Transcript
Case3:12-cv-06003-CRB Document232 Filed09/22/14 Page1 of 21
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GREENFIELD & GOODMAN LLC Richard D. Greenfield (admitted pro hac vice) Marguerite R. Goodman Ilene F. Brookler (SBN 269422) 250 Hudson Street, 8th Floor New York, NY 10013 Tel: (917) 495-4446 Fax: (212) 355-9592
[email protected] [email protected] [email protected] Attorneys for Proposed Intervenor A.J. Copeland
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[Additional Counsel Appeal on Signature Page] 10
UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF CALIFORNIA SAN FRANCISCO DIVISION
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IN RE HEWLETT-PACKARD COMPANY SHAREHOLDER DERIVATIVE LITIGATION
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This Document Relates To: 16
ALL ACTIONS. 17 18 19 20 21 22 23 24 25 26 27 28
) Master File No. C-12-6003-CRB ) ) ) ) ) A.J. COPELAND’S REPLY ) MEMORANDUM IN SUPPORT OF HIS ) MOTION TO INTERVENE AND IN ) OPPOSITION TO PRELIMINARY ) APPROVAL OF REVISED SETTLEMENT ) AGREEMENT ) ) ) Date: September 26, 2014 ) Time: 10:00 a.m. th ) Dept.: Courtroom 6, 17 Floor Judge: Hon. Charles R. Breyer
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TABLE OF CONTENTS Page
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Table Of Authorities ........................................................................................................... ii
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Summary Of Argument ....................................................................................................... 1 5
The Proposed Settlement Lacks Consideration ................................................................... 2 6 7
The Illusory Settlement........................................................................................................ 3
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The Breadth Of The Releases And The Defective Notice ................................................... 6
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The Conflicts Of Interest Of Wachtell And The Board ..................................................... 11
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Status As An Intervenor Will Facilitate Necessary Discovery .......................................... 14
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Conclusion ......................................................................................................................... 15
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i REPLY MEMORANDUM IN SUPPORT OF MOTION TO INTERVENE AND IN OPPOSITION TO PRELIMINARY APPROVAL OF REVISED SETTLEMENT AGREEMENT No. C-12-6003-CRB
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TABLE OF AUTHORITIES Page(s) Cases Aronson v. Lewis, 473 A.2d 805 (Del. 1984) ................................................................................................ 13
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Ash v. McCall, 2000 Del. Ch. LEXIS 144 (Del. Ch. Sept. 15, 2000) ...................................................... 13
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Bacas v. Way, 2008 WL 746825 (S.D. Tex. Mar. 20, 2008) .................................................................... 7 Brehm v. Eisner, 746 A.2d 244 (Del. 2000) .................................................................................................. 4 Bushansky v. Armacost, 2014 WL 2905143 (N.D. Cal. June 25, 2014) ................................................................... 6
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Cordy v. USS-Posco Indus., 2013 WL 4028627 (N.D. Cal. Aug. 1, 2013) .................................................................... 1
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Dusek v. Mattel, Inc., 141 F. App’x 586 (9th Cir. 2005) ...................................................................................... 3 Grimes v. Donald, 673 A.2d 1207 (Del. 1996) ................................................................................................ 3 Gwozdzinsky v. Sandler Assocs., 1997 U.S. Dist. LEXIS 23710 (S.D.N.Y. Feb. 7, 2010).................................................. 10
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In re China Auto. Sys., 2013 Del. Ch. LEXIS 217 (Del. Ch. Aug. 30, 2013)....................................................... 13 In re MRV Commc’ns, Inc. Derivative Litig., 2013 WL 2897874 ............................................................................................................. 7 In re Nat’l Football League Players’ Concussion Injury Litig., 961 F. Supp. 2d 708 (E.D. Pa. 2014) ................................................................................. 1
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In re Oracle Secs. Litig., 829 F. Supp. 1176 (N.D. Cal. 1993) ................................................................................ 15
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ii REPLY MEMORANDUM IN SUPPORT OF MOTION TO INTERVENE AND IN OPPOSITION TO PRELIMINARY APPROVAL OF REVISED SETTLEMENT AGREEMENT No. C-12-6003-CRB
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In re Tableware Antitrust Litig., 484 F. Supp. 2d 1078 (N.D. Cal. 2007) ............................................................................. 1
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In re Walt Disney Co. Deriv. Litig., 906 A.2d 27 (Del. 2006) .................................................................................................. 13
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In re Zoran Corp. Derivative Litig., 2008 WL 941897 (N.D. Cal. Apr. 7, 2008) ....................................................................... 8 Lyondell Chemical Co. v. Ryan, 970 A.2d 235 (Del. 2009) ................................................................................................ 13 Maher v. Zapata Corp., 714 F.2d 436 (5th Cir. 1983) ............................................................................................. 7
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Milstein v. Werner, 57 F.R.D. 515 (S.D.N.Y. 1972) ....................................................................................... 11 Mullane v. Central Hanover Bank & Trust Co., 339 U.S. 306 (1950)......................................................................................................... 10 O’Brien v. Nat’l Property Analysts Partners, 739 F. Supp. 896 (S.D.N.Y. 1990) .................................................................................. 11
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Scattered v. Chicago Stock Exch., Inc., 701 A.2d 70 (Del. 1997) .................................................................................................... 4
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Staton v. Boeing Co., 327 F.3d 938 (9th Cir. 2003) ............................................................................................. 4
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Zimmerman v. Zwicker & Associates, P.C., 2011 WL 65912 (D.N.J. Jan. 10, 2011) ............................................................................. 2
