Upload
others
View
1
Download
0
Embed Size (px)
Citation preview
IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE IN RE: ACTIVISION BLIZZARD, INC. ) Cons. C.A. No. 8885-VCL STOCKHOLDER LITIGATION ) REDACTED, PUBLIC VERSION
LEAD PLAINTIFF’S REPLY BRIEF IN FURTHER
SUPPORT OF APPROVAL OF THE SETTLEMENT, RECERTIFICATION OF THE CLASS, APPROVAL
OF THE FEE APPLICATION, AND APPROVAL OF THE SPECIAL AWARD TO LEAD PLAINTIFF
Joel Friedlander (#3163) Jeffrey M. Gorris (#5012) FRIEDLANDER & GORRIS, P.A. 222 Delaware Avenue, Suite 1400 Wilmington, Delaware 19801 (302) 573-3500 Co-Lead Counsel
OF COUNSEL: Lawrence P. Eagel Jeffrey H. Squire BRAGAR EAGEL & SQUIRE, PC 885 Third Avenue, Suite 3040 New York, New York 10022 (212) 308-5858 Co-Lead Counsel DATED: February 25, 2015
Jessica Zeldin (#3558) ROSENTHAL, MONHAIT & GODDESS, P.A. 919 Market Street, Suite 1401 Wilmington, Delaware 19801 (302) 656-4433 Delaware Liaison Counsel
REDACTED, PUBLIC VERSION: February 27, 2015
EFiled: Feb 27 2015 11:43AM EST Transaction ID 56838590
Case No. 8885-VCL
In re Activision Blizzard, Inc. Stockholder Litigation
C.A. No. 8885-VCL (consol.), red. pl. reply br. (Del. Ch. Feb. 27, 2015)
www.chancerydaily.com
TABLE OF CONTENTS
PAGE TABLE OF AUTHORITIES .................................................................................... ii PRELIMINARY STATEMENT ............................................................................... 1 ARGUMENT ............................................................................................................. 7 I. HAYES’S ARGUMENTS ARE FOUNDED ON THE FALSE
PREMISE THAT A “DAMAGES CLASS” POSSESSES VALUABLE CLAIMS .................................................................................... 7
A. An Appropriate Class Was Certified ...................................................10
B. Notice Was More Than Adequate .......................................................11
C. Former Stockholders Do Not Possess a Valuable
Class Damages Claim ..........................................................................13
D. There Is No Basis to “Reallocate” a Portion of the Fee Request to the Class ......................................................................22
E. Lead Plaintiff’s Request for a Special Award Is Not
an Indicia of Inadequacy of Representation ........................................24 II. COUNSEL FOR PFEIFFER AND BENSTON ARE
NOT ENTITLED TO SHARE IN A FEE AWARD .....................................25 CONCLUSION ........................................................................................................27
In re Activision Blizzard, Inc. Stockholder Litigation
C.A. No. 8885-VCL (consol.), red. pl. reply br. (Del. Ch. Feb. 27, 2015)
www.chancerydaily.com
TABLE OF AUTHORITIES
CASE PAGE(s)
Allapattah Servs., Inc. v. Exxon Corp., 2006 WL 1132371 (S.D. Fla. Apr. 7, 2006) ........................................................... 4 Americas Mining Corp. v. Theriault,
51 A.3d 1213 (Del. 2012) .....................................................................................23 Brophy v. Cities Service Co.,
70 A.2d 5 (Del. Ch. 1949) ............................................................................. 25, 26 Carsanaro v. Bloodhound Techs., Inc.,
65 A.3d 618 (Del. Ch. 2013) ................................................................................17 Forsythe v. ESC Fund Mgmt. Co. (U.S.),
2012 WL 1655538 (Del. Ch. May 9, 2012) .....................................................3, 24 Geller v. Tabas,
462 A.2d 1078 (Del. 1983) ...............................................................................3, 12 Gentile v. Rossette,
906 A.2d 91 (Del. 2006) .......................................................................................17 In re Amsted Indus., Inc. Litig.,
521 A.2d 1104 (Del. Ch. 1986) .............................................................................. 3 In re Celera Corp. S’holders Litig.,
59 A.3d 418 (Del. 2012) .......................................................................................11 In re Checking Account Overdraft Litig.,
2012 WL 456691 (S.D. Fla. Feb. 14, 2012) .......................................................3, 4 In re Loral Space & Commc’ns Inc.,
2008 WL 4293781(Del. Ch. Sept. 19, 2008), aff’d, 977 A.2d 867 (Del. 2009) ...........................................................................18
In re Phila. Stock Exch. Inc.,
945 A.2d 1123 (Del. 2008) ............................................................................ 11, 14
In re Activision Blizzard, Inc. Stockholder Litigation
C.A. No. 8885-VCL (consol.), red. pl. reply br. (Del. Ch. Feb. 27, 2015)
www.chancerydaily.com
In re TD Banknorth S’holders Litig.,
938 A.2d 654 (Del. Ch. 2007) ..............................................................................12 In re Triarc Cos., Inc. Class and Deriv. Litig.,
791 A.2d 872 (Del. Ch. 2001) ..............................................................................14 Linton v. Everett,
1997 WL 441189 (Del. Ch. July 31, 1997) ..........................................................18 Parnes v. Bally Entm’t Corp.,
722 A.2d 1243 (Del. 1999) ............................................................................ 16, 17 Schultz v. Ginsburg,
965 A.2d 661 (Del. 2009) .....................................................................................19 Smith, Katzenstein & Jenkins LLP v. Fidelity Mgmt. & Research Co.,
2014 WL 1599935 (Del. Ch. Apr. 16, 2014) ................................................ 25, 26 Strategic Asset Mgmt. v. Nicholson, Inc.,
2004 WL 1192088 (Del. Ch. May 20, 2004) .......................................................25
RULES Ct. Ch. R. 23(e) ........................................................................................................12
In re Activision Blizzard, Inc. Stockholder Litigation
C.A. No. 8885-VCL (consol.), red. pl. reply br. (Del. Ch. Feb. 27, 2015)
www.chancerydaily.com
PRELIMINARY STATEMENT
The universe of potential objectors to the proposed settlement of this class
and derivative litigation was large and well-informed. Activision is a market-
leading company with 720 million shares outstanding and a market capitalization
