J. Wolfe, Jr. and Michael A. Pittenger, Corporate and Commercial
Practice in the Delaware Court of Chancery § 9-4[a] (2000))); 2 Donald J. Wolfe, Jr. and
Michael A. Pittenger, Corporate and Commercial Practice in the Delaware Court of
Chancery § 13.03[a] at 13-11 (2d ed. 2022) (same).
6
Court, and notice . . . to all members of the class.”16 The Court must consider
whether the terms of the settlement are fair and reasonable, recognizing that “[t]his
Court generally favors settlement of complicated litigation.”17
“When parties have reached a negotiated settlement, the litigation enters a
new and unusual phase where former adversaries join forces to convince the court
that their settlement is fair and appropriate.”18 “The settlement’s proponents bear
the burden of persuasion by a preponderance of the evidence.”19 “[I]n most
instances, the court is constrained by the absence of a truly adversarial process, since
inevitably both sides support the settlement and legally assisted objectors are rare.”20
16
Ct. Ch. R. 23(e).
17
Gatz v. Ponsoldt, 2009 WL 1743760, at *2 (Del. Ch. June 12, 2009) (citing In re
Countrywide Corp. S’holders Litig., 2009 WL 846019, at *10 (Del. Ch. Mar. 31, 2009));
accord id. (“However, the settlement of a class action is unique because the fiduciary nature
of the class action requires the Court of Chancery to participate in the consummation of
the settlement to the extent of determining its intrinsic fairness.” (alterations and internal
quotation marks omitted) (quoting Rome v. Archer, 197 A.2d 49, 53 (Del. 1964), and citing
Nottingham, 564 A.2d at 1102)).
18
Ginsburg v. Phila. Stock Exch., Inc., 2007 WL 2982238, at *1 (Del. Ch. Oct. 9, 2007);
cf. In re Trulia, Inc. S’holder Litig., 129 A.3d 884, 893 (Del. Ch. 2016) (“Once an
agreement-in-principle is struck to settle for supplemental disclosures, the litigation takes
on an entirely different, non-adversarial character. Both sides of the caption then share the
same interest in obtaining the Court’s approval of the settlement.” (footnote omitted)).
19
In re TD Banknorth, 938 A.2d 654, 658 n.4 (Del. Ch. 2007) (citing In re First Boston,
Inc. S’holders Litig., 1990 WL 78836, at *9 (Del. Ch. Jun. 7, 1990)).
20
In re Caremark Int’l Inc. Deriv. Litig., 698 A.2d 959, 961 (Del. Ch. 1996).
7
Typically, the Court considers whether to approve a settlement in steps.21
First, it determines whether it can certify the putative class under Rules 23(a) and
23(b). If the Court certifies a class, it next examines whether the notice of the
settlement that the parties provided to the class was sufficient to satisfy the
requirements of due process. If it finds that notice was adequate, it moves on to
considering whether the settlement terms fall within a range of reasonableness. If
they do, then the Court will approve the settlement. Only then will the Court
determine whether to award fees and expenses to the plaintiff’s counsel and
incentive awards to the representative plaintiff.
For the reasons that follow, this opinion concludes: the class is certified under
Rules 23(a), 23(b)(1), and 23(b)(2); an opt-out right is not warranted given the
Proposed Settlement’s structure; notice was adequate; the Proposed Settlement is
reasonable; counsel earned monetary fees equal to 12% of the consideration at the
time the consideration is paid; and incentive awards are granted out of that fee award.
21
See, e.g., Activision, 124 A.3d at 1043 (“The tasks assigned to the court include
(i) confirming that the Settlement is properly structured, (ii) ensuring that adequate notice
has been provided, (iii) assessing the reasonableness of the ‘give’ and the ‘get,’ as well as
the allocation of the ‘get’ among various claimants, (iv) approving an appropriate award of
attorneys’ fees, and (v) authorizing any payment from the fee award to the representative
plaintiff.”); CME Grp., Inc. v. Chi. Bd. Options Exch., Inc., 2009 WL 1547510, at *4 (Del.
Ch. June 3, 2009) (“The Court starts with consideration of whether class certification is
appropriate and whether the Settlement in gross should be approved. It then turns its
attention to the various specific objections to the terms of the Settlement.”).
8
A. Objections To The Proposed Settlement And Exceptions To
The Special Master’s Report
Once again, the Court expresses gratitude to the Special Master and her team,
whose hard work was described more fully in the July 21 Opinion. That opinion
also describes the requirements to submit a compliant Objection to the Proposed
Settlement and compliant exception to the Special Master’s Report. As noted there,
thirteen exceptions to the Report were timely filed; ten were compliant.22 That
opinion addressed only the release of APE claims; because no compliant Objection
raised the issue of APE claims being included in the Release, the compliant
Objections and exceptions did not inform that decision.23 The July 21 Opinion did
22
AMC, --- A.3d ---, 2023 WL 4677722, at *27 & n.204; D.I. 580 ¶ 7. See also infra
(discussing Karen Grelish’s exception’s compliance).
On July 24, Brian Tuttle filed a letter arguing the Court improperly categorized his
Objection as non-compliant, and requesting that the Court consider an earlier filing,
D.I. 573, as an Objection “to the amended settlement.” D.I. 584 at 1 (emphasis in
original). Tuttle has already filed exceptions asserting he submitted a compliant objection,
and the Court ruled he failed to comply with the proof of ownership requirements. AMC,
--- A.3d ---, 2023 WL 4677722, at *27 n.204. The Court is not accepting objections to the
revised Proposed Settlement, so Tuttle’s request to treat another filing as an objection is
denied. D.I. 587 at 6 (citing Keepseagle v. Vilsack, 102 F. Supp. 3d 306, 313 (D.D.C.
2015)).
23
E.g., In re Cent. Banking Sys., Inc., 1993 WL 410421, at *2 n.2 (Del. Ch. Oct. 6, 1993)
(“Rafton objected on other grounds as well, but those grounds are not relevant to the issue
being decided here.”); Goldman v. Aegis Corp., 1982 WL 525016, at *2–3 (Del. Ch.
May 3, 1982) (objections based on issues “not before [the] [c]ourt” are “without merit”);
cf. Trulia, 129 A.3d at 907 n.90 (“Because I reject the proposed settlement, I do not address
the issue of class certification, although stockholder classes in cases such as this are
typically certified.”).
9
dismiss exceptions asserting the Special Master failed to give each Objection due
attention.24
On July 27, stockholder Karen Grelish submitted a filing contesting the July
21 Opinion’s finding that her Objection, and thus her exception, were
noncompliant.25 The next day, I stated I was treating her filing as a motion for
reconsideration and set a briefing schedule pursuant to Rule 59(f).26 On August 4,
Plaintiffs filed a response making clear that Grelish’s Objection was compliant under
the more lenient standards summarized in the July 21 Opinion, her Objection was
filed without including the proof of ownership she submitted, and “[d]ue to an error
flowing from [her] multiple submissions,” only Grelish’s non-Objection
communications were provided to the Special Master.27 I thank Plaintiffs for this
clarification, and will consider Grelish’s exception as compliant.
The compliant exceptions touch on a range of issues, including but not limited
to: the adequacy of the notice, with a focus on postcard notice;28 the strength of the
24
AMC, --- A.3d ---, 2023 WL 4677722, at *28.
25
Id. at *27 n.204; D.I. 598.
26
D.I. 600.
27
D.I. 608 ¶¶ 4–5; id. ¶ 5 (“On June 22, 2023, Plaintiffs’ counsel filed the Grelish Objection
on the public docket, at her request. While it was filed without proof of ownership, also at
Ms. Grelish’s request and per the Court’s prior guidance, Plaintiffs’ submissions noted her
proof of ownership.” (footnotes omitted)); see AMC, --- A.3d ---, 2023 WL 4677722, at
*28 & n.213. The parties do not object to the Court considering Grelish’s exception. D.I.
608 ¶ 2; D.I. 609.
28
See, e.g., D.I. 560 at 1–2; D.I. 565 at 4.
10
claims and the value of the claims being released, or the “give” as compared to the
“get”;29 the Special Master’s categorization of some purported stockholder
correspondence as “inquiries”;30 the Special Master’s decision to give little weight
to the volume of Objections;31 Plaintiffs’ counsel’s fee award;32 and whether the
Special Master adequately reviewed and assessed each Objection.33 Some
exceptions are largely untethered from the Report,34 or misunderstand the applicable
standards in evaluating the reasonableness of a proposed settlement.35
I have conducted my own de novo analysis of the issues addressed in this
opinion. I have also considered each compliant exception to the Special Master’s
Report de novo, to the extent relevant to my decision today.36 My analysis follows.
B. Class Certification
I begin with Rule 23. “[C]lass certification involves a ‘two-step analysis.’
The first step, a prerequisite for class action certification, is that the action satisfy
29
See, e.g., D.I. 546 at 4 ¶ 5; D.I. 547 ¶¶ 2–13; D.I. 556 [hereinafter “Izzo Exc.”], at 10–
28; D.I. 558 at 3–21; D.I. 565 at 5–9.
30
D.I. 552 at 3; see also D.I. 565 at 5.
31
See, e.g., D.I. 547 ¶ 14; Izzo Exc. at 28–32; D.I. 565 at 5.
32
See, e.g., Izzo Exc. at 38–42.
33
See, e.g., D.I. 547 ¶ 16; D.I. 553 ¶¶ 1, 5; D.I. 565 at 4–5.
34
See, e.g., D.I. 546; id. at 1 (stating he did “not read [the Special Master’s]
recommendation in its entirety”).
35
See, e.g., D.I. 558.
36
DiGiacobbe v. Sestak, 743 A.2d 180, 184 (Del. 1999).
11
each of the four requisites of Rule 23(a) . . . . The second step . . . requires
determining whether the class action falls into one of three categories delineated in
Rule 23(b).”37
1. Court Of Chancery Rule 23(a)
For a class to be certified, “(1) the class [must be] so numerous that joinder of
all members is impracticable, (2) there [must be] questions of law or fact common
to the class, (3) the claims or defenses of the representative parties [must be] typical
of the claims or defenses of the class, and (4) the representative parties [must] fairly
and adequately protect the interests of the class.”38 Settlement proponents bear the
burden of establishing each certification element.39 To the extent exceptions
engaged with Rule 23(a), they focused on whether Plaintiffs can fairly and
adequately represent the class.40
37
Leon N. Weiner & Assocs., Inc. v. Krapf, 584 A.2d 1220, 1224 (Del. 1991) (quoting and
citing Nottingham, 564 A.2d at 1094–95).
38
Ct. Ch. R. 23(a).
39
Dieter v. Prime Comput., Inc., 681 A.2d 1068, 1071 (Del. Ch. 1996) (citing Rosen v.
Juniper Petroleum Corp., 1986 WL 4279, at *1 (Del. Ch. Apr. 11, 1986)).
40
See, e.g., Izzo Exc. at 32–35.
12
a) Numerosity
Rule 23(a)(1)’s numerosity requirement may be satisfied by “numbers in the
proposed class in excess of forty, and particularly in excess of one hundred.” 41 As
of the February 8, 2023 record date for the Special Meeting, there were over 517
million shares of common stock outstanding.42 Strategic Claims Services served as
the “Notice Administrator” and “mailed . . . post card notice to 16,382 record
holders,” and “mailed or emailed approximately 2.8 million post card notices to
beneficial holders of AMC Common Stock.”43 Joinder of the diffuse holders of
hundreds of millions of shares is not practical. Numerosity is satisfied.
b) Commonality
Rule 23(a)(2) requires that “there are questions of law or fact common to the
class.”44 Commonality is “met where the question of law linking the class members
is substantially related to the resolution of the litigation even though the individuals
41
Marie Raymond Revocable Tr. v. MAT Five LLC, 980 A.2d 388, 400 (Del. Ch. 2008)
(internal quotation marks and footnote omitted) (collecting authorities), aff’d sub nom.
Whitson v. Marie Raymond Revocable Tr., 976 A.2d 172 (Del. 2009).
42
Op. Compl. ¶ 155; D.I. 200, Defendants’ Brief in Support of Proposed Settlement
[hereinafter “DOB”], Ex. W, AMC Entertainment Holdings, Inc., Proxy Statement
(Schedule 14A) (Feb. 14, 2023) [hereinafter “Feb. 14, 2023 Proxy”], at 4.
43
D.I. 442, Affidavit of Paul Mulholland Concerning Mailing of Post Card Notice
[hereinafter “Mulholland Aff.”], ¶¶ 4, 7; D.I. 531, Affidavit of Josephine Bravata
Concerning Mailing of Post Card Notice [hereinafter “Bravata Aff.”], ¶ 4. The exhibits to
the Mulholland and Bravata Affidavits are available at D.I. 443 and D.I. 531, respectively.
44
Ct. Ch. R. 23(a)(2).
13
are not identically situated.”45 “Commonality is not defeated merely because the
class members may have different interests and views, so long as the common legal
questions are not dependent on divergent facts and significant factual diversity does
not exist among individual class members.”46
Here, common questions of law include whether: (i) the defendants breached
their fiduciary duties by (a) “coercing stockholders to vote with respect to the
Certificate Proposals,” (b) “attempting to circumvent the franchise of the holders of
the Common Stock,” (c) “transferring economic value from members of the Class
to Antara and other holders of APEs”; (ii) “fail[ing] to seek approval from the
common stockholders as a class for the creation and issuance of the Preferred Stock”
violated Section 242(b); and (iii) Plaintiffs and the class have been injured by the
defendants’ conduct.47 Commonality is satisfied.
c) Typicality
Rule 23(a)(3) requires that “the claims or defenses of the representative parties
are typical of the claims or defenses of the class.”48 “The test of typicality is that the
legal and factual position of the class representative must not be markedly different
45
Krapf, 584 A.2d at 1225 (citations and internal quotation marks omitted).
46
Buttonwood Tree Value P’rs, L.P. v. R. L. Polk & Co., 2022 WL 2255258, at *6 (Del.
Ch. June 23, 2022) (internal quotation marks omitted) (quoting In re Phila. Stock Exch.,
Inc., 945 A.2d 1123, 1141 (Del. 2008)).
47
Op. Compl. ¶ 156; Non-Op. Compl. ¶ 102.
48
Ct. Ch. R. 23(a)(3).
14
from that of the members of the class” and “focuses on whether the class
representative claim (or defense) fairly presents the issues on behalf of the
represented class.”49 “Factual differences between the claims of the named plaintiffs
and the other class members do not necessarily preclude typicality.”50
Plaintiffs, as common stockholders, are similarly situated to the other
unaffiliated holders of common stock and their claims “arise[] from the same event
or course of conduct that gives rise to the claims . . . of other class members and
[are] based on the same legal theory.”51 That objectors proposed additional legal
theories for claims Plaintiffs did not raise does not mean that Plaintiffs’ claims are
atypical.52 Plaintiffs’ claims are typical of those of the class.
d) Fair And Adequate Representation
Under Rule 23(a)(4), I must determine that the proposed plaintiff class
representatives and their counsel “will fairly and adequately protect the interests of
49
Krapf, 584 A.2d at 1225–26 (citations and internal quotation marks omitted).
50
Sheftelman v. Jones, 667 F. Supp. 859, 863 (N.D. Ga. 1987) (citation omitted). “Judicial
interpretation of the Federal Rules respecting class actions . . . [is] persuasive authority for
the interpretation of Court of Chancery Rule 23.” Buttonwood, 2022 WL 2255258, at *3
(internal quotation marks omitted) (quoting Countrywide, 2009 WL 846019, at *12 n.84).
51
Krapf, 584 A.2d at 1226 (citation omitted).
52
Cf. Angelastro v. Prudential-Bache Sec., Inc., 113 F.R.D. 579, 582 (D.N.J. 1986) (“This
is not to say, as we discuss in greater detail below, that plaintiff’s claim is identical with
that of the other putative class members. Rather, it simply means that plaintiff’s
circumstances do not appear to be so unique as to preclude class treatment.”).
15
the class.”53 “Delaware courts have articulated a three-part test to establish the
adequacy of the class representatives”: (1) “the representative[s’] interests must not
be ‘antagonistic to the class’”; (2) “the plaintiffs must retain ‘competent and
experienced counsel to act on behalf of the class’”; and (3) “ the class representatives
must ‘possess a basic familiarity with the facts and issues involved in the lawsuit.’”54
“[D]etermination of the adequacy of a class representative is an ‘essential
component’ of the settlement approval process.”55 “In an application of the fourth
prerequisite of Rule 23(a), the predominant considerations are due process related:
(i) that there be no conflict between the named party and the other class members;
and (ii) that the named party may be expected to vigorously defend not only
themselves but the proposed class.”56 “The adequacy requirement ‘attempts to
53
Ct. Ch. R. 23(a)(4).
54
Buttonwood, 2022 WL 2255258, at *10 (quoting In re Fuqua Indus., Inc. S’holder Litig.,
752 A.2d 126, 127 (Del. Ch. 1999)). In the absence of substantiated argument or evidence
to the contrary, I find Plaintiffs possess sufficient familiarity with this litigation. See, e.g.,
D.I. 3, Verification of Walter Szymanski in Support of Verified Class Action Complaint
[hereinafter “Allegheny Verif.”], ¶¶ 4–5; D.I. 206, at Affidavit of Walter Szymanski of
Allegheny County Employees Retirement System in Support of Proposed Settlement,
Application for Attorneys’ Fees and Expenses, and Incentive Award for Plaintiffs
[hereinafter “Allegheny Aff.”], ¶¶ 3–6; 2023-0216, D.I. 1 at Affidavit and Verification of
Anthony Franchi in Support of Verified Stockholder Class Action Complaint [hereinafter
“First Franchi Aff.”], ¶¶ 2–3; D.I. 206, at Affidavit of Anthony Franchi in Support of
Proposed Settlement, Application for Attorneys’ Fees and Expenses, and Incentive Award
for Plaintiff [hereinafter “Second Franchi Aff.”], ¶¶ 3–5.
55
In re Infinity Broad. Corp. S’holders Litig., 802 A.2d 285, 291 (Del. 2002) (quoting
Goodrich v. E.F. Hutton Grp., Inc., 681 A.2d at 1039, 1045 (Del. 1996)).
56
Krapf, 584 A.2d at 1225.
16
ensure that the class representative has proper incentives to advance the interests of
the class,’ and ‘speaks to alignment of interests’ among the named and unnamed
class members.”57 “The class representative need not be ‘the best of all
representatives, but [rather] one who will pursue a resolution of the controversy in
the interests of the class.’”58 Once prima facie adequacy is established, the burden
shifts to the nonmovant, i.e. objectors, to disqualify the plaintiff.59
Plaintiffs are adequate to represent the interests of the class. As defined, the
settlement class includes all stockholders who held shares of AMC common stock
“at any time between August 3, 2022 through and including the Settlement Class
Time.”60 “Allegheny is the beneficial owner of shares of AMC Entertainment
57
Buttonwood, 2022 WL 2255258, at *9 (quoting In re Celera Corp. S’holder Litig., 2012
WL 1020471, at *14 (Del. Ch. Mar. 23, 2012), aff’d in relevant part, rev’d in part, 59 A.3d
418 (Del. 2012)).
58
Id. (quoting Price v. Wilm. Tr. Co., 730 A.2d 1236, 1238 (Del. Ch. 1997)).
59
See Van de Walle v. Unimation, Inc., 1983 WL 8949, at *4–5 (Del. Ch. Dec. 6, 1983).
60
D.I. 537 at 4; see also D.I. 165 [hereinafter “Stip.”], ¶ A.1(d) (“‘Class Period’ means the
period from August 3, 2022 through and including the Settlement Class Time.”); id. ¶ 1(w)
(“‘Settlement Class’ means a non-opt-out class for settlement purposes only, and pursuant
to Court of Chancery Rules 23(a), 23(b)(1), and 23(b)(2), consisting of all holders of
Common Stock during the Class Period . . . .”); D.I. 185, Ex. 1 [hereinafter “Notice”], ¶ 29
(“The ‘Settlement Class’ means all holders of AMC Common Stock between August 3,
2022, through and including the Settlement Class Time, whether beneficial or of record,
including the legal representatives, heirs, successors-in-interest, transferees, and assignees
of all such foregoing holders, but excluding Defendants. ‘Settlement Class Time’ means
the record time, expected to be set as of the close of business in accordance with any New
York Stock Exchange and/or Depository Trust Company requirements or policies, on the
business day prior to Conversion on which the Reverse Stock Split is effective. Put slightly
differently, if you owned AMC Common Stock between August 3, 2022, through and
17
Holdings, Inc. common stock and has held such shares continuously since December
16, 2015.”61 Franchi is a common stockholder that holds no APE units.62 In a sense,
his holdings make him better suited to represent the claims of the common because
he does not hold competing APE interests.63 Franchi has previously shown he is
willing and able to lead a representative action to a recovery.64 Allegheny has also
served as a lead plaintiff in a class action.65
The Special Master concluded the objectors did not carry their burden to
disqualify Plaintiffs as adequate class representatives.66 One objector, Izzo, took
exceptions to that recommendation.67 Izzo makes two arguments in support of her
including the time after the Reverse Stock Split is effected, but before the Conversion, you
are a member of the Settlement Class.”).
61
Allegheny Aff. ¶ 2; Allegheny Verif. ¶ 2 (“[Allegheny] is the beneficial owner of shares
of AMC Entertainment Holdings, Inc. common stock and has held such shares
continuously since December 16, 2015, and AMC Preferred Equity Units (‘APEs’) and has
held such units continuously since August 22, 2022.” (emphasis omitted)); D.I. 521 ¶¶ 2,
4–5.
62
D.I. 450, at Exhibit 2 to the Corrected Transmittal Affidavit of Thomas Curry in Support
of Plaintiffs’ Reply in Further Support of Settlement, Award of Attorneys’ Fees and
Expenses, and Incentive Awards [hereinafter “Izzo Obj.”], at 14 (“Discovery shows that
he owns only 32 shares of Common stock and no Preferred.” (citing
Franchi_0000000001)); see also First Franchi Aff. ¶ 1; Second Franchi Aff. ¶ 2.
63
See AMC, --- A.3d ---, 2023 WL 4677722, at *13.
64
E.g., In re Multiplan Corp. S’holders Litig., 2023 WL 2329706 (Del. Ch. Mar. 1, 2023)
(ORDER); Franchi v. Barabe, 2022 WL 3043899 (Del. Ch. Aug. 1, 2022) (ORDER).
65
E.g., Allegheny Cnty. Emps.’ Ret. Sys. v. Energy Transfer LP, 2020 WL 815136 (E.D.
Pa. Feb. 19, 2020).
66
D.I. 518 [hereinafter “Rpt.”], at 66–70.
67
Izzo Exc. at 32–35.