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Rules
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F. R. Civ. P. 23.1(c) ............................................................................................................. 7
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Other Authorities
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Independent Representation for Corporate Defendants in Derivative Suits, 74 Yale L.J. 524 (1965) ................................................................................................... 14 Ferrara, Shareholder Derivative Litigation § 14.05[2] (2d ed. 2014) ................................ 6 iii REPLY MEMORANDUM IN SUPPORT OF MOTION TO INTERVENE AND IN OPPOSITION TO PRELIMINARY APPROVAL OF REVISED SETTLEMENT AGREEMENT No. C-12-6003-CRB
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SUMMARY OF ARGUMENT
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Nominal Defendant, Hewlett-Packard Company (“HP” or the “Company”), through its
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principal counsel, Wachtell, Lipton, Rosen & Katz, LLP (“Wachtell”) has belittled the arguments
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Mr. Copeland makes in his motions to intervene and in opposition to the Court’s “preliminary
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approval” of the newly-proposed amended settlement (the “Settlement”).1 The Wachtell brief
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deftly and condescendingly ignores the principal issues raised by Mr. Copeland in his motions,
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principally (a) the gross inadequacy of the Settlement, which provides NO consideration for the
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releases provided; (b) the breadth of the releases Wachtell and plaintiff’s counsel negotiated and
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how those releases are described in the Notice that they ask the Court to approve; and (c)
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Wachtell’s unwaivable conflicts of interest in de facto representing the interests of the Individual
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Defendants and other officers and directors of the Company and, amazingly, acting against the
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interests of HP, which it nominally represents.2 Ultimately, the HP brief sums up its arguments
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quite succinctly: “The short of it is that the Court at this juncture should consider only
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whether the settlement is potentially susceptible to approval or whether it suffers from a
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patent defect.” (Emphasis added). As other possible intervenors and Mr. Copeland maintain,
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To avoid duplication, Mr. Copeland does not discuss at length an issue raised by the Court regarding the appropriateness of addressing the issues raised by prospective intervenors at this point or at a final approval hearing. Mr. Copeland advocates the former position simply because preliminary approval is not just a “rubber stamp” from this Court—it establishes an imprimatur by the Court that the proposed settlement is fair. See, e.g., In re Tableware Antitrust Litig., 484 F. Supp. 2d 1078, 1079 (N.D. Cal. 2007); In re Nat’l Football League Players’ Concussion Injury Litig., 961 F. Supp. 2d 708, 714–15 (E.D. Pa. 2014) (denying preliminary approval) (“Judicial review must be exacting and thorough.”); Cordy v. USS-Posco Indus., 12-CV-00553JST, 2013 WL 4028627, at *4 (N.D. Cal. Aug. 1, 2013) (Tigar, J.) (denying preliminary approval because, among other problems, plaintiffs “provide[d] no information about the maximum amount that the [plaintiffs]could have recovered”). 2 To avoid duplication, Mr. Copeland will not address herein other issues raised quite effectively by, inter alia, HP shareholders Steinberg, Cook and others. Indeed, Mr. Copeland did not seek intervention earlier in part to avoid such duplication. However, as issues developed and/or became more focused, he proceeded to seek intervention to assert positions not advanced by other prospective intervenors. 1 REPLY MEMORANDUM IN SUPPORT OF MOTION TO INTERVENE AND IN OPPOSITION TO PRELIMINARY APPROVAL OF REVISED SETTLEMENT AGREEMENT No. C-12-6003-CRB
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the Settlement not only “suffers from [multiple] patent defects,” but its approval, even
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preliminarily, would bring discredit on all concerned. As discussed below, the most patent of all
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such defects is the absence of any benefit to HP from it!
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THE PROPOSED SETTLEMENT LACKS CONSIDERATION
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In their briefs urging the Court to preliminarily approve the proposed Settlement and in
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opposition to intervention, the settling parties extoll the corporate reforms that had been the
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consideration for the previous version of the Settlement. But the purported consideration for the
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settlement was illusory at the beginning of the “preliminary approval” process and, now, is non-
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existent. The governance reforms now “carved in stone” in the amended Settlement were
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previously subject to approval by management and HP’s Board. Such reforms have now been
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approved and adopted by HP’s Board even without a release of any claims.3 Of course, now that
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the Board has already adopted the governance reforms that were purportedly the consideration
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for the Settlement, why have a settlement at all? Why release anyone at this point since HP and
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its shareholders will get nothing in return for the releases? Why not let the litigation proceed to
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its ultimate conclusion, whatever it may be. Moreover, if plaintiffs and their counsel do not now
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have enough confidence in the survivability of the claims they have alleged on behalf of HP,
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there are others prepared to pursue those claims competently and vigorously. Moreover, there is no basis in the record or otherwise for the Court to accept the settling
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parties’ argument that there is a presumption of fairness (because of competent plaintiffs’
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counsel and a well-respected mediator) to justify preliminary approval. See, e.g., Zimmerman v.
