Posner vs. the Plaintiffs Bar

One of life’s more bracing experiences is being on the receiving end of an opinion by federal Judge Richard Posner, and this week it couldn’t have happened to a nicer group of hold-up men.

In a 2-1 decision for the Seventh Circuit Court of Appeals, Judge Posner rejected a class-action settlement that essentially extorted money from the merger between Walgreens and Swiss company Alliance Boots GmbH. In a so-called strike suit, plaintiffs attorneys demanded that Walgreens provide additional disclosures to its voluminous proxy statement or face litigation. The company quickly settled, and the lawyers took home $370,000 in fees. Shareholders got nothing.

That’s closer to blackmail than justice, as Judge Posner suggested in a sharply worded 12-page opinion. “The type of class action illustrated by this case—the class action that yields fees for class counsel and nothing for the class—is no better than a racket. It must end,” he wrote. On remand, the lower court should “give serious consideration to either appointing new class counsel, or dismissing the suit.”

Judge Posner noted that the additional disclosures were somewhere between trivial and worthless. The merger between the companies, the judge notes, was already approved by 97% of Walgreens shareholders.

The settlement was challenged by the Competitive Enterprise Institute on behalf of a shareholder, and kudos for them. Strikes related to mergers have proliferated as lawyers go for a quick and dirty payday because they know companies want to settle to get on with business. The Delaware Chancery Court reports that since 2005 “the percentage of transactions of $100 million or more that have triggered stockholder litigation in this country has more than doubled, from 39.3% in 2005 to a peak of 94.9% in 2014.”

Judge Posner was joined in his opinion by Judge Diana Sykes, and we hope more on the federal bench follow their lead and disqualify this kind of highway robbery.

Originally posted to the Wall Street Journal