of over $16 billion.1 The public announcement over three months ago of the basic
terms of the proposed settlement was national news.2 ASAC promptly filed with
the SEC an amended Schedule 13D setting forth those basic terms.3 Soon
thereafter, the monetary portion of the proposed settlement was ranked as the
largest cash derivative settlement in history.4 Two months ago, Activision filed a
Form 8-K summarizing and attaching the settlement stipulation and notice.5
Activision has been prominently featuring the settlement stipulation and notice on
the “Investor Relations” tab of its website.6 Additionally, Activision caused
180,000 notices to be mailed by a settlement administrator to class members.7
1 https://finance.yahoo.com/q/ks?s=ATVI+Key+Statistics 2 http://www.bloomberg.com/news/articles/2014-11-19/activision-directors-agree-to-275-million-buyout-accord; http://blogs.wsj.com/law/2014/11/19/vivendi-others-to-pay-275-million-to-settle-activision-shareholder-litigation/ 3 http://investor.activision.com/secfiling.cfm?filingID=1193125-14-419977 4 http://www.dandodiary.com/2014/12/articles/shareholders-derivative-litigation/largest-derivative-lawsuit-settlements/ 5 http://yahoo.brand.edgar-online.com/displayfilinginfo.aspx?FilingID=10381832-1142-10371&type=sect&TabIndex=2&dcn=0001104659-14-089153&nav=1&src=Yahoo 6 http://investor.activision.com/ 7 (MacDonald Aff. ¶ 6.)
In re Activision Blizzard, Inc. Stockholder Litigation
C.A. No. 8885-VCL (consol.), red. pl. reply br. (Del. Ch. Feb. 27, 2015)
www.chancerydaily.com
Any class member or stockholder inclined to do so could have signed a
confidentiality stipulation and obtained access to the document productions and
deposition transcripts. Any objector could have submitted a supporting expert
report. No one did any of these things.
Only three objections have been filed, each of them by disappointed
litigants. Plaintiff Douglas M. Hayes, who sought to be named lead plaintiff, is the
sole objector to the proposed settlement. Hayes does not argue that he could have
extracted more wealth or non-monetary benefits from defendants than did counsel
for Lead Plaintiff Anthony Pacchia (“Lead Plaintiff’s Counsel”). Hayes aims to
deny Activision and its stockholders the extraordinary benefits of the proposed
settlement by attacking the integrity of Lead Plaintiff and Lead Plaintiff’s Counsel
for not allocating any settlement consideration to former stockholders. Virtually
any class settlement could be attacked on that ground (including the lesser
settlement Hayes proposed in 2013).
Our opening brief explained why the monetary claims on behalf of
Activision are very strong and the theoretical damage claims on behalf of former
stockholders (or their successors) are extraordinarily weak. Nevertheless, Hayes
asserts that continuous holders throughout the pendency of the Transaction own
damages claims of “the same strength” as does Activision itself and that Lead
In re Activision Blizzard, Inc. Stockholder Litigation
C.A. No. 8885-VCL (consol.), red. pl. reply br. (Del. Ch. Feb. 27, 2015)
www.chancerydaily.com
Plaintiff’s Counsel is “fabricating excuses for giving the stockholders nothing.”
(Hayes Br. at 43, 47.)
Hayes provides no supporting analysis. Hayes could have dissected the
factual record contained in the Court papers, such as the banker books attached to
our pleadings or the fact discovery cited in the Atkins report, obtained objector
discovery, and proffered his own expert report. Instead, he asks the Court, “[a]t a
minimum … [to] permit discovery and hold an evidentiary hearing before
approving the Settlement.” (Hayes Br. at 5.) The law is to the contrary. See
Geller v. Tabas, 462 A.2d 1078, 1081 (Del. 1983) (“Given the extensive record …,
Objectors’ failure to demonstrate due diligence before hearing and a need for
further discovery, as well as the Court’s familiarity with the record, we find no
error in his refusal to hold an evidentiary hearing.”); In re Amsted Indus., Inc.
Litig., 521 A.2d 1104, 1109 (Del. Ch. 1986) (discussing availability of objector
discovery upon “timely application”) (Allen, C.). Any delay created by Hayes’s
pursuit of his objection would immobilize a large settlement fund that can be put to
better use.8
8 If the Court were to indulge Hayes’s request to delay consideration of the settlement, Hayes should be required to post a bond for the cost to Activision of each month that the prospective net settlement fund is immobilized. That would “force [Hayes] and [his] counsel to internalize the downside of not taking the proposal currently on the table.” Forsythe v. ESC Fund Mgmt. Co. (U.S.), 2012 WL 1655538, at *7 (Del. Ch. May 9, 2012). Cf. In re Checking Account Overdraft Litig., 2012 WL 456691, at *3 (S.D. Fla. Feb. 14, 2012) (requiring objector to post
In re Activision Blizzard, Inc. Stockholder Litigation
C.A. No. 8885-VCL (consol.), red. pl. reply br. (Del. Ch. Feb. 27, 2015)
www.chancerydaily.com
Plaintiff Mark S. Benston, who sought to be named Co-Lead Plaintiff, and
Milton Pfeiffer, a holder of two shares who filed a Section 220 action and then
declined to audition for a lead role, do not object to the proposed settlement or to
the fee request. Instead, they ask the Court to award their counsel 10% of the
requested fee award, based on (i) Pfeiffer’s unwillingness to join Hayes’s proposed
settlement (unless his lawyers were allocated 20% of the attorney’s fees) and (ii)
the supposed value of an insider trading claim that Benston unsuccessfully sought
to assert in this action. Pfeiffer and Benston speculate that their counsel’s conduct
caused defendants not to sign the Hayes settlement – a dubious proposition far
attenuated from the legal work by Lead Plaintiff’s Counsel that brought about the
benefits of the proposed settlement. When Benston applied to become a Co-Lead
Plaintiff, we explained to the Court that his insider trading claim was meritless, and
the Court denied his application. Since the insider trading claim was never
litigated and had no prospect of being litigated, it stands to reason that the
settlement consideration does not implicitly attribute any value to it.
