This morning, the Competitive Enterprise Institute's (CEI) Ted Frank argued before the U.S. Court of Appeals for the Fifth Circuit in its challenge to the strike suit settlement in Aron v. Crestwood. CEI’s Center for Class Action Fairness (CCAF) is appealing the settlement approval of this shareholder suit where the plaintiffs' attorneys received $575,000, while the shareholders recovered only immaterial supplemental disclosures.
Ted Frank, director of CEI's Center for Class Action Fairness, said the following about CCAF’s objection in Aron v. Crestwood:
Strike suits against mergers are, in the words of the U.S. Court of Appeals for the Seventh Circuit, a "racket" that costs shareholders millions of dollars a year, all to the pockets of rent-seeking lawyers. CEI has been at the forefront of challenging this litigation abuse, and we hope this case creates additional precedent deterring this type of legalized extortion. It can be a game of whack-a-mole as lawyers try to find jurisdictions that haven't yet spoken out against the practice, but as more and more courts strike down these lawsuits, more and more shareholders will be able to avoid the "merger tax."
This abusive strike suit is similar to Hays v. Walgreen, where CCAF won its challenge before the Seventh Circuit Court of Appeals in August 2016. The Walgreen ruling was a helpful step in protecting shareholders from getting the raw end of the deal in disclosure-only settlements and CCAF hopes the Fifth Circuit recognizes the same principles apply in Aron v. Crestwood.
ABOUT: The Competitive Enterprise Institute’s Center for Class Action Fairness represents class members against unfair class action procedures and settlements. Originally founded by Ted Frank in 2009, the center has won millions of dollars for consumers and shareholders and won landmark precedents that safeguard consumers, investors, courts, and the general public.
Unfair settlements generally serve self-interested lawyers and third parties at the expense of absent class members, the group of people whose rights are traded away to settle a class action. Lawyers have an interest in their fees, defendants have an interest in cheaply disposing of a lawsuit, and the class’s interests can take a back seat in the process. CEI seeks to solve these problems by representing such class members pro bono and presenting judges with the other side of the argument.