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  • Delaware Chancery Court Approves Modification To Plan Of Allocation 
     
    02/21/2017
    On February 15, 2017, Vice Chancellor Laster approved a modification to a plan of allocation of settlement consideration in In re Dole Food Co., Inc., S’holder Lit., C.A. No. 8703-VCL (Del. Ch. Feb. 15, 2017).  The Court found the original plan was too administratively difficult and costly to implement due to a discrepancy between the number of class shares stipulated to in the prior settlement and the number of facially valid shares claimants submitted after the settlement.

    On November 1, 2013, Dole completed a going-private merger and distributed the merger consideration to its stockholders, including Cede & Co., the nominee of Depository Trust Company (“DTC”).  Following litigation of a stockholder suit and settlement, litigation class members were to receive an additional $2.78 per share plus interest.  The parties stipulated that the class collectively held 36,793,758 shares, but claimants submitted claims for 49,164,415 facially eligible shares.  Class counsel determined that this discrepancy likely resulted from a high volume of trading in the days preceding the merger (and DTC’s failure to capture those trades) and the likelihood that traders shorted millions of additional shares, resulting in even more shares changing hands.  Consequently, the parties believed that “two different claimants could submit facially valid claims for the same underlying shares.”

    Class counsel sought to remedy the problem by instituting a pro rata distribution to record stockholders in lieu of the standard claims submission process.  Applying the standard from In re Philadelphia Stock Exchange, which requires only that a plan of allocation be reasonable, the Court held that the original plan, which “sought to allocate consideration among holders of Dole’s shares in direct proportion of their holdings” would be “impossible” to implement “without a lengthy, arduous, cumbersome, and expensive process.”  Accordingly, Vice Chancellor Laster granted class counsel’s motion to distribute the settlement consideration to record holders, consistent with Delaware law, which requires a corporation to recognize only its record stockholders.  Vice Chancellor Laster observed that the settlement distribution problem was not unique to this case, describing the problems raised by excessive trading just prior to a merger closing “appear[ed] endemic to the depository system and hence likely to infect every claims process.”  Vice Chancellor Laster noted that distributing settlement consideration to record holders from the outset “would mitigate both pathologies and reduce overall administrative expenses, which in turn will benefit the class.”
     
    CATEGORY: Fiduciary Duties

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