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Zwicker & Associates, P.C., CIV. 09-3905 RMB, 2011 WL 65912, at *3 (D.N.J. Jan. 10, 2011)
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(denying preliminary approval of class action settlement because “there is a phantom benefit to
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the class but yet the class is required to release their FDCPA claims” and “the scope of the
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HP, having eliminated the consideration for the proposed release of claims, now makes the ludicrous argument that “[The Board is also is entitled to significant, even dispositive weight on the question of whether the settlement is fair to the company and its shareholders---even without regard to the governance reforms.” (Emphasis added). 2 REPLY MEMORANDUM IN SUPPORT OF MOTION TO INTERVENE AND IN OPPOSITION TO PRELIMINARY APPROVAL OF REVISED SETTLEMENT AGREEMENT No. C-12-6003-CRB
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proposed release and agreement not to sue is over inclusive”). Preliminary approval should be
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promptly and decisively denied.
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THE ILLUSORY SETTLEMENT
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Notwithstanding the roles of well-qualified counsel and an undoubtedly independent
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mediator, the proposed Settlement (if it is, at present, a settlement at all) makes a mockery of
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shareholder derivative litigation and corporate governance. Even preliminary approval of the
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proposed no-consideration Settlement with its cosmetic changes will bring disrepute on the
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Court, the lawyers involved, and the judicial process. This is particularly so since the present,
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no-consideration version of it, represents a continuance of the now-abandoned earlier iteration of
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it, where the Individual Defendants, through Wachtell, were attempting to purchase, with HP’s
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money, unjustly broad releases of claims. Such releases, confusingly broad-based and
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amorphous, would bar the Company and its shareholders from pursing such claims against not
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only HP’s officers and directors in connection with the ill-fated acquisition of Autonomy
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Corporation, plc (“Autonomy”), but claims involving more than a decade-long history of
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debacles in the corporate governance of the Company involving billions of dollars of reckless
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acquisitions, Autonomy being only the latest. See generally, allegations in Copeland I and II
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Complaints where such claims are more than amply detailed.4 Unlike plaintiffs in this case, who commenced this litigation with their “hands tied behind
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their backs” because they did not make pre-suit demands, Mr. Copeland made pre-suit demands
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on HP’s Board which were either denied outright and/or constructively denied by it. In the
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context of demand refusal, to prevail on the claims made by him and proposed to be released by
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the Settlement, he would only need to allege (as he does in his Complaints) facts sufficient to
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create “a reason to doubt” whether demand was improperly refused. Grimes v. Donald, 673
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Such Complaints are attached as exhibits to Mr. Copeland’s opening brief in support of his motion to intervene. Despite HP’s belittling of it, Copeland I was not dismissed on the substantive merits of the case and such dismissal is on appeal to the Ninth Circuit.
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A.2d 1207, 1219 (Del. 1996) (emphasis added). Allegations such as those made by Mr.
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Copeland to the effect that the Board “was biased, lacked independence, or failed to conduct a
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reasonable investigation” can demonstrate “a reasonable doubt that demand was properly
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refused.” Scattered v. Chicago Stock Exch., Inc., 701 A.2d 70, 75 (Del. 1997), overruled on
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other grounds, Brehm v. Eisner, 746 A.2d 244 (Del. 2000).
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The Court should be particularly concerned about the fairness of a settlement such as the
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one before the Court “when counsel receive a disproportionate distribution of the settlement”—
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or, in this case, the full amount of the cash that is changing hands. Staton v. Boeing Co., 327
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F.3d 938, 953 (9th Cir. 2003). The amount of money to be paid to plaintiffs’ counsel, whether
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pursuant to the initial settlement proposal or the present one, for a modest amount of “heavy
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lifting,” raises serious issues, absent all the others including the incredibly-broad release
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language, as to whether preliminary approval can be granted. As previously explained, upon the
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existing record, there is insufficient basis for the Court to do so.
