This Lawyer Is Making It Less Profitable to Sue When Companies Merge


Bloomberg Businessweek profiles attorney Ted Frank and his incredible work protecting consumers, shareholders, and the rule of law at CEI’s Center for Class Action Fairness.

The author describes how many objectors hope to create just enough chaos that parties will pay them to go away, but Frank is more mission-driven. Ted Frank only represents clients who refuse to take money to drop the objection and his main goal is to make it more difficult and less profitable for lawyers to pursue abusive lawsuits.

Below is an excerpt of the profile. Read the full article here.

Although he objects in all varieties of class-action suits, Frank and a shortlist of people like him have been particularly effective in pushing back on disclosure-only settlements. Critics call such settlements a merger tax, because litigation is so common when two companies combine. According to financial consultant Cornerstone Research, about half of all deals in 2008 with a value of more than $100 million led to a lawsuit. For the seven years that followed, that percentage never dipped below 86 percent. Why those numbers shot up so quickly is the subject of speculation. One theory points to a decision by press-release news wires to allow plaintiffs’ firms to announce their intent to sue, thereby making it easier to find one essential ingredient of a suit: a shareholder willing to be a plaintiff.

But substantially fewer merger lawsuits are being filed today than just two years ago. That change is largely attributable to Frank and those he’s encouraged. “When I was asking myself how I was going to do merger objections, I thought of Ted,” says attorney Sean Griffith. “He’s the fountainhead of this kind of work.” Griffith, who directs Fordham University’s Corporate Law Center, successfully objected to a settlement last year involving the merger of real estate websites Trulia Inc. and Zillow Group Inc. His victory in January 2016 set a precedent in Delaware, the state where plaintiffs’ attorneys in merger cases used to make much of their money. That year the percentage of deals that attracted a lawsuit in Delaware dropped by half, according to a study to be published in the Vanderbilt Law Review.

Next came an objection by Frank before the 7th Circuit Court of Appeals and his real target: Judge Richard Posner, one of the most famous and influential federal judges not on the Supreme Court. “When he speaks,” Frank says, “people find out about it.” Frank was trying to stop a settlement involving Walgreen Co.’s merger with a Swiss pharmacy chain. Posner wrote the decision in Frank’s favor in August 2016. It said: “The type of class action illustrated by this case … is no better than a racket. It must end.”

Frank took on the Crestwood case after Duggan wrote his letter. This time, he didn’t succeed: Last month, the objection was thrown out because, the court said, it came too late. Frank’s opponent in the case on the plaintiff side was Juan Monteverde, who is also his foe in a case he and Griffith are trying in New York. Monteverde declined to comment. His co-counsel on the Crestwood case, Thomas Bilek, argues that the settlement put more information in the hands of investors. “Obviously more disclosure is better for shareholders,” he says. “That’s a lesson we’ve learned again and again since Enron.”

Even though Frank has helped to limit the number of merger suits he considers frivolous being filed, he’s unlikely to stop the practice completely. There are thousands of mergers every year, and lots of lawyers scrutinizing them. “We’re playing a game of whack-a-mole,” he says.

BOTTOM LINE: “Disclosure-only” settlements can generate legal fees for lawyers but no money for the shareholders they represent. Ted Frank is trying to kill them off.

Read the full article at Bloomberg Businessweek.