appeal bond representing two years’ compounded interest on net settlement fund); Allapattah Servs., Inc. v. Exxon Corp., 2006 WL 1132371, at *18 (S.D. Fla. Apr. 7, 2006) (requiring objector to post $13.5 million appeal bond “to cover the damages, costs and interest that the entire class will lose as a result of the appeal”). Using Activision’s 8.9% WACC as calculated by Centerview, the per month cost to Activision of delaying use of a net settlement fund of at least $202.5 million is at least $1.5 million. (Ex. A hereto.)
In re Activision Blizzard, Inc. Stockholder Litigation
C.A. No. 8885-VCL (consol.), red. pl. reply br. (Del. Ch. Feb. 27, 2015)
www.chancerydaily.com
The ASAC Defendants and the Vivendi Defendants have joined forces for
the purported purpose of advocating against Pacchia receiving $50,000 of the fee
award – even though they lack a financial incentive to spend money on that
objective or to rehash their previously rejected argument that Pacchia’s deposition
testimony is not credible. ASAC and Vivendi, as significant Activision
stockholders, do have a strong financial interest in seeing the fee award reduced,
since any differential would go to Activision. But the ASAC Defendants and the
Vivendi Defendants agreed not to “object to or otherwise take any position on” the
negotiated $72.5 million fee application. (Settlement Stip. § 4.1.) In light of their
contractual commitment, it is actionable that they oppose a special award to
Pacchia on the ground that he did not make “any effort to limit the $72.5 million
fee.” (ASAC/Viv. Obj. ¶ 17.) The ASAC Defendants and the Vivendi Defendants
go so far as to misleadingly characterize the negotiated fee application as
“approximately 40% of the ‘public stockholder’ net benefit of the settlement.”
(Id.) In fact, it represents 26.4% of the monetary benefit to Activision, and a lesser
percentage of the total value of the proposed settlement.
The great value of the proposed settlement and the weaknesses of the
objections vindicate the Court’s prior rulings on leadership. Lead Plaintiff’s
Counsel diligently and effectively pursued the right legal theories. Because we
pursued the right theories, we were able to maximize the benefits for Activision
In re Activision Blizzard, Inc. Stockholder Litigation
C.A. No. 8885-VCL (consol.), red. pl. reply br. (Del. Ch. Feb. 27, 2015)
www.chancerydaily.com
and all of its stockholders, including important governance protections for the non-
ASAC stockholders.9
The disappointed litigants who advocated other theories and pursued other
deals make no cogent argument to block the proposed settlement, certify a different
class, appoint a new class representative, reduce or share in the fee award, or block
a special award to Pacchia, who devoted an unusual amount of time discharging
his responsibilities in this large and complex case.
9 Hayes owns stock in Activision but casually refers to the post-Settlement Board of Directors as a band of looters. (See Hayes Br. at 22-24 (“[I]t would not be surprising if some of the proceeds Activision receives in the Settlement end up in the directors’ pockets…. The Settlement may have put a few more chickens in the hen house, but the same foxes will be guarding it and they may be taking more chickens and more eggs for themselves.”)) BKBK operate a highly profitable company. The three Special Committee Defendants put together an accretive transaction in the face of threats from Vivendi and Kotick. Nolan and Wynn are not alleged to have committed any wrongs. The addition of two new directors independent of and unaffiliated with ASAC and BKBK allows for the creation of a majority independent board that can be presumed to act as effective stewards of the corporate treasury and a check on potential conflicts with ASAC, whose influence is further mitigated by the reduced voting power of BKBK. ASAC and its investors remain bound by the standstill provisions in ASAC’s Stockholders Agreement with Activision. Additionally, Hayes overstates the current voting power of Fidelity and incorrectly states that LGP owns Activision stock apart from its interest in ASAC. (Hayes Br. at 53.)
In re Activision Blizzard, Inc. Stockholder Litigation
C.A. No. 8885-VCL (consol.), red. pl. reply br. (Del. Ch. Feb. 27, 2015)
www.chancerydaily.com
ARGUMENT
I. HAYES’S ARGUMENTS ARE FOUNDED ON THE FALSE PREMISE THAT A “DAMAGES CLASS” POSSESSES VALUABLE CLAIMS Hayes attacks the certification of the class, the settlement notice, the
substance of the settlement, the fee request, and the application of a special award
to Lead Plaintiff. All of these arguments share a common theme. According to
Hayes, there is a valuable “class damages claim” belonging to “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).” (Hayes Br. at 27.) Continuous holders during that 10-week
period supposedly own a claim as valuable as the claims belonging to Activision
itself (or the current public stockholders). That assumption enables Hayes to sneer
at settlement consideration far more valuable than what he ever hoped to obtain.
As discussed below, Hayes cites no law creating special rights for
continuous holders during the pendency of a challenged transaction. He cites no
case factually analogous to the challenged Transaction. He makes no serious effort
to engage the rich discovery record. He does not explain why one possible
permutation of a hypothetical alternative transaction compels the allocation of “at
least $100 million” to his proposed class. (Hayes Br. at 5.) Hayes barely looks
beyond pleaded publicly available facts about the terms of the challenged
In re Activision Blizzard, Inc. Stockholder Litigation
C.A. No. 8885-VCL (consol.), red. pl. reply br. (Del. Ch. Feb. 27, 2015)
www.chancerydaily.com
Transaction and he makes abstract arguments about why direct and derivative
claims and remedies and measures of damages are somehow equivalent. He does
not explain why the Court would potentially award a fortune to a particular subset
of class members in lieu of or in addition to other potential remedies.
