BRIEF OF PLAINTIFF DOUGLAS M. HAYES IN SUPPORT OF …blogs.reuters.com/alison-frankel/files/2015/03/activision-hayesobjection.pdfPlaintiff Douglas M. Hayes (“Hayes”) objects to

576889 THIS DOCUMENT IS CONFIDENTIAL AND FILED UNDER SEAL. REVIEW AND ACCESS TO

THIS DOCUMENT IS PROHIBITED EXCEPT BY PRIOR COURT ORDER.

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

_________________________________

IN RE ACTIVISION BLIZZARD INC.

STOCKHOLDER LITIGATION

_________________________________

)

)

)

)

Consolidated C.A. No. 8885-VCL

BRIEF OF PLAINTIFF DOUGLAS M. HAYES IN SUPPORT

OF HIS OBJECTION TO SETTLEMENT AND APPLICATION

FOR FEES, EXPENSES AND SPECIAL AWARD

YOU ARE IN POSSESSION OF A CONFIDENTIAL FILING FROM THE

COURT OF CHANCERY OF THE STATE OF DELAWARE.

If you are not authorized by Court order to view or retrieve this document,

read no further than this page. You should contact the following person:

Dated: February 20, 2015

PRICKETT, JONES & ELLIOTT, P.A.

Michael Hanrahan (Bar I.D. #941)

Paul A. Fioravanti, Jr. (Bar I.D. #3808)

Kevin H. Davenport (Bar I.D. #5327)

Eric J. Juray (Bar I.D. #5765)

1310 N. King Street

Wilmington, Delaware 19801

(302) 888-6500

Attorneys for Plaintiff Douglas M. Hayes

A public version of this document will be filed on or before February 27, 2015.

EFiled: Feb 20 2015 07:21PM EST Transaction ID 56808727

Case No. 8885-VCL



IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

_________________________________

IN RE ACTIVISION BLIZZARD INC.

STOCKHOLDER LITIGATION

_________________________________

)

)

)

)

Consolidated C.A. No. 8885-VCL

BRIEF OF PLAINTIFF DOUGLAS M. HAYES IN SUPPORT

OF HIS OBJECTION TO SETTLEMENT AND APPLICATION

FOR FEES, EXPENSES AND SPECIAL AWARD

OF COUNSEL:

KESSLER TOPAZ MELTZER

& CHECK, LLP

Marc A. Topaz

Lee D. Rudy

Eric L. Zagar

280 King of Prussia Road

Radnor, Pennsylvania 19087

(610) 667-7706







1310 N. King Street


(302) 888-6500


i



TABLE OF CONTENTS

Page

TABLE OF AUTHORITIES ................................................................................... iii

NATURE AND STAGE OF THE PROCEEDINGS ................................................ 1

STATEMENT OF FACTS ........................................................................................ 6

A. The Challenged Transaction .................................................................. 6

B. The Litigation ........................................................................................ 6

1. The Hayes and Pacchia Actions .................................................. 6

2. The Preliminary Injunction, Proposed Settlement and

Supreme Court Reversal ............................................................. 8

3. Pacchia’s Misunderstanding of the Hayes Settlement ..............11

4. Amendment of the Complaint and Determination of Lead

Counsel and Lead Plaintiff ........................................................13

5. Class Certification and Pacchia’s Addition of the Hayes

Class Damages Claim ...............................................................15

C. The Settlement .....................................................................................19

1. Defendants’ Control of the Settlement Proceeds ......................22

ARGUMENT ...........................................................................................................25

I. THE COURT SHOULD NOT RECERTIFY AN INAPPROPRIATELY

ILL-DEFINED CLASS .................................................................................25

A. The Definition of Class Shares Does Not Allow a Determination of

Who Is In or Out of the Class ..............................................................25

B. Notice and Right to Object ..................................................................26

C. The Class Definition Is Based on the Governance Claims .................27

II. THERE HAS NOT BEEN ADEQUATE AND PROPER NOTICE OF

THE SETTLEMENT .....................................................................................29

A. Lack of Notice to Certain Class Members and Current

Stockholders ........................................................................................29

B. The Inadequacy of the Notice of Settlement .......................................31

1. The Failure to Describe the Class Damages Claim ..................31

ii 576889

THIS DOCUMENT IS CONFIDENTIAL AND FILED UNDER SEAL. REVIEW AND ACCESS TO


2. Misleading and Confusing Description of the Benefits to Class

Members ....................................................................................32

3. Misleading and Confusing Disclosure on Who Can Object and

When .........................................................................................33

III. THE SETTLEMENT IS NOT FAIR AND REASONABLE .......................37

A. Standards for Approval of the Settlement ...........................................37

B. The Release of the Viable and Valuable Class Damages Claim ........38

1. The Hayes Complaints Alleged Viable Class Damages

Claims .......................................................................................39

2. Pacchia Confirmed There Were Viable Class Damages Claims

...................................................................................................42

3. The Class Damages Claims Are Essentially the Same as the

Derivative Damages Claims .....................................................43

C. The Allocation of No Consideration to the Class Damages Claim ....44

1. Pacchia’s Fiduciary Duty to Provide a Fair Allocation ............44

2. Pacchia’s Excuses Are Unconvincing ......................................45

3. The $275 Million Cash Payment to Activision Is Not a Benefit

to the Damages Class ................................................................49

4. The Marginal Governance Benefits Do Not Benefit the

Damages Class ..........................................................................52

IV. THE FEE REQUEST IS EXCESSIVE AND THE PACCHIA AWARD

SHOULD BE DENIED .................................................................................54

A. The Fee Request Is Excessive .............................................................54

B. Southern Peru Does Not Support the 26.4% Fee Request ..................55

C. Pacchia’s $50,000 Award ....................................................................56

CONCLUSION ........................................................................................................60

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TABLE OF AUTHORITIES

Cases Page(s)

Activision Blizzard, Inc. v. Hayes,

2013 WL 6053804 (Del. 2013) ........................................................................... 10

Activision Blizzard, Inc. v. Hayes,

77 A.3d 271 (Del. 2013) ..................................................................................... 10

Americas Mining Corp. v. Theriault,

51 A.3d 1213 (Del. 2012) ............................................................................. 55, 56

Barkan v. Amsted Indus., Inc.,

567 A.2d 1279 (Del. 1989) ................................................................................. 37

Carsanaro v. Bloodhound Techs., Inc.,

65 A.3d 618 (Del. Ch. 2013) ........................................................................ 41, 43

CME Group, Inc. v. Chicago Bd. Options Exch., Inc.,

2009 WL 1547510 (Del. Ch. June 3, 2009) .................................................. 43, 44

Crescent/Mach I Partners, L.P. v. Turner,

846 A.2d 963 (Del. Ch. 2000) ............................................................................ 43

Gatz v. Ponsoldt,

925 A.2d 1265 (Del. 2007) ........................................................................... 40, 41

Gentile v. Rossette,

906 A.2d 91 (Del. 2006) ......................................................................... 40, 41, 43

In re FLS Holdings, Inc. S’holders Litig.,

1993 WL 104562 (Del. Ch. Apr. 2, 1993, revised Apr. 21, 1993) ..................... 44

In re Loral Space and Commc’ns, Inc. Consol. Litig.,

2008 WL 4561146 (Del. Ch. Oct. 6, 2008) .................................................. 41, 45

In re TD Banknorth S’holders Litig.,

938 A.2d 654 (Del. Ch. 2007) .......................................................... 32, 33, 37, 38

In re Trados Inc. S’holder Litig.,

73 A.3d 17 (Del. Ch. 2013) ................................................................................ 44

In re Triarc Cos., Inc.,

791 A.2d 872 (Del. Ch. 2001) ............................................................................ 44

Jedwab v. MGM Grand Hotels, Inc.,

509 A.2d 584 (Del. Ch. 1986) ............................................................................ 44

iv 576889



Marie Raymond Revocable Trust v. MAT Five LLC,

980 A.2d 388 (Del. Ch. 2008) ............................................................................ 37

Off v. Ross,

2008 WL 5053448 (Del. Ch. Nov. 26, 2008) ............................................... 37, 38

Parnes v. Bally Entm’t Corp.,

722 A.2d 1243 (Del. 1999) ................................................................................. 42

Polk v. Good,

507 A.2d 531 (Del. 1986) ................................................................................... 37

San Antonio Fire & Police Pension Fund v. Bradbury,

2010 WL 4273171 (Del. Ch. Oct. 28, 2010) ...................................................... 43

Sanders v. Wang,

1999 WL 1044880 (Del. Ch. Nov. 8, 1999) ....................................................... 56

Schultz v. Ginsburg,

965 A.2d 661 (Del. 2009) ................................................................................... 44

Strategic Asset Mgmt. v. Nicholson, Inc.,

2004 WL 1192088 (Del. Ch. May 20, 2004) ...................................................... 57

Statutes

8 Del. C. § 327 ......................................................................................................... 34

Rules

Ch. Ct. R. 23.1 .......................................................................................................... 34

Other Authorities

D. Wolfe & M. Pittenger, Corporate and Commercial Practice in the

Delaware Court of Chancery, §9.02[b][2] ......................................................... 34

576889



NATURE AND STAGE OF THE PROCEEDINGS

Plaintiff Douglas M. Hayes (“Hayes”) objects to the proposed settlement

(the “Settlement”) embodied in the December 19, 2014 Stipulation of Compromise

and Settlement (Trans. I.D. 56502722) (the “Settlement Agreement”) in this action.

Hayes also objects to the recertification of the Class, the adequacy of the

settlement notice and the application by Plaintiff Anthony Pacchia (“Plaintiff” or

“Pacchia”) and his counsel for an award of $72.5 million in fees and expenses,

including a $50,000 “special award” to Pacchia personally. Hayes has given

signed and written notice that he intends to appear at the March 4, 2015 settlement

hearing (the “Settlement Hearing”).1

This litigation challenged a transaction in which Vivendi S.A. (“Vivendi”)

sold (i) 428,676,471 shares of common stock of Activision Blizzard, Inc.

(“Activision” or the “Company”) to the Company for the below-market price of

$13.60 per share and (ii) 171,968,042 Activision shares at the same below-market

price to investment vehicles2 organized by Activision’s Chairman Brian G. Kelly

1 As a plaintiff party to this litigation, Hayes should not be required to comply with

the parties’ unreasonable rules required for objection and appearance by absent

Class members or stockholders. For example, Hayes should not be required to

publicly disclose his address and phone number, particularly when Pacchia has not

disclosed his address and phone number. 2 ASAC II LP and ASAC II LLC (“ASAC”).