18
exceptions. First, Izzo disagrees with the Report’s determination that Prezant v. De
Angelis68 does not render Plaintiffs inadequate. Izzo relied on that case to argue
Plaintiffs are inadequate because they seek an outcome—the Proposed Settlement,
which would permit the Proposals and the Conversion—that many AMC
stockholders oppose.69
In Prezant, this Court approved a class action settlement of a second-filed
consolidated Delaware action while a first-filed Illinois action against the same
defendants remained pending.70 The Illinois plaintiffs, some of whom were
plaintiffs in the Delaware action, had rejected a settlement offer similar to the offer
Delaware plaintiff De Angelis accepted.71 The trial court approved the settlement in
spite of “highly suspicious” “deficiencies in the settlement process,” but “did not
make an explicit determination that De Angelis is an adequate representative of the
class he purports to represent. Indeed, defendants concede[d] that it can be inferred
from the Vice Chancellor’s findings that De Angelis is an inadequate representative
68
636 A.2d 915 (Del. 1994).
69
Rpt. at 67 & n.214 (citing Prezant, 636 A.2d at 918–20, 926).
70
636 A.2d 915.
71
Id. at 918, 924; see also id. at 920 (highlighting the fact that De Angelis’s action “asserted
only state common law fraud claims, which are not maintainable as a class action in
Delaware;” the defendants did not seek to stay or dismiss the second-filed Delaware action;
and the defendants did not challenge class certification as they did in Illinois (citing Gaffin
v. Teledyne, Inc., 611 A.2d 467 (Del. 1992)).
19
of the class.”72 An objector appealed. Because the trial court failed to determine De
Angelis’s adequacy as a class representative before approving the proposed
settlement, the Delaware Supreme Court reversed and remanded.73
Izzo interprets Prezant to hold that if other class members do not “desire” the
relief sought or achieved, the representative plaintiff cannot be adequate.74 From
there, Izzo argues that because more AMC common stockholders have spoken up to
oppose the Settlement than to support it, Plaintiffs’ support of the settlement makes
them inadequate. Prezant did not speak to any such numbers game: it simply
remanded for the trial court to make the adequacy determination Rule 23 requires.75
Izzo provides no other authority for the proposition that a representative plaintiff can
be rendered inadequate simply because the settlement drew a large volume of
72
Id. at 920, 926 (emphasis in original).
73
Id. at 926.
74
Izzo Exc. at 33; id. (“The Report . . . attempts to cabin Prezant’s instruction to cases in
which a plaintiff seeks to settle claims brought by a pre-existing litigant in another court.
But Prezant contains no such limiting principle.” (citing Rpt. at 67 n.214)).
75
Prezant’s holding is clear: “Accordingly, we do not believe that a class action settlement
can constitutionally bind absent class members without a judicial determination that the
adequate representation requirement of Rule 23(a)(4) has been satisfied.” 636 A.2d at 924.
Izzo’s exceptions present a different quotation as Prezant’s “holding,” but the quote is
drawn from a federal case, and Prezant simply relied on that federal language to explain
why adequacy determinations are important in class actions. Izzo Exc. at 32 & n.105 (“Izzo
Obj. at 39 (quoting Prezant v. De Angelis, 636 A.2d 915, 924 (Del. 1994) (emphasis added,
quotation omitted)).”); id. at 33 & n.107; see Prezant, 636 A.2d at 923; id. at 924 (quoting
Nat’l Ass’n of Reg’l Med. Programs, Inc. v. Mathews, 551 F.2d 340, 344 (D.C. Cir. 1976))
(quoting Dierks v. Thompson, 414 F.2d 453, 456 (1st Cir. 1969))).
20
objections. The volume of objections is not indicative of their merit, and meritless
objections do not demonstrate a disqualifying conflict.76 The Court considers the
merit of objections in assessing the reasonableness of the settlement terms, which I
have done below. Izzo’s exception based on Prezant is dismissed.
Izzo’s second exception asserts that “the Report disregards the economic
antagonism between the ‘unlikely hero[es]’ who saved AMC and the stockholders
who purport to represent them.”77 As a threshold matter, Izzo takes issue with the
fact that Franchi did not own AMC stock “‘at the time of the wrongs complained of’
in his Complaint.”78 But under Delaware law, direct claims like Plaintiffs’ run with
the stock, not the holder.79 Under the parties’ definition of “Settlement Class,” since
76
See, e.g., CME Grp., 2009 WL 1547510, at *5 n.26 (“The existence of material conflicts
between the class representatives and members of the class would limit the Court’s ability
to conclude that the class representatives’ efforts have been adequate within the meaning
of Court of Chancery Rule 23(a)(4). A review of those alleged conflicts is best done within
the context of assessing the merits of the objections. Because the Court will overrule those
objections, infra, and conclude that the class representatives and their counsel discharged
their responsibilities fairly and adequately and without any adverse consequences from
what the objectors have perceived as potential conflicts, the requirements of Court of
Chancery Rule 23(a)(4) have been satisfied.”); Youngman v. Tahmoush, 457 A.2d 376, 380
(Del. Ch. 1983) (“The fact that the plaintiff may have interests which go beyond the
interests of the class, but are at least co-extensive[] with the class interest, will not defeat
his serving as a representative of the class. Similarly, purely hypothetical, potential or
remote conflicts of interests never disable the individual plaintiff.” (citation omitted));
Buttonwood, 2022 WL 2255258, at *10 (same).
77
Izzo Exc. at 32 (quoting POB at 11).
78
Id. at 34 (footnote omitted).
79
Cf. AMC, --- A.3d ---, 2023 WL 4677722, at *21 (“Under Delaware law, direct claims
for violating voting rights associated with stock ownership are appurtenant to the share of
21
Franchi purchased within the Class Period, he is a class member with standing to
bring claims on behalf of the class.
From there, Izzo’s argument is more qualitative. She insists Plaintiffs are
inadequate because they “are not, and have never been, Apes,” 80 referring to the
colloquial name AMC’s retail common stockholders have given themselves. Izzo
points out that Allegheny and Franchi own relatively few shares of common stock
and fewer or no APE units, indicating they sold their APE units.81 She argues that
unlike “[t]he AMC stockholders who bought and held for the long term saved
AMC—and suffered for it,” Plaintiffs did not.82
Izzo also argues that Plaintiffs’ previous service as representative plaintiffs
renders them antagonistic to the interests of the class. Izzo describes Plaintiffs as “a
stock that carries the voting power; they are not personal rights belonging to the
stockholder who happens to own the shares.” (citing Activision, 124 A.3d at 1049, and
Urdan v. WR Cap. P’rs, LLC, 244 A.3d 668, 677 (Del. 2020))). Plaintiffs’ counsel has
concisely explained why Franchi can assert Plaintiffs’ claims under the Activision
framework. D.I. 537.
80
Izzo Exc. at 34; see also Izzo Obj. at 14 (“Franchi is no Ape[.]”); id. at 15 (“Franchi’s
tiny, late-purchased position may be atypical of Apes, but it is consistent with his history
of federal and state court litigation.”); id. at 16 (“Allegheny is a pension fund, not an Ape—
and in fact purports to own fewer Common shares than Ms. Izzo.”); cf. id. at 18 (“Ms. Izzo,
meanwhile, is an Ape to the core.”).
81
Izzo Exc. at 34–35.
82
Id. at 35; see also Hr’g Tr. 154. While Izzo critiques Plaintiffs’ trading patterns,
including Allegheny’s sales, her exceptions do not address her own stock sales, which the
parties raised. Izzo Exc. 34–35; D.I. 485 ¶ 1 (disclosing Izzo owns more APE units than
common stock because she sold shares of common stock).
22
professional plaintiff and a frequent-flying pension fund” who did not “share[] the
retail investors’ losses.”83 She also contends the requested incentive awards will
“ma[k]e [Plaintiffs] (more than) whole in the Settlement,” so they “could not
represent Class members who would lose out.”84
As the Special Master recommended, Izzo’s complaints are not disqualifying.
This Court has repeatedly determined that representative plaintiffs who hold small
numbers of shares “are capable of vigorously prosecuting a case.”85 Delaware courts
routinely appoint institutional stockholders as lead plaintiffs in representative
actions, for good reason.86 The mere fact that Plaintiffs traded differently than other
83
Izzo Exc. at 35.
84
Id. at 35 & n.113.
85
In re Ebix, Inc. S’holder Litig., 2018 WL 3570126, at *3 (Del. Ch. July 17, 2018)
(ORDER) (collecting cases); see also, e.g., Van de Walle, 1983 WL 8949, at *1, *6
(designating plaintiff who held 15 shares as class representative even though his “method
of acquiring his shares of stock may leave something to be desired”); Van de Walle v.
Salomon Bros., Inc., 1997 WL 633288, at *2 (Del Ch. Oct. 2, 1997) (finding that a
shareholder plaintiff with only 100 shares and $388 in potential losses could adequately
represent the class); Glosser v. Cellcor, Inc., 1995 WL 106527, at *3 (Del. Ch.
Mar. 10, 1995) (appointing as class representative a shareholder with 200 shares); Joseph
v. Shell Oil Co., 1985 WL 21125, at *3 (Del. Ch. Feb. 8, 1985) (holding that “[w]ith 100
shares at risk [plaintiff] ha[d] sufficient interest in the litigation to ensure that he w[ould]
zealously protect the rights of [other members of the class]”).
86
E.g., Ebix, 2018 WL 3570126, at *1, *3, *5 (granting class certification and appointing
class representatives, one of which was Desert States Employers & UFCW Union Pension
Plan); N.J. Carpenters Pension Fund v. infoGROUP, Inc., 2013 WL 610143, at *1, *5–7
(Del. Ch. Feb. 13, 2013) (finding New Jersey Carpenters Pension Fund an adequate class
representative and certifying the class); In re Cox Radio, Inc. S’holders Litig, 2010 WL
1806616, at *1, *8 (Del. Ch. May 6, 2010) (certifying a class with Coral Springs Police
Pension Fund as one of the co-lead plaintiffs), aff’d, 9 A.3d 475 (Del. 2010); cf. David H.
23
members of the class does not make their interests in the shares they hold
antagonistic to those of their fellow stockholders. Plaintiffs suffered the same type
of harm proportionate to their common stock holdings as every other class member.87
Izzo has not demonstrated that Plaintiffs’ interests are not aligned with those of the
class in remedying that harm. As to the incentive awards, those are designed to
compensate representative plaintiffs for the work, hassle, and exposure that their role
requires.88 Incentive awards restore representative plaintiffs to the baseline position
Webber, Private Policing of Mergers and Acquisitions: An Empirical Assessment of
Institutional Lead Plaintiffs in Transactional Class and Derivative Actions, 38 DEL. J.
CORP. L. 907, 908 (2014) (presenting “evidence that public-pension funds, alone among
institutional types, statistically significantly correlate with the outcomes of greatest interest
to shareholders-both an increase in the offer price and lower attorneys’ fees”).
87
See AMC, --- A.3d ---, 2023 WL 4677722, at *2 (“The factual predicate on which the
plaintiffs’ claims are based depicts the plight of the common stockholders who have been
harmed by the issuance and voting power of the preferred units.”); id. at *19 (“Plaintiffs
have undertaken a fiduciary role only as to the claims asserted enforcing the common
stock’s rights on behalf of, and remedying the alleged harm suffered by, the class of
common stockholders.”); Turner v. Bernstein, 768 A.2d 24, 33 (Del. Ch. 2000) (“[T]he
actions involve a challenge to a single course of conduct by the defendants that affects the
stockholder class equally in proportion to their ownership interest in the enterprise.”);
Rosen, 1986 WL 4279, at *3 (“I conclude that plaintiffs are adequate representatives of the
class of tendering stockholders and merged out stockholders. The unfair dealing, if any,
affected both groups in substantially the same way and their interests do not appear to be
antagonistic.”).
88
See, e.g., Raider v. Sunderland, 2006 WL 75310, at *1 n.2 (Del. Ch. Jan. 4, 2006)
(quoting Ingram v. Coca-Cola Co.[, 200 F.R.D. 685, 694 (N.D. Ga. 2001)] for the principle
that “[c]ourts routinely approve incentive awards to compensate named plaintiffs for the
services they provided and the risks they incurred during the course of the class action
litigation” (internal quotation marks omitted)); In re Dell Techs. Inc. Class V S’holders
Litig., --- A.3d ---, 2023 WL 4864861, at *38 n.38 (Del. Ch. July 31, 2023) (collecting
cases awarding incentive awards to compensate representative plaintiffs for their efforts).
24
of their fellow stockholders. Izzo’s exceptions as to Plaintiffs’ adequacy are
dismissed.89
Finally, the Court is satisfied that Plaintiffs’ counsel are competent and
qualified to prosecute this action. They have ample “experience[] in class and
corporate litigation.”90 Without any substantiated argument to the contrary,91 the
Court finds the representative Plaintiffs to be adequate class representatives.
89
Izzo has been open about her desire to take over this case as lead plaintiff should the
Court reject the Proposed Settlement. E.g., Izzo Obj. at 19; Izzo Exc. at 44; D.I. 583 ¶¶ 2,
5 (quoting AMC, --- A.3d ---, 2023 WL 4677722, at *13). This Court has considered an
objector’s desire to take over the class as context for their objection to a proposed
settlement. E.g., Ryan v. Gifford, 2009 WL 18143, at *12 (Del. Ch. Jan. 2, 2009).
90
MAT Five, 980 A.2d at 401; Ebix, 2018 WL 3570126, at *3 (finding counsel
“experienced of litigation of this type” to be competent for purposes of adequacy).
91
Certain objectors challenge the competency of counsel based on the filing of the motion
to lift the status quo order, or opposing certain class members’ motions. E.g., D.I. 450,
Plaintiffs’ Reply in Further Support of Settlement, Award of Attorneys’ Fees and
Expenses, and Incentive Awards [hereinafter “PRB”], Ex. 3, Form Objection, at 19–21;
see D.I. 59; D.I. 69. Disagreeing with litigation strategy is insufficient to challenge
competency of class counsel. See, e.g., Carlton Invs. v. TLC Beatrice Int’l Hldgs., Inc.,
1997 WL 305829, at *20 (Del. Ch. May 30, 1997) (“This settlement process and result,
although not perfect, is in my opinion an example of a fair and reasonable settlement
achieved . . . with the assistance of experienced counsel. While reasonable minds might
differ over any number of decisions (and I would) I conclude that the result as a whole is
reasonable and the product of independent, informed action of directors acting in good
faith. Therefore, I will approve the proposed settlement.”); Basile v. Merrill Lynch, Pierce,
Fenner & Smith, Inc., 105 F.R.D. 506, 509 (S.D. Ohio 1985) (finding class counsel
competent in spite of the defendant’s attacks on “the strategies of counsel for the named
plaintiffs”); N.J. Carpenters Health Fund v. Residential Cap., LLC, 272 F.R.D. 160, 164–
65 (S.D.N.Y. 2011) (finding claims as to possible differences between class members on
legal approach and settlement strategies to be “largely conjectural” and therefore not a basis
for denying class certification).
25
e) Court Of Chancery Rule 23 Affidavits
Rule 23(aa) requires the lead plaintiff to file an affidavit “stating that the
person has not received, been promised or offered and will not accept any form of
compensation, directly or indirectly, for prosecuting or serving as a representative
party” aside from any damages or other compensation granted by the Court, or
reimbursement of expenses by their lawyer; Rule 23(e) requires a second such
affidavit.92 Allegheny and Franchi filed their Rule 23(aa) affidavits on February 20,
and their Rule 23(e) affidavits on May 4.93
2. Court Of Chancery Rule 23(b)
“Chancery Court Rule 23(b) divides class actions into three categories”:
subsection (1) “applies to class actions that are necessary to protect the party
opposing the class or the members of the class from inconsistent adjudications in
separate actions”; subsection (2) “applies to class actions for class-wide injunctive
or declaratory relief”; and subsection (3) “applies when common questions of law
or fact predominate and a class action would be superior to other means of
adjudication.”94 “Class suits are not necessarily mutually exclusive; an action may
92
Ct. Ch. R. 23(aa); Ct. Ch. R. 23(e).
93
First Franchi Aff. ¶ 4; Second Franchi Aff. ¶ 7; Allegheny Verif. ¶ 6; Allegheny Aff. ¶ 8.
Szymanski’s affidavit filed February 20 affirms he and Allegheny complied with Rule
23.1(b). Allegheny Verif. ¶ 6. Rule 23.1(b) is analogous to Rule 23(aa), and I accept this
representation as in accordance with Rule 23(aa).
94
Nottingham, 564 A.2d at 1095 (footnotes, citations, and internal quotation marks
omitted).
26
be certified under more than one subdivision of Rule 23(b) in appropriate
circumstances.”95 “Delaware courts ‘repeatedly have held that actions challenging
the propriety of director conduct in carrying out corporate transactions are properly
certifiable under both subdivisions (b)(1) and (b)(2).’”96 So too here.
a) Court of Chancery Rule 23(b)(1)
Certification under Rule 23(b)(1) is appropriate if: (i) prosecution of separate
actions by individual class members would risk inconsistent and varying results that
would impose inconsistent obligations, or (ii) adjudication with respect to one class
member would be dispositive of the class’s interests. “[A]ctions challenging the
exercise of corporate fiduciary duties are frequently certified under this rule.”97 “The
Court [has] held that the requirements of Rule 23(b)(1) are satisfied where the case
involves ‘one set of actions by defendants creating a uniform type of impact upon
the class of stockholders.’”98 In Turner v. Bernstein, the Court found class treatment
appropriate under Rule 23(b)(1) given the “challenge to a single course of conduct
by the defendants that affects the stockholder class equally in proportion to their
ownership interest in the enterprise.”99
95
In re Celera Corp. S’holder Litig., 59 A.3d 418, 432 (Del. 2012) (quoting Krapf, 584
A.2d at 1226).
96
Id. at 432–33 (quoting Cox Radio, 2010 WL 1806616, at *8 (citations omitted)).
97
CME Grp., 2009 WL 1547510, at *5.
98
Buttonwood, 2022 WL 2255258, at *11 (quoting Turner, 768 A.2d at 31).
99
768 A.2d at 33–34.
27
Here, the class satisfies Rule 23(b)(1). All class members are unaffiliated
holders of common stock with rights to enforce fiduciary and statutory claims,
challenging the same course of conduct by the defendants, namely: “creating and
issuing Preferred Stock and APEs, entering into the Deposit Agreement with
Computershare, and entering into the various agreements described [in the operative
complaint] with Antara,” and “permit[ing the APEs] to be voted in connection with
the pending Proposals.”100 Plaintiffs also allege the class has suffered the same
harm: economic and franchise dilution.101
b) Court of Chancery Rule 23(b)(2)
Rule 23(b)(2) is satisfied if the defendants’ conduct is “generally applicable
to the class,” making class-wide declaratory or injunctive relief appropriate.102
“[C]ertification under Rule 23(b)(2) is appropriate when the rights and interests of
100
See AMC, --- A.3d ---, 2023 WL 4677722, at *19 (“Plaintiffs are AMC common
stockholders who purport to represent a class of common stockholders in pursuit of direct
claims belonging to the common stockholders based on rights appurtenant to their shares
of common stock.” (footnote omitted)); id. at *21 (“The direct fiduciary and statutory
claims Plaintiffs present are appurtenant to shares of common stock.” (footnote omitted));
Op. Compl. ¶ 165 (“Moreover, as alleged above, by creating and issuing Preferred Stock
and APEs, Defendants have caused and will continue to cause significant dilution and
economic harm to the Class. Moreover, if the Certificate Proposals carry and the APEs
convert into shares of Common Stock, the Class will suffer further economic harm and
dilution.”); Non-Op. Compl. ¶ 106 (“Plaintiff and the Class will be harmed if the Preferred
Stock is not declared invalid and is permitted to be voted in connection with the pending
Proposals.”).
101
See, e.g., Op. Compl. ¶¶ 4, 32, 93, 110, 151, 165.
102
Ct. Ch. R. 23(b)(2).
28
the class members are homogeneous.”103 “Certification pursuant to Rule 23(b)(2) is
warranted where the action concerns the alleged breaches of fiduciary duty by
corporate directors affecting the stockholder class as a whole and the particular facts
pertaining to any individual class member will not have any bearing on the
appropriate remedy.”104 This Court may certify a class under Rule 23(b)(2), even
though the remedy may be a monetary or a monetary equivalent settlement, if the
“action was commenced with a focus on injunctive or other equitable relief.”105
Here, the class also satisfies Rule 23(b)(2). Plaintiffs brought a breach of
fiduciary duty claim alleging the defendants’ breach harmed the class as a whole.106
And “[a]lthough the remedy achieved” in the settlement is stock consideration, “this
action was commenced with a firm focus on injunctive relief.”107
3. Discretionary Opt-Out
“If a class is certified under Rule 23(b)(3), class members have an unqualified
right to opt out of the class. There is no corresponding mandatory opt-out right for
103
Celera, 59 A.3d at 433 (citing Nottingham, 564 A.2d at 1095).
104
Ebix, 2018 WL 3570126, at *4 (citing Ct. Ch. R. 23(b)(2), and In re Resorts Int’l
S’holders Litig., 570 A.2d 259, 269–70 (Del. 1990), and Nottingham, 564 A.2d at 1096–
97)).
105
CME Grp., 2009 WL 1547510, at *5.
106
E.g., Op. Compl. ¶¶ 162–167.
107
CME Grp., 2009 WL 1547510, at *5.
29
classes certified under Rule 23(b)(1) or (b)(2).”108 The Delaware Supreme Court
“ha[s] recognized that circumstances may arise where discretionary opt-out rights
should be granted, such as where the class representative does not adequately
represent the interests of particular class members, triggering due process
concerns.”109 “Occasions where courts have granted discretionary opt-out rights
include: when the claims of an objector seeking to opt out are sufficiently distinct
from the claims of the class as a whole and an opt out is appropriate to facilitate the
fair and efficient conduct of the action.”110 But “[t]he propriety of a director action
should be adjudicated, if it is to be adjudicated, once with respect to all similarly
situated shareholders.”111 In such a situation, no opt-out right is warranted.112
As the Special Master observed in her Report, “numerous Objectors have
asked to opt out of the Settlement, with many not saying much more in the
Objection.”113 The Report recommended the Court not afford discretionary opt-out
108
Celera, 59 A.3d at 432 (emphasis added) (citing Ch. Ct. R. 23(c)(2), and Nottingham,
564 A.2d at 1097–98)).
109
Celera, 59 A.3d at 435 (citing Prezant, 636 A.2d at 924)).
110
Id. at 435 (footnote omitted).
In re Mobile Commc’ns Corp. of Am., Inc., Consol. Litig., 1991 WL 1392, at *16 (Del.
111
Ch. Jan. 7, 1991).
112
Id. (“The Constitution does not require (cf. Hansberry v. Lee, 311 U.S. 32 (1940)), nor
do prudential considerations, in my opinion, commend the granting of an opt-out right in
stockholder actions attacking the propriety of director conduct in connection with a
corporate merger.”).
113
Rpt. at 71 (footnote omitted).
30
rights to this class because of the nature of the relief sought and the consideration
received.114 The Report also noted, “Objectors have not cited any controlling law or
provided any persuasive reason to permit opt outs.”115
Three putative stockholders directly or indirectly took exception to this
recommendation.116 Izzo first accuses the Special Master of “misunderstanding” her
Objection.117 She asserts that absent an opt-out, the Proposed Settlement violates
the class’s due process rights, and cites In re Celera Corp. to argue that “a settlement
cannot ‘deny a discretionary opt-out right where the policy favoring global
settlement [is] outweighed by due process concerns.”118 Celera is inapposite: there,
“the class representative was ‘barely’ adequate, the objector was a significant
shareholder prepared independently to prosecute a clearly identified and supportable
claim for substantial money damages, and the only claims realistically being settled
at the time of the certification hearing nearly a year after the merger were for money
damages” where the action began with claims for injunctive relief that settled
114
Id. at 71–73.