At the outset of the case, Hayes advanced the theory that holders during the
pendency of the Transaction were harmed because defendants improperly
“excluded” public stockholders from a supposed opportunity to buy Activision
common stock at a favorable price. (Hayes Am. Compl. ¶¶ 82, 128, 129, 146; see
Hayes Br. at 3 (“while denying the public stockholders a similar opportunity”); id.
at 39 (“to the detriment and exclusion of Activision’s public stockholders”).) Lead
Plaintiff’s Counsel never adopted that theory. Hayes himself appears to recognize
that there is no such thing as a “stockholder opportunity” claim. (See Hayes Br. at
45 (“Pacchia’s assertion that the public stockholders did not have ‘a right to be
included in a particular form of alternative transaction’ misses the point.”).)
Lead Plaintiff contended that certain potential alternative transactions were
superior to allowing ASAC to buy shares at $13.60 per share. Any alternative
transaction structure that allowed Activision to repurchase additional shares from
Vivendi at $13.60 per share (or buy shares at that price and immediately re-sell
them to third parties at a higher price) would be financially advantageous to
Activision itself. Secondary offerings and block trades by Vivendi would be
In re Activision Blizzard, Inc. Stockholder Litigation
C.A. No. 8885-VCL (consol.), red. pl. reply br. (Del. Ch. Feb. 27, 2015)
www.chancerydaily.com
advantageous to public stockholders from a governance perspective, because they
would widely disperse the ownership of Vivendi’s control stake.
A particular permutation in Atkins’ expert report – a rights offering at a
discounted price – would create an immediate gain for the right holder who bought
shares at a discount. We featured that permutation at the class certification stage.
(See Hayes Br. at 17-18 (quoting oral argument).) But if, for example, a rights
offering was not priced at a discount, the gain would flow to Activision, not the
right holder. The other manner in which Atkins referred to damages to public
shareholders was the argued-for positive stock price effect from Activision
incurring $500 million in additional debt to repurchase shares. (Friedlander Aff.
Ex. 8 at 35-37 & Ex. C at 57.) Professor Cornell’s expert report was devoted to
attacking that claimed form of damages. Moreover, any increase in stockholder
wealth from a larger repurchase of stock by Activision at a favorable price is
derivative in nature.
The monetary claims belonging to Activision were far stronger than any
monetary claims belonging to any stockholders. Lead Plaintiff Counsel’s task was
to build a case that it was feasible for Activision to obtain the benefits of
eliminating Vivendi’s stake without any need for BKBK to personally invest $100
million and raise outside capital through ASAC. We believe we developed a
strong case for the feasibility of the Over-the-Wall Transaction, which could also
In re Activision Blizzard, Inc. Stockholder Litigation
C.A. No. 8885-VCL (consol.), red. pl. reply br. (Del. Ch. Feb. 27, 2015)
www.chancerydaily.com
be pursued in conjunction with a secondary offering. These alternative transaction
structures would give rise to a claim by Activision for restitution against the ASAC
Defendants. Moreover, damages to Activision from not pursuing the Over-the-
Wall Transaction could be estimated in various ways, such as the effective price
paid by limited partners in ASAC, the estimated returns demanded by those
investors, estimates of Activision’s post-Transaction stock price, the actual market
price of Activision shares, and precedents from similar PIPE transactions. We did
not believe that the failure to pursue an Over-the-Wall Transaction or a secondary
offering lent itself to “class damages.” We also did not have any confidence that
we could demonstrate the feasibility of a rights offering at a discounted price.
Hayes’s fiction that continuous holders during the pendency of the
Transaction possessed a valuable damages claim taints all of his arguments.
A. An Appropriate Class Was Certified
Without citing any law, Hayes attacks the broad class definition drafted by
the Court in the Order Certifying Class of November 12, 2014. Hayes argues that
the class definition should be limited to persons “who suffered damages as a result
of the Transaction” (i.e., continuous holders during the pendency of the
Transaction) because they “were denied the opportunity to benefit from” Vivendi’s
below-market sale of shares to ASAC. (Hayes Br. at 25, 27-28.) Hayes ignores
the binding precedent presented at the class certification stage respecting the
In re Activision Blizzard, Inc. Stockholder Litigation
C.A. No. 8885-VCL (consol.), red. pl. reply br. (Del. Ch. Feb. 27, 2015)
www.chancerydaily.com
appropriateness of including buyers, sellers and continuous owners in a class. See
In re Phila. Stock Exch. Inc., 945 A.2d 1123, 1139 (Del. 2008) (noting “that it is
commonplace for a certified class to include persons who held shares as of a given
date, and their transferees, successors, and assigns”) (internal quotation omitted).
See also In re Celera Corp. S’holders Litig., 59 A.3d 418, 429 (Del. 2012) (“This
Court has approved broad definitions of a proposed class before…. This is
consistent with a number of decisions of the Court of Chancery as well.”)
(footnotes omitted).
Hayes does not offer any legal basis or practical reason for rejecting the
standard formulation of a class. Why must current or former holders in street name
be able to determine whether the particular shares they purchased are deemed class
shares? (Hayes Br. at 25-26.) Since the proposed settlement does not call for any
direct payment to class members, the distinction is unimportant.
B. Notice Was More Than Adequate
Hayes devotes more than seven pages of his brief to challenging the
adequacy of notice of a proposed settlement of historic proportion that was
national news. (Hayes Br. at 29-36.) Hayes required no notice himself, and he
timely objected. No one in the entire class joined Hayes in objecting to the
proposed settlement. The singularity of Hayes’s objection cannot be attributed to
any material deficiencies in the notice, as there were none.