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(“Kelly’) and Chief Executive Officer Robert A. Kotick (“Kotick”) and selected

institutional investors in Activision’s stock (the “Transaction”).

The Settlement includes a broad general release on behalf of Hayes and

other public stockholders of Activision at the time of the Transaction.3 Activision,

which is over 30% owned by defendants and their affiliates and controlled by

directors and officers who are defendants and/or affiliates of defendants, will

receive $275 million for essentially the same damages claims for which the public

stockholders at the time of the wrongdoing will receive nothing. The class and

derivative damages claims had the same liability and damages theories. Liability

was based on defendants allowing ASAC to buy 171,968,042 Activision shares

from Vivendi at a discount to the exclusion of other stockholders. Damages were

based on the benefit to ASAC from that purchase and the corresponding loss of the

value that could have been achieved for the other stockholders through alternative

transactions.

The Settlement has been structured and the $275 million has been allocated

in a self-interested way to give defendants control of all the Settlement proceeds

and to maximize the fees to Pacchia’s counsel, who are requesting 26.4% ($72.5

million) of those proceeds. To add insult to injury, Pacchia seeks a “special

3 At the insistence of Pacchia’s counsel, Hayes and his counsel were excluded from

the mediation process that ultimately led to the Settlement.

3 576889



award” of $50,000, or $20.23 per share for the one-third of his Activision shares he

did not sell during the pendency of the challenged Transaction, while Hayes and

the other stockholders get $0.00 per share. Pacchia has a clear conflict of interest

regarding the Settlement. As a holder of only 2,472 shares of Activision stock, his

interest in a recovery for a class of stockholders who held during the challenged

Transaction is very small. However, his interest in a $50,000 award from $275

million of Settlement proceeds paid to Activision is much greater.

Ironically, Pacchia was placed in a position to negotiate and propose a

settlement where the public stockholders receive no consideration partly because

he declined to support a settlement negotiated by Hayes in October 2013 that

would have provided $85 million net in cash and stock directly to the public

stockholders. Indeed, in his effort to obtain class certification and gain settlement

leverage, Pacchia belatedly adopted the class damages claims Hayes had asserted

on behalf of the public stockholders based on the defendants allowing certain

stockholders (Kelly, Kotick and other investors in ASAC) to buy Activision shares

at a discount, while denying the public stockholders a similar opportunity. At the

October 13, 2014 class certification hearing, Pacchia’s counsel represented to the

Court that Pacchia’s expert had concluded that class damages could be measured

by several alternative transactions, including a rights offering where damages

4 576889



would range from $593.6 million to $641.6 million.4 At that hearing, there was

discussion that a derivative recovery might generate a larger fee than a class

recovery.5 Moreover, if there was a class recovery, Pacchia and his counsel might

be forced to acknowledge that it was Hayes that had first raised the class damages

claim. So just a month after using class damages claims to obtain class

certification, Pacchia sold out the public stockholders by negotiating a settlement

where all the consideration will be controlled by defendants, once Pacchia and his

counsel extract $72.5 million for themselves.

The Settlement also suffers from a poor class definition and inadequate

notice and a defective objection process which hardly makes for a fair fight.

Plaintiff was given months to prepare his opening papers and had full access to the

record. Plaintiff filed a 66 page opening brief, five affidavits, a compendium of

deposition excerpts and 40 exhibits totaling about 500 pages, including seven

expert reports. Objectors are given five business days to respond and, because

many of Plaintiff’s papers were filed under seal, Hayes had to make a motion to

even get five business days. Hayes does not have access to the discovery or

Settlement record. Defendants did not file any opening papers at all, but will only

4 Transcript of October 13, 2014 Oral Argument on Plaintiff’s Motion for Class

Certification and Partial Ruling of the Court (“10/13/14 Tr.”), at 4-5 (Trans. I.D.

56257006). 5 Id. at 53-55.

5 576889



state their positions in reply papers, so Hayes and any other objectors get no

opportunity for a written response.

The Court should refuse to approve the Settlement unless at least $100

million of the consideration is reallocated to a class of the stockholders who held

Activision stock during the pendency of the challenged Transaction. A portion of

the amount for the Class could come from a $30 million reduction of the fees to

Pacchia’s counsel and the elimination of Pacchia’s special award. Because

Vivendi is in the process of selling its remaining Activision shares, it should not

care whether the $67.5 million it will contribute to the Settlement goes to a class of

stockholders rather than to the Company. Absent such a reallocation, the Court

should deny approval of the Settlement and appoint Hayes and his counsel to

represent the interests of the Class. At a minimum, the Court should permit

discovery and hold an evidentiary hearing before approving the Settlement. If the

Settlement is approved, Pacchia’s special award should be denied in its entirety,

and any fee award to his counsel should be reasonable in light of all the

circumstances, including the abandonment of the Class.

6 576889



STATEMENT OF FACTS

A. The Challenged Transaction

On July 9, 2008, Vivendi indirectly acquired majority control of Activision

as a result of a merger between Activision and Vivendi Games. Prior to the

closing of the Transaction on October 11, 2013, Vivendi indirectly owned

approximately 62% of Activision’s outstanding shares of common stock.

On July 25, 2013, Activision, Vivendi and ASAC entered into a stock

purchase agreement (the “Stock Purchase Agreement” or “SPA”). Pursuant to the

SPA, Activision agreed to purchase a Vivendi subsidiary that held 428,676,471

shares of Activision’s common stock for a price equal to $13.60 per Activision

share and the Company allowed ASAC to purchase 171,968,042 shares of

Activision’s common stock from Vivendi at the same below-market price of

$13.60 per share.

B. The Litigation

1. The Hayes and Pacchia Actions

On September 11, 2013, Plaintiff Douglas M. Hayes filed a complaint in the

Delaware Court of Chancery challenging the Transaction, asserting claims on

behalf of a class of Activision public stockholders, and derivative claims on behalf

of Activision. Hayes named as defendants (i) Activision, (ii) Vivendi and its

7 576889



designees to the Activision Board,6 (iii) the three members of the Special

Committee of Activision’s Board,7 (iv) Kelly and Kotick and (v) ASAC. Also

named as defendants were Vivendi’s Amber Holding Subsidiary Co. and entities

affiliated with Davis Selected Advisers, L.P. (“Davis”), and Fidelity Management

& Research Co. (“FMR”), institutional investors and Activision stockholders who

Kelly and Kotick had invited to become ASAC limited partners.

In Counts II, V and VI, Hayes asserted class claims for damages alleging

that defendants improperly structured the SPA to permit ASAC to expropriate the

opportunity to buy 171,968,042 Activision shares from Vivendi at a significant

discount to the market price and fair value, while Activision’s other stockholders

were not permitted to participate through alternative transactions such as a stock

dividend, rights offering or other means.8 In his Amended Complaint, Hayes

alleged again that Activision could have and should have borrowed additional

funds and repurchased the 171,968,042 shares on behalf of all its stockholders so

that the Activision stockholders were permitted to benefit from the purchase of

such shares at a discount, possibly through a stock dividend, rights offering or

6 Philippe G.H. Capron, Jean-Yves Charlier, Frédéric R. Crépin, Jean-Francois

Dubos, Lucian Grainge and Régis Turnini. 7 Robert J. Corti, Robert J. Morgado and Richard Sarnoff. 8 Hayes v. Activision Blizzard, Inc., et al., Verified Class Action and Derivative

Complaint ¶¶ 6, 8, 91-96, 109-12, 113-18 (“Hayes Complaint”) (Trans. I.D.

54114588).

8 576889



other means.9 He further alleged that the Company had large cash reserves,

virtually no debt and significant borrowing capacity so it could have purchased the

shares instead of ASAC.10 Hayes also pointed out that as a result of the run-up in

Activision’s stock, the 171,968,042 shares ASAC purchased from Vivendi were

worth nearly $600 million more on the date of purchase than ASAC paid.11

Pacchia also filed a complaint in the Delaware Court of Chancery on

September 11, 2013, but asserted only derivative claims on behalf of Activision

against Kelly and Kotick, the Special Committee, Vivendi and Vivendi’s Board

designees. Pacchia’s original complaint contained no class claims. It did not name

ASAC as a defendant.

2. The Preliminary Injunction, Proposed Settlement and

Supreme Court Reversal

Hayes successfully obtained preliminary injunctive relief enjoining the

Transaction by asserting that the SPA required stockholder approval under

9 Hayes v. Activision Blizzard, Inc., et al., Amended Verified Class Action and

Derivative Complaint, ¶¶ 6, 8, 74-75, 80-83, 127-29, 145-46, 149-52 (“Hayes

Amended Complaint”) (Trans. I.D. 54459199). 10 Id. ¶ 74. 11 Id. ¶¶ 75, 82.

9 576889



Activision’s Certificate of Incorporation.12 Defendants were granted an

interlocutory appeal to the Delaware Supreme Court.

While the interlocutory appeal was pending before the Supreme Court,

Hayes used the leverage of the preliminary injunction to negotiate a proposed

settlement of the litigation that provided substantial financial benefits directly to

the public stockholders to the exclusion of Vivendi, ASAC, Kotick, Kelly and the

other directors.13

The prior settlement negotiated by Hayes provided for a payment of $15

million in cash from Vivendi and distribution of $70 million in Activision stock

directly to a carefully defined class of Activision public stockholders, who held

Activision shares from July 25, 2013 through the date of consummation of the

SPA.14 Vivendi, ASAC and all Activision directors were excluded from the

Class.15 The prior settlement further provided for an award of attorneys’ fees and

12 Sept. 18, 2013 Oral Argument on Plaintiff’s Motion for a Temporary Restraining

Order and Rulings of the Court, at 76-98 (Trans. I.D. 54300777). 13 Proposed Memorandum of Understanding (“MOU”), Exhibit A to the

Transmittal Affidavit of Eric J. Juray, Esquire in Support of Brief of Plaintiff

Douglas M. Hayes in Support of His Objection to Settlement and Application for

Fees, Expenses and Special Award “Juray Aff.”). 14 Id. ¶¶ 1a, 4A. 15 Id. ¶ 4A.

