In re Astex Pharmaceuticals, Inc. Stockholders Litigation

COURT OF CHANCERY
OF THE
STATE OF DELAWARE
J. TRAVIS LASTER New Castle County Courthouse
VICE CHANCELLOR 500 N. King Street, Suite 11400
Wilmington, Delaware 19801-3734
Date Submitted: August 15, 2014
Date Decided: August 25, 2014
Seth D. Rigrodsky Edward B. Micheletti
Brian D. Long Jenness E. Parker
Gina M. Serra Skadden, Arps, Slate, Meagher & Flom, LLP
Rigrodsky & Long, P.A. One Rodney Square
2 Righter Parkway, Suite 120 Wilmington, DE 19801
Wilmington, DE 19803
Ryan M. Ernst
James R. Banko O‟Kelly, Ernst & Bielli, LLC
Farqui & Farqui, LLP 901 N. Market Street, Suite 1000
20 Montchanin Road, Suite 145 Wilmington, DE 19801
Wilmington, DE 19807
Collin J. Seitz, Jr.
Bradley R. Aronstam
Eric D. Selder
Seitz, Ross, Aronstam & Moritz, LLP
100 S. West Street, Suite 400
Wilmington, DE 19801
RE: In re Astex Pharmaceuticals, Inc. Stockholders Litigation, Consolidated C.A. No.
8917-VCL
Dear Counsel:
The parties have asked the court to enter a Stipulated Order Withdrawing
Plaintiffs‟ Counsel‟s Request for the Court to Retain Jurisdiction to Determine the
Application for an Award of Attorneys‟ Fees and Closing the Case (the “Proposed
Closure Order”). Because the parties have failed to provide notice to the remaining
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members as required under Advanced Mammography, the request is denied. See In re
Advanced Mammography Sys., Inc. S’holders Litig., 1996 WL 633409 (Del. Ch. Oct.
30, 1996) (Allen, C.).
FACTUAL BACKGROUND
On September 5, 2013, Astex Pharmaceuticals, Inc. (“Astex”) and Otsuka
Pharmaceutical Co., Ltd. (“Otsuka”) entered into an Agreement and Plan of Merger (the
“Transaction”). Immediately thereafter, various stockholder plaintiffs filed lawsuits in
Delaware and California challenging the Transaction and asserting claims against Astex,
the members of its board of directors, and Otsuka. The claims included a contention that
Astex‟s stockholders lacked sufficient information to make an informed decision about
tendering their shares or seeking appraisal. Astex filed a supplemental Schedule 14D-9
containing additional disclosures on October 1, 2013. The court certified the class on
November 2, 2013.
After the defendants moved for judgment on the pleadings, the named plaintiffs in
both California and Delaware concluded that their remaining claims lacked merit, and the
parties submitted a Stipulated Order Dismissing Action and Setting Schedule for
Plaintiffs‟ Counsel‟s Application for an Award of Attorney‟s Fees and Expenses on
November 27, 2013 (the “Dismissal Order”). The Dismissal Order did not purport to
compromise any claims on behalf of the remaining class members. The parties submitted
the Proposed Closure Order on August 12, 2014.
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The Proposed Closure Order, along with an attached Stipulation Regarding
Attorneys‟ Fees and Expenses, evinced the parties‟ agreement to pay the plaintiffs a
mootness fee relating to the disclosure claims. On August 13, 2014, the court denied the
Proposed Closure Order pending a further submission by the parties explaining how they
had complied or proposed to comply with Advanced Mammography.
LEGAL ANALYSIS
In Advanced Mammography, Chancellor Allen set out principles that govern the
payment of a fee for mooted claims. “First, the defendants individually or a corporate
defendant may agree to pay a reasonable fee to plaintiff‟s counsel, in . . . exercising the
business judgment of the board, as in any expenditure of corporate funds.” Advanced
Mammography, 1996 WL 633409, at *1. In such a circumstance, “the court does not
„award‟ fees . . . and does not order that they be paid.” Id. The board is not, however,
“altogether free to exercise that judgment, as the pendency of a class action (and the risk
of buy off that it inevitably presents) constrain the board.” Id. If a board elects to pay a
reasonable fee in the context of a stockholders‟ mooted claim, “it is necessary that the
court be informed and that notice to the class of such payment be made and an
opportunity to be heard made.” Id. Finally, “in the context of a claim that is
acknowledged to be moot and in which no consideration has been paid to the class, it is
not appropriate for the court to purport to release any claims of the class.” Id.The second requirement—notice to the remaining members of the class—has not
been met. The notice requirement serves at least two purposes. First, it affords members
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of the class “an opportunity to show that the case really is not moot but that the proposed
payment to counsel is the only motivation for the dismissal on that ground.” Id. Second,
it enables members of the class to object to the use of corporate funds for the purpose of
paying a fee. See id.The parties try to distinguish Advanced Mammography on the grounds that no fee
agreement accompanied the dismissal, which they say eliminates any risk of a buy off.
While a dismissal combined with a contemporaneous agreement on fees might have
created a greater risk of a buy off, staggering the events did not eliminate the risk that
Chancellor Allen identified. Everyone involved knew that plaintiffs‟ counsel would be
seeking and likely receiving some level of fee. Intelligent people, like those in this case,
have the ability to think ahead and adapt their behavior to take into account foreseeable
future events. The lack of a contemporaneous agreement also does not address the role of
notice in permitting other class members to object to the use of corporate funds.
The plaintiffs also emphasize that the Dismissal Order only dismissed with
prejudice the claims of the named plaintiffs, so no one else in the class was harmed. That
satisfies the third requirement of Advanced Mammography—that a dismissal not purport
to release claims of the class without consideration—but it does not address the notice
requirement.
The parties have pointed to stipulated orders that this court has approved without
requiring compliance with Advanced Mammography. As Chancellor Allen remarked in
that decision,
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[t]he court has attempted in the past to make the foregoing clear, but being
busy and trusting in Delaware counsel, there are no doubt examples of
cases in which our orders have done more than is appropriate in the context
of a moot case. These unadjudicated precedents do reflect our reliance
upon counsel, rather than a conscious resolution of principle.
Id. at *2. The stipulated orders do not signal a departure from Advanced Mammography.
I am not requiring that the parties comply with Advanced Mammography because I
have any reason to suspect that a buy off occurred here. Just as fences make good
neighbors, and locks help keep honest people honest, the procedural requirements of
Advanced Mammography provide salutary protection in mootness dismissals.
CONCLUSION
The request that the Court enter the Closure Order is DENIED. The parties shall
submit a revised order contemplating notice to the class. In preparing the revised order,
the parties shall consider whether adequate notice can be accomplished by means other
than an individualized mailing, such as through a public filing in a Form 8K or similar
document.
Very truly yours,
/s/ J. Travis Laster
J. Travis Laster
Vice Chancellor