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Wachtell has concocted (and plaintiffs’ counsel have gone along) with a 49-part
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definition of “Released Claims” which appears to insulate the Individual Defendants and many
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unnamed other persons from suit even for violations that have nothing to do with the Autonomy
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debacle, including, inter alia: (a) the excessively generous compensation ($17.3 million) that
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Meg Whitman is paid by the company notwithstanding her having overseen the Autonomy
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acquisition; (b) the Company’s “hiring and compensation policies and practices”—including,
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inter alia, former CEO Leo Apotheker’s nearly $10 million departure gift upon being fired by
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HP’s Board; (c) “[A]ny allegedly false or misleading proxy statements filed by the Company in
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2013,” despite the fact that Mr. Copeland has forcefully advocated such claims in the presently
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stayed Copeland II case; (d) the Board’s “historical … overpayment for acquisitions as alleged in
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particular in the Complaints in Copeland I and II, which reckless overpaymens resulted in, inter
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alia, an $8 billion write-down arising from HP’s acquisition of EDS announced in August 2012
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and multi-billion dollar write-offs from other acquisitions announced in 2011 and 2012; and (e)
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insider trading including “[A]ny sales of [Individual Defendants’ and others’] personally held HP
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stock.” See Dkt. 201 at 20–21.5
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Based on the public record to date, these claims and others are being released
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notwithstanding the Board’s so-called “Demand Review Committee’s” (“DRC”) failure to
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seriously investigate many of the claims that appear to be released pursuant to the Settlement.6
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Indeed, absent putting the DRC’s “Report” in the record and permitting Intervenors/Objectors to
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take discovery with respect to it, all that we know is that it exculpates all of the prospective
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releases.7 If plaintiff’s entire justification for proceeding with the settlement is his counsel’s fear
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of the legal impact of that “Report” and the Board’s “rubber stamping” of it, the Court as well as
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HP’s shareholders cannot be expected to sit idly by without a real record being made.8 Should the Court conclude otherwise and determine that there is still a case to settle, it
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must ask whether the now-adopted governance reforms occurred (i.e. the arguable consideration
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for the releases) because of this litigation, Mr. Copeland’s litigation or other claims alleged by
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To the extent that the release language is even comprehensible, it would appear to extend wellbeyond these enumerated examples and into, inter alia, the core of Mr. Copeland’s allegations in his pre-suit demand letters and as alleged in the Complaints in Copeland I and II. 6 Mr. Copeland has previously pointed out that the proposed Notice to HP shareholders is so convoluted in its purported description of the claims and persons being released that, for this reason alone, the Notice would deny due process to HP’s shareholders. The infirmities in the Notice and HP’s opposition to Mr. Copeland having pointed them out to the Court, will be addressed below. 7 HP has had one after another of DRCs, special litigation or similar committees purportedly investigating officer and director wrongdoing and governance debacles over the past decade. Not coincidentally, these “whitewash” committees appointed by the very directors under attack, conveniently find no actionable wrongdoing, as was the case with the two most recent of such committees prior to the DRC’s investigation of the Autonomy transaction. See, e.g. Copeland I and II Complaints. 8 HP now argues blithely that “All the members of the DRC were completely independent.” There has been no evidence of this fact and, indeed, it can be well-documented if Mr. Copeland is given the opportunity to demonstrate, following discovery, that the selection of its members and counsel were part of a well-crafted effort to provide the “whitewash” ultimately generated in the DRC’s “Report.” 5 REPLY MEMORANDUM IN SUPPORT OF MOTION TO INTERVENE AND IN OPPOSITION TO PRELIMINARY APPROVAL OF REVISED SETTLEMENT AGREEMENT No. C-12-6003-CRB
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HP shareholders, all or any of whose efforts may have “informed” the Board as to the need for
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such reforms.
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Mr. Copeland, in both of his operative Complaints, sought corporate governance relief,
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all the while alleging wrongdoing in connection with HP’s long history of reckless acquisitions
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(the most recent of which was Autonomy) and pattern of incompetent corporate governance
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generally. HP’s latest claim, in a “stretch” to arguably demonstrate that the settled litigation was
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a cause of the governance relief, now says: “In fact, the HP board resolved (before the settlement
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talks began) that the DRC’s ‘recommendations for further M&A reforms’ had been ‘informed by
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recommendations from [Robbins Geller] and by the allegations in Lead Plaintiff’s consolidated
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complaint’ in this action.” One wonders how HP could now manufacture such an argument,
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after the fact, especially when the Complaints and relief sought in Copeland I and II and as
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demanded by other HP shareholders pointed out the critical need for massive corporate
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therapeutics. HP’s current argument is simply a desperate attempt to provide some consideration
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for the proposed Settlement.9 Now, of course, the consideration has been eliminated entirely and
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there is no valid reason for there even to be a Settlement. THE BREADTH OF THE RELEASES AND THE DEFECTIVE NOTICE
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As counsel to the DRC has written, proper notice is a prerequisite to this Court’s review
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of the substantive fairness and reasonableness of the proposed settlement. See e.g., Ferrara,
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Shareholder Derivative Litigation § 14.05[2] (2d ed. 2014) (explaining that, “[o]nce proper
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notice has been given to shareholders…, the court will undertake a complete and thorough
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review of the fairness and reasonableness of the proposed settlement….”); Bushansky v.
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Armacost, 12-CV-01597-JST, 2014 WL 2905143, at *1 (N.D. Cal. June 25, 2014) (describing
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It is worth considering whether, the proposed (and now-enacted) governance reforms, are meaningful in the context of the long history of disregard by HP’s Board and management of written corporate policies. A good argument can be made for the appointment of a courtappointed special master to oversee compliance particularly in the context of any material acquisition/merger contemplated by HP’s Board. 6 REPLY MEMORANDUM IN SUPPORT OF MOTION TO INTERVENE AND IN OPPOSITION TO PRELIMINARY APPROVAL OF REVISED SETTLEMENT AGREEMENT No. C-12-6003-CRB
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the Rule 23.1(c) notice requirement as “guard[ing] against collusive settlement practices”); In re
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MRV Commc’ns, Inc. Derivative Litig., 2013 WL 2897874, at *1 (granting final approval only
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after determining that the proposed settlement was “fundamentally fair, adequate, and
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reasonable”). As set out in Mr. Copeland’s initial brief and below, the proposed Notice is
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grossly inadequate.