10 576889



expenses to be paid separately, not out of the settlement fund to be distributed to

the Class.16

Pacchia and his counsel refused to support the settlement Hayes had

negotiated. Counsel for another stockholder who had merely made a books and

records demand also refused to support the settlement. Defendants insisted that

Hayes’ counsel secure the support of Pacchia and the other stockholder. By the

time Pacchia’s counsel said he would support the settlement, it was too late. The

settlement did not go forward. As discussed below, the Hayes settlement would

have delivered far greater value directly to the class than the Settlement Pacchia

currently proposes. Pacchia’s reluctance to support the Hayes settlement may have

resulted from the fact that he had sold 5,000 of his 7,472 Activision shares after the

announcement of the Transaction.

After oral argument on October 10, 2013, the Delaware Supreme Court

reversed this Court’s preliminary injunction.17 Eventually, the Supreme Court

issued an opinion explaining its decision.18

16 Id. ¶ 12. The Hayes settlement also included governance benefits, including

extensive amendments to Activision’s bylaws and Certificate and amendment of

the Amended and Restated Investor Agreement between Activision and Vivendi.

Id. ¶¶ 1b, 1c, 1d, 1e. 17 Activision Blizzard, Inc. v. Hayes, 77 A.3d 271 (Del. 2013) (TABLE). 18 Activision Blizzard, Inc. v. Hayes, 2013 WL 6053804 (Del. 2013).

11 576889



3. Pacchia’s Misunderstanding of the Hayes Settlement

Pacchia’s past reluctance to agree to the Hayes settlement and current

attempts to denigrate that settlement stem largely from his refusal to acknowledge

the actual structure and terms of that settlement. Pacchia’s inaccurate description

of the Hayes settlement in his brief is particularly troubling.19 Pacchia has

mischaracterized the Hayes settlement as involving a “special dividend,” citing an

e-mail chain discussing an early suggestion by counsel for Activision that Hayes

rejected.20 Pacchia failed to put into the record the terms of the Hayes settlement

as reflected in the MOU, which demonstrate that the proposed settlement did not

involve a special dividend, but a payment of $85 million of settlement

consideration directly to the Class.

Pacchia also repeatedly represents that the value of the settlement

consideration was only $41 million, claiming the value of the $70 million stock

component should be discounted by 63%.21 However, the MOU provided that the

stock must have a market value of $70 million based on the trading price on the

19 Plaintiff’s Opening Brief to Approve the Settlement, Recertify the Class,

Approve the Fee Application, and Approve the Special Award to Plaintiff

(“Pacchia’s Brief” or “POB”), at 9-11, 41 (Trans. I.D. 56761583). 20 POB at 9; January 24, 2015 Letter of Joel Friedlander at 1-2 & n.1, Juray Aff.

Ex. E; Friedlander Aff. Ex. 4. “Friedlander Aff.” refers to the Affidavit of Joel

Friedlander filed with Pacchia’s Brief. 21 POB at 9 & n.2, 11, 41; January 24, 2015 Letter of Joel Friedlander at 1-2 & n.1,

Juray Aff. Ex. E.

12 576889



last ten days before the effective time of the settlement.22 Because of the large

number of Activision shares that would be outstanding even after the Transaction,

the settlement shares would not have had any meaningful dilutive effect on the

market price. Because the Class would get the stock without paying the $13.60,

indeed without paying anything at all, the settlement conferred tremendous value.

In short, the Class would have directly received stock worth $70 million plus $15

million in cash.

It is telling that while Pacchia tries to discount the value of the Hayes

settlement consideration that would have gone directly to the class stockholders

based on possible indirect effects of the settlement, he does not, when seeking fees

and a special award, impose a similar discount on the value of the supposed

indirect benefits of the Pacchia settlement for the current Activision stockholders.

Such a discount would have to take into account that (i) defendants own over 30%

of Activision’s stock and affiliates of limited partners in ASAC own about an

additional 10%, (ii) 69% of the $72.5 million fee and special award request would,

under Pacchia’s reasoning, come at the expense of Activision’s current public

stockholders, (iii) the supposed benefit is indirect and would be received by many

stockholders who did not even own Activision stock at the time of the Transaction;

22 MOU ¶ 1a.

13 576889



and (iv) the defendants will control what happens to the Settlement consideration.

Yet Pacchia touts his Settlement as worth an entirely undiscounted $275 million.

Pacchia has asserted that any fee to Hayes’ counsel would have reduced the

benefits to the class.23 However, the Hayes settlement clearly provided otherwise.

Unlike the current proposed Settlement, the Hayes settlement was not structured

for purposes of seeking a percentage of the settlement amount as attorneys’ fees.

The settlement provided for $85 million net to the Class with no percentage of that

amount deducted for attorneys’ fees. Any fees would have been paid “separate

from” the Settlement consideration.24 In contrast, while the current Settlement

purportedly provides for $275 million to be paid to Activision, Pacchia and his

counsel seek 26.4% of that amount ($72.5 million) as fees, expenses and awards,

which will reduce the net amount to Activision to $202.5 million. The net amount

for stockholders is zero.

4. Amendment of the Complaint and Determination of Lead

Counsel and Lead Plaintiff

In seeking to be named Lead Plaintiff and have his counsel designated Lead

Counsel, Pacchia filed a Verified Amended Class and Derivative Complaint which

named ASAC as an additional defendant and added class claims against Kelly,

23 POB at 9 & n.2; January 24, 2015 Letter of Joel Friedlander at 4, Juray Aff. Ex.

E. 24 MOU ¶ 12.

14 576889



Kotick, ASAC, Vivendi, the Vivendi-affiliated directors and the Special

Committee. At the December 3, 2013 hearing on the lead counsel motions, Hayes

argued that Pacchia’s complaint did not allege a class damages claim that the

Activision stockholders suffered economic loss and ASAC realized financial gain

because the Transaction was structured to permit ASAC to buy Activision stock at

a discount, instead of alternatives which would have benefitted the public

stockholders.25 Pacchia conceded he had not asserted such a claim and argued that

his purported class claims were governance claims.26

Pacchia was appointed Lead Plaintiff, and his counsel was appointed Lead

Counsel as to both the derivative and class claims. Hayes and his counsel were

essentially thrown out of the case. Indeed, when Hayes’ counsel was included in

the retention agreement for mediation of the case, Pacchia’s counsel quickly

demanded that they be excluded from the mediation.27 Hayes and his counsel were

excluded from all mediation proceedings and settlement discussions.

25 December 3, 2013 Transcript of Oral Argument to Appoint Lead Plaintiff and

Lead Counsel and the Court’s Ruling (“12/3/13 Tr.”), at 13-14 (Trans. I.D.

54698689). 26 Id. at 24-25. 27 May 31, 2014 e-mail chain – e-mail of Joel Friedlander, Juray Aff. Ex. C.

15 576889



5. Class Certification and Pacchia’s Addition of the Hayes

Class Damages Claim

Pacchia’s next three complaints continued to assert purported class claims

that the stockholders might be deprived of a future control premium, but contained

no class damage claims based on ASAC’s expropriation of the opportunity to buy

shares from Vivendi at a detriment to the public stockholders. On May 16, 2014,

Pacchia moved for certification of a class of all Activision stockholders as of July

25, 2013, including successors and assigns, etc., but “excepting defendants,

investors in defendant ASAC II LP and any stockholder affiliated with such

investors.”28 The theory of class certification was that the Transaction had given

Kelly, Kotick, ASAC and ASAC’s investors control of the Company, thereby

depriving the stockholders of a realistic ability to participate in a proxy contest and

accept a takeover premium.29

On September 11, 2014, defendants filed an answering brief strongly

contesting class certification. Because Plaintiff’s class theory was based on the

control structure implemented in the Transaction, defendants argued that purchases

after the announcement of the Transaction acquiesced in the new control structure

28 Plaintiff’s Motion for Class Certification (Trans. I.D. 55460832). 29 Plaintiff’s Opening Brief in Support of His Motion for Class Certification, at 6 &

n.3 (citing In re Gaylord Container Corp. S’holders Litig., 747 A.2d 71, 84 (Del.

Ch. 1999)) (Trans. I.D. 55460832).

16 576889



and sellers after the announcement could not suffer the only class-wide harm

alleged (i.e., loss of the ability to participate in a future proxy contest or takeover

bid) and, therefore, both buyers and sellers must be excluded from the class.30

In response to defendants’ attempt to gut the class, Pacchia moved on

September 23, 2014 to amend his complaint to add class damages claims that

paralleled the damage theories for his derivative claims, citing the report of

Pacchia’s expert.31 Pacchia argued that the public stockholders had suffered

economic harm from the discounted sale of Activision shares to ASAC because

those stockholders “could have obtained more value from alternative transaction

structures, such as a rights offering.”32 In describing the economic injury to public

stockholders, Pacchia quoted the Atkins report as saying that “[a] number of

alternative[s] to the ASAC Transaction existed that were both feasible and that

would have provided Activision shareholders with significantly better benefits.”33

Significantly, the Atkins report repeatedly said that all the alternatives, not just a

30 Defendants’ Brief in Opposition to Plaintiff’s Motion for Class Certification, at

1-2, 4-5, 12-13 (Trans. I.D. 56016583). 31 Plaintiff’s Reply Brief in Support of his Motion for Class Certification

(“Plaintiff’s Reply”) at 3, 16-17 (Trans. I.D. 56113866) (citing Expert Report of

J.T. Atkins, dated August 29, 2014, which is Exhibit 8 to the Friedlander Aff.). 32 Id. at 3. 33 Id. at 16-17 (quoting the Atkins report, which was Exhibit 7 to Plaintiff’s Reply

and citing pages 7-11, 29-32 and 34-37 of that report, which described the four

alternatives that would have provided the public shareholders with significantly

better benefits).

