Matter of Allied Healthcare Shareholder Litig., Index No. 652188/2011, 10/23/15 (Ramos, J.)

Shareholders’ Derivative Action; Settlement; Fiduciary Duty; Breach

By: Yan Borodanski | Staff Writer

Plaintiffs were shareholders of common stock of the three defendant-companies. Plaintiffs filed class action derivative suits against defendants to prevent defendants from merging with one another. Plaintiffs claimed defendants breached their fiduciary duty by negotiating an inadequate sale price through a flawed process, along with creating provisions that prevented competing offers. Plaintiffs also sought additional disclosures regarding the merger. Plaintiffs filed a motion for a preliminary injunction to stop the merger. Defendants then provided additional disclosures to plaintiffs with identical merger terms as those originally provided to the shareholders. Plaintiffs then voted to approve the merger, and withdrew the motion for a preliminary injunction. The merger subsequently concluded.

Once plaintiffs approved the merger, their claims became moot. Plaintiffs then moved to schedule a hearing to approve a class action settlement agreement that released all shareholders’ claims against defendants, and awarded plaintiffs’ attorneys $375,000 in legal fees. The Court denied plaintiffs’ motion, holding the settlement provided nothing to the plaintiffs apart from attorneys’ fees, and simply released defendants from all claims. The court held attorney compensation for a meaningless result encourages pointless derivative action for the sole reason of procuring legal fees. The Court also held that this settlement does not need court approval, and gave the parties the option of filing a stipulation of discontinuance, or preparing the matter for trial with a dispositive motion.

Matter of Allied Healthcare Shareholder Litig., Index No. 652188/2011, 10/23/15 (Ramos, J.).

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