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Even for a lawyer with substantial litigation experience, reading the release language,
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purportedly summarized in the proposed Notice, leads to a quagmire. Such language is so
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amorphous and convoluted that one cannot determine what persons or claims are being released
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or even why. Rather disingenuously, HP says that, in purported justification for the convoluted
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nature of the release language, Mr. Copeland “does not identify a single word that is difficult to
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understand.” Clearly, that is so. However, the release language, taken as a whole, is simply
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incomprehensible. While it is well-established that a notice “need not explain to [shareholders]
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all the consequences involved in [a] settlement” and can legitimately “tell[] the shareholders that
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the descriptions in the Notice were ‘only summaries’ and the court files were open for
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inspection,” Maher v. Zapata Corp., 714 F.2d 436, 452 (5th Cir. 1983), the reference in the
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Notice to the Stipulation of Settlement in this case and the documents filed of record will only
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lead an inquiring shareholder into a “black hole.” The Notice’s “invitation to HP shareholders”
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to conduct a further investigation, if they so desired, on the basis for, the background of, and the
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legal implications of the settlement” will lead nowhere and the shareholder will be no more
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enlightened than by reading the Notice alone. Id.; see also Bacas v. Way, No. 07-cv-456, 2008
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WL 746825, at *2 (S.D. Tex. Mar. 20, 2008) (approving notice that gave general information
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and instructed shareholders “how to obtain a copy of” the settlement).
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The purported summary of that language, which the settling parties have proffered to be
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included in the Notice, while certainly in much plainer English than the release language in the
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Stipulation of Settlement, will be no more informative to HP shareholders.
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Had there been real consideration for HP’s release of claims, while it can be argued that
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the narrow claims arising out of the Autonomy debacle may warrant being released based on the
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“Report” of the tainted DRC, there can be no justification for releases extending well beyond the
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claims the plaintiffs sought to litigate. See, e.g., In re Zoran Corp. Derivative Litig., C 06-05503
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WHA, 2008 WL 941897, at *2 (N.D. Cal. Apr. 7, 2008) (disapproving of collusive settlements
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marked by “cash award to counsel, a broad release of claims, and a cosmetic non-cash recovery
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for the absent shareholders”). For example, it appears (but it cannot be certain) that the settling
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parties cavalierly agreed to release claims arising from, inter alia, many or most of the multi-
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year failed acquisitions made by HP’s Board as set out in ¶¶78-120 of the Copeland II
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Complaint. To include these claims under the release “umbrella” of the Settlement materially
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damages HP and its shareholders. None of these claims were alleged or even litigated by
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plaintiff’s counsel in this case. It was simply the overreaching of defense counsel and the
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acquiescence of plaintiffs’ counsel that produced this unacceptable, as well as confusing, result.
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The settling parties’ briefs urge the Court to approve their proposed form and procedure
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for notice of the Settlement to HP’s shareholders. However, in making their arguments, they
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ignore their fundamental obligations to such shareholders. The proposal of the settling parties to
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provide notice to the HP shareholders by summary advertisements and a disclosure in a
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forthcoming SEC Form 8-K filing is materially defective because it does not provide due process
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to HP’s shareholders. In addition to the necessity for the Court to consider the description of the
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claims and persons to be released by the proposed Settlement as set forth in the proposed Notice,
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before the Court can grant preliminary approval and sign the parties’ proposed Preliminary
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Approval Order, it must determine that the proposed Notice meets minimum due process
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requirements.
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Here, as indicated above, the proposed notice with respect to, inter alia, the claims and
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persons being released and the purported benefits of the settlement to HP is confusing and
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contradictory and the amount of fees to be sought by plaintiffs’ counsel is not disclosed. The
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settling parties seemingly conspired, with their respective counsel, to conceal the real impact of
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the proposed settlement and, thereby, to deny the Company’s shareholders their due process
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rights. The settling parties presented to this Court a Preliminary Approval Order providing for a
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notice procedure and form of notice of the proposed Settlement to the shareholders of the
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Company that fails as a matter of fundamental due process. They apparently budgeted a
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relatively minimal amount for the entire notice process, which they are not only planning to carry
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out “on the cheap” but in a way that will provide HP’s shareholders scant notice and little
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information about the proposed Settlement. Counsel for the settling parties knew or should have
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known that such notice to the Company’s shareholders would be grossly ineffective in reaching
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the vast majority of them.
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A modest “summary” notice in several newspapers, directing those few who might read it
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to a more elaborate but equally non-informative Stipulation, is simply inadequate notice under all
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the circumstances. The summary notices, such as the ones proposed here, are only used when
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the settling parties do not want anyone to see the notice and where the court was “kept in the
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dark” as to its ineffectiveness as a means of providing notice to absent shareholders.10 It is not
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uncommon, especially where there have been no-cash/high fee settlements of shareholder
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derivative litigation, that the settling parties have sought to provide the least notice possible and
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avoid their most basic due process obligations. It is not surprising that the worse the settlement,
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as here, the less notice the settling parties urge upon the Court.