17 576889



rights offering, would have provided “Activision shareholders” with financial

benefits.34

Pacchia’s motion for leave to amend was granted on October 10, 2014, and

his Fifth Amended Complaint was filed the same day. Plaintiff’s settlement brief

acknowledges that his Fifth Amended Complaint “identified potential ‘class

damages’ based on alternative transaction structures discussed in plaintiff’s expert

report and allegations that BKBK had foreclosed potential alternative transactions

with better financial terms.”35

At the October 13, 2014 hearing on class certification, Pacchia

acknowledged that his first five complaints did not contain a class claim for

monetary damages to the public stockholders.36 Pacchia’s counsel asserted that the

report of Pacchia’s expert showed class damages as a result of ASAC having

expropriated the opportunity to purchase the shares ASAC purchased at a discount

from Vivendi.37

Pacchia used a rights offering as an example of his new class damages

claims that defendants had foreclosed alternative transactions on better financial

terms:

34 Friedlander Aff. Ex. 8, at 7, 9, 29. 35 POB at 16. 36 10/13/14 Tr. at 3-4. 37 Id. at 4-6.

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[O]ur expert report articulated arguments for class-wide

damages. To take perhaps the simplest example out of

the alternative transactions that we posited were feasible

and superior to the actual transaction, one of them was a

rights offering alternative. And the damages that were

calculated by our expert on that are either 593.6 million

or 641.6 million, depending on whether $500 million of

additional debt was incurred in connection with that

transaction. Because basically that would have given the

public holders an opportunity to invest at the below-

market price in lieu of ASAC, and the public

stockholders would then capture that – the benefit of the

runup in the price. And if there was more debt, the

company would be able to buy back more shares, or the

public holders would be able to buy more shares rather

than ASAC buying the shares at that 13.60 price.38

In short, Pacchia belatedly asserted the same class damages claims that

Hayes had alleged a year earlier. Nevertheless, at the October 13, 2014 hearing,

Pacchia’s counsel claimed that Pacchia personally “came up with the idea of a

rights offering,”39 though that idea had been specifically alleged in Hayes’

complaints in the fall of 2013.40 Pacchia’s adoption of the Hayes class damages

theory meant that going into trial the defendants would face a remedy (class

damages) from which they were excluded, rather than remedies where the money

would flow into Activision, a company in which they had substantial equity and

38 Id. at 4-5. 39 Id. at 66. 40 The Affidavit of Anthony Pacchia filed February 11, 2015 (¶ 8b) in support of

his request for $50,000 is based partly on the time he spent reviewing the legal

filings by Hayes’ attorneys.

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compensation interests. Indeed, Plaintiff admits that asserting class damages was

part of a strategy for “exerting settlement pressure” by identifying “multiple forms

of significant monetary relief that could potentially be awarded against differently

situated defendants.”41

On November 12, 2014 an Order Certifying Class was entered (Trans. I.D.

56324905), certifying a class of holders of shares of Activision stock as of July 25,

2013 and their heirs, assignees, transferees and successors-in-interest, with

defendants and their affiliates excluded. On November 13, 2014, Pacchia agreed

to a settlement where the just-certified Class got nothing.42

C. The Settlement

In a November 19, 2014 letter (Trans. I.D. 56361556), one week after entry

of the Order Certifying Class, Pacchia advised the Court of a settlement that would

consist of: (1) $275 million being paid to Activision by multiple insurers and

certain defendants; (2) the addition of two directors unaffiliated with ASAC; and

(3) Section 3.07 of the October 11, 2013 Stockholders Agreement between ASAC

and Activision being amended to reduce ASAC’s “Stockholder Percentage

Interest” from 24.9% to 19.9%. Having finally asserted class damages claims in

order to assist his effort to get class certification and exert settlement pressure,

41 POB at 48; Friedlander Aff. ¶ 22. 42 POB at 42.

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Pacchia promptly entered into a settlement that released that claim for no

consideration.

The parties filed the Settlement Agreement on December 19, 2014. Neither

the Settlement Agreement nor the Notice of Pendency and Settlement of Action

(the “Notice of Settlement” or ‘Notice”) (Trans. I.D. 56502722, Ex. B) explains

why none of the monetary consideration was allocated to members of the Class.

Section 2.1(a) of the Settlement Agreement says Vivendi is to pay $67.5 million.

Section 2.1(b) indicates the balance of the $275 million (i.e., $207.5 million) “to be

paid by ASAC and from multiple insurers.” Kelly and Kotick and the other

individual defendants will pay nothing. The Settlement Agreement does not say

exactly what amount ASAC is paying.43

After reviewing the terms of the Settlement, Hayes wrote to counsel for the

parties, pointing out that public stockholders in the Class would have their

damages claims released for no consideration.44 Pacchia’s counsel refused to

consider any changes to the Settlement.45 The letter claimed that:

ASAC and Vivendi cannot reasonably be expected to

acquiesce to a 1:1 reallocation of settlement proceeds

43 Plaintiff represents in his brief that at least $150 million will come from ASAC.

POB at 43. He cites no provision of the Settlement Agreement or any other

agreement that requires a payment by ASAC of $150 million or more. 44 Juray Aff. Ex. D. 45 Juray Aff. Ex. E.

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from Activision to the public stockholders, given their

stock holdings in Activision.46

However, as Pacchia’s settlement brief acknowledges, Vivendi had sold half its

remaining Activision shares in May 2014, and on February 5, 2015 Activision filed

a shelf registration statement for the upcoming sale of the last of Vivendi’s

Activision stock.47 Thus, Vivendi, which agreed to pay $15 million to public

stockholders in the Hayes settlement, will have no stock holdings in Activision, so

it will make no financial difference whether its $67.5 million payment in the

Settlement goes to Activision or to public stockholders who were damaged by the

sale of shares to ASAC.

Hayes refuted Pacchia’s contentions.48 On February 2, 2015, counsel for

Hayes had a conference call with counsel for Pacchia and various defendants.

However, the parties would not discuss any modification of the Settlement, but

were more interested in cross-examining Hayes’ counsel. Counsel for ASAC,

Kelly and Kotick indicated that his clients would not agree to reallocation of a

single dollar to the Class because they wanted the Settlement dollars to go into

Activision—where Kelly and Kotick are senior management, and ASAC, as a

result of the Transaction, is the largest stockholder. In short, like the challenged

46 Id. at 3. 47 POB at 54. 48 Juray Aff. Ex. F.

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Transaction, the Settlement was structured primarily to benefit ASAC, Kelly and

Kotick. Even assuming ASAC agreed to pay more in the Settlement because the

money would be paid into the Company, which Kelly, Kotick and ASAC control,

they have no right to insist that they get control of Settlement dollars paid by other

defendants and/or insurers.

1. Defendants’ Control of the Settlement Proceeds

A majority of the Activision Board (Kelly, Kotick, Corti, Sarnoff and

Morgado) were all named defendants charged with wrongs challenged in the

litigation. Two other directors (Wynn and Nolan) were put on the Board as a result

of the Transaction. Kelly and Kotick remain the senior management of the

Company.

The Settlement structure gives defendants who committed the wrongs

control of all the Settlement proceeds, while maximizing the amounts Pacchia and

his counsel can claim in fees, expenses and awards for themselves. Because

ASAC, Kelly and Kotick own a substantial portion of Activision’s stock, they

preferred to have the Settlement funds flow into Activision, rather than have all or

some portion of those funds paid to the Class, from which the defendants are

excluded. If past history is any guide, it would not be surprising if some of the

proceeds Activision receives in the Settlement end up in the directors’ pockets.

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The Compensation Committee awarded Kotick $7,849,190 in bonuses for

2013, including a performance-based bonus of $3.25 million “in recognition of the

Company’s strong performance during 2013 and Mr. Kotick’s significant

contributions to the Company during the year,” citing among other factors the

Transaction.49

Just 17 days after the Transaction closed, the Activision directors voted to

increase the cash retainer for outside directors by 70% from $55,000 to $90,000

per year and to increase the annual equity awards to outside directors to restricted

share units with grant date value of $250,000.50 For 2013, Special Committee

members received the following compensation: (a) Corti: $1,107,472, including

$350,007 for serving on the Special Committee; (b) Morgado: $1,035,186,

including $574,996 for serving on the Special Committee; and (c) Sarnoff:

$781,322, including $350,007 for serving on the Special Committee.51

Under Activision’s 2014 Incentive Plan, the defendant officers and directors,

including non-employee directors, could receive bonuses based on the litigation

settlement.52 The Settlement may have put a few more chickens in the hen house,

49 Activision Blizzard, Inc. Apr. 22, 2014 Schedule 14A, at 4, 41-44, Juray Aff. Ex.

B. 50 Id. at 78-79. 51 Id. at 80. 52 Id. at 101.

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but the same foxes will be guarding it and they may be taking more chickens and

more eggs for themselves.

25 576889



ARGUMENT

I. THE COURT SHOULD NOT RECERTIFY AN INAPPROPRIATELY

ILL-DEFINED CLASS

The Settlement’s problems begin with the definition of the Class. The

definition of who is in the Class is not consistent with who got notice of the

Settlement, who is entitled to object to the Settlement and who will have their

claims released by the Settlement. Indeed, it is not possible to tell who holds

“Class Shares” and who does not. Moreover, the class definition was framed

around Pacchia’s class governance claims and does not fit the class who suffered

damages as a result of the Transaction, though the release will eliminate the class

damages claim.

A. The Definition of Class Shares Does Not Allow a Determination of

Who Is In or Out of the Class

The November 12, 2014 Order Certifying Class certified a class of the

holders of Activision common shares, other than defendants and their affiliates,

that were issued and outstanding as of July 25, 2013 (“Class Shares”), and their

heirs, assignees, transferees and successors-in-interest. Section 1.1 of the

Settlement Agreement contains a similar definition, and specifically provides that

“the Class includes anyone who acquired a Class Share after July 25, 2013.”

Therefore, Activision shares that were issued and outstanding as of July 25, 2013,

but were held by defendants or their affiliates on that date, are not “Class Shares.”

26 576889



That means the over 41 million shares Vivendi sold to the public in May 2014 are

not Class Shares. This likewise applies to any shares acquired by defendants or

their affiliates after July 25, 2013. It also means any shares issued by Activision

after July 25, 2013, including upon exercise of options, are not Class Shares. A

purchaser of Activision shares in the market may have acquired shares sold into the

market by Vivendi, shares issued since July 25, 2013 upon the exercise of options

and sold into the market or shares Activision has otherwise issued since July 25,

2013. Because “Class Shares” cannot be distinguished from other Activision

shares trading in the market, it cannot be determined who is in or not in the Class

or who is bound or not bound by the release.

Because many Activision shares have been traded multiple times in the

market since July 25, 2013, it is impossible to tell whether shares held by many

current stockholders are or are not Class Shares. Therefore, the Court and the

stockholders cannot tell who is in or out of the Class. Yet, “Released Plaintiff’s

Claims” in Section 1.18 of the Settlement Agreement includes all claims “as a

member of the Class.”