115
Id. at 71; id. at 72 n.234 (“Izzo concludes footnote 125 [of her Objection] by noting her
belief that permitting opt outs is the better course. [N]either Izzo nor any other Objector
has proposed a legitimate litigation path forward after the Conversion.”).
116
Izzo Exc. at 35–38; see also D.I. 558 at 21 (requesting the Court let him opt out, but not
engaging with the Special Master’s recommendation against an opt-out class); D.I. 552 at
8–10 (focusing on sub-classes).
117
Izzo Exc. at 35.
118
Id. at 36 (quoting Celera, 59 A.3d at 436).
31
without formal court approval.119 Izzo’s due process argument also relies on Prezant
to assert stockholders must be able to opt out to pursue an injunction against the
Conversion,120 which Plaintiffs permit under the Proposed Settlement. As explained
above, Izzo misinterprets Prezant. Izzo’s doctrinal exceptions are dismissed.
More broadly, an opt-out right is not feasible. First, the Notice did not provide
for such opt-out procedures; nor was it required to do so. An opt-out class would
require another notice with a higher distribution rate before class members could opt
out. Second, for an opt-out right to be meaningful, class members who wanted to
opt out would have to accurately follow the noticed procedures; stockholder
procedural compliance has been a challenge in this case.121 And third, permitting an
opt-out right would further delay the effective date, which as this opinion explains
would be detrimental to AMC and the class’s interests in it.
More fundamentally, as discussed in the Rule 23(b) analysis above, the claims
and the relief sought are class-wide. If Plaintiffs had prevailed and the Court granted
119
Celera, 59 A.3d at 436 (footnote omitted).
120
Izzo Exc. at 36.
121
E.g., D.I. 567, Appendix B (listing 354 “Timely Objections Without Proof of
Ownership”); Rpt. at Appendix C (listing 170 “Untimely Objections”); id. at Appendix E
(listing 37 “Information Statements”); id. at Appendix F (listing 2,108 “Inquiries”); PRB
at 8 (“Of the approximately 2,850 purported objectors, almost half—about 1,235—did not
include any information regarding their holdings. Of objectors including some evidence
of beneficial ownership (e.g., a brokerage account statement, a screen shot, or an authorized
statement from a broker), the vast majority did not comply with applicable requirements.”);
id. at 8 n.9 (“For example, brokerage account screenshots frequently did not include the
stockholder’s name and/or date(s) of holdings.”).
32
injunctive relief, the entire class would have benefitted from that relief. The
Proposed Settlement releases those claims and allows the Reverse Split and the
Conversion to go forward with stock consideration to each member of the class. It
is impossible to split that bargain by permitting the Reverse Split and the Conversion
to go forward, while excluding certain class members from the consideration and
permitting them to maintain their claims against, and requests to enjoin, the Reverse
Split and the Conversion.122 I decline to certify a discretionary opt-out class. The
other exceptions on this point are dismissed.
C. Adequacy Of Notice
Rule 23 requires that notice of a proposed settlement be given to stockholders.
The Court evaluates both the contents of the notice, and its delivery.
1. The Notice’s Contents Were Sufficient.
“An adequate notice describes the settlement, ‘puts stockholders upon notice
as to the general nature of the subject matter, and warns them that their substantial
122
See Phila. Stock Exch., 945 A.2d at 1136–37 (“The Objectors argue that their procedural
due process rights were violated because: (i) they were not afforded a right to opt out of
the class . . . . The Objectors’ procedural due process argument would have merit if this
were a class action primarily ‘for money damages or other relief at law’ under Rule
23(b)(3). Here, however, the primary relief sought in the initial and amended complaints
was equitable . . . . The relief afforded in the settlement is also primarily equitable . . . . In
these circumstances, it cannot be fairly argued that the trial court’s declination to grant an
opt-out right to the class was unconstitutional.” (footnote omitted)).
33
interests are involved.’”123 “A notice of settlement is sufficient if it ‘contains a
description of the lawsuit, the consideration for the settlement, the location and time
of the settlement hearing, and informs class members that additional information can
be obtained by contacting class counsel.’”124 “A notice is ‘not required to eliminate
all occasion for initiative and diligence on the part of the stockholders.’”125
Together, the Stipulation and the Notice describe the underlying facts related
to the litigation, the claims Plaintiffs pled, the procedural history of the action, and
the Proposed Settlement. The Notice also adequately describes the consideration for
the settlement: it states the Proposed Settlement contemplates consideration of one
share of common stock for every seven and a half shares of common stock owned
by class members at the Settlement Class Time.126 The Notice provides the location
and time of the Settlement Hearing.127 Finally, the Notice informs stockholders who
to contact for further information: it discloses the contact information of the Register
in Chancery and Plaintiffs’ counsel.128 I conclude the contents of the Notice are
adequate.
123
Activision, 124 A.3d at 1061 (quoting Geller v. Tabas, 462 A.2d 1078, 1080 (Del.
1983)).
124
Id. (quoting Phila. Stock Exch., 945 A.2d at 1135 n.13).
125
Id. (quoting Braun v. Fleming–Hall Tobacco Co., 92 A.2d 302, 309 (Del. 1952)).
126
Notice at 1–2; id. ¶¶ 3, 26–27, 44–45.
127
Id. at 3; id. ¶ 60.
128
Id. ¶¶ 71–74.
34
2. Notice Was Adequately Distributed.
The Notice was also adequately distributed. Notice is to be delivered in such
a manner as the Court directs: by mail, publication or otherwise.129 “Unlike
certification under Rule 23(b)(3)—which requires ‘that class members be given
actual notice . . .’—notice to absent class members . . . [is] at the Court’s discretion
for a class certified under Rule 23(b)(2).”130
Notice is adequately delivered if it is sent to record holders.131 Under
well-settled Delaware law, non-record holders assume the risk that they may not
receive notice from their nominee or custodian.132 “There is no requirement to mail
129
See Ct. Ch. R. 23(e).
130
In re Lawson Software, Inc., 2011 WL 2185613, at *1 (Del. Ch. May 27, 2011) (quoting
Nottingham, 564 A.2d at 1097–98, and citing Ct. Ch. R. 23(d)(2), and MAT Five, 980 A.2d
at 401).
131
Activision, 124 A.3d at 1061 (“In my view, the scheduling order could have required
mailing only to a single list of record holders as of the date of mailing. Notice need only
be sent to record holders.” (citing Am. Hardware Corp. v. Savage Arms Corp., 136 A.2d
690, 692 (Del. 1957))).
132
See In re Dole Food Co., Inc., 2017 WL 624843, at *5 (Del. Ch. Feb. 15, 2017)
(interpreting Activision to hold that “for a notice of settlement [to] be legally sufficient, a
corporation only need mail it to its record holders”); Am. Hardware, 136 A.2d at 692 (“If
an owner of stock chooses to register his shares in the name of a nominee, he takes the risks
attendant upon such an arrangement, including the risk that he may not receive notice of
corporate proceedings.”); Enstar Corp. v. Senouf, 535 A.2d 1351, 1354–55 (Del. 1987)
(same); Crown EMAK P’rs, LLC v. Kurz, 992 A.2d 377, 394 (Del. 2010) (same); In re
Madison Square Garden Ent. Corp. S’holders Litig., 2023 WL 3696664, at *1 (Del. Ch.
May 26, 2023) (same); Activision, 124 A.3d at 1061 (same); In re Protection One, Inc.
S’holder Litig., C.A. No. 5468-VCS, D.I. 89 at 63 (Del. Ch. Oct. 6, 2010) (TRANSCRIPT)
(“You are allowed to base a settlement on record holders. That is what we look at. When
you deal -- when you are a beneficial owner and you deal with a broker, you are at your
own risk. If you want to get notice of a settlement, you become a record holder.”).
35
a settlement notice to every single class member who ever owned a share of a
publicly held company.”133 The Scheduling Order required AMC to deliver “the
best notice practicable under the circumstances.”134
Here, notice was adequate under the unique circumstances of this case. AMC
has millions of human beneficial stockholders all over the world. AMC’s retail base
has a reputation for their online activity.135 But many of AMC’s human stockholders
presumably do not monitor their AMC investment online. And the parties sought
notice on a compressed timeline designed to permit AMC to access vital capital if
the settlement was approved.136
The Company distributed notice electronically and by publication: on AMC’s
investor relations website, on AMC’s Twitter account, via a Form 8-K, over PR
Newswire, and on Depository Trust Company’s Legal Notice System.137 In most
133
Activision, 124 A.3d at 1060 (citation omitted).
134
See D.I. 185, Scheduling Order, ¶ 11.
135
E.g., D.I. 206, Plaintiffs’ Opening Brief in Support of Settlement, Award of Attorneys’
Fees and Expenses, and Incentive Awards [hereinafter “POB”], at 11.
136
D.I. 217 at 18 (“And so I guess the question I’m asking is: Can we truncate it a little
bit? And obviously we need to work backwards from a hearing date. But from the
perspective of capital raising, once we get into the late summer, that is typically a quiet
period. So I’m a little worried about this dragging -- a little -- fairly worried about this
dragging into the fall.”); id. at 19 (“I do agree with Mr. Neuwirth, there was a desire on the
company’s part for reasons that, frankly, we are sympathetic to, to be able to do a
fundraising before the markets basically shut down in August.”).
137
D.I. 530, Affidavit of Publication of Notice for Joshua S. Amsel [hereinafter “Amsel
Aff.”], ¶ 2; Presentations, AMC THEATRES INVESTOR RELATIONS,
36
instances, for publicly traded companies with a higher percentage of institutional
stockholders, this is enough.138 In addition, in this high-profile case, these electronic
disclosures were amplified in the press and on social media.139
https://investor.amctheatres.com/financial-performance/presentations/default.aspx (last
visited Aug. 9, 2023); Amsel Aff. ¶ 3; @AMCTheatres, TWITTER (May 6, 2023 10:37 PM),
https://twitter.com/amctheatres/status/1655039034798874626?s=46&t=WpxdAi8Gn-
KvX2ChMS18bQ; D.I. 531 at Exhibits A - C to Affidavit of Publication of Notice for
Joshua S. Amsel [hereinafter “Amsel Aff., Ex.”], at Ex. A (same); Amsel Aff. ¶ 4; Amsel
Aff, Ex. B; AMC Entertainment Holdings, Inc., Current Report (Form 8-K) (May 8, 2023);
see Activision, 124 A.3d at 1061 (“The filing of a copy of the notice as an exhibit to a Form
8–K provided an additional means for beneficial owners to receive notice.”); Amsel Aff.
¶ 5; Summary Notice of Pendency of Stockholder Class Action and Proposed Settlement,
Settlement Hearing, and Right to Appear, PR NEWSWIRE (May 8, 2023 4:58 PM)
https://www.prnewswire.com/news-releases/summary-notice-of-pendency-of-
stockholder-class-action-and-proposed-settlement-settlement-hearing-and-right-to-
appear-301818710.html; Amsel Aff., Ex. C (same); Mulholland Aff. ¶ 6.
138
See, e.g., Madison Square Garden, 2023 WL 3696664, at *2.
139
E.g., Amsel Aff. ¶ 3; @AMCTheatres, TWITTER (May 6, 2023 10:37 PM),
https://twitter.com/amctheatres/status/1655039034798874626?s=46&t=WpxdAi8Gn-
KvX2ChMS18bQ; Amsel Aff., Ex. A (same); Mike Murphy, AMC says it’s reached deal
to settle shareholder lawsuit over APE conversion, MARKETWATCH (May 8, 2023 7:39
AM), https://www.marketwatch.com/story/amc-says-its-reached-deal-to-settle-
shareholder-lawsuit-over-ape-conversion-4627a08c (last visited Aug. 9, 2023); Jayson
Aycock, AMC Entertainment filing sets up end of June to resolve APE conversion lawsuit,
SEEKING ALPHA (May 8, 2023 5:30 PM), https://seekingalpha.com/news/3967626-amc-
entertainment-filing-sets-up-end-of-june-to-resolve-ape-conversion-lawsuit (last visited
Aug. 9, 2023) (“AMC Entertainment (NYSE:AMC) formally filed its notice to
stockholders about its settlement to resolve class action litigation, linked to the company’s
plan to raise equity by converting preferred units and implementing a reverse stock split.
The company’s notice, filed with the SEC, locks down timelines and procedures for AMC
shareholders to formally object or support a settlement of the action, and sets up a next
catalyst by way of a June 29–30 hearing at the Delaware Court of Chancery.”); AMC: Now
We Can AMC Some of WTF is Going On, THE CHANCERY DAILY (May 18, 2023),
https://thechancerydaily.substack.com/p/amc-now-we-can-amc-some-of-wtf-is (last
visited Aug. 9, 2023) (“The AMC settlement was noticed to stockholders at the beginning
of May after a bit of a bumpy start.”); cf. Allison Frankel, AMC meme investors win rare
37
To reach human stockholders who may not be monitoring their investment or
financial or legal news online, the Court also directed the Company to promptly
cause postcard notices to be mailed. At AMC’s direction, notice administrator
Strategic Claims Services (“SCS”) “mailed . . . post card notice to 16,382 record
holders identified in transfer records that were provided to SCS on May 1, 2023 by
Weil, Gotshal & Manges LLP, counsel to AMC.”140 “The mailing of the post card
to record holders of AMC Common Stock was completed on May 8, 2023.”141 SCS
also “mailed or emailed approximately 2.8 million post card notices to beneficial
holders of AMC Common Stock.”142 This is the majority of the 3.8 million
stockholders the defendants’ counsel represented owned common stock.143
Postcard notice was far from perfect. The notice administrator failed to mail,
or facilitate mailing of, notice to approximately a million beneficial owners.144 One
access to evidence in fight over $129 mln settlement, REUTERS (May 22, 2023 6:14 PM),
https://www.reuters.com/legal/government/amc-meme-investors-win-rare-access-
evidence-fight-over-129-mln-settlement-2023-05-22/ (last visited Aug. 9, 2023).
140
Mulholland Aff. ¶ 4.
141
Id. ¶ 4.
142
Id. ¶ 7; Bravata Aff. ¶ 4.
143
D.I. 217 at 32 (“By our estimation, the number of beneficial stockholders is
approximately 3.8 million. Obviously, this is a stock that’s held very widely.”); id. at 35
(“[W]e’ve got almost 4 million stockholders that we would have to mail to . . . .”); see also
PRB at 8, 37, 51 (referencing AMC’s estimated 3.8 million stockholders).
144
Compare supra note 143 (representing to the Court that there were approximately 3.8
million AMC common stockholders), with Mulholland Aff. ¶ 7 (“Prior to May 31, 2023,
SCS and nominees for beneficial holders of AMC Common Stock mailed or emailed
38
broker was significantly delayed in mailing postcards to another 1.5 million
beneficial holders.145 The postcard sent recipients to a nonfunctioning URL that did
not direct to the correct website.146 Future settling parties should not use this case
approximately 2.8 million post card notices to beneficial holders of AMC Common
Stock.”); Bravata Aff. ¶ 4 (“As of June 22, 2023, SCS and nominees for beneficial holders
of AMC Common Stock mailed or emailed approximately three million post card notices
to beneficial holders of AMC Common Stock.”); see also D.I. 553 ¶ 6 (noting the 1 million
discrepancy between 3.8 million stockholders and 2.8 million postcards); D.I. 554 ¶ 1
(same); D.I. 560 at 1–2 (same). But compare D.I. 565 at 4 (“I am a Canadian and I did not
receive a postcard to date. I messaged Interactive Brokers Canada and they messaged back
that they do not mail out postcards. They sent me a link to the court case.” (emphasis
omitted)), with Mulholland Aff., Ex. C (listing Interactive Brokers Canada Inc. as a
nominee to which SCS mailed a notice letter requesting assistance identifying AMC
stockholders and beneficial holders), and Mulholland Aff., Ex. D (listing brokers who
responded to SCS with beneficial holders’ contact information so that SCS could mail the
postcards, or an indication that the broker would mail the postcards to the beneficial
holders, or a response that there were “no holders;” not identifying Interactive Brokers
Canada Inc. as having responded to SCS); Bravata Aff., Ex. A (same).
145
Compare Mulholland Aff., Ex. D (reflecting that Robinhood has the names and
addresses of 1,560,828 beneficial holders), and Bravata Aff., Ex. A (same), and
Mulholland Aff., at Ex. E (reflecting SCS mailed Robinhood letters on May 3 and May 16,
emailed Robinhood on May 16, 17, and 18, and called Robinhood on May 17), and Bravata
Aff., Ex. B (same), with D.I. 175 at 5 (writing the parties that the schedule that was
ultimately reflected in the Scheduling Order “depends on prompt initiation of postcard
notice, and will only work if postcards will generally be delivered by May 24, 2023”); see
also Izzo Exc. at 6–7.
146
Compare Mulholland Aff., Ex. A (“You can file a written statement in support of, or
objection to, the Settlement that is required to be received no later than May 31, 2023, in
accordance with the instructions set forth in the Notice and the letter that the Court
published to AMC stockholders, which will be posted on the “Investor Relations” section
of AMC’s website, investor.amctheatres.com/newsroom/default.aspx”), with
Presentations, AMC THEATRES INVESTOR RELATIONS,
https://investor.amctheatres.com/financial-performance/presentations/default.aspx (last
visited Aug. 9, 2023) (the website where AMC posted relevant documents); accord D.I.
554 ¶ 1 (“For those who received the postcard after [May 24th], mostly around May 31st,
the contents were highly confusing, difficult to locate, and intentionally misleading. The
postcard directed shareholders AMC Theaters’ generic ‘newsroom’ page on the [investor
39
as a model for distributing postcard notice.
Still, on the unique facts of this case, I conclude notice was adequate.
Electronic notice was comprehensive. The postcards were intended to provide
supplemental notice to retail owners who might miss the comprehensive electronic
notice. Record holders received their postcards in time; beneficial owners are not
entitled to actual notice. That some postcards were not timely delivered to beneficial
owners does not mean that notice overall was so inadequate as to deny, or require
renoticing of, the settlement. And while the URL in the postcard was inaccurate, the
postcard gave notice of the fact of the Proposed Settlement; a quick internet search
would lead stockholders to the pervasive electronic notice of the Proposed
Settlement.147
The stockholder response to the Proposed Settlement is evidence that notice
was adequate. Many of the putative stockholder Objections, and exceptions,
complained that stockholders had not received a postcard notice.148 These
relations] website instead of ‘financial-performance/presentations’ and several lead
counsel websites, rather than providing a clear landing page and clear email address . . . as
requested.”).
147
Activision, 124 A.3d at 1061 (quoting Braun, 92 A.2d at 309).
148
Rpt. at 76; see also D.I. 553 ¶ 6; D.I. 554 ¶ 1; Izzo Exc. at 7–8; D.I. 565 at 4; D.I. 506
at 1; D.I. 603, Ex. A ¶¶ 1–2.
One stockholder, Anthony Kramer, asserted on June 20 that he had not received the
postcard notice or any notice of the Proposed Settlement and the May 31 Objection
deadline until June 2. D.I. 506 at 1. He did not submit an affidavit to this effect until July
31, over a month after the record had closed. D.I. 603, Ex. A ¶¶ 1–3. In any event, Kramer
40
Objections actually demonstrate that those stockholders had notice of the Proposed
Settlement, and of where, when, and how to submit an Objection to the Proposed
Settlement.
The notice afforded due process. The stockholder communications to
Plaintiffs’ counsel and the Court, unprecedented in their scale, were variations on a
set of themes. The Special Master and I have considered those themes. At the risk
of minimizing the concern, ingenuity, and savvy of those who did not receive timely
actual notice and who would have otherwise objected, the scale of the stockholder
response makes it unlikely that additional actual postcard notice would have
presented a dispositive issue with the Proposed Settlement that was not already
identified by the Court, the parties, or any of the thousands of stockholders who
weighed in, including Izzo and her counsel.
For the foregoing reasons, notice was adequate and the exceptions to the
Special Master’s conclusion that notice was adequate are dismissed.
D. The Settlement Is Reasonable.
I now turn to consider whether the terms of the Proposed Settlement are
reasonable, recognizing that “[t]his Court generally favors settlement of complicated
effectively joined Izzo’s Objection and identifies no manner in which his interests were not
protected. D.I. 506 (filing a “Joinder of Anthony Kramer in Rose Izzo’s Objection to the
Proposed Settlement, Award of Attorneys’ Fees and Expenses, and Incentive Awards”).
41
litigation.”149 The Court undertakes this task to protect the interests of the absent
class members vis-a-vis the personal interests of the representative plaintiff and the
plaintiff’s counsel. Care must be taken in approving a class action settlement
company to ensure the fiduciary nature of the action is respected, and that approval
is consistent with due process; the Court is to guard against the risk that “absent class
members and others with a stake in the litigation could have their claims released
without an opportunity to be heard.”150
The Court’s role is to act as a fiduciary, applying a range-of-reasonableness
review that is one step removed from the litigant’s business judgment to accept the
settlement.151 This Court put it simply in Kahn v. Sullivan: “the Court’s role in
reviewing the proposed Settlement . . . is quite restricted.”152 The Delaware Supreme
Court went on in that case to explain the Court was to “balance the policy preference
for settlement against the need to insure that the interests of the shareholders, as a
class, had been fairly represented.”153 In sum: the role of judicial review is not to
second-guess or optimize every element of the settlement; rather, the Court’s role as
149
Gatz, 2009 WL 1743760, at *2.
150
Celera, 59 A.3d at 433–34 (quoting Edward P. Welch et al., Mergers & Acquisitions
Deal Litigation Under Delaware Corporation Law § 11.01 (2012)).
151
Activision, 124 A.3d at 1064 (quoting Forsythe v. ESC Fund Mgmt. Co. (U.S.), 2013
WL 458373, at *2 (Del. Ch. Feb. 6, 2013)).
152
594 A.2d 48, 58 n.23 (Del. 1991).
153
Id. at 63 (citing Barkan v. Amsted Indus., Inc., 567 A.2d 1279, 1283 (Del. 989)).
42
a fiduciary is to ensure due process is afforded, and to weigh the “give” against the
“get” to ensure the class is reaping a reasonable benefit alongside the representative
plaintiff.
In so doing, the Court’s function is “to consider the nature of the claim, the
possible defenses thereto, the legal and factual circumstances of the case, and to
apply its own business judgment in deciding whether the settlement is reasonable in
light of those factors.”154 The Court must then “determine whether the settlement
falls within a range of results that a reasonable party in the position of the plaintiff,
not under any compulsion to settle and with the benefit of the information then
available, reasonably could accept.”155 “[T]he Court of Chancery need not limit
itself to an examination of the immediate tangible results to [the class] a corporation
or its shareholders in determining the fairness of a settlement agreement. The
probable long-term benefits of the settlement are also properly considered.”156
Courts have framed this reasonableness review as evaluating the “give” and the “get”
154
Phila. Stock Exch., 945 A.2d at 1137 (quoting Polk, 507 A.2d at 535, and citing Barkan,
567 A.2d at 1284–85).
155
Activision, 124 A.3d at 1064 (quoting Forsythe, 2013 WL 458373, at *2).