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The better and far more effective means of notice is to provide it to Mr. Copeland and all other shareholders similarly situated by either USPS mail or by e-mail, the traditional means of providing notice of shareholder derivative settlements. Indeed, HP possesses, through its Transfer Agent, all the names and addresses of each shareholder of record and has the means to provide written mailed notice to all other beneficial shareholders just as it quickly and efficiently provides proxy statements to them. There is no justification for not using such time-tested and reliable methodology that the Company itself uses to solicit proxies for its annual meetings of shareholders.
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The U.S. Supreme Court in Mullane v. Central Hanover Bank & Trust Co., 339 U.S. 306,
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314 (1950), promulgated the general rule that notice by publication is not sufficient, and rather,
3
direct mail notice is required. In reaching this decision, the Court stated:
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As to known present beneficiaries of known place of residence, however notice by publication stands on a different footing. Exceptions in the name of necessity do not sweep away the rule that within the limits of practicality notice must be such as is reasonably calculated to reach interested parties. Where the names and post-office addresses of those affected by a proceeding are at hand, the reasons disappear for resort to a means less likely than the mails to apprise them of its pendency. The trustee has on its books the names and addresses of the income beneficiaries represented by appellant, we find no tenable ground for dispensing with a serious effort to inform them personally of the accounting, at least by ordinary mail to the record addressed. Id. at 318.
10
The Mullane Court further recognized that publication notice alone is notoriously
11
unreliable. As the Court explained: “It would be idle to pretend that publication alone, as
12
prescribed here, is a reliable means of acquainting interested parties of the fact that their rights
13
are before the courts…Chance alone brings to the attention of even a local resident an
14
advertisement in small type inserted in the back pages of a newspaper.” Id. at 315.
15
Following the precept of Mullane, courts regularly have determined that direct mailings
16
to individual shareholders are practicable notice that fulfill the requirements of the Federal Rules
17
and due process. See, e.g., Gwozdzinsky v. Sandler Assocs., 1997 U.S. Dist. LEXIS 23710
18
(S.D.N.Y. Feb. 7, 2010) (mailing to persons who were record owners and beneficial owners of
19
security constitutes due and sufficient notice of settlement and settlement hearing).
20
In this case, the chosen method of notice – publication of a non-informative summary
21
notice in several newspapers– can be seen as nothing more than a “mere gesture” of notice. The
22
Mullane Court wrote, “when notice is a person’s due, process which is a mere gesture is not due
23
process. The means employed must be such as one desirous of actually informing the absentee
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might reasonably adopt to accomplish it.” Mullane, 339 U.S. at 315. Had the parties truly wanted to exert a good faith effort, they would have proposed a direct mailing to all shareholders of record and indirect mailing to all beneficial holders. It is clear that plaintiff, the Individual
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Defendants and their respective counsel conspired to conceal the settlement terms and the
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settlement fairness hearing in order to deny Mr. Copeland and other absent HP shareholders their
3
due process rights.
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Beyond the absence of any true effort to inform shareholders of the Settlement approval
5
hearing, the publication summary notice itself was not adequate, even taken together with the
6
additional de minimus “notice” in an SEC Form 8-K filing, and demonstrates an obvious intent to
7
hide the details of the proposed settlement. Courts have held that a notice of settlement must
8
fairly apprise the absent class members of the subject matter and proposed terms of the
9
settlement. Milstein v. Werner, 57 F.R.D. 515, 518 (S.D.N.Y. 1972). The notice “does not have
10
to contain all the operative details of the settlement agreement, but the notice must provide
11
sufficient guidance as to the major terms and areas of agreement to allow [shareholders] to make
12
further inquiry, either by examining the full settlement agreement or by appearing at the
13
settlement hearing.” O’Brien v. Nat’l Property Analysts Partners, 739 F. Supp. 896, 901
14
(S.D.N.Y. 1990). Here, of course, there is little likelihood that HP’s shareholders will even be
15
informed of the settlement, their right to object to it or the final approval hearing.
16
A virtually non-informative summary Notice advertisement directing shareholders to the
17
Stipulation is simply insufficient notice. Notably absent from the summary Notice is any
18
information regarding, inter alia: (a) the issues between the parties; (b) the terms of the proposed
19
settlement including what amount will be paid in attorneys’ fees; (c) the nature and scope of all
20
the claims being released; and (d) the people being released of such claims. This type of non-
21
notice is patently deficient as a matter of law.