B. Notice and Right to Object

Moreover, as discussed below, the Notice of Settlement is confusing and

garbled as to whether all members of the purported Class have the right to object.

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For the reasons mentioned below, it does not appear that the Notice of Settlement

was sent to all those purportedly in the Class.

C. The Class Definition Is Based on the Governance Claims

Another problem with the Class definition is that it provides for a “one-size-

fits-all” Class, when many current and former public stockholders stand in

different positions. Pacchia’s class claims initially focused on the right to receive a

future premium or participate in a future proxy contest. Consequently, while his

Class ran back to July 25, 2013, he relied on the “successors-in-interest” concept as

essentially creating a Class of current stockholders. This Class definition treats

those who held on July 25, 2013, but sold at any time after July 25, 2013, as having

no interest in the claims. On the other hand, purchasers who bought after the

Transaction closed, with full knowledge of its terms and effects, are considered the

Class members with a live interest in the claims.

Pacchia’s Class definition is inappropriate for the class damages claim. That

claim is for the benefit of public stockholders who held during the pendency of the

Transaction (i.e., between the announcement of the Transaction on July 25, 2013

and the consummation of the Transaction on October 11, 2013). As the Notice of

Settlement (¶ 3) acknowledges, a class action should be brought on behalf of those

“who were stockholders at the time the claim arose.” The stockholders who were

harmed were those who were denied the opportunity to benefit from Vivendi’s

28 576889



below-market sale of 171,968,042 shares of Activision stock to ASAC on October

11, 2013. Stockholders who purchased after the Transaction closed did not suffer

from that lost opportunity because they bought after the opportunity was already

gone. The Settlement provides no relief for the damages caused to those who held

when the claim arose.

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II. THERE HAS NOT BEEN ADEQUATE AND PROPER NOTICE OF

THE SETTLEMENT

A. Lack of Notice to Certain Class Members and Current

Stockholders

The Settlement Agreement (¶ 1.1) specifically defines the Class to include

“anyone who acquired a Class Share after July 25, 2013.” In Section 3.2, the

Settlement Agreement provides for the Notice of Settlement to be mailed to

“Current Stockholders and all members of the Class.” However, Paragraph 7 of

the December 23, 2014 Scheduling Order With Respect to Notice and Settlement

Hearing (Trans. I.D. 56517849) only provides for the Notice of Settlement to be

mailed to “all persons who are current stockholders of record or were on July 25,

2013 record holders of common stock of Activision.” Thus, though all persons

who purchased shares after July 25, 2013 are included in the Class and will have

their claims released, purchasers after July 25, 2013 who have sold their shares

apparently have not received the mailed Notice the Settlement Agreement requires.

The Affidavit of Jannette MacDonald Regarding Mailing of the Notice

(Trans. I.D. 56794644) (“MacDonald Affidavit”) raises further questions about the

adequacy of notice to those within the supposed Class. Paragraph 2 of that

affidavit says the Notice of Settlement was mailed to “1,995 potential Class

30 576889



members” based on “a list from counsel.”53 The affidavit does not say whose

counsel the list came from or identify what the list is or how it was compiled. It

says the list was received “on December 29, 2014,” but does not identify whether

the list was “as of” any particular date or what dates the list encompasses. The

MacDonald Affidavit says nothing about the Notice of Settlement being mailed, as

the Scheduling Order requires, to “all persons who are current stockholders of

record or were on July 25, 2013 record holders of common stock of Activision.”

The MacDonald Affidavit (¶ 3) then says the Notice of Settlement was

mailed, not to nominees actually holding Activision stock, but to a data base of

“the largest and most common” nominees. There have likely been nominees who

have held Activision stock at some time between July 25, 2013 and the present that

are not in the database. Thus, smaller and less frequent nominees who hold

Activision shares apparently were not sent the Notice of Settlement. The affidavit

concludes (¶ 7) by claiming that the Notice of Settlement tells “potential Class

Members” that they can object “by writing to the Court,” so that the objection is

“received no later than February 20, 2015.” The affidavit inaccurately and

53 The MacDonald Affidavit (¶ 1 n.1) says that capitalized terms in the affidavit

have the meanings ascribed to them in the Dec. 23, 2014 Scheduling Order, but it

contains capitalized terms such as “Class Members,” “Securities Class Actions”

and “Class Period” that are not defined.

31 576889



incompletely describes the Notice’s already confusing instructions for objecting

that are described.

B. The Inadequacy of the Notice of Settlement

1. The Failure to Describe the Class Damages Claim

The most glaring deficiency of the Notice of Settlement is that it fails to

describe the claims in the litigation fully and fairly, particularly the class damages

claim. The only description of the claims is in Paragraph 19:

Subsequently, Plaintiff amended his complaint four more

times, with the operative complaint being a Fifth

Amended Verified and Class Action Complaint (the

“Complaint”). The complaint seeks derivative and direct

relief against the Vivendi Defendants, the Special

Committee Defendants, the Management Defendants,

and the ASAC Defendants with respect to the

Transaction. The Complaint alleges that the Vivendi

Defendants, the Special Committee Defendants and

Management Defendants breached their fiduciary duties

by entering into the Transaction, and that the ASAC

Defendants aided and abetted those alleged breaches.

Among other things, the Complaint alleges, and the

Defendants deny, that the Management Defendants

usurped a corporate opportunity in purchasing shares of

stock from Vivendi at a discount to the market price and

obtained control over Activision, and that Vivendi

assented to the Transaction to obtain desired liquidity.

The Complaint also challenges the initial appointment

and subsequent re-nomination and reelection by some or

all of the Special Committee Defendants and

Management Defendants of directors Peter Nolan and

Elaine Wynn to the Activision Board as a breach of

fiduciary duty and a breach of the Stockholders

Agreement by ASAC.

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A settlement notice cannot omit fundamental information necessary to

inform class members concerning the settlement.54 The Notice of Settlement tells

the Class they will receive no monetary payment, but does not tell them that there

were monetary damages claims asserted on behalf of the Class. Pacchia’s expert

and counsel said there were four alternative transactions that could serve as a

measure of damages, including a rights offering they valued at about $600 million.

The Class damages claims are being released for nothing. The Class should be

made aware of the nature of those claims, that these damages claims had been

asserted on behalf of the Class and that the class damages claim will be released in

the Settlement without the Class members receiving any consideration for giving

up those damages claims.

2. Misleading and Confusing Description of the Benefits to

Class Members

The Notice of Settlement (p. 2) claims that:

Because this Action was brought as a class and derivative

action on behalf of and for the benefit of a class of

stockholders and Activision, the benefits of the

Settlement will go to both Activision and the Class, as

defined below. Individual Class members will not

receive any direct payment of funds from the Settlement,

but will obtain the benefits from the Settlement that are

described in paragraph 29 below. (Emphasis added).

54 In re TD Banknorth S’holders Litig., 938 A.2d 654, 670 (Del. Ch. 2007).

33 576889



The Notice’s claim that the benefits of the Settlement will go to “both

Activision and the Class” is incorrect. The Notice of Settlement admits that no

Class members will receive any “direct payment of funds” from the Settlement.

However, it then says the Class will “obtain the benefits” described in Paragraph

29, a description that includes the $275 million Settlement Payment.55 Moreover,

members of the Class who no longer own Activision stock will receive no benefit

from any of the terms described in Paragraph 29, including the governance relief.

Class members are not ciphers and should not be forced to parse through a

settlement notice to figure out the impact of the terms of the settlement.56 The

Notice of Settlement expects Class members to try to make sense of a confusing

and misleading description in order to figure out what, if any, benefit they will

obtain from the Settlement.

3. Misleading and Confusing Disclosure on Who Can Object

and When

The Notice of Settlement (p. 1) defines the Class to include persons who

have sold their Activision shares, then states that the purpose of the Notice is,

among other things, to inform the Activision stockholders about “current Class

members and stockholders’ rights with respect to the proposed Settlement” and the

55 Notice of Settlement ¶ 29(a). 56 TD Banknorth, 938 A.2d at 670-71.

34 576889



fee and special award application. Thus, the Notice first indicates that only

members of the Class who currently hold stock have standing to question the

Settlement and fee and expense request. Paragraph 4 (p. 2) of the Notice of

Settlement says “Class members, including current stockholders,” have the right to

object to the Settlement, application for fees and expenses and a special award. In

later defining who has standing to object to the Settlement, fee request and special

award, the Notice (¶ 40) takes yet another position by restricting the right to object

to persons who can submit:

[P]roof of ownership of Activision stock either (i) as of

July 25, 2013 and continuously to the present (if

objecting to the derivative aspects of the settlement); or

(ii) as of July 25, 2013 or based upon the acquisition of

Class Shares thereafter (if objecting to the class aspects

of the settlement)…. (Emphasis added).

Thus, the Notice of Settlement indicates that current stockholders cannot object to

the derivative part of the Settlement unless they held Activision stock on July 25,

2013 continuously to the current date.57 Since many, if not most, current

stockholders did not own Activision shares as of July 25, 2013, all those

stockholders have no standing to object.

57 The parties to the Settlement essentially limit the ability of absent current

stockholders based on the contemporaneous and continuous ownership rule for

serving as a derivative plaintiff. See 8 Del. C. § 327; Ch. Ct. R. 23.1; D. Wolfe &

M. Pittenger, Corporate and Commercial Practice in the Delaware Court of

Chancery, §9.02[b][2].

35 576889



As to the Class aspects of the Settlement, a stockholder who did not own

Activision stock on July 25, 2013, but acquired shares thereafter will probably be

unable to provide proof of ownership based on the acquisition of “Class Shares”

(i.e., shares that were outstanding on July 25, 2013 and were not held by

defendants). Stockholders will likely not have proof that shares purchased after

July 25, 2013 were not shares that were held by defendants on that date or were not

issued by Activision after that date. The inconsistent and unreasonable statements

regarding the right to object render the Notice of Settlement fatally defective.

The Notice of Settlement is also confusing as to when objections are due. It

first says that objections must be filed with the Register in Chancery “no later than

ten business days before the Settlement Hearing,” but then says objections must be

served on counsel for the parties to the Settlement “no later than ten calendar days

prior to the Settlement Hearing.”58 The statement in Paragraph 7 of the

MacDonald Affidavit that the Notice of Settlement tells stockholders that the Court

must receive objections “no later than February 20, 2015” is incorrect.59 The date

for filing objections was only moved to February 20 as a result of a motion filed by

58 Notice of Settlement ¶ 40 (emphasis added). 59 The statement that Ms. MacDonald’s firm “has not received any objections from

the Class” to date is strange, given that the Notice of Settlement does not say

objections are to be sent to her firm. MacDonald Affidavit ¶ 7.