156
Infinity Broad., 802 A.2d at 290 (footnotes omitted) (citing Prince v. Bensinger, 244
A.2d 89, 95 (Del. Ch. 1968)).
43
of the proposed settlement: the settlement class releases, or “gives” up, claims and,
in exchange, “gets” consideration.157
The Stipulation of Settlement, as amended, includes the following release (the
“Release”):
“Released Plaintiffs’ Claims” means any and all actions, causes of
action, suits, liabilities, claims, rights of action, debts, sums of money,
covenants, contracts, controversies, agreements, promises, damages,
contributions, indemnities, and demands of every nature and
description, whether or not currently asserted, whether known claims
or Unknown Claims, suspected, existing, or discoverable, whether
arising under federal, state, common, or foreign law, and whether based
on contract, tort, statute, law, equity, or otherwise (including, but not
limited to, federal and state securities laws), that Plaintiffs or any other
Settlement Class Member: (i) asserted in the Allegheny Complaint or
the Munoz Complaint; or (ii) ever had, now have, or hereafter can, shall,
or may have, directly, representatively, derivatively, or in any other
capacity that, in full or part, concern, relate to, arise out of, or are in any
way connected to or based upon the allegations, transactions, facts,
matters, occurrences, representations, or omissions involved, set forth,
or referred to in the Complaints and that relate to the ownership of
Common Stock during the Class Period, except claims with regard to
enforcement of the Settlement and this Stipulation.158
As consideration for the Release, AMC agreed to issue 6,922,565 shares of
157
See Phila. Stock Exch., 945 A.2d at 1148 n.54 (discussing how the court must “assure”
the “class members will receive fair consideration for their release of th[eir] claims”);
Trulia, 129 A.3d at 891 (“In doing so, the Court evaluates not only the claim, possible
defenses, and obstacles to its successful prosecution, but also ‘the reasonableness of the
“give” and the “get,”’ or what the class members receive in exchange for ending the
litigation.” (footnotes omitted)).
158
D.I. 582 at Addendum to Stipulation and Agreement of Compromise, Settlement, and
Release ¶ 1.
44
common stock (the “Settlement Shares”) to the class members.159 Because there is
no monetary payment to the Company, the Proposed Settlement does not increase
the size of AMC’s equity pie, but rather gives class members a slightly bigger slice
at the expense of APE unitholders. This is the “get.”
1. The Class’s “Give”
In exchange for the “get,” the class is releasing certain claims it has against
the defendants. This is the “give.” In analyzing the class’s “give,” the Court
examines the strength of the claims and possible claims released in the settlement.160
Put another way, the Court considers the scope of the release and the value of the
released claims, taking into account the likelihood a plaintiff could prevail and the
benefits (monetary or otherwise) of that victory.
In conducting this analysis, I will assess the value of the claims as noticed,
pled, and released. I make this unremarkable statement because Plaintiffs have
handled their claims in unusual and inconsistent ways. The Release includes claims
asserted in both the operative complaint (referred to as the “Munoz Complaint,” after
Franchi’s former co-plaintiff) and the Allegheny complaint, as well as claims that
159
POB at 31.
160
Caremark, 698 A.2d at 961 (“A motion [to approve a proposed settlement] requires the
court to assess the strengths and weaknesses of the claims asserted in light of the discovery
record and to evaluate the fairness and adequacy of the consideration offered to the
corporation in exchange for the release of all claims made or arising from the facts
alleged.”).
45
are connected to or based upon the allegations in both complaints.161 The released
claims include the Section 242 claim the Allegheny complaint asserted against
AMC.
The Release also includes the breach of fiduciary duty claim as pled.
Plaintiffs’ briefing in support of the Proposed Settlement truncated that claim to
exclude consideration of events before December 2022.162 The settlement
161
Allegheny brought a Section 242(b) claim; Franchi did not. See Op. Compl.; Non-Op.
Compl. ¶¶ 100–107. Plaintiffs designated Franchi’s complaint as the operative complaint,
but informed the Court in a March 13 letter that “the claim articulated in Count II of the
Complaint filed in Allegheny County Employees’ Retirement System v. AMC Entertainment
Holdings, Inc., et al., C.A. No. 2023-0215-MTZ (the ‘Allegheny Action’) will be included
as a basis for Plaintiffs’ motion for a preliminary injunction in this consolidated action.”
D.I. 34 at 1–2 (emphasis in original); D.I. 20 ¶ 7 (designating the Franchi complaint the
operative complaint). At argument, Plaintiffs’ counsel indicated they might not have
sought an injunction claim based on the Section 242 claim after all. Hr’g Tr. 52 (“I think
that you may -- Your Honor may or may not have even seen briefing on the Section 242
claim at the injunction stage. It was there, and there was a letter that says we’re pursuing
it or have the option to pursue it. And ultimately, I -- I can’t predict what would have
happened if an injunction brief was filed. But I think I can say there was no guarantee
there was going to be a statutory argument under 242.”). At the end of the day, the Section
242 claim is being released, so I must evaluate it in the “give” as against the “get.”
Plaintiffs also contend that “Franchi did not allege that the issuance of the APEs
was ‘a wrong,’ nor did he assert a §242(b) claim.” PRB at 43. Franchi is a lead plaintiff
for all claims in this litigation and has negotiated a release for both the breach of fiduciary
duty claim he pled, and the Section 242(b) claim Allegheny pled.
162
POB at 39 (“[A]ny claim concerning APEs did not arise until Defendants weaponized
them alongside the [December 2022] Antara Transaction.”); accord id. at 6 (“Plaintiffs’
core claim, concerning the Board inequitably overriding the Common Stock franchise
through the Antara Transaction, would be governed by the Blasius doctrine.”); id. at 7 (“In
assessing Plaintiffs’ injunction application, the Court would examine the December 2022
timeframe to assess the merits of Plaintiffs’ claims.”); PRB at 1 (“Plaintiffs’ Blasius claim
is prima facie viable, as Defendants’ ‘primary purpose’ for the Antara Transaction was to
override Common Stock opposition to increasing the number of authorized AMC shares.”).
46
documents make plain that the class is releasing the claim as pled.163 I must evaluate
the Proposed Settlement based on the claims as pled, not as briefed.164
In the operative complaint, Plaintiffs alleged:
Defendants breached their fiduciary duties by creating and issuing
Preferred Stock and APEs, entering into the Deposit Agreement with
Computershare, and entering into the various agreements described
herein with Antara, all of which are coercive, will sway the outcome of
the . . . Proposals, and are designed to circumvent the franchise rights
of the Class. The Board’s actions are plainly intended to push through
the . . . Proposals notwithstanding the previous, repeated opposition of
the Class.
163
The Notice described the operative complaint as “asserting a claim for breach of
fiduciary duty in connection with the Proposals and seeking injunctive relief prior to the
effectuation of the Proposals.” Notice ¶ 14. The Stipulation and Notice define a proposed
“Settlement Class” to mean “all holders of AMC Common Stock between August 3, 2022,
through and including the Settlement Class Time,” or record time, “after the Reverse Stock
Split is effected, but before the Conversion.” Id. ¶ 29; id. ¶ 64(v); see also Stip. ¶ A.1(d)
(“‘Class Period’ means the period from August 3, 2022 through and including the
Settlement Class Time.”); id. ¶ 1(w) (“‘Settlement Class’ means a non-opt-out class for
settlement purposes only, and pursuant to Court of Chancery Rules 23(a), 23(b)(1), and
23(b)(2), consisting of all holders of Common Stock during the Class Period . . . .”); D.I.
537 at 4 (“The Settlement Class includes all stockholders who held at any time between
August 3, 2022 through and including the Class Settlement Time.”); D.I. 537 at 4
(clarifying that the definition of Settlement Class “includes all stockholders who held [or
purchased] at any time between August 3, 2022 through and including the Settlement Class
Time,” as long as they continued to hold at the Settlement Class Time).
164
Parseghian ex rel. Gregory J. Parseghian Revocable Tr. v. Frequency Therapeutics,
Inc., 2022 WL 2208899, at *9 (Del. Ch. June 21, 2022) (“A Court must examine what has
been alleged in the pleadings, not what a plaintiff believes has been alleged.” (quoting
Gabelli & Co., Inc. v. Liggett Grp., Inc., 1983 WL 18015, at *3 (Del. Ch. Mar. 2, 1983),
aff’d, 479 A.2d 276 (Del. 1984))); id. at *8 n.75 (“Plaintiffs cannot amend their Complaint
through their brief.” (citing Cal. Pub. Emps. Ret. Sys. v. Coulter, 2002 WL 31888343, at
*12 (Del. Ch. Dec. 18, 2002))).
47
Moreover, as alleged above, by creating and issuing Preferred Stock
and APEs, Defendants have caused and will continue to cause
significant dilution and economic harm to the Class. Moreover, if the
. . . Proposals carry and the APEs convert into shares of Common Stock,
the Class will suffer further economic harm and dilution.165
The defendants created and first issued the APEs in July and August 2022,
respectively.166 They entered the Deposit Agreement with Computershare in August
2022, and the Antara Transaction in December 2022.167 AMC disclosed in
December 2022 that it would hold a vote on the Proposals.168 In considering the
value of Plaintiffs’ fiduciary duty claim, I interpret it to include the alleged conduct
between July and December 2022.
a) The Scope Of The Release
The July 21 Opinion focused on one unsound provision in the Release, and
concluded the class of common stockholders, as represented by common
stockholders bringing claims affecting common stockholder rights, could not release
claims appurtenant to APE units, and that the release of such claims was not
165
Op. Compl. ¶¶ 164–165 (formatting modified).
166
POB, Ex. 11 at AMC_00005304; DOB, Ex. O, AMC Entertainment Holdings, Inc.,
Registration Statement (Form 8-A) (Aug. 4, 2022) [hereinafter “Aug. 4, 2022 Form 8-A”].
167
DOB, Ex. N, AMC Entertainment Holdings, Inc., Current Report (Form 8K/A)
(Aug. 4, 2022), Ex. 4.1 [hereinafter “Deposit Agr.”], at Recitals (defining “Depositary” as
Computershare, Inc. and its affiliate, Computershare Trust Company, N.A.); POB, Ex. 13
[hereinafter “Dec. 21, 2022 Board Minutes”], at AMC_00005968–70; DOB, Ex. R., AMC
Entertainment Holdings, Inc., Current Report (Form 8-K) (Dec. 22, 2022) [hereinafter
“Dec. 22, 2022 Form 8-K”] (announcing entry into Antara Transaction); Dec. 22, 2022
Form 8-K, Ex. 10.1 (memorializing Antara Transaction).
168
Dec. 22, 2022 Form 8-K.
48
supported by consideration.169 Over Izzo’s Objection and exception, the July 21
Opinion also concluded the Release did not otherwise improperly release future
claims.170
On July 22, the parties excised the problematic clause releasing APE
claims.171 I conclude that the recut Release comports with Delaware law: it is
supported by consideration, does not release tangential claims, and only releases
claims based on the identical factual predicate asserted in the complaints.172
b) The Value Of The Released Claims
Plaintiffs brought two claims: one for breach of fiduciary duty asserted in
both the operative complaint and the Allegheny complaint, and one for a violation
of 8 Del. C. § 242(b)(2) in the Allegheny complaint. The parties agree the statutory
claim was weak. They dispute the merits of the breach of fiduciary duty claim, but
agree the Court was unlikely to issue a preliminary injunction.
169
AMC, --- A.3d ---, 2023 WL 4677722, at *15–26.
170
Id. at *24 n.186.
171
D.I. 582.
172
AMC, --- A.3d ---, 2023 WL 4677722, at *23 (“A release must be supported by
consideration to be valid.” (collecting cases)); id. (“In Delaware, the limiting principle is
that a settlement can release claims that were not specifically asserted in the settled action,
but only if those claims are based on the same identical factual predicate or the same set of
operative facts as the underlying action.” (quoting Phila. Stock Exch., 945 A.2d at 1146)).
49
i. The Section 242(b) Claim
The parties agree Plaintiffs’ claim under Section 242(b)(2) was meritless.173
That claim alleged that the “creation of the [APEs] . . . adversely affected the
‘powers, preferences and special rights’ of the Company’s existing Class A common
stockholders,” and because the defendants “failed to seek approval from common
stockholders” to issue the APEs, they violated Section 242(b)(2).174
By default, Section 242(b)(2) requires a class vote when the number of shares
of that class is increased. But corporate charters can exempt corporations from that
requirement.175 AMC’s Certificate has such an exemption provision.176
Plaintiffs’ claim rested entirely on more nuanced language in Section
242(b)(2): “The holders of the outstanding shares of a class shall be entitled to vote
173
E.g., POB at 8, 35–37; DOB at 23–28.
174
Non-Op. Compl. ¶¶ 101–102.
175
8 Del. C. § 242(b)(2) (“The number of authorized shares of any such class or classes of
stock may be increased or decreased (but not below the number of shares thereof then
outstanding) by the affirmative vote of the holders of a majority of the stock of the
corporation entitled to vote irrespective of this subsection, if so provided in the original
certificate of incorporation . . . .”).
176
AMC Entertainment Holdings, Inc., Registration Statement (Form S-3) (Dec. 30, 2020),
Ex. 3.1, Third Amended and Restated Certificate of Incorporation of AMC Entertainment
Holdings, Inc., at art. IV § D (“The number of authorized shares of any of the Common
Stock or the Preferred Stock may be increased or decreased (but not below the number of
shares thereof then outstanding) by the affirmative vote of the holders of a majority in
voting power of the stock of the Corporation entitled to vote thereon irrespective of the
provisions of Section 242(b)(2) of the DGCL (or any successor provision thereto), and no
vote of the holders of any of the Common Stock or the Preferred Stock voting separately
as a class shall be required therefor.”).
50
as a class upon a proposed amendment, whether or not entitled to vote thereon by
the certificate of incorporation, if the amendment would . . . alter or change the
powers, preferences, or special rights of the shares of such class so as to affect them
adversely.”177 Plaintiffs’ claim relied on the premise that the defendants “alter[ed]
or change[d] the powers, preferences, or special rights of the shares of [common
stock] so as to affect [the common stock] adversely.”178
This claim would not have succeeded under current Delaware law. In a
seminal case colloquially referred to as Dickey Clay, the Delaware Supreme Court
held that “[w]here the corporate amendment does no more than to increase the
number of the shares of a preferred or superior class, the relative position of
subordinated shares is [only] changed in the sense that they are subjected to a greater
burden,” but “[t]he peculiar, or special, quality with which they are endowed, and
which serves to distinguish them from shares of another class, remains the same.”179
Similarly, in Orban v. Field, this Court explained, “[t]he language of [Section
242(b)(2)] makes clear that it affords a right to a class vote when the proposed
amendment adversely affects the peculiar legal characteristics of that class of
177
8 Del. C. § 242(b)(2).
178
Id.
179
Hartford Accident & Indem. Co. v. W. S. Dickey Clay Mfg., 24 A.2d 315, 318–19 (Del.
1942).
51
stock.”180 Since “[t]he right to vote is not a peculiar or special characteristic of
common stock in the capital structure,” the mere “pro-rata dilut[ion]” to the voting
power of the common stock caused by issued preferred shares with voting rights did
not implicate Section 242(b)(2).181 This Court recently applied Dickey Clay’s
holding in In re Snap Inc. Section 242 Litigation.182
Dickey Clay is dispositive here. Even if the defendants effectuate the
Proposals, the Proposals do not adversely affect the common stockholders’ rights,
powers, and preferences requiring a class vote under Section 242(b)(2). Neither did
the issuance of the APEs themselves. Shares of AMC common stock had, and will
continue to have, one vote per share: dilution of that vote is not a harm cognizable
under Section 242(b)(2).
Plaintiffs would not have been able to demonstrate a reasonable probability of
success at the preliminary injunction stage, or achieve actual success on the merits,
for their Section 242(b)(2) claim. Releasing this claim has little value.
180
1993 WL 547187, at *7–8 (Del. Ch. Dec. 30, 1993) (emphasis omitted).
181
Id. at *8.
182
In re Snap Inc. Section 242 Litig., Consol. C.A. No. 2022-1032-JTL, D.I. 22 at 33–34
(Del. Ch. Mar. 29, 2023) (TRANSCRIPT) (“The holding of Dick[ey] Clay is thus that
relative position in the capital structure is not a right of the shares or, in the language of the
decision, a quality of the shares such that authorizing more of a senior class or series or
adding a senior class or series does not make an adverse change to the rights of the junior
class or series.”), appeal filed No. 120, 2023 (Del. Apr. 12, 2023).
52
ii. The Breach Of Fiduciary Duty Claim
The parties dispute the merits, and therefore the value, of Plaintiffs’ breach of
fiduciary duty claim. The dispute centers on the applicable standard of review.
Delaware law provides three tiers of review for evaluating director decisionmaking:
the business judgment rule, enhanced scrutiny, and entire fairness.183 If neither
enhanced scrutiny nor entire fairness is warranted, the Court presumes the directors’
actions are in good faith and informed: the result is usually dismissal of the claim.184
The parties dispute whether the Court has cause to apply enhanced scrutiny to
the issuance and weaponization of the APE units as affecting the common
stockholder franchise, or whether that conduct is insulated by the business judgment
rule. Plaintiffs argue enhanced scrutiny would be warranted under Blasius
Industries, Inc. v. Atlas Corporation.185 The defendants contend the business
judgment rule would apply, arguing Blasius review is not triggered by interference
with stockholder voting outside the director election or change of control settings.186
Whether Plaintiffs’ allegations trigger Blasius review was fairly debated
under Delaware law as it existed at the time of settlement briefing: the scope and
standard for Blasius review has been the subject of much mastication and
183
Reis v. Hazelett Strip–Casting Corp., 28 A.3d 442, 457 (Del. Ch. 2011).
184
Id.185
564 A.2d 651 (Del. Ch. 1988).
186
DOB at 18–22.
53
handwringing over the decades since Blasius was issued.187 The day before the
Settlement Hearing, the Delaware Supreme Court contributed to that body of law
with Coster v. UIP Companies, Inc. (“Coster IV”).188 I asked the parties whether
and how Coster IV should inform my consideration of Plaintiffs’ breach of fiduciary
duty claim.189
Under my reading of Blasius and the law that followed, including Coster IV,
the business judgment rule would not have applied to Plaintiffs’ breach of fiduciary
duty claim. Directorial usurpation of stockholder voting power can inspire enhanced
scrutiny regardless of the topic of the vote or its effect on corporate control. Case
187
Mercier v. Inter-Tel (Del.), Inc., 929 A.2d 786, 805 (Del. Ch. 2007) (“[O]ur law has
struggled to define with certainty the standard of review this court should use to evaluate
director action affecting the conduct of corporate elections.”); In re MONY Grp., Inc.
S’holder Litig., 853 A.2d 661, 677–78 (Del. Ch. 2004) (“In MM Companies, Inc. v. Liquid
Audio, Inc., the Supreme Court recognized that there is a ‘substantial degree of congruence
between the rationale that led to the Blasius “compelling justification” enhanced standard
of judicial review and the logical extension of that rationale within the context of the
Unocal enhanced standard of review.” (emphasis in original) (footnoted omitted) (quoting
813 A.2d 1118, 1129 (Del. 2003))); id. at 678 (“Cases in which both Blasius and Unocal
review are implicated involve measures by a board with the primary purpose to preclude
or, at least, impede the effective exercise of the shareholder franchise and the board’s
control of the corporation is at play.” (citing Liquid Audio, 813 A.2d at 1131, and Stroud
v. Grace, 606 A.2d 75, 92 n.3 (Del. 1992))); Pell v. Kill, 135 A.3d 764, 785 (Del. Ch. 2016)
(“[T]he Delaware Supreme Court has made clear that Blasius is a form of enhanced
scrutiny in which the compelling justification concept from that decision is applied ‘within
the . . . enhanced standard of judicial review.’ Writing while serving on this court, Chief
Justice Strine likewise explained the role of Blasius within the larger context of the
intermediate standard of enhanced scrutiny.” (emphasis in original) (footnotes omitted)).
188
--- A.3d ---, 2023 WL 4239581 (Del. June 28, 2023).
Hr’g Tr. 225–26, 233, 235–36, 254; D.I. 587 at 6 (citing Coster IV, --- A.3d ---, 2023
189
WL 4239581).
54
law blending Blasius with other enhanced scrutiny doctrines does not foreclose
applying Blasius alone. Delaware law urges restraint in applying Blasius enhanced
scrutiny alone, but it need not be coupled to another doctrine to have legs. Delaware
law teaches that Blasius’s original formulation, requiring directors to prove they had
a compelling justification for thwarting the franchise, is too potent for contexts in
which the vote does not touch on corporate control.
This opinion concludes that where a plaintiff establishes directors acted with
the primary purpose of impeding the exercise of stockholder voting power for a vote
on issues other than corporate control, in the absence of another basis to apply
enhanced scrutiny, the directors must demonstrate their actions were reasonable in
relation to their legitimate objective. Applying that standard to Plaintiffs’ claims, I
conclude Plaintiffs established the director defendants acted with that
disenfranchising purpose in issuing the APEs, entering into the Deposit Agreement,
and entering into the Antara Transaction. In this settlement context, the limited
record does not convince me that those actions were reasonable: Plaintiffs’ claim
has value. But the defendants may have been able to prevail, if not on the merits
then on the equities of a preliminary injunction, by demonstrating the Proposals and
Conversion were necessary to save AMC from imminent bankruptcy. The value of
Plaintiffs’ claim is therefore discounted.
55
A. Blasius Enhanced Scrutiny Can Be
Triggered Outside The Corporate
Control Context.
“Enhanced scrutiny is Delaware’s intermediate standard of review.”190
Delaware courts deploy enhanced scrutiny in specific, recurring
situations marked by two features. First, there is an identifiable
decision-making context where the realities of the situation “can subtly
undermine the decisions of even independent and disinterested
directors.” “Inherent in these situations are subtle structural and
situational conflicts that do not rise to a level sufficient to trigger entire
fairness review, but also do not comfortably permit expansive judicial
deference [under the business judgment rule].” Second, the decision
under review involves the fiduciary intruding into a space where
stockholders possess rights of their own. The fiduciary’s exercise of
corporate power therefore raises questions about the allocation of
authority within the entity and, from a theoretical perspective,
implicates the principal-agent problem.191
In other words, enhanced scrutiny is triggered when directors face, or are likely to
face, conflicts with stockholder interests or stockholder rights, such that the
presumption that they are conflict-free is set aside. Enhanced scrutiny can be
triggered by (i) situational conflicts inherent in certain factual circumstances, like a
potential change of control or cash-out transaction presenting a conflict between
maximizing stockholder value and directors keeping their seats; or (ii) conflicts
between directors and stockholders in which the directors act to take stockholders’
190
In re Trados Inc. S’holder Litig., 73 A.3d 17, 43 (Del. Ch. 2013).
191
In re Columbia Pipeline Grp., Merger Litig., --- A.3d ---, 2023 WL 4307699, at *50
(Del. Ch. June 30, 2023) (citations and footnote omitted) (quoting Trados, 73 A.3d at 43,
and then In re Rural Metro Corp., 88 A.3d 54, 82 (Del. Ch. 2014)).