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THE CONFLICTS OF INTEREST OF WACHTELL AND THE BOARD Mr. Copeland’s opening brief pointed out Wachtell’s unwaivable conflict of interest
24
under the prevailing circumstances. Rather curiously, HP’s brief does not seriously attempt to
25
address the indisputable fact that Wachtell, in negotiating the Settlement, acted not in HP’s best
26
or even sole interests, but on behalf of the individual defendants and the other persons to be “let
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off the hook” by the unjustly broad release language of the Settlement. Wachtell merely
2
acknowledges, in unverified form, that it took generalized advice from the Board that the claims
3
against each of its members (including those not serving on the Board at the time of the
4
Autonomy acquisition) should be released.11 In fact, Wachtell so forcefully objects to possible
5
discovery of the settlement negotiating process (outside what took place in formal, confidential
6
mediation sessions) because it will undoubtedly show that Wachtell advocated for the to-be-
7
released officers and directors and put their interests before those of the Company. Having now,
8
de facto, acknowledged Mr. Copeland’s charge of conflict of interest, Wachtell cannot continue
9
to maintain that it negotiated the Settlement solely for the benefit of its stated client, HP. Thus, it
10
is not surprising that Mr. Wolinsky did not submit a declaration contradicting Mr. Copeland’s
11
allegations. It is also notable that he has not submitted any evidence to the Court that even
12
remotely exculpates his real clients; namely, those for whom he has sought the broadest of
13
releases.12 Further, in representing the personal interests of HP’s officers and directors (as well as
14 15
unnamed others), Wachtell falls back on the argument that “the Board’s views are entitled to
16
significant, if not dispositive weight.” Throughout HP’s most recent brief advocating
17
preliminary approval and denial of the pending motions to intervene, its counsel elevates the
18
Board members to virtually God-like status as if they can do no wrong. In fact, at the time that
19
the Board approved the DRC “Report,” each of its members was personally the subject of
20
material liability claims either pursuant to pending shareholder litigation and/or shareholder pre-
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11
HP now says, through Wachtell: “[Mr. Copeland’s] only objection is the nonsensical assertion that the process was tainted because HP’s counsel was the one negotiating with plaintiffs’ counsel. Id. HP’s counsel had been instructed by the board (which had acted based on the DRC resolutions) to seek to reach a resolution of the case consistent with the DRC’s investigation. The claims released here are the claims that the board determined were meritless based on that investigation.” 12 His only presentation of evidence has been limited to the culpability of the former officers of Autonomy. 12 REPLY MEMORANDUM IN SUPPORT OF MOTION TO INTERVENE AND IN OPPOSITION TO PRELIMINARY APPROVAL OF REVISED SETTLEMENT AGREEMENT No. C-12-6003-CRB
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suit demand letters. How any of them could have been “independent” or “disinterested,” as HP
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and its conflicted counsel argue, is simply preposterous.13 Similarly preposterous, despite its
3
belated acceptance by plaintiffs’ counsel, is the Board’s resolution “that there is no merit to the
4
claims asserted against the named defendants in the Federal Action or the State Actions (other
5
than as to Legacy Autonomy Official Michael Lynch)….” The Court would have to “hold its
6
nose” to accept such a representation, particularly in light of persuasive Delaware precedent.
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The Individual Defendants’ conscious disregard of known facts can form the basis for conduct
8
which does not qualify as good faith under Delaware law. See, e.g., Lyondell Chemical Co. v.
9
Ryan, 970 A.2d 235, 240 (Del. 2009) (quoting In re Walt Disney Co. Deriv. Litig., 906 A.2d at
10
64-66). This includes claims based upon a failure of the Board to properly oversee corporate
11
operations which amount to a breach of the duty of loyalty, including situations where, as here,
12
the Board had knowledge of specific warnings from, among others, HP’s Chief Financial
13
Officer, and multiple “red flags” such as third-party reports “suggesting potential accounting
14
improprieties.” In re China Auto. Sys., C.A. No. 7145-VCN, 2013 Del. Ch. LEXIS 217, 29 (Del.
15
Ch. Aug. 30, 2013) (quoting Ash v. McCall, C.A. No. 17132-CC, 2000 Del. Ch. LEXIS 144, at
16
*4 (Del. Ch. Sept. 15, 2000)); Aronson v. Lewis, 473 A.2d 805, 813 (Del. 1984) (the business
17
judgment rule “has no role where directors have abdicated their functions . . . .”). Wachtell inappropriately represented simultaneously both HP and the individual director
18 19
and officer defendants and seemingly succumbed to the pressure to construct a settlement that
20
unjustly benefited the Individual Defendants and provided, at best, nominal value to the
21
Company. Since the interests of the Company were wholly incompatible with the goal of the
22
Individual Defendants to limit their liability, Wachtell should not have provided such de facto
23 13
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While it cannot be disputed that merely alleging claims in a vacuum against directors cannot, by itself, impugn their independence and disinterestedness, if the Court evaluates the cumulative allegations made in, inter alia, the Complaints in Copeland I and II and in Mr. Copeland’s presuit demand letters, enough doubt exists so as to render the Board’s giveaway of HP’s claims quite understandable, as well as the Settlement voidable. 13 REPLY MEMORANDUM IN SUPPORT OF MOTION TO INTERVENE AND IN OPPOSITION TO PRELIMINARY APPROVAL OF REVISED SETTLEMENT AGREEMENT No. C-12-6003-CRB
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dual representation. See “Independent Representation for Corporate Defendants in Derivative
2
Suits,” 74 Yale L.J. 524, 532 (1965) (dual representation places Defendants’ counsel in an
3
untenable position whereby the interests of the company are likely to receive insufficient
4
protection). In negotiating the proposed Settlement, the principal beneficiaries of which are the
5
Individual Defendants and others, rather than HP itself, Wachtell’s nominal representation of HP
6
has been and remains antagonistic to those of the Company and its shareholders. While there is
7
no shortage of cases where such dual representation has taken place, where, as here, the
8
circumstances and substance of this non-litigated settlement are highly suspect, it should not be
9
countenanced by the Court. Although the settlement negotiations were overseen and facilitated by a highly qualified
10 11
mediator, he could not have been expected to be an advocate for the Company’s rights in place
12
of HP’s conflicted counsel or plaintiffs’ counsel. Quite simply, HP should have had (and now
13
should have) wholly independent counsel to advocate solely its interests.