36 576889



Hayes, and most purported Class members and current stockholders are probably

not aware of that change.

37 576889



III. THE SETTLEMENT IS NOT FAIR AND REASONABLE

A. Standards for Approval of the Settlement

The Court only approves a class settlement if it is a fair and reasonable

resolution of the claims in the litigation.60 The proponents of the settlement have

the burden of persuasion to show the settlement is fair and reasonable by a

preponderance of the evidence.61 Approval of a class action settlement requires

more than cursory scrutiny of the issues by the Court.62 Among the most important

factors the Court considers in determining whether a settlement is fair and

reasonable are the probable validity of the claims and the amount of the settlement

consideration compared with the amount of the claim.63 The strength of the class

claims helps determine whether the consideration received for release of those

claims is a fair exchange for the release of those claims.64 “[T]he Court must act as

guardian of the interests of the class . . . by keeping in mind the probability of

success of the claims, what the class has gained, and what the class would lose

60 TD Banknorth, 938 A.2d at 657. 61 Id. at 657 n.4; Marie Raymond Revocable Trust v. MAT Five LLC, 980 A.2d 388,

402 (Del. Ch. 2008). 62 Marie Raymond Revocable Trust, 980 A.2d at 402. 63 Off v. Ross, 2008 WL 5053448, at *6 (Del. Ch. Nov. 26, 2008); Polk v. Good,

507 A.2d 531, 536 (Del. 1986). 64 Off, 2008 WL 5053448, at *6; Barkan v. Amsted Indus., Inc., 567 A.2d 1279,

1285 (Del. 1989).

38 576889



under the terms of the Settlement.”65 The cost of the settlement for class members

comes in the form of a release of their claims.66 A settlement should not be

approved where it would force class members to release facially valid claims in

exchange for consideration that is not commensurate with the attendant cost.67

B. The Release of the Viable and Valuable Class Damages Claim

The Settlement should not be approved because it would release viable and

valuable class damages claims for no meaningful consideration.68 The Settlement

Agreement contemplates a very broad general release of all claims of anyone who

held shares of Activision stock that were issued and outstanding as of July 25,

2013. Holders of stock during the pendency of the Transaction will receive no

consideration under the Settlement Agreement, with the possible exception of Lead

Plaintiff Pacchia, who under Section 4.3 of the Settlement Agreement will seek

$50,000 for himself, a recovery of $20.23 per share for the 2,472 Activision shares

he retained after the announcement of the Transaction.69

65 Off, 2008 WL 5053448, at *6. 66 Id. at *10. 67 Id. at *14. 68 See TD Banknorth, 938 A.2d at 657-58. 69 In a November 8, 2013 affidavit, Pacchia stated that he owned 7,472 shares of

Activision stock at the time the challenged Transaction was announced in July

2013, but then sold 5,000 of those shares within a week of that announcement

when Activision’s stock price rose.

39 576889



1. The Hayes Complaints Alleged Viable Class Damages

Claims

The Hayes Complaints alleged viable and valuable damages claims on

behalf of Activision public stockholders who held during the pendency of the

Transaction (i.e., July 25, 2013 until October 11, 2013). The defendants effected a

Transaction where ASAC, an affiliate of Kelly and Kotick, acquired a 24.9%

position in the Company by purchasing 171,968,042 Activision shares from

Vivendi for $13.60 per share, which was a 10% discount to Activision’s trading

price just prior to the announcement of the SPA and a 28% discount to the trading

price immediately after that announcement.70 ASAC, Kelly and Kotick seized this

opportunity to the detriment and exclusion of Activision’s public stockholders,

who were denied the benefit of the value realizable from the purchase of the

Vivendi shares at a discount to market through alternative transactions such as “a

stock dividend, rights offering or other means.”71

The public stockholders suffered “damages based on the difference between

the value of the Activision stock and the $13.60 price paid in the Private Sale” of

70 Hayes Amended Complaint ¶¶ 3, 128-29. At the same time Activision

announced the SPA, it also announced strong earnings. The dual announcements

caused a run-up in Activision’s stock price that increased the benefit ASAC

realized. Id. ¶ 75. 71 Id. ¶ 6.

40 576889



the shares to ASAC.72 The financial analysis by the Special Committee’s financial

advisor demonstrated that Activision’s stock was worth significantly more than

$13.60 per share, particularly because Activision would be repurchasing

428,676,471 shares from Vivendi for $13.60 per share.73 Given that Activision had

$4.3 billion of cash and virtually no debt, it could easily have repurchased the

171,968,042 shares that were instead bought by ASAC.74 Instead, ASAC got to

buy the shares at $13.60 after Activision’s stock closed at $17.08 per share on

October 11, 2013, the date the SPA closed.75 Thus, on October 11, 2013,

171,968,042 shares were worth $3.48 per share more (i.e., nearly $600 million)

than ASAC paid for them.76

As explained above, the Hayes Complaints alleged there was an improper

transfer or expropriation of economic value from Activision’s public stockholders

to ASAC (see also supra pp. 7-8), a direct claim under Delaware law.77 The

stockholders suffered a separate harm because economic value is redistributed to

72 Id. ¶ 8. 73 Id. ¶¶ 73, 79-81. 74 Id. ¶ 74. 75 Id. ¶ 82. 76 Id. 77 See Gentile v. Rossette, 906 A.2d 91, 100 (Del. 2006); Gatz v. Ponsoldt, 925

A.2d 1265, 1278 (Del. 2007).

41 576889



the breaching fiduciary.78 Though the corporation may also have suffered harm,

the stockholders suffered a unique harm from the fiduciary causing a transaction

that benefitted the fiduciary at the expense of the stockholders.79 Stock is a form of

currency, and ASAC’s acquisition of 171,968,042 Activision shares from Vivendi

at a below-market price would necessarily be felt at the stockholder level.80 The

stockholders have an individual claim for breach of the duty of loyalty based on

the expropriation of value by corporate fiduciaries who used the levers of corporate

control to benefit themselves.81 This same principle applies regardless of the form

of the transaction because equity looks to substance and will not deny redress

where a fiduciary structures a transaction to expropriate economic value from the

stockholders for his benefit.82 Kelly and Kotick, through ASAC, overreached in

pursuit of profit at the unfair expense of the other stockholders.83

78 Gentile, 906 A.2d at 100. 79 Id. at 102-03. 80 See Carsanaro v. Bloodhound Techs., Inc., 65 A.3d 618, 655-56 (Del. Ch. 2013). 81 Id. at 658-59. 82 Gatz, 925 A.2d at 1280-81. 83 See, e.g., In re Loral Space and Commc’ns, Inc. Consol. Litig., 2008 WL

4561146, at *1 (Del. Ch. Oct. 6, 2008).

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2. Pacchia Confirmed There Were Viable Class Damages

Claims

The Court need not take Hayes’ word that the class damages claims are

viable and valuable. Pacchia conceded that when finally, in the fall of 2014, he

added class damages claims to his complaint, supported those claims with his

expert report and forcefully argued the strength of those claims in obtaining class

certification.84 Pacchia and his counsel also admit the class damages claims were

asserted “[f]or purposes of exerting settlement pressure.”85 Even in his settlement

brief, Pacchia acknowledges there were solid claims based on the below-market

side deal for ASAC that Kelly and Kotick insisted upon and the Activision Board

approved.86 As in Parnes, the claim is that the Chairman and CEO controlled the

negotiations, precluded alternatives and breached their fiduciary duty of loyalty by

preferring themselves over the other stockholders, and that the other directors

84 Pacchia’s settlement brief acknowledges that Count II of Hayes’ Complaint

“asserted an individual and class claim based on the allegation that the class of

stockholders who held their shares through closing ‘were not afforded the same

opportunity to acquire Activision common stock at a favorable price.’” POB at 8. 85 Friedlander Aff. ¶ 22; POB at 48. 86 POB at 47 & nn.7-8 (citing Parnes v. Bally Entm’t Corp., 722 A.2d 1243, 1246-

47 (Del. 1999) and other authorities).

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breached their duty of loyalty by acquiescing in that self-interested deal.87 Parnes

held that such a claim is a class claim.88

3. The Class Damages Claims Are Essentially the Same as the

Derivative Damages Claims

Delaware Courts have repeatedly recognized that some claims can be

asserted both derivatively on behalf of the company and directly as a class action

on behalf of stockholders.89 Some injuries affect both the corporation and the

stockholders.90 The class damages claims Pacchia belatedly asserted tracked the

derivative damages claims. The liability case focused on ASAC’s purchase of

171,968,042 Activision shares from Vivendi at a discount to market. The damages

case focused on the alternatives to the ASAC purchase. Thus, the class claims

were not weak claims but had the same strength as the derivative claims.91 The

class claims that Pacchia told the Court were worth approximately $600 million on

October 13, 2014 did not become worthless by November 13, 2014 when the

Settlement was reached. The parties to the Settlement simply chose to allocate all

87 722 A.2d at 1245-46; see also Crescent/Mach I Partners, L.P. v. Turner, 846

A.2d 963, 982-83 (Del. Ch. 2000). 88 Parnes, 722 A.2d at 1244-46. 89 Gentile, 906 A.2d at 99-100; San Antonio Fire & Police Pension Fund v.

Bradbury, 2010 WL 4273171, at *9 n.68 (Del. Ch. Oct. 28, 2010). 90 Carsanaro, 65 A.3d at 655. 91 Cf. CME Group, Inc. v. Chicago Bd. Options Exch., Inc., 2009 WL 1547510, at

*7-8 (Del. Ch. June 3, 2009) (allowing lesser allocation to group that had only one

of the three parts that gave trading rights).

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the Settlement consideration to the derivative claims so that the defendants would

control the Settlement consideration and Pacchia could seek a bigger fee and claim

that the class damages claims first raised by Hayes had resulted in no recovery.

