Today, the Competitive Enterprise Institute’s Center for Class Action Fairness won its challenge to a class action settlement deal related to the merger between Walgreens and Boots pharmacies (Hays v. Walgreen).
"This is a tremendous victory for shareholders and against rent-seeking,” said Ted Frank, Director of CEI’s Center for Class Action Fairness. “Strike suits affect over 97 percent of mergers, costing businesses millions. We hope other courts follow Delaware and the Seventh Circuit in taking steps to shut down this racket."
In merger litigation, a “strike suit” is a challenge to a proposed merger that is brought for the purpose of quickly obtaining fees for plaintiffs’ lawyers, rather than producing any benefit for shareholders.
In the Walgreens case, plaintiffs said Walgreens omitted certain disclosures to shareholders prior to the December 2014 merger vote. As a result of the subsequent settlement, shareholders were on the hook to pay hundreds of thousands of dollars in attorney fees for new merger-related information that was either already disclosed or completely insignificant. CEI and plaintiff John Berlau objected to the settlement, which had slated $370,000 in fees to plaintiffs’ lawyers while the shareholder class members got nothing but insignificant supplemental disclosures.
Today’s ruling by the Seventh Circuit Court of Appeals overturns a November, 2015 lower court decision approving the settlement. The ruling also returns the case to the lower court to either appoint new class counsel or else dismiss the case entirely.
“The only concrete interest suggested by this litigation is an interest in attorneys’ fees, which of course accrue solely to class counsel and not to any class members,” the court explained.
See more information on this case, including today’s ruling here.