In re Activision Blizzard, Inc. Stockholder Litigation
C.A. No. 8885-VCL (consol.), red. pl. reply br. (Del. Ch. Feb. 27, 2015)
www.chancerydaily.com
The sole case cited by Hayes stands for the proposition that a notice “cannot
omit fundamental information about settlement terms,” such as the actual
disclosures in a disclosure settlement, or the fact that individual defendants are
receiving the same monetary consideration as the class members. In re TD
Banknorth S’holders Litig., 938 A.2d 654, 670-71 (Del. Ch. 2007). Here, the basic
terms of the settlement were publicized in a Schedule 13D filing by ASAC on
November 20, 2014, and fuller and wider public dissemination took place upon the
finalization of the settlement a month later. See supra p. 1. There is no
requirement to mail a settlement notice to every single class member who ever
owned a share of a publicly held company. Ct. Ch. R. 23(e) (notice of settlement
of a class action may be given “by mail, publication or otherwise”).
The notice was drafted in a reader-friendly Q&A format. Any casual reader
of the notice would realize that breach of fiduciary duty claims challenging the
Transaction were being compromised for the payment of $275 million to
Activision and corporate governance changes. The law hardly requires
identification of each potential damages calculation put forward in an expert
report, many of which may not even be featured at trial. Because Hayes was
provided with the Atkins report, he “cannot be heard to say that the notice was
inadequate.” Geller, 462 A.2d at 1081.
In re Activision Blizzard, Inc. Stockholder Litigation
C.A. No. 8885-VCL (consol.), red. pl. reply br. (Del. Ch. Feb. 27, 2015)
www.chancerydaily.com
Hayes’s laches is another reason why he cannot be heard to challenge
adequacy of notice. Hayes sought to avoid the cure of any perceived notice
problems before the settlement hearing. His letters to the settling parties in
January made only oblique reference to any issue respecting notice. (Juray Aff.
Ex. D at 5; id. Ex. F at 11.) Hayes refused to specify his arguments respecting
notice during the February 2, 2015 teleconference among counsel. Hayes waited
until the last day of the objection period to surface a multitude of objections
respecting notice, as part of an effort to hold up Court approval of the Settlement.
C. Former Stockholders Do Not Possess a Valuable Class Damages Claim
Hayes casts himself as the champion of damaged class members who are
receiving “no meaningful consideration” for their damage claims. (Hayes Br. at
38.) His “no consideration” mantra requires Hayes to ignore the valuable benefits
flowing to stockholders of Activision shares upon the consummation of the
settlement: control-transferring corporate governance changes and an indirect, pro-
rata interest in the $275 million derivative recovery. The market value of those
benefits began accruing to stockholders upon the public announcement of the
proposed settlement. The only class members who are receiving “no
consideration” from the proposed settlement are those former stockholders who
sold their shares on or before November 19, 2014.
In re Activision Blizzard, Inc. Stockholder Litigation
C.A. No. 8885-VCL (consol.), red. pl. reply br. (Del. Ch. Feb. 27, 2015)
www.chancerydaily.com
Excluding former stockholders from a class action settlement is common. In
In re Philadelphia Stock Exchange, Inc., 945 A.2d 1123 (Del. 2008), the Delaware
Supreme Court approvingly discussed the same situation found here:
The case law supports his determination. For example, In re Triarc Cos., Inc. Class and Deriv. Litig.[, 791 A.2d 872 (Del. Ch. 2001),] involved a settlement of a shareholders class and derivative action. A person who held shares at the time of the alleged wrong but later sold those shares, objected to the settlement, which provided benefits only to the corporation. Those benefits were enjoyed indirectly by the current stockholders, but not at all by the former stockholders. The Court of Chancery held that the former stockholders could properly be bound to the settlement yet receive nothing, because where “claims are weak or of little or no probable value ... it is fair to bar those claims as part of the overall settlement.” The Court also observed that “there is nothing unfair or unreasonable about a judgment that bars [a] later assertion of an insubstantial claim....” If, as is argued, the transferees’ rights in the disputed claims are weak, the weakness of their rights will be taken into account in allocating the proceeds of the settlement, by distributing little (or possibly none) of the proceeds to them.
Id. at 1140 (footnotes omitted) (emphasis added). The Court continued in a
footnote: “It is also commonplace for the Court of Chancery to include persons
having weak claims in a settlement class, but to allocate little or none of the
proceeds to them.” Id. at 1140 n.31 (collecting cases).
Hayes himself, when he proposed a settlement in 2013, deprived former
Activision stockholders of any participation in the settlement consideration. His
MOU provided for a cash payment and stock distribution “[w]ithin thirty days
following the Effective Date” to Class members who are “holders of record … on
In re Activision Blizzard, Inc. Stockholder Litigation
C.A. No. 8885-VCL (consol.), red. pl. reply br. (Del. Ch. Feb. 27, 2015)
www.chancerydaily.com
the Effective Date.” (Juray Aff. Ex. A § 1.a.) “Effective Date” was defined as the
date when the Court of Chancery Order approving the settlement “is finally
affirmed on appeal or is no longer subject to appeal and the time to petition for
reargument, appeal, or review, by leave, writ of certiorari, or otherwise, has
expired.” (Jurray Aff. Ex. A § 3.) “Class” was defined as anyone who owned
shares “at any time” between announcement and closing of the Transaction.
(Jurray Aff. Ex. A § 4.A.)
In other words, the only class members to be paid in Hayes’s proposed
settlement were continuous owners from the date of consummation of the
Transaction through an undetermined date months later. Anyone who sold prior to
consummation of the Transaction would receive nothing. Anyone who sold during
the pendency of the settlement process also would receive nothing. Hayes does not
explain why he is now championing the cause of class members who would have
received nothing from his own proposed settlement of his own class claims.10
The reality is that former stockholders suffered no “unique harm”
compensable in damages. (Hayes Br. at 41.) Activision was harmed by BKBK
10 Hayes says the class of distributees in his proposed settlement was “carefully defined” and excluded “Vivendi, ASAC and all Activision directors.” (Hayes Br. at 9.) The proposed class was carefully defined by the defendants to include affiliates of named defendants Fidelity and Davis and to include trusts in which any person other than an individual defendant had a beneficial interest. (Juray Aff. Ex. A § 4.A.) Trusts for the benefit of family members of BKBK held over 1,600,000 Activision shares. (Juray Aff. Ex. B at 90.)