56
power away from them, like by impinging on their right to tender their shares, vote
on a merger, or vote in an election.192
Blasius enhanced scrutiny is triggered by the second type of conflict, when
directors impinge on stockholders’ right to vote.193 Blasius examined board action
taken with the primary purpose of preventing stockholders from electing their
chosen directors.194 The incumbent board was not motivated by selfish
entrenchment, but rather a desire to slow down an investor’s pursuit of a leveraged
restructuring and cash distribution that the board thought was not in the company’s
best interest.195 Even though the board acted in good faith and with due care,
Chancellor Allen found judicial scrutiny of the board’s action was warranted.196
He explained that stockholder voting rights are “critical to the theory that
legitimates” a board’s power over the stockholders’ property.197 “[A] decision by
the board to act for the primary purpose of preventing the effectiveness of a
192
Id. at *50–52.
193
Id. at *52; Blasius, 564 A.2d at 660–61.
194
564 A.2d at 663.
195
Id. at 658.
196
Id. at 659–62.
197
Id. at 659; accord Liquid Audio, 813 A.2d at 1126 (“Accordingly, while these
‘fundamental tenets of Delaware corporate law provide for a separation of control and
ownership,’ the stockholder franchise has been characterized as the ‘ideological
underpinning’ upon which the legitimacy of the directors[’] managerial power rests.”
(footnotes omitted)); see also supra note 191, and accompanying text.
57
shareholder vote inevitably involves the question who, as between the principal and
the agent, has authority with respect to a matter of internal corporate governance.”198
When the board intrudes into or infringes the stockholders’ voting authority, the
board interferes with the allocation of governance power between the board and the
stockholders.199 Chancellor Allen explained:
Action designed principally to interfere with the effectiveness of a vote
inevitably involves a conflict between the board and a shareholder
majority. Judicial review of such action involves a determination of the
legal and equitable obligations of an agent towards his principal. This
is not, in my opinion, a question that a court may leave to the agent
finally to decide so long as he does so honestly and competently; that
is, it may not be left to the agent’s business judgment.200
Accordingly, the Court reviewed the board’s action with enhanced scrutiny,
and determined the board acted “for the primary purpose of impeding the exercise
of stockholder voting power.”201 After reasoning such acts were not void per se, the
Chancellor stated that the challenged actions would stand if the board had a
“compelling justification for such action[s].”202 On the facts before him, the board
lacked a compelling justification.203
198
Blasius, 564 A.2d at 659–60.
199
Id. at 660.
200
Id.
201
Id. at 661.
202
See id.
203
Id. at 663–64.
58
Blasius review was inspired by the very fact of a board’s intent to disrupt the
allocation of power between the board and the stockholders, not because the
directors might otherwise lose their seats. The conflict warranting enhanced scrutiny
arose within the relationship between the board and the stockholders, rather than
from an external factual situation that might cast doubt on directors’ loyalty. Blasius
explains that an entrenchment motive is not necessary to trigger enhanced scrutiny;
any attempt by directors to seize power from stockholders presents a conflict that
vaporizes the protections of the business judgment rule.204
In the decades that followed Blasius, Delaware law recognized the
unsurprising fact that director impingement of the franchise frequently occurred in
the context of director elections or a change of control. Those contexts give rise to
not only the franchise conflict warranting Blasius review, but also a situational
conflict on the part of directors wishing to keep their seats.205 Our courts recognized
that claims that directors impinged the franchise in director elections inspire
enhanced scrutiny under both Unocal206 and Blasius.207 Our courts endeavored to
204
Id. at 652, 659.
205
E.g., Pell, 135 A.3d at 765–76.
206
Unocal Corp. v. Mesa Petroleum Co., 493 A.2d 946 (Del. 1985).
207
Coster IV, --- A.3d ---, 2023 WL 4239581, at *8–11 (discussing Stroud, 606 A.2d 75,
and Chesapeake Corp. v. Shore, 771 A.2d 293 (Del. Ch. 2000), and Liquid Audio, 813 A.2d
1118, and Mercier, 929 A.2d 786, and Pell, 135 A.3d 764, and Strategic Inv. Opps. LLC v.
Lee Enters., 2022 WL 453607 (Del. Ch. Feb. 14, 2022)); Columbia Pipeline, --- A.3d ---,
59
simplify our law and enumerate one enhanced scrutiny test for such
circumstances.208 They “strove to bring the Blasius and Unocal standards together
2023 WL 4307699, at *52 (“Recently [in Coster IV], the Delaware Supreme Court said so
explicitly, holding that Blasius review is just that: a version of the enhanced judicial
scrutiny first recognized in Unocal. The high court took the additional step of retiring the
compelling justification concept. Instead, in the context of a corporate election or a
stockholder vote involving corporate control, the board must identify a legitimate threat
and then ‘tailor its response to only what is necessary to counter the threat.’ Moreover, the
board’s response ‘cannot deprive the stockholders of a vote or coerce the stockholder to
vote a particular way.’ What results is enhanced scrutiny applied with a special sensitivity
to the stockholder franchise.” (citations omitted)); see also Stroud, 606 A.2d at 92 n.3
(observing Unocal and Blasius “are not mutually exclusive” in a situation such as “[b]oard
action interfering with the exercise of the franchise [arising] during a hostile contest for
control”); Chesapeake, 771 A.2d 293 (applying a modified Unocal review to the board’s
imposition of a supermajority voting requirement for stockholder-initiated bylaw changes
in an effort to reduce the voting power of two stockholders in particular); Liquid Audio,
813 A.2d 1118 (applying a modified Unocal review where the Liquid Audio board
responded to MM’s takeover efforts by expanding the board from five to seven members
and filling the new seats, which with a staggered board, defeated MM’s ability to control
the board following the annual meeting); Mercier, 929 A.2d 786 (applying a modified
Unocal review where a special committee of independent directors rescheduled a
stockholder special meeting to consider a proposed merger that would have affected the
control of the company); Pell, 135 A.3d 764 (applying a modified Unocal review where,
in advance of its annual meeting and a looming proxy fight, the incumbent board reduced
from three to one the Class I director seats up for election, ensuring their continued control
of the company through a three-to-two majority); Strategic Inv. Opps., 2022 WL 453607(applying enhanced scrutiny where the board rejected a slate of board nominees for
noncompliance with the company’s advance notice bylaw); Totta v. CCSB Fin. Corp., 2022
WL 1751741, at *1, *27–29 (Del. Ch. May 31, 2022) (applying a blended review under
Mercier and Pell where “the Board expressly instructed the inspector of elections not to
count a certain number of votes from particular stockholders . . . to interfere with the
effective exercise of the shareholder franchise in a contested election for directors”), aff’d
sub nom. CCSB Fin. Corp. v. Totta, --- A.3d ---, 2023 WL 4628822 (Del. July 19, 2023).
208
MONY, 853 A.2d at 678 (citing Liquid Audio, 813 A.2d at 1131, and Stroud, 606 A.2d
at 92 n.3)); Columbia Pipeline, --- A.3d ---, 2023 WL 4307699, at *52–53 (citations
omitted).
60
in a workable manner”209 in order to accomplish “close scrutiny of director action
that could have the effect of influencing the outcome of corporate director elections
or other stockholder votes having consequences for corporate control.”210
I read Coster IV to be the next chapter in that jurisprudence addressing Blasius
and Unocal together in the context of a director election. In considering a stock
issuance designed to break an election deadlock, the Court of Chancery “found that
the UIP board had not acted for inequitable purposes and had compelling
justifications for the dilutive stock issuance” under Schnell and Blasius.211 The
Supreme Court affirmed, and explained that “Blasius first applied that enhanced
review by requiring a board, even if acting in good faith, to demonstrate a
‘compelling justification’ for interfering with the stockholder franchise.”212 But
“when the board interferes with the stockholder vote during a contest for control,”
Unocal review is appropriate.213 Coster IV discussed the evolution of joining
“Unocal’s reasonableness review and Blasius’[s] ‘primary purpose’ and ‘compelling
justification’ elements into a useful standard of review” when a board infringes on
209
Mercier, 929 A.2d at 809; see Liquid Audio, 813 A.2d at 1129–31.
210
Mercier, 929 A.2d at 810.
211
Coster IV, --- A.3d ---, 2023 WL 4239581, at *1, *5 (referring to Schnell v. Chris-Craft
Indus., Inc., 285 A.2d 437 (Del. 1971)).
212
Id. at *8.
213
Id.
61
the stockholder franchise in matters of corporate control.214 “Experience has shown
that Schnell and Blasius review, as a matter of precedent and practice, have been and
can be folded into Unocal review to accomplish the same ends—enhanced judicial
scrutiny of board action that interferes with a corporate election or a stockholder’s
voting rights in contests for control.”215 Coster IV speaks to Blasius review only in
the context of a contest for control, like the many cases that considered both Blasius
and Unocal before it.216
While Blasius review and Unocal review can be inspired by the same facts,
“Blasius does not only apply in cases involving hostile acquirers or directors wishing
to retain their position against the will of the shareholders.”217 “Enhanced scrutiny
. . . is not limited to electoral contests where the entire board might be replaced.
Enhanced scrutiny also applies in other situations where the law provides
stockholders with a right to vote and the directors take action that intrudes on the
214
Id. at *9; id. at *8–11.
215
Id. at *11 (citing Lawrence A. Hamermesh et al., Optimizing the World’s Leading
Corporate Law: A Twenty-Year Retrospective and Look Ahead, 77 BUS. LAW. 321, 331
(2022)).
216
See id. at *12 (“As we explained in our earlier decision in this case, the court’s review
is situationally specific and is independent of other standards of review.” (footnote
omitted)).
217
State of Wis. Inv. Bd. v. Peerless Sys. Corp., 2000 WL 1805376, at *13 (Del. Ch.
Dec. 4, 2000).
62
space allotted for stockholder decision-making.”218 Every stockholder vote presents
the opportunity for directors to seize power from stockholders.219 Stockholders
enjoy the power and right to vote on issues in addition to corporate control. The
General Assembly has afforded stockholders voting rights on stock increases, stock
decreases, rights, powers, preferences, and leasing substantially all of the company’s
assets.220 Delaware law reveres all stockholder voting rights as sacrosanct.221
Directorial usurpation of stockholders’ power to speak for themselves on issues
other than corporate control still presents the conflict identified in Blasius.
In State of Wisconsin Investment Board v. Peerless Systems Corporation,
Chancellor Chandler applied Blasius enhanced scrutiny to board intrusion into the
218
Pell, 135 A.3d at 786 (Del. Ch. 2016) (quoting Reis, 28 A.3d at 457, and citing Peerless,
2000 WL 1805376, at *10–11).
219
Peerless, 2000 WL 1805376, at *13 (“The derivation of board power from shareholders,
as well as the allocation of power with respect to governance of the corporation, are broad
structural concerns within the corporate form that are present in any shareholder vote.”);
see Blasius, 564 A.2d at 659–60.
220
See 8 Del. C. § 242(b)(2); 8 Del. C. § 271(a).
221
E.g., EMAK Worldwide, Inc. v. Kurz, 50 A.3d 429, 433 (Del. 2012); Paramount
Commc’ns, Inc. v. QVC Network, Inc., 637 A.2d 34, 42 (Del. 1994) (“Because of the
overriding importance of voting rights, this Court and the Court of Chancery have
consistently acted to protect stockholders from unwarranted interference with such rights.”
(collecting cases)). Indeed, this Court will award fees under the corporate benefit doctrine
when a litigant preserves the stockholder franchise. See, e.g., EMAK, 50 A.3d at 433(“Shareholders have limited opportunities to exercise their right to vote. When plaintiff’s
counsel obtains a corporate benefit by protecting shareholder voting rights, the benefit’s
size does not depend on the corporation’s monetary value. The Vice Chancellor correctly
found that the Kurz and Crown litigation produced a corporate benefit by preserving the
EMAK shareholders’ voting rights.”).
63
franchise outside the director election context.222 Three proposals were presented
for a vote at the company’s annual meeting.223 Two proposals passed at the meeting,
in part because they were routine matters that permitted brokers to vote uninstructed
shares, and those polls closed.224 The third proposal (“Proposal 2”) was a nonroutine
proposal to add shares to the stock option plan.225 Proposal 2 required beneficial
owners to vote their shares, but much of Peerless’s stockholder base comprised
European investors facing logistical hurdles that frustrated and suppressed their
votes.226 At the time of the annual meeting, Proposal 2 would have been defeated;
the plaintiff had solicited against it.227
The company’s chairman, CEO, and president adjourned the annual meeting,
thereby postponing the closing of the polls on Proposal 2.228 The defendants “went
out and tried to gather enough votes to put the [open] proposal over the top”229 from
selected stockholders “who were more likely to support management and vote in
favor of Proposal 2,” without informing all the stockholders about the adjournment
222
2000 WL 1805376.
223
Id. at *3.
224
Id. at *3–4.
225
Id. at *1–2, *4.
226
Id. at *4.
227
Id.
228
Id. at *3.
229
Mercier, 929 A.2d at 811 n.78 (discussing Peerless, 2000 WL 1805376).
64
or the continued solicitation.230 Thirty days later, the company reconvened the
meeting, the chairman closed the polls, and Proposal 2 passed.231
Peerless began by “reaffirm[ing] the fundamental importance of the voting
rights of shareholders in Delaware law” and Blasius’s foundation in the allocation
of power between stockholders and directors.232 Peerless noted that “the concerns
identified by Chancellor Allen remain fundamental tenets which guide this Court in
any dispute concerning the shareholder franchise.”233 Peerless stated that “Blasius
does not apply in all cases where a board of directors has interfered with a
shareholder vote,” and proceeded to consider cases in which director infringement
of franchise rights had not warranted Blasius scrutiny.234 Those cases failed to
trigger Blasius scrutiny not because of the type of vote or type of director action, but
because there was no evidence that the primary purpose was to impede the vote.235
230
Peerless, 2000 WL 1805376, at *5.
231
Id.232
Id. at *7–8.
233
Id. at *8.
234
Id. at *8–9.
235
Williams v. Geier, 671 A.2d 1368, 1376 (Del. 1996) (noting the absence of evidence to
support a primary purpose to impede the vote, and that the proxy explained the directors
were motivated by a desire to promote long-term planning, permit the issuance of
additional shares, and discourage hostile takeovers); Stroud, 606 A.2d at 95 (holding
Blasius and Unocal inapplicable in the absence of “unilateral board action intended to
inequitably manipulate the corporate machinery”); Apple Comput., Inc. v. Exponential
Tech., Inc., 1999 WL 39547, at *5 (Del. Ch. Jan. 21, 1999) (“In the absence of a hostile
acquirer or some other motivation for disenfranchising the shareholders, however, a
65
Peerless applied Blasius’s compelling justification formulation: when the
primary purpose of a board of directors’ actions is to impede the effective exercise
of the shareholder franchise, the board must demonstrate a compelling justification
for such action.236 Peerless emphasized these elements are distinct: “The question
of purpose asks for what ultimate ends were the acts committed. Purpose is defined
as ‘[a]n objective, goal, or end.’ The concept of justification concerns the rationale
behind the search for that end. Justification is defined as ‘[a] lawful or sufficient
reason for one’s acts or omissions.’”237
On summary judgment, the Court concluded the record demonstrated that “the
primary purpose behind the adjournment was to ensure the passage of Proposal 2 by
interfering with the shareholder vote and allowing Proposal 2 to have more time to
gain votes.”238 Importantly,
board’s unintentional failure to fulfill its supposed § 271 obligations, while perhaps
constituting a breach of fiduciary duty, does not ordinarily trigger Blasius review.”
(emphasis added) (citing Williams, 671 A.2d at 1376)).
236
Peerless, 2000 WL 1805376, at *8 (“Blasius sets forth a relatively simple, yet extremely
powerful, two-part test based on the duty of loyalty. Under that test, first the plaintiff must
establish that the board acted for the primary purpose of thwarting the exercise of a
shareholder vote. Second, the board has the burden to demonstrate a compelling
justification for its actions. Under this second prong, even where the Court finds that the
action taken by the board was made in good faith, it may still constitute a violation of the
duty of loyalty.” (footnotes omitted)); Blasius, 564 A.2d at 661.
237
Peerless, 2000 WL 1805376, at *11 (internal quotation marks and emphasis omitted)
(quoting Justification, BLACK’S LAW DICTIONARY 870–71 (7th ed. 1999), and Purpose,
BLACK’S LAW DICTIONARY 1250 (7th ed. 1999)).
238
Id.66
This finding that the primary purpose of the adjournment was to
interfere with the shareholder vote on Proposal 2 in no way indicates
that the defendants acted in bad faith in calling for the adjournment.
Even in the worst case scenario, it appears only that the defendants
misapprehended an admittedly difficult legal principle. In short, I
assume that the defendants acted in good faith at all times.
Nevertheless, I may still find that the defendants violated the fiduciary
duty of loyalty. Blasius is highly instructive on this point, as Chancellor
Allen held that “even finding the action taken was in good faith, it
constituted an unintended violation of the duty of loyalty that the board
owed to the shareholders.”239
The Court then put the defendants to their heavy burden of demonstrating a
compelling justification for thwarting a vote on an issue other than corporate
control.240
In the years since Peerless, Delaware law has commended restraint in
applying enhanced scrutiny, particularly under the compelling justification
formulation, to a franchise conflict on a vote that does not inform corporate
control.241 The right to vote on directors is the “most important[]” of the
239
Id. at *12 (quoting Blasius, 564 A.2d at 663).
240
Id. at *12–15 (explaining the Court was not convinced on the plaintiffs’ motion for
summary judgment that the defendants fell short).
241
Mercier, 929 A.2d at 808 (“[T]he reasoning of Blasius is far less powerful when the
matter up for consideration has little or no bearing on whether the directors will continue
in office.”). In considering Peerless specifically, Mercier observed Delaware law afforded
“more traditional,” less potent tools to address other issues: Schnell, for review of the post-
adjournment partial solicitation effort; entire fairness, for review of the effect of the CEO’s
self-interest (as the Peerless defendants requested, see 2000 WL 1805376, at *8); and the
ability to enjoin board action in the face of “misleading or incomplete disclosures.”
Mercier, 929 A.2d at 811 n.78 (referring to Schnell). These tools address other reasons to
set aside the business judgment rule or enjoin director action, namely bad faith, self interest,
67
stockholders’ rights to vote.242 While even good faith director intrusion into
stockholder voting power presents an conflict, intrusion into stockholder voting
power on director elections more plainly smacks of self-interested disloyalty. Cases
considering the burden to show a compelling justification “display understandable
discomfort about using such a stringent standard of review in circumstances when a
stockholder vote has no bearing on issues of corporate control.”243 And Delaware
law is clear that ministerial board functions affecting the franchise, such as
“scheduling the meeting and record dates, deciding on a location for the meeting,
choosing inspectors of elections, or retaining proxy solicitors,” are shielded from
Blasius enhanced scrutiny in order to ensure an orderly voting process.244
and uninformed voters. Coster v. UIP Cos., Inc. (Coster III), 2022 WL 1299127, at *9
(Del. Ch. May 2, 2022) (“Heeding the policy determination that Schnell should be deployed
sparingly, this decision interprets Schnell, when considered in the category of stockholder-
franchise challenges, as applicable in the limited scenario wherein the directors have no
good faith basis for approving the disenfranchising action. That factual finding can be
made based on evidence that speaks directly to subjective intent. That factual finding also
can made when objective evidence discredits proffered business reasons for the decision.”),
aff’d, Coster IV, --- A.3d ---, 2023 WL 4239581.
242
San Antonio Fire & Police Pension Fund v. Bradbury, 2010 WL 4273171, at *7 (Del.
Ch. Oct. 28, 2010) (“Stockholders exercise their authority over corporate affairs by way of
ballots. Accordingly, the right to vote on certain matters—most importantly the election
of directors—is a fundamental power reserved to the stockholders.” (footnote omitted)).
243
Mercier, 929 A.2d at 809 (citing MONY, 853 A.2d at 675 n.51, and Peerless, 2000 WL
1805376 at *8–9)).
244
MONY, 853 A.2d at 675; accord Mercier, 929 A.2d at 809 (noting that while directors
cannot “use inequitable means that dupe or dragoon stockholders into consenting,” they
“can use the legal means at their disposal to pursue stockholder approval,” such as “the
ability to set and revise meeting dates or to adjourn a convened meeting” (footnote
68
Still, as Mercier pointed out, the “key issue” warranting Blasius review “is
whether directors were ultimately preventing stockholders from freely exercising the
right to vote on a matter committed to them.”245 Even among the cornucopia of other
doctrines warranting judicial intervention, Blasius review still has a role, and can
still be triggered, in the context of a vote on matters other than corporate control.
That our Blasius caselaw has naturally developed in the Unocal setting does not
preclude Blasius from being prudently applied in other settings. Where a board’s
nonministerial intrusion into the stockholder franchise generates a conflict between
the board and the stockholders, even in and especially in the absence of a situational
conflict, self interest, bad faith, negligence, or disclosure violations, Blasius scrutiny
remains warranted.
omitted)); Blasius, 564 A.2d at 663 (“[T]here is a vast difference between expending
corporate funds to inform the electorate and exercising power for the primary purpose of
foreclosing effective shareholder action.”).
Blasius disclaimed any need for a plaintiff to show that the fiduciary was self-
interested. See Blasius, 564 A.2d at 652, 658–59. Subsequent authority has made plain
that Unocal blended with Blasius, or entire fairness, are preferable tools to address
self-interested behavior, and Schnell addresses bad faith. Mercier, 929 A.2d at 811 n.78;
Coster III, 2022 WL 1299127, at *9. I accordingly do not limit Blasius as far as MONY
did. See MONY, 853 A.2d at 674 (stating that outside the context of director elections,
“courts will apply the exacting Blasius standard . . . only in circumstances in which self-
interested or faithless fiduciaries act to deprive stockholders of a full and fair opportunity
to participate in the matter and to thwart what appears to be the will of a majority of the
stockholders”).
245
Mercier, 929 A.2d at 809 n.65 (citing Blasius, 564 A.2d at 663).
69
In a case warranting enhanced scrutiny based solely on a franchise conflict
and not a situational conflict, the formulation of enhanced scrutiny considering the
reasonableness of board action in view of both franchise and situational conflicts
together should not be blindly applied.246 That said, concerns about the undue
potency of Blasius stemmed from its stringent “compelling justification” standard.247
Since Peerless, in the more concerning change of control setting, the “compelling
justification” standard has been defined to mean reasonableness with a “closer fit
between means and ends” or viewed with a “gimlet eye.”248 Coster IV surveyed that
246
Mercier, 929 A.2d at 810–11. Pell v. Kill describes Mercier’s three-part blended Unocal
test, requiring “reasonable” fit to a legitimate objective, as governing “director action that
affects stockholder voting,” and then proceeds to contrast that test with Liquid Audio’s
requirement that “when the vote involves an election of directors or touches on matters of
corporate control, the directors’ justification must not only be ‘reasonable’ but also
‘compelling.’” Pell, 135 A.3d at 787 (citing Liquid Audio, 813 A.2d at 1129–30)). “In
th[at] context, the shift from ‘reasonable’ to ‘compelling’ requires that the directors
establish a closer fit between means and ends.” Id. (citing Mercier, 929 A.2d at 819).