C. The Allocation of No Consideration to the Class Damages Claim

1. Pacchia’s Fiduciary Duty to Provide a Fair Allocation

As Pacchia admits, a plan for allocation of settlement proceeds must be fair,

reasonable and adequate.92 Approval of the allocation is part of the approval of the

settlement.93 Moreover, Pacchia is a fiduciary with a conflicting interest, requiring

the utmost fairness from him in the allocation of proceeds.94 The relative merits of

the derivative and class claims do not justify the allocation of zero settlement

consideration to the Class. This is not a circumstance where the class claims to be

released were just non-monetary disclosure claims for relief, while the derivative

claims would justify both money damages and equitable relief.95 Where there are

class claims that would support an award of monetary damages, the settlement of

those claims for no consideration cannot be justified by consideration directed to

92 Schultz v. Ginsburg, 965 A.2d 661, 667 (Del. 2009); POB at 45-46. 93 CME Group, Inc., 2009 WL 1547510, at *7. 94 See Jedwab v. MGM Grand Hotels, Inc., 509 A.2d 584, 593-95 (Del. Ch. 1986);

In re FLS Holdings, Inc. S’holders Litig., 1993 WL 104562, at *4, 6 (Del. Ch. Apr.

2, 1993, revised Apr. 21, 1993); In re Trados Inc. S’holder Litig., 73 A.3d 17, 40 &

n.12 (Del. Ch. 2013). 95 Cf. In re Triarc Cos., Inc., 791 A.2d 872, 874-75 (Del. Ch. 2001).

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derivative claims. When the class has “a viable claim for substantial monetary

relief … the failure of the settlement to allocate any consideration to the class

claims” is highly troubling.96

2. Pacchia’s Excuses Are Unconvincing

The Friedlander Affidavit (¶¶ 22-28) contains an analysis of Atkins’

alternatives and damages theories that is repeated almost verbatim in Pacchia’s

brief.97 Essentially, it is “a lawyer’s argument that is not well-founded in the

expert record.”98 There is no contemporaneous documentation confirming that

between October 13 and November 13, 2014 the class damages claims became

worthless. Rather, the affidavit and brief read like after-the-fact rationales

dreamed up after Hayes questioned why the public stockholders would receive

none of the Settlement proceeds.

Pacchia’s assertion that the public stockholders did not have “a right to be

included in a particular form of alternative transaction”99 misses the point. Kelly,

Kotick, ASAC and the Activision stockholders (such as FMR and Davis) who were

invited into ASAC, had no right to the opportunity to buy shares from Vivendi for

a below-market price either. Pacchia says Activision might not have agreed to sell

96 Id. at 876. 97 POB at 48-53. 98 In re Loral, 2008 WL 4561146, at *1. 99 POB at 51; Friedlander Aff. ¶ 28(1).

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the shares to the public stockholders at a below-market price100 -- but the Company

agreed to a sale to ASAC at a below-market price. The public stockholders did

have a right that corporate fiduciaries not benefit themselves and others at the

expense of the public stockholders and that Activision’s controlling stockholder,

directors and officers pursue alternatives that were in the best interest of the public

stockholders.

Pacchia now contends that only a rights offering would have remedied the

economic injury to the public stockholders and that some time between October 13

and November 13, Pacchia and his counsel determined a rights offering was not

feasible.101 Neither proposition is credible. Pacchia’s expert and counsel both

asserted that any of Atkins’ four alternatives (a rights offering, a secondary

offering, an Over-The-Wall Transaction, and a hybrid transaction) could serve as a

measure of class damages.102 His counsel did so on October 13, 2014, a week after

defendants’ rebuttal expert reports. Pacchia also acknowledges that a series of

secondary offerings and block trades by Vivendi (Atkins alternative 2) would have

benefitted the public stockholders.103 The fact that Activision could not have

100 POB at 52; Friedlander Aff. ¶ 28(4). 101 POB at 51-52; Friedlander Aff. ¶ 28. 102 Expert Report of J.T. Atkins, dated Aug. 29, 2014 (Friedlander Aff. Ex. 8), at 7-

11, 29-32, 34-37; Plaintiff’s Reply at 3, 16-17; 10/13/14 Tr. at 4-5. 103 POB at 35.

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pursued two alternatives simultaneously does not mean the Court would consider

only one form of alternative in determining damages.104

Pacchia’s claim that a rights offering at a discount to market “was untenable

to Vivendi, given Capron’s expressed concern about liability under French law for

offering shares to specific investors at a discount (Capron 40)”105 illustrates nicely

that he and his counsel are fabricating excuses for giving the stockholders nothing.

First, Atkins proposed that Activision buy the shares from Vivendi and that

Activision, not Vivendi, conduct a rights offering to sell the shares to its existing

stockholders.106 Second, Capron was referring to the risk under French law of

“selling shares to Mr. Kotick and Mr. Kelly in their investment vehicle at below

market price.”107 Third, Capron testified over a month before Atkins submitted his

report. Atkins listed Capron’s deposition transcript as one of the materials he

reviewed in preparing his report but did not mention or even cite Capron’s

testimony on French law. Likewise, defendants’ experts Fischel and Cornell did

not mention or cite Capron’s testimony on French law in their rebuttal report as an

execution or pricing risk of a rights offering. Thus, the experts did not believe that

104 See POB at 38. 105 Friedlander Aff. 28(2)(e). 106 Atkins Report, at 8 (Friedlander Aff. Ex. 8). 107 Compendium of Deposition Excerpts Cited in Plaintiff’s Opening Brief, Tab B

at 39-40 (Trans. I.D. 56761583).

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Capron’s passing mention of French law in testimony about risks of Vivendi

selling stock to Kelly and Kotick at a discount demonstrated a rights offering by

Activision was infeasible.

Pacchia’s other excuses are also unpersuasive. Of course no one proposed a

rights offering108 -- because, as Pacchia alleged, Kelly and Kotick foreclosed

alternatives that did not serve their self-interest. As for “precedents for a rights

offering,”109 it is a fairly common, not very exotic, transaction. Given how long it

took to accomplish the challenged Transaction, Pacchia’s assertion about the

potential delay and risk of non-consummation of a rights offering110 rings hollow,

particularly because his expert opined otherwise.

Pacchia also misses the mark in contending that “an Over-The-Wall

Transaction was a far more feasible and likely alternative transaction.”111 As

Atkins recognized, the Over-The-Wall alternative was merely one method of

measuring what ASAC had taken at the stockholders’ expense.112 As the cases

discussed above illustrate, a claim of value expropriation does not require proving

that the shares the fiduciary improperly received or additional cash that might have

108 Friedlander Aff. ¶ 28(2)(b); POB at 51. 109 Friedlander Aff. ¶ 28(2)(c); POB at 51. 110 Friedlander Aff. ¶ 28(2)(d); POB at 51. 111 Friedlander Aff. ¶ 28(2); POB at 51. 112 Atkins Report, at 7-8, 34-37 (Friedlander Aff. Ex. 8).

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been received by the corporation in the transaction would have gone directly to the

stockholders in some alternative transaction.

As Pacchia acknowledges (POB at 38), Professor Fischel’s rebuttal report

attacked each of the four alternatives put forward by Atkins. Indeed, Fischel’s

criticisms of the Over-The-Wall alternative (¶¶ 10, 14-15, 19-25, 26-30, 31, 33-

34), hybrid alternative (¶¶ 10, 15, 19-25, 31, 33-34) and secondary offering (¶¶ 5-

8) were far more extensive than his challenge to a rights offering (¶¶ 14, 32-34).113

Professor Cornell’s rebuttal report challenged whether Activision incurring $500

million in additional debt for using an Over-The-Wall, hybrid or rights offerings

alternatives would create increased value.114 The rebuttals of Fischel and Cornell

were standard fare setting up a battle of experts, not some withering critique that

laid to waste Atkins’ rights offering or other alternatives.

3. The $275 Million Cash Payment to Activision Is Not a

Benefit to the Damages Class

The Notice of Settlement (p. 2) admits that Class members will not receive

any funds from the Settlement. The Company, not the class of public stockholders

injured by the Transaction, will receive approximately $202.5 million (net of the

113 The Fischel Rebuttal Report is Friedlander Aff. Ex. 32. 114 POB at 39; Friedlander Aff. Ex. 35.

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attorneys’ fees, expenses, awards and settlement costs) from the Settlement. Thus,

the recovery is derivative, not direct.

A purported indirect benefit for stockholders is also derivative because it

would be shared by all current stockholders, including ASAC and other defendants

who are not in the Class and stockholders who did not hold at the time of the

Transaction. Indeed, Pacchia has stated that ASAC and Vivendi would not agree

to any allocation of consideration to the Class “given their stock holdings in

Activision.”115 The statements of ASAC’s counsel during the February 2, 2015

teleconference confirm this. Thus, it is admitted that ASAC required that all the

consideration go to Activision, and none to the Class.

Other factors also make it clear that no consideration is directed to the

damages class. The current public stockholders of Activision include many who

are not holders of Class Shares, including the 41,499,688 shares Vivendi sold at

$20.54 per share in May 2014 and the 30 million new shares Activision has issued

since July 25, 2013. In addition, the “Class” includes current stockholders who

purchased after the Transaction was completed and who could not have suffered

damages from transactions that occurred before they became stockholders.

Stockholders who actually held during the pendency of the Transaction, but have

115 Jan. 24, 2015 Letter of Joel Friedlander at 3, Juray Aff. Ex. E.

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sold since then will get no benefit from the Settlement. In short, the attempt to

dress up the derivative monetary consideration as consideration to the Class

completely fails.

For the public stockholders of Activision at the time of the Transaction, the

Hayes settlement would have delivered far greater value than Pacchia’s proposed

derivative Settlement. In the Hayes settlement, the stockholders would have

received directly, and a year earlier, $85 million net in cash and stock.116 In

Pacchia’s Settlement, they get nothing. The $275 million is to be paid to

Activision and will be reduced to $202.5 million if Pacchia’s fee application is

granted. Activision is more than 30% owned by defendants, and given Vivendi’s

sale of over 41 million shares to the public in May 2014 and Activision’s issuance

of additional shares since October 11, 2013, it would appear that close to another

10% of Activision’s currently outstanding stock is not comprised of “Class

Shares.” Moreover, there has been a large turnover of Activision shares in the

market, so many current stockholders did not own their stock between July 25 and

October 11, 2013. In short, any potential indirect benefit from Activision’s receipt

of $275 million that will be controlled by defendants is not only speculative, but

116 The market price of Activision’s stock has risen from $16.92 on October 11,

2013 to $22.94 on February 12, 2015, a 35.5% increase.