In re Activision Blizzard, Inc. Stockholder Litigation
C.A. No. 8885-VCL (consol.), red. pl. reply br. (Del. Ch. Feb. 27, 2015)
www.chancerydaily.com
having taken Activision’s relationships, resources, and information to get an
investment opportunity for ASAC on below-market terms. Activision’s fiduciaries
should have negotiated a better transaction for Activision given Activision’s role in
financing the bulk of the buyout and the opportunity posed by Vivendi’s desire to
sell its stake. Public stockholders were directly harmed by BKBK’s resultant
control, but they were only indirectly harmed by BKBK’s usurpation of
Activision’s opportunity to negotiate a better transaction for itself.
When seeking class certification Lead Plaintiff did not “forcefully argue[]”
the strength of a potential claim for damages payable to public stockholders.
(Hayes Br. at 42.) Nor did Lead Plaintiff tell the Court that a class claim was
“worth approximately $600 million.” (Id. at 43.) Rather, Lead Plaintiff’s Counsel
“posited” that a below-market rights offering was a feasible and superior
alternative transaction, and that class damages for that alternative could be as high
as $641.6 million. (Id. at 18 (quoting oral argument).) At the conclusion of the
oral argument, Lead Plaintiff’s Counsel forcefully argued in favor of the logic of a
derivative damages claim based on the Over-The-Wall Transaction alternative.
(10/13/14 Tr. at 68-69.)
Hayes cites no analogous case for why the Over-The-Wall Transaction
alternative could lead to class damages. Hayes notes Lead Plaintiff’s reliance on
Parnes v. Bally Entm’t Corp., 722 A.2d 1243 (Del. 1999), which concerned a
In re Activision Blizzard, Inc. Stockholder Litigation
C.A. No. 8885-VCL (consol.), red. pl. reply br. (Del. Ch. Feb. 27, 2015)
www.chancerydaily.com
challenge to a management-negotiated below-market side deal to a merger. (Hayes
Br. at 42-43.) A class claim existed in Parnes only because the plaintiff “directly
challenges the fairness of the process and the price in the Bally/Hilton merger.”
722 A.2d at 1245. Unlike the merger in Parnes, public stockholders in Activision
were not third-party beneficiaries of the Transaction who received any
consideration at an artificially depressed value.
It is insufficient that harm to Activision “would necessarily be felt at the
stockholder level.” (Hayes Br. at 41.) Hayes cites equity dilution cases such as
Gentile v. Rossette, 906 A.2d 91 (Del. 2006), and Carsanaro v. Bloodhound
Techs., Inc., 65 A.3d 618 (Del. Ch. 2013), but those cases involved the issuance of
new shares to a corporate insider for inadequate consideration. Public stockholders
suffered direct economic harm because the new shares “extract[] from the public
shareholders … a portion of the economic value … embodied in the minority
interest” by diluting the public stockholders’ interest in the corporation. Gentile,
906 A.2d at 100. Here, no new Activision shares were issued, and public
stockholders did not suffer dilution.
Certain cases cited by Hayes undermine his argument that a settlement must
involve a monetary payment to class members. The “stockholder level” remedy
contemplated by those cases involves “adjusting the rights of the stock or
invalidating a portion of the shares” issued at a discount. Carsanaro, 65 A.3d at
In re Activision Blizzard, Inc. Stockholder Litigation
C.A. No. 8885-VCL (consol.), red. pl. reply br. (Del. Ch. Feb. 27, 2015)
www.chancerydaily.com
657 (citing In re Loral Space & Commc’ns Inc., 2008 WL 4293781, at *32 (Del.
Ch. Sept. 19, 2008) (reforming securities purchase agreement to convert preferred
stock into non-voting common stock), aff’d, 977 A.2d 867 (Del. 2009), and Linton
v. Everett, 1997 WL 441189, at *7 (Del. Ch. July 31, 1997) (invalid[at]ing shares
that directors issued to themselves for inadequate consideration)). Here, the Court
could have reformed the Stock Purchase Agreement to remedy the economic
damage flowing from the Transaction. Lead Plaintiff could have prevailed at trial
and obtained full relief without the payment of any damages award to anyone.
The fundamental problem with Hayes’ argument is that it rests on his
incorrect assertions that the class damages claims and derivative damages claims
are “essentially the same” and they “had the same liability and damage theories”
and “had the same strength.” (Hayes Br. at 2, 43.) Derivative damages depend on
the feasibility of the Over-The-Wall Transaction. Restitution to Activision
depends largely on the feasibility of (i) the Over-The-Wall Transaction, (ii) the
secondary offering alternative, or (iii) a hybrid of those two alternatives. Class
damages rest on establishing the feasibility of a rights offering priced at a discount.
As explained on pages 51-53 of the opening brief, we thought it highly unlikely
that the Court would award class damages based on the feasibility of that particular
alternative transaction structure.
In re Activision Blizzard, Inc. Stockholder Litigation
C.A. No. 8885-VCL (consol.), red. pl. reply br. (Del. Ch. Feb. 27, 2015)
www.chancerydaily.com
Pacchia had no “conflicting interest” in supporting a settlement that
allocated proceeds solely to the derivative damages claim. (Hayes Br. at 44.) As a
continuous holder who sold shares subsequent to the announcement of the
Transaction, Pacchia stood to make more money if the settlement consideration
was allocated entirely in the manner Hayes favors. In Schultz v. Ginsburg, 965
A.2d 661 (Del. 2009), the Delaware Supreme Court held that the class
representative, “as an unbiased Continuous Stockholder,” was well situated to
propose a plan of allocation for buyers, holders and sellers based on the “varying
degrees of injury and the relative value” of the claims and “the best interests of the
class as a whole.” Id. at 668, 671. Pacchia is similarly well situated.