Because the Mercier test was designed for a Unocal setting, I do not read Pell to extend
that test to all “director action that affects stockholder voting” beyond that setting, to
wholly replace Blasius. Nor do I believe my conclusion that Blasius alone still operates
outside the corporate control setting runs afoul of Mercier’s instructions not to extend its
blended Blasius-Unocal test outside that setting. See Mercier, 929 A.2d at 810–11.
247
Coster IV, --- A.3d ---, 2023 WL 4239581, at *9 (“The Blasius ‘compelling justification’
standard of review turned out to be unworkable in practice. Once the court required a
compelling justification to justify the board’s action, the outcome was, for the most part,
preordained.” (collecting authorities)); Mercier, 929 A.2d at 811 n.78 (discussing Peerless:
“[The Court] determined that the Blasius standard applied, even while acknowledging that
it was ‘problematic’ to apply the powerful Blasius standard to a stockholder vote in a
situation that did not involve ‘entrenchment or control issues.’” (citing Peerless, 2000 WL
1805376, at *12)).
248
Coster IV, --- A.3d ---, 2023 WL 4239581, at *9 (recognizing over the years the Court
of Chancery has “redefin[ed] what it meant to be compelling” (collecting cases)); see also
70
authority and “took the additional step of retiring the compelling justification
concept. . . . in the context of a corporate election or a stockholder vote involving
corporate control.”249 Outside the director election or corporate control setting, I
read the weight of authority to call for a reasonableness analysis and to permit the
“fit” between the means and ends to be looser than in the corporate control setting.250
In this case, so far as I can see, a Blasius conflict is the only conflict warranting
enhanced scrutiny of Plaintiffs’ claims, and the only basis for relief. The stockholder
Coster III, 2022 WL 1299127, at *11 (“The compelling-justification test has been
described colorfully as calling for the court to view the directors’ explanations with a
gimlet eye.” (citing Pell, 135 A.3d at 787, and Williams, 671 A.2d at 1376)); Pell, 135 A.3d
at 787 (“The Delaware Supreme Court has held that when the vote involves an election of
directors or touches on matters of corporate control, the directors’ justification must not
only be ‘reasonable’ but also ‘compelling.’ In this context, the shift from ‘reasonable’ to
‘compelling’ requires that the directors establish a closer fit between means and ends.
Although linguistically reminiscent of the type of review given to suspect classifications
under the federal constitution, the use of the word ‘compelling’ is not intended to signal
that type of strict scrutiny. Instead, it is a reminder for courts to approach directorial
interventions that affect the stockholder franchise with a ‘gimlet eye.’” (quoting Liquid
Audio, 813 A.2d at 1129–30, then citing Mercier, 929 A.2d at 819, then quoting
Chesapeake, 771 A.2d at 323)); Totta, 2022 WL 1751741, *28 (“To satisfy the compelling-
justification standard, the directors must show that their actions were reasonable in relation
to their legitimate objective, and did not preclude the stockholders from exercising their
right to vote or coerce them into voting a particular way. In this context, the shift from
reasonable to compelling requires that the directors establish a closer fit between means
and ends.” (internal quotation marks omitted) (footnotes omitted) (quoting Mercier, 929
A.2d at 810–11, and then Pell, 135 A.3d at 787)).
249
Columbia Pipeline, 2023 WL 4307699, at *52 (citing Coster IV, --- A.3d ---, 2023 WL
4239581, at *8, *12).
250
See Columbia Pipeline, 2023 WL 4307699, at *52–53 (surveying tests for enhanced
scrutiny and summarizing them as “call[ing] for the fiduciaries to establish that they
(i) acted for a proper purpose and (ii) selected an appropriate means of achieving that
purpose”).
71
voting rights at stake were not in a contest for control, so Unocal scrutiny is not
warranted. Plaintiffs have not pled self interest, bad faith, or negligence. The
Court’s other tools for reviewing or enjoining director action are inapposite here. As
explained, there is no viable Section 242(b)(2) claim. Schnell251 is also a poor fit:
as in Coster, the evidence does not support a finding of bad faith.252 The board’s
justification (as distinct from its purpose) was to advance the best interests of AMC
and save it from financial peril.253 Plaintiffs make rumblings about the adequacy of
the disclosure of the Deposit Agreement, and the truthfulness of statements
accompanying the APE issuance that no conversion was intended.254 But those
disclosure issues are thin reeds to hold the weight of the injunction sought here. And
the defendants’ actions were nonministerial: they comprised much more than
scheduling a meeting, moving a record date, or retaining a proxy solicitor.255 Having
concluded Blasius review is available, I proceed to evaluate Plaintiffs’ call for
enhanced scrutiny.
251
285 A.2d 437.
252
Coster III, 2022 WL 1299127, at *10; see also Coster IV, --- A.3d ---, 2023 WL
4239581, at *2.
253
Coster III, 2022 WL 1299127, at *10; see AMC, --- A.3d ---, 2023 WL 4677722, at *6
(“Without the ability to authorize more shares, AMC could not raise capital by issuing
more common stock. AMC developed an alternative. . . . AMC and its advisors decided
that selling preferred stock could raise capital and that the votes associated with the
preferred stock could carry the Certificate amendment.” (footnotes omitted)).
254
E.g., Op. Compl. ¶¶ 21, 108–110.
255
MONY, 853 A.2d at 674–75.
72
B. Plaintiffs’ Allegations Warrant
Blasius Enhanced Scrutiny.
Plaintiffs alleged the defendants interfered with the common stockholders’
voting on the Proposals at the Special Meeting.256 The Board used its authority under
the charter to create blank check stock, and its authority to enter into contracts on
the Company’s behalf to imbue that stock with dispositive voting power.257 Under
the Deposit Agreement, any uninstructed APE units vote in proportion to the
instructed APE units.258 The proportional feature enables the APE units to dictate
the outcome of any vote on which the common shares and the preferred units vote
together.259 Antara’s promise to vote its APE units received in the Antara
Transaction in favor of the Proposals, together with the mirrored voting feature,
ensured the Proposals’ approval by a combined vote of the APE units and common
stock.260
256
Op. Compl. ¶¶ 1, 3, 12, 37, 152, 164.
257
POB at 14–18; POB, Ex. 11, at AMC_00005304–5305; POB, Ex. 10, Meeting Materials
for July 28, 2022 Meeting of the Board of Directors of AMC Entertainment Holdings, Inc.,
at AMC_00005215.
258
Deposit Agr. § 4.5.
259
AMC, --- A.3d ---, 2023 WL 4677722, at *7.
260
Op. Compl. ¶¶ 126, 148–149; Dec. 22, 2022 Form 8-K; Feb. 14, 2023 Proxy at 6 (“On
the Record Date, Antara Capital LP ([] ‘Antara’) owned and was entitled to vote an
aggregate of 258,439,472 APEs, representing 17.8% of AMC’s issued and outstanding
shares of Common Stock and APEs (with each APE representing 1/100 of a share of Series
A Preferred Stock), and plans to vote in favor of the Share Increase Proposal and the
Reverse Split Proposal, and, if presented, we also anticipate they will also vote in favor of
the Adjournment Proposal.”); Dec. 21, 2022 Board Minutes at AMC_00005968 (approving
73
The record before me supports Plaintiffs’ argument that the defendants took
actions with the primary purpose of overcoming the stockholders’ voting behavior.
Before they interfered with the franchise, the defendants made other adjustments to
AMC’s machinery to try to secure their preferred results despite the retail
stockholders’ antipathy or apathy. Before the defendants created the preferred stock
that would become the APE units, entered the Deposit Agreement, or entered into
the Antara Transaction, they faced stockholder opposition to their proposed
certificate amendment increasing authorized shares of common stock. After once
withdrawing a proposed amendment due to lack of stockholder approval, the
defendants amended the Company’s bylaws to lower the quorum requirement from
a majority to one-third of the issued and outstanding stock entitled to vote at the
meeting.261 Then, the defendants sought the help of their proxy advisor to suggest
alternative voting structures that could overcome the lack of “for” votes the
the Antara Transaction, the AMC Board specifically noted that “AMC had a good chance
to secure approval” of the Proposals, given that there were more APEs than common shares
and the APE unitholders would likely want to convert their units to common shares).
261
Op. Compl. ¶¶ 66–67, 71; Non-Op. Compl. ¶ 39; POB, Ex. 7 at AMC_00004343
(discussing lowering quorum requirement, citing the fact that “nearly 85% of AMC’s stock
is held by retail investors,” and “obtaining a quorum this year has proven challenging”);
id. at AMC_00004350 (“WHEREAS, the Corporation’s stockholder base has become more
diverse with a large number of retail stockholders with small shareholdings making it more
difficult to obtain the necessary quorum; and WHEREAS, the Board has determined that
it is in the best interests of the Corporation and its stockholders to reduce the amount of
stock necessary to constitute a quorum at meetings of stockholders while still ensuring
meaningful participation by stockholders.” (emphasis omitted)).
74
Company expected.262 The defendants tried again to propose an amendment to
increase the authorized shares of common stock, and again withdrew this attempt
when it was clear the electorate was not on board.263
Out of other ideas, the defendants created the APE units and entered the
Deposit Agreement. Plaintiffs would likely have been able to establish they did so
with the purpose of rendering the common stockholders’ votes irrelevant via the
APE units’ proportionate voting structure, and the justification of securing a charter
amendment authorizing more common stock.264 The defendants then guaranteed the
Proposals would pass despite common stockholder opposition or nonvotes when
they entered the Antara Transaction, securing Antara’s votes in favor of the
262
POB, Ex. 20 at AMC_00019707–08 (emailing with AMC’s proxy advisor to structure
stockholder votes as either “[d]iscretionary voting – where brokers will vote any
uninstructed shares with management’s recommendations” or “[p]roportionate voting –
where brokers will vote any uninstructed shares in the same proportion that their instructed
shares were voted” to maintain an “advantage” of favorable votes).
263
Op. Compl. ¶ 74; Non-Op. Compl. ¶¶ 41, 45; AMC Entertainment Holdings, Inc.,
Preliminary Proxy Statement (Schedule 14A), at 11–12 (June 3, 2021); POB at 14 (citing
POB, Ex. 23, and POB, Ex. 26, and POB, Ex. 30, and POB, Ex. 32); see also AMC, ---
A.3d ---, 2023 WL 4677722, at *4–5 (describing how AMC twice withdrew proposed
amendments to increase the authorized shares of common stock after it learned they would
not be approved by the stockholders (footnotes omitted)).
264
See, e.g., Aug. 4, 2022 Form 8-A (“In the absence of specific instructions from holders
of AMC Preferred Equity Units, the Depositary will vote the Preferred Stock represented
by the AMC Preferred Equity Units evidenced by the receipts of such holders
proportionately with votes cast pursuant to instructions received from the other holders of
AMC Preferred Equity Units.”); Deposit Agr. § 4.5 (providing for proportional voting);
POB at 19; POB Ex. 20 at AMC_00019707–9708; Op. Compl. ¶ 20.
75
Proposals as compounded by the Deposit Agreement, and said as much in the
December 21, 2022 Board meeting minutes.265
The defendants sought to overcome the stockholders’ right to vote “no,” and
their right not to vote—their “rational apathy.”266 The Board’s actions were similar
in intention and effect to those in Peerless—it manipulated the corporate machinery
to rig the Special Meeting vote to overcome common stockholder opposition and the
defeating presence of nonvotes.267 The creation and issuance of the APE units,
together with the Deposit Agreement and the Antara Transaction, dictated the
outcome of stockholder votes on the Proposals. The defendants purposefully diluted
the common stockholders’ votes to the point of meaninglessness.268 Plaintiffs would
265
See Op. Compl. ¶ 149; Dec. 21, 2022 Board Minutes at AMC_00005968 (“Mr. Aron
outlined the voting dynamics for the special shareholder meeting indicating that there were
presently considerably more APEs in the float than common stock, . . . and that the non-
voting APE shares would be voted proportionately rather than as ‘no votes’, all of which
[sic] factors gave AMC a good chance to secure approval for conversion.”).
266
AMC, --- A.3d ---, 2023 WL 4677722, at *5 & n.13.
267
Id. at *10 (“A majority of common stockholders and a majority of the APE unitholders
did not give any voting instructions at all, let alone in favor of the Proposals.” (footnote
omitted)); id. at *10 n.67; Peerless, 2000 WL 1805376, at *3–4 (adjourning the annual
meeting while the polls were still open for non-routine Proposal 2, because the necessary
beneficial owners did not vote at all).
268
Cf. Phillips v. Insituform of N. Am., Inc., 1987 WL 16285 (Del. Ch. Aug. 27, 1987)
(concluding that a dilutive stock issuance was designed to thwart the stockholder franchise
in a vote related to corporate control).
76
likely establish the defendants acted with a primary purpose of thwarting the
common stockholder franchise.269
This leaves the question of whether the defendants could show their actions
were reasonable in relation to their legitimate objective. The defendants assert they
did what they did in 2022 because AMC was in dire financial straits after the
COVID-19 pandemic, despite the contributions of retail investors. AMC’s net loss
for 2022 was “just shy of $1 billion,”270 it was burdened by approximately $5.1
billion of costly debt and had to negotiate extensions of the suspension period for
various financial payments, and its cash position deteriorated by approximately $961
million in 2022 despite the sale of APEs that year.271 Unless revenue and attendance
levels rose, “the failure to obtain additional liquidity through equity capital would
269
The defendants assert the Proposals and the Conversion were designed to “simplify
[AMC]’s capital structure” and resolve the disparity between the trading prices of APEs
and common stock. DOB at 21 (internal quotation marks omitted) (quoting DOB, Ex. S,
Ex. 99.1 to December 22, 2022 AMC Form 8-K at 2); DOB at 22. That may be: but the
franchise conflict warranting enhanced scrutiny arises out of the issuance and
weaponization of the APEs to pass the Proposals. The argument about the design of the
Proposals and the Conversion goes to the defendants’ justification for thwarting the
franchise, not whether the defendants’ purpose was to thwart the franchise. See Peerless,
2000 WL 1805376, at *11. The defendants’ reliance on their justifications does not inform
the conclusion that their primary purpose was to thwart the franchise. See DOB at 22.
270
DOB at 5–6 (citing DOB, Ex. C, AMC Entertainment Holdings, Inc., Annual Report
(Form 10-K) (Feb. 28, 2023) [hereinafter “Feb. 28, 2023 Form 10-K”], at 85); Feb. 28,
2023 10-K at 86.
271
Id. at 6–7 (citing Feb. 28, 2023 Form 10-K at 23, 87).
77
likely result in bankruptcy.”272 AMC was “[l]eft without any other way to raise
equity capital.”273
At least at this stage of the proceedings, the defendants have shown AMC was
losing money and needed to raise cash in 2022 when the directors guaranteed the
vote on the Proposals, but not that bankruptcy was imminent. (Indeed, AMC is still
a going concern.) Perhaps, in April 2023 at the preliminary injunction stage, the
defendants would have been able to show that in 2022, AMC was in desperate need
of cash, could only raise it through equity capital, and needed to do so promptly, lest
AMC declare bankruptcy and all AMC investors lose their investment.274 The
defendants may have been able to show their actions were reasonable in relation to
that legitimate objective. Plaintiffs’ breach of fiduciary duty claim has merit, and
therefore value.
272
Id. at 7–8 (citing Feb. 28, 2023 Form 10-K at 2); Feb. 28, 2023 Form 10-K at 2 (“If we
are unable to achieve significantly increased levels of attendance and operating revenues,
we may be required to obtain additional liquidity. If such additional liquidity is not
obtained or insufficient, we likely would seek an in-court or out-of-court restructuring of
our liabilities, and in the event of such future liquidation or bankruptcy proceeding, holders
of our Common Stock, AMC Preferred Equity Units, and other securities would likely
suffer a total loss of their investment.”).
273
Id. at 9; id. at 2–3, 29.
274
This analysis is distinct from the balance of the equities the Court would conduct in
April 2023, when considering a preliminary injunction. I address this issue next.
78
c) The Preliminary Injunction
Though Plaintiffs sought injunctive relief, the parties agree that a preliminary
injunction enjoining the Proposals and the Conversion would have been unlikely.
“This Court has broad discretion to grant or deny a preliminary injunction.” 275 To
obtain a preliminary injunction, the movant must demonstrate: “(i) a reasonable
probability of success on the merits; (ii) a threat of irreparable injury if an injunction
is not granted; and (iii) that the balance of the equities favors the issuance of an
injunction.”276 But a preliminary injunction “is not granted lightly,” and “[t]he
moving party bears a considerable burden in establishing each of these necessary
elements.”277
The parties predict the third element, the balance of the equities, would fail.278
That factor requires the Court to “balance the plaintiff’s need for protection against
any harm that can reasonably be expected to befall the defendants if the injunction
275
Fletcher Int’l, Ltd. v. ION Geophysical Corp., 2010 WL 1223782, at *3 (Del. Ch.
Mar. 24, 2010) (citing Data Gen. Corp. v. Digit. Comput. Controls, Inc., 297 A.2d 437,
439 (Del. 1972)).
276
Pell, 135 A.3d at 783 (citing Revlon, Inc. v. MacAndrews & Forbes Hldgs., Inc., 506
A.2d 173, 179 (Del. 1986)).
Fletcher Int’l, 2010 WL 1223782, at *3 (alteration in original) (internal quotation marks
277
omitted) (quoting La. Mun. Police Empls.’ Ret. Sys. v. Crawford, 918 A.2d 1172, 1185
(Del. Ch. 2007)).
278
E.g., POB at 37–39; DOB at 28–31.
79
is granted.”279 The Court
must be cautious that its injunctive order does not threaten more harm
than good. That is, a court in exercising its discretion to issue or deny
such a . . . remedy must consider all of the foreseeable consequences of
its order and balance them. It cannot, in equity, risk greater harm to
defendants, the public or other identified interests, in granting the
injunction, than it seeks to prevent.280
The parties argued the equities might have balanced against an injunction for
three reasons. First, that “granting Plaintiffs injunctive relief would have meant
overriding the will of holders of Common Stock and APEs, who voted
overwhelmingly in favor” of the Proposals.281 I dispensed with this contention in
the July 21 Opinion: the instructed votes cast by each class for each proposal were
not overwhelmingly in favor.282 Second, the parties assumed the Court would be
279
CBS Corp. v. Nat’l Amusements, Inc., 2018 WL 2263385, at *5 (Del. Ch. May 17, 2018)
(internal quotation marks omitted) (quoting Mills Acq. Co. v. Macmillan, Inc., 559 A.2d
1261, 1279 (Del. 1989)).
280
Id. (alteration in original) (internal quotation marks omitted) (quoting In re Del Monte
Foods Co. S’holders Litig., 25 A.3d 813, 839 (Del. Ch. 2011)).
281
DOB at 30.
282
AMC, --- A.3d ---, 2023 WL 4677722, at *10 n.67 (“The defendants continue to
misrepresent the nature of the vote by including the uninstructed mirrored votes in the total.
. . . But only 45.80% and 45.39% of outstanding common stockholders and APE
unitholders together instructed a vote in favor of the Share Increase Proposal and Reverse
Split Proposal, respectively. . . . This is hardly ‘overwhelming’ or ‘resounding.’”); id. at
*10 (“A majority of common stockholders and a majority of the APE unitholders did not
give any voting instructions at all, let alone in favor of the Proposals.”); id. (“[O]nly
25.54% of the outstanding common voted for the Share Increase Proposal, and 24.80% for
the Reverse Split Proposal.”).
80
reluctant to invalidate the APEs held by “innocent third parties.”283 I take Plaintiffs’
positions at argument to provide that they sought invalidation of the APE units under
Section 242, and not under their Blasius claim.284 As explained, the Section 242
claim was meritless, so that injunction would have failed on the merits.
Finally, the parties contended an April 2023 injunction against the Proposals
and the Conversion would do great financial harm to AMC, as it would prevent AMC
from raising capital and paying down its debt. Plaintiffs’ assessment of that harm
has shifted over time. In February 2023, when Plaintiffs filed their Blasius claim,
they presumably had a good faith belief that the defendants’ 2022 actions were not
reasonable in relation to a legitimate objective, namely passing the Proposals to raise
essential cash for AMC. But in the summer of 2023, when Plaintiffs sought approval
of their settlement, they argued an April 2023 injunction against the Proposals and
the Conversion would have been inequitable as those measures were necessary to
prevent AMC’s demise at that time. I asked Plaintiffs to point the Court to what
they learned in discovery that led them to change their perception as to whether
stockholder approval of the Proposals was necessary to keep AMC afloat. 285
Plaintiffs did not identify anything in the record.286
283
POB at 39; see DOB at 30–31.
284
See Hr’g Tr. 48–49, 70, 183..
285
Hr’g Tr. 92.
286
Id. at 92–96; id. 96.
81
For their part, the defendants have consistently held the position that the
Proposals and the Conversion were designed to, and must be effectuated promptly
to, raise essential cash. As explained above, they provided evidence that in 2022,
AMC had to either earn revenue or sell equity to raise cash. Once this litigation
began, the defendants did not oppose Plaintiffs’ motion to expedite, and initially
advocated for a hearing on any preliminary injunction motion before the stockholder
vote scheduled for March 14, 2023.287 At that time, their concerns were expressed
in terms of market uncertainty.288 When the parties negotiated a settlement term
sheet in early March, the defendants supported the settlement being conditioned on
lifting the status quo order, enabling AMC to effectuate the Reverse Stock Split and
Conversion promptly.289 In early May, the defendants began voicing concerns that
an injunction could “result in a bankruptcy or financial restructuring.” 290 During a
status conference held a few days later, the defendants requested that the Court
truncate the settlement notice period, explaining that “from the perspective of capital
raising, once we get into the late summer, that is typically a quiet period,” and that
287
D.I. 25 at 12 (advocating for a March 10 preliminary injunction hearing date and
expressing a willingness to “engage in . . . highly expedited discovery”).
288
Id. at 16–17.
289
D.I. 59 at Motion ¶ 23.
290
D.I. 441 at 14.
82
the defendants were “a little worried about” this litigation “dragging into the fall.”291
The defendants maintained this position through July, expressing that delays in
effectuating the Reverse Stock Split and Conversion could lead to dilutive equity
financing or bankruptcy.292
Had the defendants shown that an April preliminary injunction would put
AMC into bankruptcy, the harm to the nonmovant would have been a very high
hurdle for Plaintiffs to clear. Perhaps the defendants would have been able to make
that showing. I conclude a preliminary injunction has a discounted value in
Plaintiffs’ “give.”
2. The Settlement Class’s “Get”
The Proposed Settlement reallocates AMC’s equity between its common
stockholders and APE unitholders. If the Proposed Settlement is approved, the
existing common stockholders will own a slightly bigger slice of the AMC pie at the
expense of the APE unitholders. The Proposed Settlement thus ameliorates some of
the dilution the APE issuances inflicted on the common stockholders. Without the
Proposed Settlement, the existing common stockholders would own approximately
34.28% of AMC’s equity after the Conversion and the former APEs unitholders
291
D.I. 217 at 18.