52 576889



will primarily be realized by defendants and post-October 11, 2013 purchasers, not

the public stockholders who sustained damages as a result of the Transaction.

Pacchia’s suggestion that the announcement of the Settlement caused the

market price of Activision’s stock to increase (POB at 43 n.4) is not factually or

financially credible. In addition to the Settlement announcement, Activision issued

a press release on World of Warcraft on November 19, 2014 and three press

releases on November 20, 2014, including one announcing that Call of Duty had

topped $10 billion in sales. It was these business developments, not the Settlement

announcement, that drove any price increase on November 20. Indeed, given that

Activision had 719,030,007 shares outstanding, it is absurd to believe that

Activision’s potential receipt of $275 million at some indeterminate time in the

future, caused a $1,107,306.21 ($1.54 per share) increase in Activision’s stock.

Moreover, the purported Settlement-related market price increase would apply to

all stockholders, including defendants and others who do not hold Class Shares

and/or were not holders during the pendency of the Transaction.

4. The Marginal Governance Benefits Do Not Benefit the

Damages Class

The addition of two purportedly independent directors selected by the

existing directors and the reduction in ASAC’s voting power are marginal

derivative governance benefits, not benefits to holders of Class Shares, particularly

53 576889



those who held during the pendency of the Transaction. Moreover, because the

current public investors hold 69% of Activision, they already have the practical

power to elect new directors.

The modest reduction in ASAC’s voting power is not a significant benefit,

particularly given that investors in ASAC, such as FMR (8.55%), Leonard Green

(with whom director Nolan is affiliated) and others, own substantial amounts of

Activision stock on their own. Similarly, a board consisting of (i) Kelly and

Kotick; (ii) three other director defendants (Corti, Sarnoff and Morgado); and (iii)

a Kotick friend (Wynn) and ASAC investor affiliate (Nolan), provides little

governance protection even assuming the two new directors selected by these

board members are independent.

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IV. THE FEE REQUEST IS EXCESSIVE AND THE PACCHIA AWARD

SHOULD BE DENIED

A. The Fee Request Is Excessive

By structuring a Settlement where all funds go to the Company, Pacchia and

his counsel can claim fees based on the amount received by Activision, though

defendants own a substantial part of the Company. Indeed, Paccia and his counsel

are seeking $72.5 million in fees, expenses and awards, representing approximately

26.4% of the Settlement amount, while the Class of stockholders they purport to

represent will receive nothing.

At the October 13, 2014 hearing on class certification, the Court observed

that a derivative recovery could result in more fees for plaintiff’s counsel than a

recovery for the Class.117 Apparently, Pacchia took that observation to heart,

quickly abandoned the class damages claim and decided to maximize fees by

structuring the Settlement as a derivative recovery where the defendants control the

proceeds. Of course, for Pacchia, the lack of a class recovery and having all the

Settlement money controlled by defendants was acceptable, as long as he can get

117 10/13/14 Tr. at 53-55.

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$50,000 personally, a $20.23 per-share recovery that is far larger than he could get

in any feasible class recovery.118

B. Southern Peru Does Not Support the 26.4% Fee Request

Pacchia’s counsel attempts to justify their $72.5 million derivative fee

request based on Southern Peru. Southern Peru was a derivative judgment in

favor of the company.119 Unlike the present case, there was no derivative

settlement that purported to release class claims asserted on behalf of a certified

class. Because the Court entered a derivative judgment, plaintiff’s counsel had no

ability to structure the recovery in a way that directly benefited the public

stockholders. In contrast, the Court recognized at the October 13, 2014 hearing

that structuring a recovery as a payment to Activision could result in a bigger fee

for Pacchia’s counsel.

The less than diligent representation of the Class by Pacchia’s counsel

should be considered in ruling on the fee request in this case. Indeed, rather than

awarding the full amount of the request to Pacchia’s counsel, the Court should

reallocate a substantial portion of the proposed fee to the benefit of the public

stockholders of Activision during the pendency of the Transaction.

118 A $20.23 per-share class recovery would require a settlement or judgment that

would dwarf the $2 billion recovery in Americas Mining Corp. v. Theriault, 51

A.3d 1213 (Del. 2012) (“Southern Peru”). 119 Id. at 1218.

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In Southern Peru, the Court awarded a fee of only 15% in a very difficult

case that was won after trial and appeal.120 A 15% fee in this case, which did not

go to trial and resulted in no recovery on the class damages claim, would be $41.25

million, not the $72.5 million Pacchia and his counsel request. A $41.25 million

fee is no mere bagatelle.121

During the telephone conference with Hayes’ counsel, counsel for ASAC,

Kelly and Kotick rejected a reallocation of some Settlement consideration to the

Class because it would result in a dollar-for-dollar reduction in the amount

Activision would receive. However, a reallocation to the Class funded by a

reduction of the fees awarded to Pacchia’s counsel would not result in any

reduction of the $202.5 million net amount Activision would receive. For

example, if the Court awarded Pacchia a 15% fee ($41.25 million), $31.25 million

could be reallocated to the Class and Activision would still receive the $202.5

million net the Settlement contemplates.

C. Pacchia’s $50,000 Award

A $50,000 award to Mr. Pacchia represents $20.23 for each of the few

Activision shares he did not sell into the market after announcement of the

Transaction. Meanwhile, the other public holders during the pendency of the

120 Id. 121 Sanders v. Wang, 1999 WL 1044880, at *7 (Del. Ch. Nov. 8, 1999).

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Transaction will receive nothing. The structure of the Settlement and Pacchia’s

request for a large personal benefit seem to confirm defendants’ assertions that

Pacchia, a seller of both Activision and Vivendi shares, is not an adequate class

representative.

In Strategic Asset Mgmt. v. Nicholson, Inc., the Court rejected plaintiff’s

request for a special award of 75,000 warrants, which had a market value of $3.60

per share.122 The warrants were purported compensation for $12,000 in overhead

costs and $84,800 in time. The Court noted that such special awards only occur in

unique circumstances where the record demonstrates such an award is proper.123

The Court cautioned:

Awards to representative plaintiffs carry the risk that

these plaintiffs have used their status to obtain additional

personal benefits at the expense of the other

shareholders--additional benefits made possible with the

leverage acquired as the representative plaintiffs.124

Paragraph 4.3 of the Settlement Agreement recites that Pacchia’s $50,000

award is for “what [Pacchia’s counsel] characterize[s] as his services over and

above the customary responsibilities of a derivative and class representative.” The

Settlement Agreement does not describe what those supposed services were. The

122 2004 WL 1192088, at *2 (Del. Ch. May 20, 2004). 123 Id. 124 Id.

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Notice of Settlement (¶ 38) does not give any reason for Pacchia to receive a

“special award” of $50,000.

While the Settlement Agreement claims Pacchia is seeking the extraordinary

award for “his services over and above the customary responsibilities of a

derivative and class representative,” the January 24, 2015 letter of his counsel and

Pacchia’s own affidavit prove otherwise. That letter says Pacchia “is seeking

payment on account of the time and effort he devoted on behalf of Activision and

the class.”125 The activities Mr. Pacchia says support his award are:

In particular, in addition to meeting with our expert,

reviewing court papers, producing documents, preparing

for his deposition, and conferring regularly with counsel,

Mr. Pacchia attended a full day mediation in Newport

Beach, California (which required two additional travel

days), a full day mediation in New York, a full day

deposition, and the leadership and class certification

hearings in Delaware.126

The Affidavit Pacchia submitted in support of his award confirms he is

seeking compensation for ordinary activities of a representative plaintiff – in

violation of the Settlement Agreement.127

In short, Pacchia has admitted he is seeking compensation for the customary

responsibilities of a derivative and class representative (i.e., reviewing filings,

125 January 24, 2015 Letter of Joel Friedlander, at 5, Juray Aff. Ex. E. 126 Id. 127 Pacchia Aff. ¶¶ 8, 10.

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providing discovery, conferring with counsel and attending mediations and

hearings).

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CONCLUSION

For the reasons stated above, the Court should not approve the Settlement

unless there is a reallocation of consideration. The parties should be required to fix

the Class definition and Notice problems before any settlement is approved. Any

fee award should be reasonable, and Pacchia should not get a special award. If the

litigation proceeds, Pacchia and his counsel should be removed as Class Plaintiff

and Class counsel.

OF COUNSEL:

KESSLER TOPAZ MELTZER

& CHECK, LLP

Marc A. Topaz

Lee D. Rudy

Eric L. Zagar

280 King of Prussia Road

Radnor, Pennsylvania 19087

(610) 667-7706



By: /s/ Michael Hanrahan





1310 N. King Street


(302) 888-6500


576889



CERTIFICATE OF SERVICE

I, Michael Hanrahan, do hereby certify that on this 20th day of February

2015, I caused a copy of the foregoing Brief of Plaintiff Douglas M. Hayes in

Support of His Objection to Settlement and Application for Fees, Expenses

and Special Award to be filed and served via LexisNexis File & ServeXpress

upon the following counsel of record:

Edward P. Welch, Esquire

Edward B. Micheletti, Esquire

Sarah Runnells Martin

Lori W. Will, Esquire

Skadden Arps Slate Meagher

& Flom LLP

One Rodney Square

Wilmington, Delaware 19899-0636

Collins J. Seitz, Jr., Esquire

Garrett B. Moritz, Esquire

Eric D. Selden, Esquire

Seitz Ross Aronstam & Moritz LLP

100 S. West Street, Suite 400


Raymond J. DiCamillo, Esquire

Scott W. Perkins, Esquire

Richards, Layton & Finger, P.A.

920 N. King Street


R. Judson Scaggs, Jr., Esquire

Shannon E. German, Esquire

Morris Nichols Arsht & Tunnell

1201 N. Market Street


Joel Friedlander, Esquire

Jeffrey M. Gorris, Esquire

Friedlander & Gorris, P.A.

222 Delaware Avenue, Suite 1400


Jessica Zeldin, Esquire

Rosenthal, Monhait & Goddess, P.A.

919 N. Market Street, Suite 1401


/s/ Michael Hanrahan

Michael Hanrahan

(Del. Bar I.D. #941)

Documents

BRIEF OF PLAINTIFF DOUGLAS M. HAYES IN SUPPORT OF …blogs.reuters.com/alison-frankel/files/2015/03/activision-hayesobjection.pdfPlaintiff Douglas M. Hayes (“Hayes”) objects to