Hayes attacks the asserted bases for the allocation as contrived,
unconvincing, and not credible. (Hayes Br. at 45-49.) There is little substance to
Hayes’s attack. Much of it is based on the fact that Atkins’ expert report of August
29, 2014 put forward the theoretical feasibility of a backstopped rights offering
priced at $13.60 per share. Even though that alternative allowed for the highest
damages calculations, there are reasons why it is listed last among the various
alternatives.
One reason is the absence of any mention in the discovery record of a
potential rights offering to Activision stockholders. That lacuna in the record
cannot be dismissed with the argument that “Kotick and Kelly foreclosed
In re Activision Blizzard, Inc. Stockholder Litigation
C.A. No. 8885-VCL (consol.), red. pl. reply br. (Del. Ch. Feb. 27, 2015)
www.chancerydaily.com
In re Activision Blizzard, Inc. Stockholder Litigation
C.A. No. 8885-VCL (consol.), red. pl. reply br. (Del. Ch. Feb. 27, 2015)
www.chancerydaily.com
BKBK’s proposal. (Id. at 20.) A hybrid of the Over-The-Wall Transaction and a
secondary offering is a variant of what JP Morgan put forward on January 16,
2013. (Friedlander Aff. Ex. 12 at 11.)
Additionally, Atkins did not identify any multi-billion dollar domestic rights
offerings. Atkins did identify several precedents suggesting that Activision could
profitably undertake an Over-the-Wall Transaction, including a recent transaction
in which Alibaba repurchased a block of its shares from Yahoo! and resold shares
at a higher price. (Friedlander Aff. Ex. 8 Ex. C at 13-17.)
Furthermore, Vivendi was attracted to a secondary offering because it gave
Vivendi access to a wide market for its shares and avoided a scenario in which
Vivendi was selling stock to specified non-Vivendi investors at a discount.
(Capron Dep. at 40.) Kotick expressed opposition to a secondary offering on the
ground that levering Activision and allowing Vivendi to dump shares into the
market “is the worst thing we could do as a company.” (Friedlander Aff. Ex. 14 at
1.) A discounted rights offering could be seen as the worst of both worlds.
Vivendi would face criticism from its own investors for making its Activision
shares available for purchase at a discount to Activision’s stockholders rather than
its own stockholders. Activision would be exposed to the risk that a multi-billion
dollar rights offering would dampen the stock price. These factors made it difficult
to argue that a discounted-priced rights offering would be the logical outcome of a
In re Activision Blizzard, Inc. Stockholder Litigation
C.A. No. 8885-VCL (consol.), red. pl. reply br. (Del. Ch. Feb. 27, 2015)
www.chancerydaily.com
hypothetical negotiation among Activision’s fiduciaries acting loyally but at arms-
length.
In sum, the Atkins report creates no basis to question the merits of Lead
Plaintiff’s Counsel’s attribution of significant value to Activision’s claims for
damages and restitution and no value to the potential alternative of a discounted-
price rights offering on a standalone basis. We did not highlight flaws in the
discounted rights offering alternative in our own expert report. Over the eleven
weeks that passed between the delivery of Atkins’ opening report on August 29,
2014 and the agreement on basic terms of settlement on November 13, 2014, Lead
Plaintiff’s Counsel studied the opening and rebuttal reports of defendants’ experts,
served a rebuttal expert report by Atkins, took or defended the depositions of the
experts, drafted and read mediation statements, engaged in extensive mediation-
related discussions, prepared for trial, and analyzed the probabilities of what could
be obtained at trial and what could be obtained in mediation. The proposed
settlement reflects our extended diligence of a full pre-trial record.
D. There Is No Basis to “Reallocate” a Portion of the Fee Request to the Class
Hayes contends that “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.” (Hayes Br. at 55.) There exists no basis for
In re Activision Blizzard, Inc. Stockholder Litigation
C.A. No. 8885-VCL (consol.), red. pl. reply br. (Del. Ch. Feb. 27, 2015)
www.chancerydaily.com
reallocation. For the reasons discussed above, there was no valuable damages
claim possessed by any class of present or former stockholders. Nonetheless,
current stockholders will immensely benefit from approval of the Settlement.
There is also no mechanism for reallocation. If the Settlement is not approved,
there will be no consideration of the fee request and the litigation will go forward.
If the Settlement is approved, any reduction in the fee award will redound to the
benefit of Activision itself.
Hayes invokes Americas Mining Corp. v. Theriault, 51 A.3d 1213 (Del.
2012) (“Southern Peru”), as a rationale for reducing and reallocating the fee
award, in light of Lead Plaintiff’s Counsel’s supposed “less than diligent
representation of the Class.” (Hayes Br. at 55.) There was no lack of diligent
representation here, and the beneficiary of the fee award reduction in Southern
Peru was the nominal defendant. There was no reallocation to a class. Moreover,
the two bases for the fee reduction in Southern Peru to 15% are inapplicable.
Unlike the years-long delay by plaintiff’s counsel that led the Court to award lower
damages in Southern Peru than otherwise could have been merited, 51 A.3d at
1262, here, Lead Plaintiff’s Counsel’s alacrity allowed the Class to reap
tremendous corporate governance protections during the life span of ASAC. The
other basis for a percentage reduction in Southern Peru was the size of the
judgment, over $2 billion, which far exceeds the “megafund” demarcation of $500
In re Activision Blizzard, Inc. Stockholder Litigation
C.A. No. 8885-VCL (consol.), red. pl. reply br. (Del. Ch. Feb. 27, 2015)
www.chancerydaily.com
million. Id. at 1260, 1262. The Supreme Court made clear that even for
megafunds any decision to reduce the otherwise applicable percentage of recovery
is discretionary. Id. at 1261.
E. Lead Plaintiff’s Request for a Special Award Is Not an Indicia of Inadequacy of Representation
Hayes asserts that Lead Plaintiff’s request for a special award suggests that
he “is not an adequate class representative.” (Hayes Br. at 57.) Hayes also asserts
that Lead Plaintiff is improperly seeking an award for “customary responsibilities.”