292
D.I. 593 ¶ 14; D.I. 595.
83
would own approximately 65.72%.293 With the Proposed Settlement, the existing
common stockholders would own approximately 37.15% of AMC’s equity after the
Conversion and the former APEs unitholders would own approximately 62.85%.294
This 2.87% increase in ownership is the “get.”
The precise value of that 2.87% at the Settlement Class Time is difficult to
predict, and the record before me offers little help. Plaintiffs assert that the value of
the Settlement Shares “exceeds $129 million,” citing an expert affidavit.295 That
affidavit estimated the value of the settlement consideration based on the Company’s
market capitalization on April 28 and on May 3, relying on the trading price of APEs
and common stock on those days.296 The reliance on trading prices means that the
value of Settlement Shares fluctuates depending on the date used and AMC’s
circumstances. For example, the affidavit concludes that if valued on April 28, the
Settlement Shares are worth $124,916,286.34.297 If valued based on the May 3
trading prices, the value increases to $129,067,486.45.298 But an earlier affidavit,
293
POB at 30–31; D.I. 206 at Affidavit of Patrick Ripley of Loop Capital Financial
Consulting Services in Support of Plaintiffs’ Motion to Lift Status Quo Order ¶¶ 3(b), 4(b)
[hereinafter “Ripley Aff.”].
294
POB at 31; Ripley Aff. ¶¶ 3(c), 4(c).
295
POB at 30 (emphasis omitted) (discussing Ripley Aff.).
296
Ripley Aff. ¶ 2.
297
Id. ¶ 3(c).
298
Id. ¶ 4(c).
84
using the same methodology but March 30 prices, concluded the value was
$113,986,741.82—$15 million less than Plaintiffs’ May 3 high water mark.299
Picking between the proposed dates is necessarily arbitrary—AMC’s market
capitalization on April 28 is no more relevant to the value of the Settlement Shares
than that of May 3.300 And neither date seems to be a better choice than the date the
Settlement Shares are issued or a date closer to that issuance. Plaintiffs’ suggestion
that the May 3 trading prices should be used to value the Settlement Shares lacks
support. The parties have not supplied me with a way of determining the precise
value of the settlement consideration. Regardless of the exact value, the historical
range makes it clear that the Settlement Shares are a significant “get.”
The long-term benefits of the Proposed Settlement to the class may be
significant if, as the parties seem to agree, the Proposals and Conversion are
presently key to AMC’s survival even despite recent gains in revenue.301 AMC’s
second quarter Form 10-Q, filed on August 8, 2023, reported that the Company
299
D.I. 59 at Affidavit ¶ 6(c).
300
The expert sent a native Excel file to the Court and the Special Master, which includes
additional dates. Plaintiffs have not explained why any particular date should be chosen,
and the defendants have not stated a position on this issue. The Special Master was
skeptical of the May 3 valuation date, and proposed instead that “a reasonable approach to
value the Settlement Shares in Plaintiffs’ analysis is to consider a range, median, or
average, rather than just a single date in time.” Rpt. at 35–36.
301
See Infinity Broad., 802 A.2d at 290 (stating that the Court may consider the “probable
long-term benefits of [a] settlement” when assessing whether the settlement is fair to the
class).
85
experienced an over $225 million net loss from operating activities for the six
months ending June 30, 2023.302 That same Form 10-Q disclosed that AMC has
about $708 million in current assets.303 These facts may underpin the 10-Q’s
disclosure that “[t]he Company’s current cash burn rates are not sustainable long-
term.”304 And, in AMC’s words, its current assets are “dwarfed by its $11.4 billion
in total liabilities.”305 While the Company stated it believes it has sufficient cash
and cash equivalents to “fund its operations and satisfy its obligations currently and
through the next twelve months,” it is unclear how long it can do so because the
Company’s cash burn rate “is uncertain due to limited ability to predict studio film
release dates, the overall production and theatrical release levels, and success of
individual titles.”306
302
AMC Entertainment Holdings, Inc., Quarterly Report (Form 10-Q) at 4 (Aug. 8, 2023)
[hereinafter “Aug. 8 Form 10-Q”]. The Court takes judicial notice of AMC’s public SEC
filings. DFC Glob. Corp. v. Muirfield Value P’rs, L.P., 172 A.3d 346, 351 n.7 (Del. 2017).
303
Aug. 8 Form 10-Q at 5.
304
Id. at 8.
305
D.I. 593 ¶ 12.
306
Aug. 8 Form 10-Q at 8. To be sure, the Company generated net earnings of $8.6 million
for the three months ended June 30, 2023, in contrast to a net loss of $235.5 million in the
three months ended March 31, 2023. Compare id. at 4, with AMC Entertainment Holdings,
Inc., Quarterly Report (Form 10-Q) at 4 (May 5, 2023). It appears that this increase was
driven primarily by “the popularity of film product compared to the prior year” and higher
food and beverage sales, which was driven at least partially by the increase in admissions.
Id. at 43. Nevertheless, AMC reported current assets of $ 707.7 million for the three
months ending June 30, 2023, as compared to the $740.5 it reported for the three months
86
Against this backdrop, the defendants anticipate the Company will have to
raise additional capital through equity sales to stave off bankruptcy and remain in
compliance with its loan covenants.307 If AMC cannot raise enough cash to pay its
debts and enters bankruptcy, the class members will lose their investment. The
Proposed Settlement gives the class more equity in a struggling company, and gives
the Company a way to raise needed revenue.
In exchange for this increased slice of ownership in AMC as a going concern,
the common stockholders would release all claims asserted in or relating to the
allegations in the Allegheny complaint or the operative complaint “that relate to the
ownership of Common Stock during the Class Period.”308 As explained, the Section
242 claim is worthless. The Blasius claim may very well have been defeated on the
merits by the defendants showing their actions were reasonable in relation to the
legitimate objective of raising essential capital. Or, if an injunction would have put
AMC into bankruptcy, the equities might have foreclosed injunctive relief. Even
ending March 31, 2023. Compare id. at 5, with AMC Entertainment Holdings, Inc.,
Quarterly Report (Form 10-Q) at 5 (May 5, 2023).
Though these results were filed after briefing on the Proposed Settlement was
complete, they reflect an earnings period that concluded on June 30, 2023. The defendants
have represented as recently as July 26 that the Company’s financial troubles persist. These
financial results, alone, do not demonstrate the Company no longer has a need to raise
equity financing in the short term.
307
D.I. 593 at 13–14.
308
D.I. 582, at Addendum to Stipulation and Agreement of Compromise, Settlement, and
Release ¶ 1.
87
without a precise valuation of the Settlement Shares, releasing these claims in
exchange for Settlement Shares and AMC’s continued viability falls within a range
of results that a reasonable disinterested person could accept.309
E. Plaintiffs’ Lead Counsel Is Granted Fees And Expenses.
This Court may award attorneys’ fees to counsel whose efforts conferred a
common benefit to the class.310 This principle applies to both financial and
nonmonetary benefits.311 The determination of any attorney fee and expense award
is within the Court’s discretion.312 In setting fee awards, the Court of Chancery
“must make an independent determination of reasonableness.”313
When setting a fee award, the Court will generally follow the factors identified
in the Delaware Supreme Court’s Sugarland decision and relied on by subsequent
decisions.314 The relevant factors here are: (1) the size of the benefit achieved; (2)
whether the plaintiffs can rightly receive all the credit for the benefit conferred or
309
See Forsythe v. ESC Fund Mgmt. Co. (U.S.), 2012 WL 1655538, at *4 (Del. Ch.
May 9, 2012).
310
See, e.g., Ams. Mining Corp. v. Theriault, 51 A.3d 1213, 1255 (Del. 2012); Tandycrafts,
Inc. v. Initio P’rs, 562 A.2d 1162, 1164 (Del. 1989).
311
See, e.g., EMAK, 50 A.3d at 434.
312
Ams. Mining, 51 A.3d at 1255; Sugarland Indus., Inc. v. Thomas, 420 A.2d 142, 149–
50 (Del. 1980).
313
Goodrich, 681 A.2d at 1045–46.
314
See, e.g., Sciabacucchi v. Salzberg, 2019 WL 2913272, at *1 (Del. Ch. July 8, 2019)
(quoting Ams. Mining, 51 A.3d at 1254), judgment vacated on other grounds, 2020 WL
1985048 (Del. Ch. Apr. 24, 2020).
88
only a portion thereof; (3) the time and effort of counsel; (4) the standing and ability
of counsel; (5) the relative complexities of the litigation; (6) the stage at which the
litigation ended; and (7) any contingency factor.315
The factors are not weighted equally. This Court has consistently noted that
the most important factors in determining a fee award are the size of the benefit
achieved, and whether the plaintiff can be credited for the benefit.316 “Secondary
factors include the complexity of the litigation, the standing and skill of counsel, and
the contingent nature of the fee arrangement together with the level of contingency
risk actually involved in the case.”317 “Precedent awards from similar cases may be
considered for the obvious reason that like cases should be treated alike.”318
315
Sugarland, 420 A.2d 142.
316
E.g., In re Plains Res. Inc., 2005 WL 332811, at *3 (Del. Ch. Feb. 4, 2005) (“The factors
are: . . . (vi) whether the plaintiff can rightly receive all the credit for the benefit conferred
or only a portion thereof; and (vii) the size of the benefit conferred. The last two elements
are often considered the most important.” (footnote omitted) (citing Sugarland, 420 A.2d
at 149–50)); see also Gatz, 2009 WL 1743760, at *3 (“This Court has consistently noted
that the most important factor in determining a fee award is the size of the benefit
achieved.”); Franklin Balance Sheet Inv. Fund v. Crowley, 2007 WL 2495018, at *8 (Del.
Ch. Aug. 30, 2007) (“In determining the size of an award of attorney’s fees, courts assign
the greatest weight to the benefit achieved by the litigation.” (citing Sugarland, 420 A.2d
at 150)).
317
Olson v. EV3, Inc., 2011 WL 704409, at *8 (Del. Ch. Feb. 21, 2011) (citing Gatz, 2009
WL 1743760, at *3).
318
Id.89
Applying the Sugarland factors here, I find that they weigh in support of a smaller
award than Plaintiffs’ counsel suggest.319 I address each factor in turn.
1. The Benefits Achieved And Credit For The Benefits
Conferred
When considering the fee award, the Court looks at the benefit conferred on
the company and its stockholders, and then awards a percentage of that the benefit’s
value based on a sliding scale keyed to the litigation’s progress.320 Plaintiffs’ counsel
have asked for a $20 million fee award (inclusive of expenses)321 paid separately,
which could be between 15% and 27.5%, depending on the value of the benefit.322
The quantifiable benefit from which the fee is calculated is limited to the Settlement
Shares. Plaintiffs refer to other “substantial non-monetary benefits” achieved in
connection with the settlement, but they did not make any effort to meaningfully
describe or value those benefits.323 Plaintiffs are properly credited with the
Settlement Share benefits that would not have been conferred but for this litigation.
319
The defendants take “no position on the fees.” Hr’g Tr. 197.
320
E.g., Gatz, 2009 WL 1743760, at *3; Dell, --- A.3d ---, 2023 WL 4864861, at *7.
321
POB at viii, 11, 51.
322
Rpt. at 81–82 (illustrating a range of values for the Settlement Shares and what
percentage a $20 million fee would represent of those values). These percentages are based
on predicted Settlement Share values between approximately $53 million and
approximately $113 million. Id. at 82.
323
POB at 59; see also id. at 57 (referring to “other noneconomic benefits of the
settlement”).
90
The next step is to set the percentage of that benefit counsel earned. While
the “[o]ther Sugarland factors may cause the court to adjust the . . . fee up or down,
. . . the starting point under Americas Mining is a percentage calculation. Under this
method, the ‘common fund is itself the measure of success.’”324 A mid-stage
settlement follows “multiple depositions and some level of motion practice.”325 An
early-stage settlement precedes a mid-stage settlement.326 “A logical point to start
the late-stage phase is after the end of expert discovery.”327
Delaware law uses different sliding scales depending on whether the fee is
paid out of the common fund or paid separately (as when the common benefit is
nonmonetary). “A common fund with a fee award paid separately is mathematically
equivalent to a larger common fund with a lower percentage fee award coming out
of the gross amount.”328 For example, if a monetary common fund is worth $100
million, and the plaintiff’s counsel is awarded 15%, then the remaining corporate
324
Dell, 2023 WL 4864861, at *7 (quoting Ams. Mining, 51 A.3d at 1259).
325
Id. at *8 (internal quotation marks omitted) (quoting Ams. Mining, 51 A.3d at 1259–
60).
326
Id. (quoting Ams. Mining, 51 A.3d at 1259–60).
327
Id. at *11; id. at *9 (“This case involved a late-stage settlement. The parties informed
the court that they had reached an agreement in principle on November 16, 2022. That was
nineteen calendar days before trial was scheduled to begin. The parties had submitted a
fifty-three-page joint pre-trial order and filed their pre-trial briefs. Plaintiff’s counsel filed
a pre-trial brief that spanned 134 pages and contained 22,908 words. Plaintiff’s counsel
truly litigated until the eve of trial.”).
328
Id. at *34.
91
benefit allocated to the class is worth $85 million. The class receives the same
amount from a $117.6 million monetary common fund if 15% is paid to the
plaintiff’s counsel out of that fund. If a nonmonetary common fund is worth $100
million, and the plaintiff’s counsel is awarded 15% paid separately, then the benefit
to the class is still worth $100 million.
Recently, Dell included the following chart illustrating fee award percentages
based on when the litigation was settled, and how the fee is structured:329
Contrary to Plaintiffs’ counsel’s position, this matter did not settle “on the eve
of a preliminary injunction hearing.”330 The parties sent the Court an April 3 letter
indicating they had reached a term sheet; the preliminary injunction hearing was
scheduled for April 27. The parties had not taken any depositions or filed their
preliminary injunction briefs. The only motion the parties had to address before
reaching their term sheet was a motion to intervene.331 While the settlement
329
Id. at *34.
330
POB at 59.
331
D.I. 15. Plaintiffs submitted a fifteen-page opposition. D.I. 26. The Court denied the
motion without argument. D.I. 37.
92
followed highly expedited written and document discovery, the settlement is still an
early-stage settlement. The most justifiable “paid separately” percentage is 13%.332
The fee calculation will start from that figure.
2. Secondary Sugarland Factors
“Secondary factors include the complexity of the litigation, the standing and
skill of counsel, and the contingent nature of the fee arrangement together with the
level of contingency risk actually involved in the case.”333
“All else equal, litigation that is challenging and complex supports a higher
fee award.”334 This litigation was both complex and challenging. Plaintiffs filed
claims applying a novel legal theory, crafted in a changing legal landscape, to
sophisticated financial engineering.335 Plaintiffs’ counsel also undertook the
challenging task of engaging with unprecedented putative class participation. They
absorbed, processed, catalogued, and distributed thousands of putative stockholder
332
Dell, 2023 WL 4864861, at *34.
333
Judy v. Preferred Commc’n Sys., Inc., 2016 WL 4992687, at *15 (Del. Ch.
Sept. 19, 2016) (citing Gatz, 2009 WL 1743760, at *3).
334
Activision, 124 A.3d at 1072.
335
During the pendency of this litigation, this Court issued a ruling concerning the scope
of Section 242 in In re Snap Inc. Section 242 Litigation, the Delaware Supreme Court
issued Coster IV, and Delaware’s General Assembly passed amendments to Section 242.
In re Snap, Consol. C.A. No. 2022-1032-JTL, D.I. 22; Coster IV, --- A.3d ---, 2023 WL
4239581; Del. S.B. 114, 152d Gen. Assem., 84 Del. Laws ch. 98 (2023).
93
communications. Plaintiffs’ counsel also had to endure the challenges of security
threats to themselves and their staff. This factor warrants an upward adjustment.
Counsel may be “entitled to a much larger fee when the compensation is
contingent than when it is fixed on an hourly or contractual basis.”336 “Fee awards
should encourage future meritorious lawsuits by compensating the plaintiffs’
attorneys for their lost opportunity cost (typically their hourly rate), the risks
associated with the litigation, and a premium.”337 “But just because a lawyer works
on contingency does not automatically warrant a significant award. ‘Not all
contingent cases involve the same level of contingency risk.’”338 Cases that are
“relatively safe in terms of forcing a settlement,” like claims only for additional
disclosures, do not face significant contingency risk.339 This was not one of those
cases.
336
Ryan, 2009 WL 18143, at *13.
337
Franklin Balance Sheet, 2007 WL 2495018, at *12 (footnote omitted) (citing Seinfeld
v. Coker, 847 A.2d 330, 333–34 (Del. Ch. 2000)).
338
Sciabacucchi, 2019 WL 2913272, at *7 (quoting Activision, 124 A.3d at 1073).
339
In re Sauer-Danfoss Inc. S’holders Litig., 65 A.3d 1116, 1140 (Del. Ch. 2011) (internal
quotation marks omitted) (quoting Cox Radio, 2010 WL 1806616, at *21); Schumacher v.
Loscalzo, 2023 WL 4842103, at *5 (Del. Ch. July 28, 2023) (“A reduction of the $475,000
[fee] sought is also supported by the remaining Sugarland factors. The case was low risk,
settled early, and was neither difficult nor complicated. ‘“It offered a ready-made
settlement opportunity” and was filed “with an obvious and well-marked exit in sight.”’”
(quoting Sciabacucchi v. Howley, 2023 WL 4345406, at *5 (Del. Ch. July 3, 2023))).
94
3. The Time And Effort Expended, And The Standing
And Skill Of Counsel
The time and effort expended by counsel is another secondary, or even
tertiary, consideration to the benefits achieved.340 Delaware courts regard this
consideration as a crosscheck to guard against windfall awards,341 “because the real
measure of a fee award lies in the results achieved.”342 Courts have repeatedly
acknowledged the shortcomings of the lodestar method, which can incentivize
attorneys to inflate hours or billing rates.343 Accordingly, Delaware courts should
first look to precedents on which to base a fee award, which I have done.344
Plaintiffs’ counsel spent 3,425.9 hours on this case through May 1,345 but I give no
340
E.g., Pontiac Gen. Empls. Ret. Sys. v. Ballantine, C.A. No. 9789-VCL, D.I. 49, at 40
(Del. Ch. May 8, 2015) (TRANSCRIPT); Sciabacucchi, 2019 WL 2913272, at *6.
341
Olson, 2011 WL 704409, at *8 (citing Brinckerhoff v. Tex. E. Prods. Pipeline Co., LLC,
986 A.2d 370, 396 (Del. Ch. 2010)).
342
Sciabacucchi, 2019 WL 2913272, at *6.
343
E.g., id. (quoting Sauer-Danfoss, 65 A.3d at 1138).
344
See, e.g., id.345
D.I. 206 at Affidavit of Mark Lebovitch in Support of Proposed Settlement, Application
for Attorneys’ Fees and Expenses, and Incentive Award for Plaintiffs ¶ 3 (affirming
Bernstein Litowitz Berger & Grossmann LLP devoted 1,438.50 hours on this action
through May 1, 2023); D.I. 210 at Corrected Affidavit of Michael J. Barry in Support of
Plaintiffs’ Request for an Award of Attorneys’ Fees and Expenses ¶ 4 (affirming Grant &
Eisenhofer, P.A. devoted 720 hours on this action through May 1, 2023); D.I. 206 at
Affidavit of Thomas Curry in Support of Plaintiffs’ Request for an Award of Attorneys’
Fees and Expenses ¶ 4 (affirming Saxena White P.A. devoted 627.75 hours on this action
through May 1, 2023); D.I. 206 at Affidavit of William J. Fields in Support of Plaintiffs’
Request for an Award of Attorneys’ Fees and Expenses ¶ 5 (affirming Fields Kupka &
Shukurov LLP devoted 544.50 hours on this action through May 1, 2023); D.I. 206 at
Affidavit of Jeremy Friedman in Support of Plaintiffs’ Request for an Award of Attorneys’
95
weight to the hours expended.346
As explained, the standing and skill of counsel is a secondary factor.
Plaintiffs’ counsel are well known to the Court. But in considering Plaintiffs’
counsel’s effort and standing, I find it necessary to consider what they have
described as “missteps.”347 “Law firms establish a track record over time, and they
‘build (and sometimes burn) reputational capital.’”348 From my perspective,
potential “missteps” include but are not limited to: failing to abide by the Court’s
practice of prompt responses to motions in expedited litigation, putting the Court in
the burdensome position of having to urge responses;349 noncompliance with
Fees and Expenses ¶ 4 (affirming Friedman Oster & Tejtel PLLC devoted 39.25 hours on
this action through May 1, 2023); D.I. 206 at Affidavit of Richard A. Maniskas in Support
of Proposed Settlement, Application for Attorneys’ Fees and Expenses, and Incentive
Award for Plaintiffs ¶ 3 (affirming RM LAW P.C. devoted 55.9 hours on this action
through May 1, 2023); PRB at 59 (“Plaintiffs’ counsel do not seek fees for post-settlement
hours . . . .”).
346
E.g., Olson, 2011 WL 704409, at *15; see also Ams. Mining, 51 A.3d at 1257
(“Sugarland does not require, as the Defendants argue, courts to use the hourly rate implied
by a percentage fee award, rather than the benefit conferred, as the benchmark for
determining a reasonable fee award. To the contrary, in Sugarland, this Court refused to
adopt the Third Circuit’s lodestar approach, which primarily focuses on the time spent.”).
347
Hr’g Tr. 8 (“I know that we’ve had some missteps . . . .”).
348
Dell, 2023 WL 4864861, at *32 (“Law firms establish a track record over time, and they
‘build (and sometimes burn) reputational capital.’” (internal quotation marks omitted)
(quoting In re Del Monte Foods Co. S’holders Litig., 2010 WL 5550677, at *9 (Del. Ch.
Dec. 31, 2010))).
349
E.g., D.I. 90 (reminding the parties to respond to motions); D.I. 163 (asking the parties
if they were going to file the settlement papers for the proposed settlement they had
announced nearly two weeks prior).
96
specific instructions;350 making misrepresentations to the Court and the class; and
antagonism toward absent putative class members. While I will not discuss them all
here, I will focus on a few.
First, it appears Plaintiffs’ counsel failed to disclose a 2021 order from a
California federal judge that required Bernstein Litowitz Berger & Grossman LLP
(“BLBG”) “in future cases . . . seeking appointment as class counsel” to notify courts
of his decision criticizing BLBG’s failure to disclose a potential conflict.351
Plaintiffs’ counsel did not notify this Court of that decision when it sought
appointment as lead counsel or in Plaintiffs’ opening brief in support of the Proposed
Settlement. And while Plaintiffs’ counsel did discuss the related Chancery case in
Plaintiffs’ reply brief in support of the settlement, Plaintiffs’ counsel failed to
disclose the federal court’s order or address that Izzo raised it in her Objection.352
This lack of candor to the Court is unacceptable.
350
D.I. 454 at 5 n.21 (“I repeat my insistence that the parties update the specified websites
today, and every day a noted report or order is issued, to comply with paragraph 72 of the
notice.”); D.I. 312 at 2–3 (“Before diving into the details, I pause on the Special Master’s
observation that the parties filed the exhibits to their settlement briefs confidentially,
contrary to my instructions. More fundamentally, I insist that counsel and AMC update
their websites today to post the materials promised in paragraph 72 of the notice sent to
stockholders.” (footnote omitted)); accord D.I. 587 at 4 n.13.