14
STATUS AS AN INTERVENOR WILL FACILITATE NECESSARY DISCOVERY
15
Under ordinary circumstances, status as an objector to a settlement will suffice vis-à-vis
16 17 18 19 20
the right to take discovery as to a proposed settlement of representative litigation. However, Mr. Copeland maintains that because the record justifying the Settlement in this case is so sparse and because the proposed Settlement is so suspect, an HP shareholder such as he is can accomplish more from “within the tent” than from without. In his case, to date, he has requested a number of documents from HP, provision of which has taken place under onerous confidentiality
21
provisions.14 22 23 24 25 26 27 28
14
Indeed, the provision of a two-day confidential “overview” to Mr. Copeland’s counsel and others as to what the DRC purportedly “investigated” could well be argued by those not party to the confidentiality agreement as a waiver on multiple grounds. 14 REPLY MEMORANDUM IN SUPPORT OF MOTION TO INTERVENE AND IN OPPOSITION TO PRELIMINARY APPROVAL OF REVISED SETTLEMENT AGREEMENT No. C-12-6003-CRB
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Moreover, although he has been “provided with certain material facts by counsel to the
2
DRC…about the DRC’s investigation and conclusions,” such facts were narrowly circumscribed
3
and provided under circumstances that, as a non-party, Mr. Copeland cannot even bring before
4
the Court due to their “confidentiality.” As an intervenor, Mr. Copeland would be better situated
5
to argue his entitlement to pursue fundamental discovery as to the bona fides of the DRC, its
6
investigation and how its “Report” came into existence. Here, of course, what the DRC did and
7
did not do is fundamental to the justification for the Settlement presented by counsel for HP and
8
plaintiffs. In re Oracle Secs. Litig., 829 F. Supp. 1176, 1184 (N.D. Cal. 1993) (Judge Walker
9
rejecting proposed derivative settlement conferring only cosmetic corporate changes). While it is recognized that, as HP urges the Court, ‘“[s]ettlement negotiations involve
10 11
sensitive matters”’ and, thus, that “’ discovery [of settlement negotiations] is proper only where
12
the party seeking it lays a foundation by adducing from other sources evidence indicating that the
13
settlement may be collusive.’” Dusek v. Mattel, Inc., 141 F. App’x 586, 588 (9th Cir. 2005).
14
While Mr. Copeland is not willing to suggest that the proposed Settlement was collusive, it is
15
clear that HP created such massive economic incentives for the case to “go away” that the Court
16
might well conclude it does not pass the “smell test” and discovery by Mr. Copeland as an
17
intervenor is warranted.15 CONCLUSION
18
For the reasons set forth herein and in Mr. Copeland’s opening briefs, he request that his
19 20
motions to intervene and to deny preliminary approval be granted.
21
Dated: September 22, 2014
22
/s/ Richard D. Greenfield GREENFIELD & GOODMAN LLC Richard D. Greenfield (admitted pro hac vice)
23 15
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Mr. Copeland does not suggest that Judge Walker was anything but independent, at least as to what he did in mediating the Settlement. However, as a mediator, he is not charged with any deep understanding of the case; rather, he undoubtedly only had before him the facts and arguments presented by counsel for the negotiators. His job was simply to bridge the gaps between the parties’ negotiating positions and to bring about a resolution. 15 REPLY MEMORANDUM IN SUPPORT OF MOTION TO INTERVENE AND IN OPPOSITION TO PRELIMINARY APPROVAL OF REVISED SETTLEMENT AGREEMENT No. C-12-6003-CRB
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Marguerite R. Goodman Ilene F. Brookler (SBN 269422) 250 Hudson Street, 8th Floor New York, NY 10013 Tel: (917) 495-4446 Fax: (212) 355-9592
[email protected] [email protected] [email protected]
6 7 8 9 10 11 12 13 14 15 16 17
Scott R. Shepherd SHEPHERD, FINKELMAN, MILLER & SHAH, LLP 35 E. State Street Media, PA 19063 Tel: (610) 891-9880 Fax: (866) 300-7367
[email protected] Rose F. Luzon (Bar #221544) SHEPHERD, FINKELMAN, MILLER & SHAH, LLP 401 West A Street, Suite 2350 San Diego, CA 92101 Tel.: (619) 235-2416 Fax: (866) 300-7367
[email protected] Attorneys for Proposed Intervenor A.J. Copeland
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CERTIFICATE OF SERVICE
2
I hereby certify that on this 22nd day of September, 2014, I caused the foregoing
3
document and accompanying exhibits to be filed and served via the Court’s ECF system on all
4
counsel of record.
5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28
/s/ Richard D. Greenfield Richard D. Greenfield