(Id. at 58.) Hayes submits no case law or evidence suggesting that it is customary
for a representative plaintiff to devote four days to attending mediation sessions,
two days to attending hearings in Delaware, an additional day for a deposition, plus
significant time for document retrieval, attendance of a meeting with an expert, and
extensive and ongoing consultations with counsel and reviews of filings in a large
case involving complex facts and proceedings. In Forsythe v. ESC Fund Mgmt.
Co., 2012 WL 1655538 (Del. Ch. May 9, 2012), this Court approved a special
award of $35,000 to a plaintiff who engaged in the same type of activities –
traveling to Wilmington, testifying, and attending mediation sessions.12 Id. at *8.
12 This Court’s recent decision in Forsythe, which we cited in our opening brief, is nowhere mentioned in the heavily researched objection that the ASAC Defendants and Vivendi Defendants filed for the purported purpose of establishing that Lead Plaintiff “should be awarded no special fee” because he “performed at most the
In re Activision Blizzard, Inc. Stockholder Litigation
C.A. No. 8885-VCL (consol.), red. pl. reply br. (Del. Ch. Feb. 27, 2015)
www.chancerydaily.com
The sole case cited by Hayes involved a “small settlement” that was rejected
by the Court because of concerns that a requested award to the institutional
stockholder plaintiff was “integral to the settlement” and a necessary component
for all parties to “seek approval of the settlement.” Strategic Asset Mgmt. v.
Nicholson, Inc., 2004 WL 1192088, at *2 & n.7 (Del. Ch. May 20, 2004). Here,
defendants reserved the right to oppose a special award to Lead Plaintiff, and
proceeded to do so, rendering Strategic Asset Mgmt. particularly inapt.
II. COUNSEL FOR PFEIFFER AND BENSTON ARE NOT ENTITLED TO SHARE IN A FEE AWARD In order to establish entitlement to a portion of the fee award, counsel for
Pfieffer and Benston must show that (i) the insider trading claim they advocated
was meritorious, and (ii) there exists a causal connection between their litigation
efforts and the benefits of the proposed settlement. Smith, Katzenstein & Jenkins
LLP v. Fidelity Mgmt. & Research Co., 2014 WL 1599935, at *9 (Del. Ch. Apr.
16, 2014). They fail on both elements.
When Benston sought a leadership role for the express purpose of bringing
his so-called Brophy claim, Lead Plaintiff’s Counsel argued that the claim was not
being pursued because Brophy v. Cities Service Co., 70 A.2d 5 (Del. Ch. 1949),
and its progeny have no application to a transaction negotiated among fiduciaries
normal obligations of class representative.” (ASAC/Viv. Obj. ¶¶ 12, 20 (internal quotation and citation omitted).)
In re Activision Blizzard, Inc. Stockholder Litigation
C.A. No. 8885-VCL (consol.), red. pl. reply br. (Del. Ch. Feb. 27, 2015)
www.chancerydaily.com
with equivalent access to confidential information. The Court ruled as follows: “I
do not believe that the absence of a claim particularly and specifically titled
‘Brophy’ materially alters the risk/reward profile of this case in such an extreme
fashion that it would cause me to see a need to second-guess the judgment of the
current leadership team. So I will deny the motion on that basis.” (6/6/14 Tr. at
134-35.) Benston was never heard from again, and Lead Plaintiff never pressed a
Brophy claim.
Pfieffer and Benston have not demonstrated any causal connection between
their advocacy of a Brophy claim and anything defendants have done. They have
not put forward any evidence that their advocacy of the insider trading claim
played any role in defendants’ decisions not to sign the Hayes-proposed settlement
on October 2013 or to enter into the current proposed settlement in November
2014. In Smith, Katzenstein, causation turned on the following findings: “New
Counsel prevented the original settlement from being approved, then engaged in
discovery and pushed the case forward. New Counsel’s diligence brought Revlon
to the settlement table with Fidelity.” 2014 WL 1599935, at *13. No similar
findings can be made here. Pfieffer and Benston have not shown that defendants
considered their claim as having any marginal value whatsoever, as compared to
the claims being actively litigated by Lead Plaintiff’s Counsel.
In re Activision Blizzard, Inc. Stockholder Litigation
C.A. No. 8885-VCL (consol.), red. pl. reply br. (Del. Ch. Feb. 27, 2015)
www.chancerydaily.com
CONCLUSION
Lead Plaintiff’s Counsel obtained unprecedented relief for Activision and its
stockholders by building a factual and expert case along lines no one else
envisioned. For all the foregoing reasons, and those set forth in the opening brief,
Lead Plaintiff respectfully requests that the Court approve the settlement, recertify
the class, approve the fee application, and approve the special award to Lead
Plaintiff.
/s/ Joel Friedlander
Joel Friedlander (#3163) Jeffrey M. Gorris (#5012) FRIEDLANDER & GORRIS, P.A. 222 Delaware Avenue, Suite 1400 Wilmington, Delaware 19801 (302) 573-3500 Co-Lead Counsel
OF COUNSEL: Lawrence P. Eagel Jeffrey H. Squire BRAGAR EAGEL & SQUIRE, PC 885 Third Avenue, Suite 3040 New York, New York 10022 (212) 308-5858 Co-Lead Counsel DATED: February 25, 2015
/s/ Jessica Zeldin Jessica Zeldin (#3558) ROSENTHAL, MONHAIT & GODDESS, P.A. 919 Market Street, Suite 1401 Wilmington, Delaware 19801 (302) 656-4433 Delaware Liaison Counsel
REDACTED, PUBLIC VERSION: February 27, 2015
In re Activision Blizzard, Inc. Stockholder Litigation
C.A. No. 8885-VCL (consol.), red. pl. reply br. (Del. Ch. Feb. 27, 2015)
www.chancerydaily.com