351
SEB Invs. Mgmt. AB v. Symantec Corp., 2021 WL 1540996, at *2 (N.D. Cal.
Apr. 20, 2021). This action is C.A. No. 3:18-cv-02902 in front of Judge Alsup. Id.352
PRB at 56 (citing In re Symantec Corp. S’holder Deriv. Litig. C.A. No. 2019-0224-JTL,
D.I. 100, at 42–43 (Del. Ch. May 4, 2023) (TRANSCRIPT)); Symantec, C.A No. 2019-
0224-JTL, D.I. 100 (discussing the “Securities Action” that settled in February 2022 in
97
Plaintiffs’ counsel also misrepresented in Plaintiffs’ opening brief in support
of the Proposed Settlement that one of their clients at the time signed a Rule 23
affidavit in support of the Proposed Settlement: he had not.353 They also delayed
responding to Izzo’s counsel when they inquired about the nonexistent affidavit.354
This issue caused consternation and burdened the Court.
Finally, Plaintiffs’ counsel seemed at times to forget its role as counsel for the
putative class. As one example, Plaintiffs’ counsel broadcast a private disagreement
between an absent putative class member and counsel.355 As another, they
repeatedly failed to serve objectors.356 These issues also were a net negative on the
progress of this litigation.
The burnt reputational capital in this action warrants a downward adjustment
to the fee award.
***
front of Judge Alsup in the Northern District of California); In re Symantec Corp. S’holder
Deriv. Litig. C.A. No. 2019-0224-JTL, D.I. 1 at 1 (Del. Ch. Mar. 20, 2019) (disclosing a
related securities action, case number 3:18-cv-02902, then pending in the Northern District
of California).
353
POB at 51 n.122 (citation reading “See [sic] Affidavits of Munoz, Franchi, and
Allegheny.”).
354
D.I. 369 at 2 (citing D.I. 357 ¶¶ 8–9).
355
D.I. 306 at 3–4.
356
D.I. 369 at 2 (citing D.I. 344 at 5, and D.I. 357 ¶ 9); D.I. 580 ¶ B n.4 (citing D.I. 550 at
Certificate of Service, and D.I. 575 at 6).
98
“In these circumstances, it is within the Court of Chancery’s discretion to
reduce class counsel’s fee award.”357 Plaintiffs’ counsel is awarded fees and
expenses of 12% of the recovery at the Settlement Class Time.
As explained, the value of the recovery, i.e. the Settlement Shares, is difficult
to precisely quantify today. And as explained, it is unnecessary and arbitrary for the
Court to select one of Plaintiffs’ proposed dates to value the recovery in this matter
for purposes of evaluating the settlement terms.
I find I need not predict the value of the Settlement Shares to set a dollar
amount for Plaintiffs’ counsel’s fee, either. The recovery is sourced wholly in the
Settlement Shares, which will be publicly traded. That recovery will be paid
“promptly” after the Reverse Stock Split and the Conversion are completed.358 And
that recovery will be paid soon: the defendants have consistently maintained they
intend to pursue the Proposals and Conversion promptly upon settlement approval.
As explained below, I have declined to enjoin them from doing so pending Izzo’s
appeal of the July 21 Opinion.
Under these circumstances, speculating as to the future value of a share of
AMC common stock makes little sense. I leave it to the parties to confer on the
357
In re Coleman Co. Inc. S’holders Litig., 750 A.2d 1202, 1212 (Del. Ch. 1999)
(collecting cases).
358
Notice ¶ 48.
99
value of the Settlement Shares as crystallized at the time those shares are issued, and
on what 12% of that value represents. The parties should derive Plaintiffs’ counsel’s
fee from the closing price of AMC common stock on the date Settlement Shares are
issued. The parties should make any necessary adjustments to account for dilution
to the legacy common stockholders, perhaps in the same manner as Plaintiffs’ expert,
to the extent that the stock price does not reflect any such dilution. In no event shall
the fee and expenses exceed $20 million, per the agreement reflected in the Notice.359
F. Plaintiffs Are Granted Incentive Awards Out Of The Fee
Award.
Plaintiffs seek approval of modest $5,000 incentive awards to Franchi and
Allegheny, to be paid exclusively out of any fees awarded to Plaintiffs’ counsel.
Public policy favors granting incentive awards. “Compensating the lead
plaintiff for efforts expended is not only a rescissory measure returning certain lead
plaintiffs to their position before the case was initiated, but an incentive to proceed
with costly litigation (especially costly for an actively participating plaintiff) with
uncertain outcomes.”360 The Court may grant incentive awards to representative
plaintiffs where justified by the factors identified in Raider v. Sunderland: (i) the
359
Id. ¶ 53.
360
Raider, 2006 WL 75310, at *1 (footnote omitted).
100
“time, effort, and expertise expended by the class representative,” and (ii) the
“benefit to the class.”361
Here, Plaintiffs meet the Raider factors. Franchi served a demand under 8
Del. C. § 220, which this Court encourages as a tool to gather information before
initiating a plenary lawsuit.362 Both Plaintiffs produced documents in discovery.
Allegheny, in producing documents, “conducted electronic searches of emails and
texts, and also searched and produced hard copy documents.”363 Franchi “searched
for and produced documents and trading records.”364 Allegheny’s representative met
with counsel and prepared for a deposition before it was cancelled.365 As explained,
Plaintiffs should receive credit for conferring a benefit to the class. The size of the
benefit does not factor into my calculations on their incentive awards. In typical
361
Id. at *1; accord Morrison v. Berry, 2021 WL 2926138, at *1 (Del. Ch. July 12, 2021).
362
E.g., Seinfeld v. Verizon Commc’ns, Inc., 909 A.2d 117, 120 (Del. 2006) (recognizing
Delaware Courts’ encouragement to stockholders to use books and records demands as one
of the “tools at hand” before filing representative litigation (footnote omitted)).
363
POB at 61.
364
Id. at 61.
365
Id. at 61–62.
101
baseline circumstances, an incentive award of $5,000 rewards competent
participation.366 Here, $5,000 incentive awards are appropriate, if low.367
G. Izzo’s Request For A Stay Pending Appeal Is Denied.
Having approved the settlement, I now turn to Izzo’s motion seeking a stay
such that the status quo order would remain in place pending an appeal, which Izzo
states is forthcoming.368 Plaintiffs and the defendants responded on July 25 and 26,
366
See, e.g., In re Galena Biopharma, Inc., Consol. C.A. No. 2017-0423-JTL, D.I. 69 at
83–84 (Del. Ch. June 14, 2018) (TRANSCRIPT) (awarding $5,000 incentive fee for named
plaintiff who did not sit for a deposition and characterizing $1,000 to $5,000 “nominal
awards [as] understandable and appropriate”); Spritzer v. Aklog, C.A. No. 2020-0935-
KSJM, D.I. 29 at 44 (Del. Ch. Nov. 3, 2022) (TRANSCRIPT) (awarding $2,000 for
plaintiff who did not participate in discovery and observing that awards of that magnitude
incentivize “plaintiffs who are willing to put their names on the papers . . . when they know
that they have to monitor litigation and may be called to sit for depositions and other forms
of discovery and relief”); In re Homefed Corp. S’holder Litig., 2022 WL 489484, at *4
(Del. Ch. Feb. 15, 2022) (ORDER) (awarding a $5,000 incentive award to each co-lead
plaintiff); In re: Pivotal Software, Inc. S’holders’ Litig., 2022 WL5185565 (Del. Ch. Oct.
4, 2022) (awarding a $10,000 incentive award to the plaintiff); In Re Straight Path
Commc’ns Inc. Consol. S’holder Litig., Consol. C.A. No. 2017-0486-SG, D.I. 750 ¶ 13
(same) (Dec. 27, 2022) (ORDER).
367
Had Plaintiffs asked for larger incentive awards, the nature of this litigation would have
supported their award. Plaintiffs, like their counsel and the Court, were subject to an
unusual level of harassment from the time of filing the complaints throughout this
settlement process. POB at 62; Allegheny Aff. ¶ 7; Second Franchi Aff. ¶ 6. Plaintiffs’
counsel speculated that harassment led Munoz to effectively withdraw from his role as
plaintiff. D.I. 366 ¶¶ 3, 7; see also D.I. 366, Ex. A.
368
Because the Court has not yet approved the amount of Plaintiffs’ counsel’s fees, neither
this decision nor the order issued with it are final; any appeal would be interlocutory. See
Del. Tech. & Cmty. Coll. v. State of Del. Hum. Rels. Comm’n, 2017 WL 2180544, at *5
(Del. Super. May 17, 2017); In re Tex. E. Overseas, Inc., 2009 WL 5173805, at *2 (Del.
Ch. Dec. 23, 2009) (“[T]here is no order from which an appeal may be taken and, thus, any
motion for a stay pending appeal is not yet ripe.”). Nevertheless, for the sake of ensuring
the parties can perform the settlement obligations in a prompt manner, I assume for
102
respectively, opposing the request,369 and Izzo filed a reply on July 31.370 Izzo’s
request for a stay is governed by Court of Chancery Rule 62(b), which provides:
In its discretion and on such conditions for the security of the adverse
party as are proper, the Court may stay the execution of or any
proceedings to enforce a judgment pending the disposition of a motion
for a new trial or to alter or amend a judgment made pursuant to Rule
59, or of a motion for relief from a judgment or order made pursuant to
Rule 60.371
Rule 62(d) states that “[s]tays pending appeal and stay and cost bonds shall be
governed by article IV, § 24 of the Constitution of the State of Delaware and by the
Rules of the Supreme Court.”372 Supreme Court Rule 32(a) provides that “a motion
purposes of this analysis that Izzo would file an interlocutory appeal, and would meet the
requirements in this Court and the Delaware Supreme Court for an interlocutory appeal.
Izzo has not filed an appeal, interlocutory or otherwise, so under most circumstances,
her motion for a stay pending appeal would not be ripe. On July 26, the defendants
submitted a letter expressing a need to consummate the Reverse Stock Split and Conversion
as quickly as possible so that the Company can raise additional capital through the sale of
common stock. D.I. 595. That letter also stated that the Company was required to give ten
days’ notice to the New York Stock Exchange “before effecting the reverse stock split and
conversion” and that the Company has a financial need to sell additional stock before the
last two weeks of August, as those weeks are “are a historically quiet period in the financial
markets.” Id. at 4. Under these circumstances, deciding the motion now is appropriate, as
it avoids further delay. See XL Specialty Ins. Co. v. WMI Liquidating Tr., 93 A.3d 1208,
1217 (Del. 2014) (“A ripeness determination requires a common sense assessment of
whether the interests of the party seeking immediate relief outweigh the concerns of the
court ‘in postponing review until the question arises in some more concrete and final
form.’” (quoting Stroud v. Milliken Enters., Inc., 552 A.2d 476, 480 (Del. 1989)).
369
D.I. 589 ¶¶ 6–13; D.I. 593.
370
D.I. 604.
371
Del. Ch. Ct. R. 62(b).
372
Del. Ch. Ct. R. 62(d).
103
for stay must be filed in the trial court in the first instance” and “[a] stay or an
injunction pending appeal may be granted or denied in the discretion of the trial
court.”373
In deciding whether to grant an injunction, the Court considers what are
referred to as the Kirpat factors:
(i) the likelihood of success on the merits
of the appeal; (ii) whether [the moving party] would suffer
irreparable harm if the stay was not granted; (iii) whether [any
interested party] would suffer substantial harm if the stay was
granted; and (iv) whether the public interest would be served if
the stay was granted.374
“No one factor is dispositive; rather, the Court will carefully weigh all relevant
considerations.”375 When a litigant seeks a stay pending appeal, she bears the burden
of showing the stay is warranted.376
The first Kirpat factor is whether the litigant seeking a stay has demonstrated
a likelihood of success on appeal.377 A likelihood of success will be shown if the
party seeking the stay “has presented a serious legal question that raises a ‘fair
373
Del. Supr. Ct. R. 32(a).
374
Homestore, Inc. v. Tafeen, 886 A.2d 502, 504 (Del. 2005) (citing Kirpat, Inc. v. Del.
Alcoholic Bev. Control Comm’n, 741 A.2d 356 (Del. 1998)).
Wynnefield P’rs Small Cap Value L.P. v. Niagara Corp., 2006 WL 2521434, at *1 (Del.
375
Ch. Aug. 9, 2006).
376
See Zhou v. Deng, 2022 WL 1617218, at *2 (Del. Ch. May 23, 2022) (quoting Lynch v.
Gonzalez, 2020 WL 5648567, at *4 (Del. Ch. Sept. 22, 2020)).
377
Homestore, 886 A.2d at 504 (citing Kirpat, 741 A.2d 356).
104
ground for litigation and thus for more deliberative investigation.’”378 In
determining whether this standard is met, our courts have considered, among other
things, whether the issue raised is novel and whether an unsettled area of Delaware
law is involved in the adjudication of the issue.379
The only issue Izzo identified for appeal concerns whether the Release is
properly interpreted as encompassing future claims.380 Izzo objected to the Proposed
Settlement on the basis that the Release encompassed claims “based on a set of
operative facts that will occur in the future.”381 The July 21 Opinion rejected her
argument, reasoning that her “reading misinterprets the Release,” which included
378
Kirpat, 741 A.2d at358 (quoting Wash. Metro. Area Transit Comm’n v. Holiday Tours,
Inc., 559 F.2d 841, 844 (D.C. Cir. 1977)).
379
See id. at 358 (finding a likelihood of success on appeal where the appellant raised an
issue of first impression); Gans v. MDR Liquid. Corp., 1999 WL 669364, at *1 (Del. Ch.
Aug. 17, 1999) (declining to find likelihood of success where the appeal presented “no
issues of first impression [and involved no] unsettled areas of Delaware law”).
380
Of course, Izzo identified this issue to appeal before this opinion was published.
381
Izzo Obj. at 33 (internal quotation marks omitted) (quoting Griffith v. Stein ex rel.
Goldman Sachs Grp., Inc., 283 A.3d 1124, 1134 (Del. 2022))). It is strange that Izzo would
appeal the Court’s July 21 Opinion on this basis. Izzo correctly identifies that it would be
problematic for the Release to encompass claims arising from events or actions that have
not yet occurred. Griffith, 283 A.3d at 1134 (quoting Phila. Stock Exch., 945 A.2d at 1146).
The defendants asserted that the Release does not encompass such claims, arguing that the
Release’s language “makes clear that [it] does not apply to future events.” D.I. 441, at
Defendants’ Reply Brief in Further Support of Proposed Settlement, at 21–22. And the
July 21 Opinion held that the Release did not encompass future claims. AMC, 2023 WL
4677722, at *24 n.186. Any party wielding the Release to defeat a “future claim” would
have to overcome this holding, as well as the defendants’ statements that it did not apply.
105
“two limitations [that] make clear the Release does not apply to future events.”382
Izzo’s motion raises only an ordinary question of contract interpretation,383 and is
therefore insufficient to establish “a fair ground for litigation and thus for more
deliberative investigation.”384
As for the second Kirpat factor, Izzo will suffer irreparable harm if a stay is
not granted. Approval of the Proposed Settlement will lift the status quo order.385
Once the status quo order is lifted, the Company is free to effectuate the Reverse
Stock Split and Conversion, and I read the defendants’ July 26 letter as expressing
an intention to do so as quickly as possible.386 Post-Conversion, the converted shares
382
AMC, 2023 WL 4677722, at *24 n.186.
383
Fox v. Paine, 2009 WL 147813, at *5 (Del. Ch. Jan. 22, 2009) (“A settlement agreement
is construed using contract interpretation principles.”), aff’d, 981 A.2d 1172 (Del. 2009).
384
Zohar Cdo 2003-1, LLC v. Patriarch P’rs, LLC, 2016 WL 6661932, at *1 (Del. Ch.
Nov. 10, 2016) (“Patriarch’s arguments on appeal will not present issues of first impression
or pressing issues of Delaware law for resolution by the Supreme Court. Rather,
Patriarch’s arguments involve straightforward issues of contract interpretation. Therefore,
Patriarch’s appeal does not present ‘a fair ground for litigation and . . . more deliberative
investigation.’” (alteration in original) (footnote omitted) (quoting Kirpat, 741 A.2d at
358); Frankino v. Gleason, 1999 WL 1063071, at *2 (Del. Ch. Nov. 12, 1999) (declining
to find likelihood of success because case involved “straightforward application of the
contract law principles employed when interpreting bylaw provisions”); Gans, 1999 WL
669364, at *1 (same). I reject Izzo’s suggestion that because aspects of this case are
“unprecedented,” any issues Izzo may raise on appeal are issues of first impression.
D.I. 604 ¶ 5 (“Unless the settlement is rejected, any subsequent opinion and final order in
an unprecedented case will undoubtedly raise further substantial questions deserving
attention from the Delaware Supreme Court.”).
385
Stip. ¶ 4.
386
See D.I. 595 at 4.
106
will be freely traded on the New York Stock Exchange, and will likely change hands
before a final appellate decision is rendered. It will, as a practical matter, be difficult,
if not impossible, to unwind those transactions if our Supreme Court finds that the
Release is overbroad and that the settlement should be rejected.387
But the harm to the Company, and therefore to its stockholders (including
Izzo), would be even greater if this action is stayed pending appeal, and so the third
Kirpat factor weighs heavily against issuing a stay. The defendants anticipate the
Company will have to raise additional capital through equity sales to stave off
bankruptcy and remain in compliance with its loan covenants. 388 As explained
above, AMC’s second quarter financials reveal a continued need to sell equity to
raise cash despite recent earnings.389
Lifting the status quo order enables the consummation of the Reverse Stock
Split and Conversion, which will free up additional common stock for sale. If the
387
See Strassburger v. Earley, 752 A.2d 557, 579 (Del. Ch. 2000) (“A significant delay
. . . without more, will normally make impractical any rescission of a corporate transaction,
particularly one involving publicly traded securities.”); Winston v. Mandor, 710 A.2d 831,
834 (Del. Ch. 1996) (“[T]he practical difficulties of undoing purchases made by good faith
purchasers for value on a national securities exchange lends additional weight to
defendants’ position.”); see also Gimbel v. Signal Cos., Inc., 316 A.2d 599, 603 (Del. Ch.
Jan. 10, 1974) (“While the remedy of rescission is available, it is not difficult to imagine
the various obstacles to such a remedy including, tax consequences, accounting practices,
business reorganizations, management decisions concerning capital investments,
dividends, etc. and a host of other problems which as a practical matter will make rescission
very difficult indeed.” (citation omitted)), aff’d, 316 A.2d 619 (Del. 1974).
388
D.I. 593 at 13–14.
389
See supra, notes 3023–307, and accompanying text.
107
Company filed for bankruptcy before an appellate decision were issued, both the
common stockholders and APE unitholders would almost certainly suffer a complete
loss of their investment.
If those transactions are not completed, the Company may have to sell
additional APEs, which would harm AMC’s common stockholders. And APEs have
traded at a significant discount to the Company’s common stock, meaning such APE
sales would be far more dilutive than the sale of common stock. 390 Because the
settlement consideration partially remedies the dilution caused by previous APE
issuances through what is essentially a reallocation of value between the common
shares and APEs,391 the sale of additional APEs pending appeal would reduce the
value of the settlement consideration. Under these circumstances, the harm to the
390
For example, on August 4, 2023, AMC common stock closed at a price of $4.90 per
share while APE closed at $1.73 per unit. AMC Ent. Hldgs., Inc. Class A Common Stock
Historical Data, Nasdaq, https://www.nasdaq.com/market-activity/stocks/amc/historical
(last visited Aug. 9, 2023); AMC Ent. Hldgs., Inc. AMC Preferred Equity Units Historical
Data, Nasdaq, https://www.nasdaq.com/market-activity/stocks/ape/historical (last visited
Aug. 9, 2023). The Court may take judicial notice of these securities’ prices because such
prices are facts that “are not subject to reasonable dispute.” Lee v. Pincus, 2014 WL
6066108, at *4 n.11 (Del. Ch. Nov. 14, 2014).
391
AMC, 2023 WL 4677722, at *12 (“The Proposed Settlement has the practical effect of
reallocating the ownership of AMC’s equity between its common stockholders and the
APE unitholders.”).
108
Company and its stockholders far outweighs the harm to Izzo, which counsels
against granting the stay.392
Finally, I turn to the last Kirpat factor, which is whether the grant of a stay
would favor the public interest.393 Izzo argues “an appeal will raise at least one, and
likely several, important questions which the Delaware Supreme Court should have
the opportunity to consider.”394 I disagree. The only issue identified by Izzo is
whether this Court should have interpreted the Release as encompassing claims
based on future events or conduct, which is an issue of contract interpretation. Izzo
has failed to identify any public interest that would be served by granting a stay.
Thus, even though Izzo would face irreparable harm absent a stay, she has
failed to show a likelihood of success and the Company and its stockholders would
face substantial harm if a stay were granted. Applying the Kirpat factors holistically,
I find that Izzo has not carried her burden, and her motion is denied.395
392
Zohar, 2016 WL 6661932, at *2 (denying motion for stay where the harm to the
interested parties outweighed the harm to the moving party). I also reject Izzo’s suggestion
that the Company will not face substantial harm because it “has multiple short-term
financing options.” D.I. 583 ¶ 21. This is apparently based solely on a January 2023 Antara
debt proposal, which the Company rejected. Id. (citing D.I. 556); D.I. 556 at 22–24 (citing
PRB, Ex. 10). Izzo has not shown that such an offer would still be available, and that if it
were available, that the terms would be more favorable to the Company and its stockholders
than APE equity financing option.
393
Homestore, 886 A.2d at 504 (citing Kirpat, 741 A.2d 356)).
394
D.I. 583 ¶ 22.
395
Because the stay is denied, I need not address the supersedes bond issue. “The primary
purpose of the security, or supersedeas bond, is to protect the appellee from losing the
109
III. CONCLUSION
For the forgoing reasons, the Proposed Settlement is approved, Plaintiffs’
counsel are awarded a 12% fee award, and Plaintiffs are awarded $5,000 incentive
awards out of their counsel’s fee award.
benefit of the judgment through the delay or ultimate non-performance by the appellant.”
DiSabatino v. Salicete, 681 A.2d 1062, 1066 (Del. 1996). Nevertheless, I note that a
meaningful bond would be required in light of the Company’s present circumstances. See
Zimmerman v. Crothall, 2014 WL 257461, at *2 (Del. Ch. Jan. 23, 2014) (“Here,
Defendants have not demonstrated that posting security in an amount that is less than the
amount of the Judgment sufficiently would protect the appellee, TWF. Indeed, they have
stated that Adhezion is in dire financial condition . . . and will expend in the near future
more than $1.8 million in cash on taxes and projects. These are the very circumstances
that generally require the posting of security at least equal to the full amount of the
Judgment to sufficiently protect against the risk of nonperformance by the appellant.”); see
also D.I. 593 ¶ 19 (speculating that the harm from dilutive APE financings would equal
approximately $100 million per quarter).
110