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Delaware Chancery Court Conference on J. Crew

Delaware Chancery Court Conference on J. Crew

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Conference on J. Crew buyout dispute before the Delaware Chancery Court.
Conference on J. Crew buyout dispute before the Delaware Chancery Court.

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Civil Action No. 6043-VCS

- - Chancery Court Chambers New Castle County Courthouse Wilmington, Delaware Friday, February 11, 2011 2:30 p.m. BEFORE: HON. LEO E. STRINE, JR., Vice Chancellor. - - OFFICE CONFERENCE - - -

-----------------------------------------------------CHANCERY COURT REPORTERS 500 North King Street - Suite 11400 Wilmington, Delaware 19801-3759 (302) 255-0525

2 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 APPEARANCES: STUART M. GRANT, ESQ. JOHN C. KAIRIS, ESQ. Grant & Eisenhofer, P.A. -andPAMELA S. TIKELLIS, ESQ. ROBERT J. KRINER, ESQ. Chimicles & Tikellis LLP -andMARK LEBOVITCH, ESQ. AMY MILLER, ESQ. of the New York Bar Bernstein Litowitz Berger & Grossmann LLP -andCHRISTINE S. AZAR, ESQ. Labaton Sucharow LLP -andJONATHAN GARDNER, ESQ. IRA SCHOCHET, ESQ. of the New York Bar Labaton Sucharow LLP For Plaintiffs A. THOMPSON BAYLISS, ESQ. LEONARD GREEN, ESQ. Abrams & Bayliss LLP -andPETER L. WELSH, ESQ. RODMAN FORTER, ESQ. of the New York Bar Ropes & Gray LLP For Defendants TPG Capital, L.P., James Coulter, Chinos Holdings, Inc., and Chinos Asquisition Corportion GREGORY P. WILLIAMS, ESQ. Richards, Layton & Finger LLP -andSANDRA C. GOLDSTEIN, ESQ. J. WES EARNHARDT, ESQ. of the New York Bar Cravath, Swaine & Moore LLP For Defendants Mary Ann Casati, David House, Stephen Squeri and Josh Weston Appearances (Cont'd) CHANCERY COURT REPORTERS

3 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 - - 18 19 20 21 22 23 24 CHANCERY COURT REPORTERS MATTHEW FISCHER, ESQ. Potter Anderson & Corroon LLP -andMEREDITH E. KOTLER, ESQ. MOLLY M. LENS, ESQ. of the New York Bar Cleary Gottlieb Steen & Hamilton For Defendants J. Crew Group, Inc., Heather Reisman Stuart Sloan, Steven Grand-Jean and James Scully JAMES E. BRANDT, ESQ. of the New York Bar Latham & Watkins LLP For Defendant Leonard Green & Partners APPEARANCES: (Cont'd) WILLIAM M. LAFFERTY, ESQ. Morris, Nichols, Arsht & Tunnell LLP -andTARIQ MUNDIYA, ESQ. ANTONIO YANEZ, JR., ESQ. of the New York Bar Willkie Farr & Gallagher LLP For Defendant Millard Drexler

4 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 THE COURT: Here, I'm not sure -- you

know, I would just say, my initial impression is, I'm not exactly sure what exigency exists at all in this sense, which is, when is the vote? MR. WELSH: THE COURT: March 1st. March 1st. I don't know

what I'm supposed to do between then and now that really would be prudent. I could do a lot of things that would be precipitous -- you know, not as well thought out as they should be. And I'm not sure you do that in a

situation where somebody faces some irreparable injury, and where the benefits of judicial judgment might outweigh, you know, the harm that would be threatened -- judicial action is waived by that irreparable injury. Here, you've got a situation where I'm not quite sure what it means to specifically perform a settlement in this context. I'm a person who takes I'm one of those

civil procedure pretty seriously.

strange people -- to the extent you liked law school at all, a lot of people didn't like civil procedure. I kind of did. I mean, I did. And I clerked for two

federal judges, and I take it seriously. CHANCERY COURT REPORTERS

5 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 And one of the things we know about this context, is my friends to my right here -- who, for people who are reading the transcript, would be the plaintiffs -- they represent a class of people who have the right to themselves determine whether they ultimately will settle the case or not. So, you get

something different than the normal analysis because, in the first instance, I would be finding, which would normally be enough, I think, and it might be enough as against particular plaintiffs. knows. Right? I mean, who

But in the normal situation, if you had a

railroad dispute, or something else, and counsel with authority negotiated something in this context. you say you reached bullet points. And

There have been

situations where, you know, courts have found, even though it was subject of future documentation to turn eight bullet points into 35 pages, that it was a binding settlement and that you have to -- at least, to the extent a party is trying to renege on one of the eight material terms, they could be held to that. And you go forward and you enforce that against the client. Of course, that's in a situation where the

lawyer is speaking for the client with authority. We have here layers of analysis -CHANCERY COURT REPORTERS

6 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 right? --which, one, you'd have to go through the normal analysis to get there. Even if you assume, for

purposes of that analysis, that each of the lawyers who were participants in the settlement actually bind their own named plaintiff, that's quite a distance from binding the people who would have to be given notice and opportunity to be heard at the settlement. Right? Because part of why we do that under Rule 23,

because of the representative nature of a class action, is to make sure that we've heard that there aren't any things that haven't been ferreted out. Where is Mr. Ernst? MR. LAFFERTY: THE COURT: No. Did he come?

I got some emergency

letters that we'll talk about -- the New York aspect. A Delaware lawyer has now written on behalf of, it looked like, the same letter I got from the New York folks before. I guess he didn't show up. The So, you

New York folks would get a chance to comment.

know, I can't do -- not that I don't -- not that I don't have sympathy or empathy for anyone in this circumstance, but I'm not saying that I don't -- is that I don't know that there's anything that I can do with respect to enforcing the settlement before a vote CHANCERY COURT REPORTERS

7 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 that would make any sense. On the other hand, you know -- for the plaintiffs -- you know, I'm not going to enjoin a vote when I had a preliminary injunction hearing scheduled and people called me up and, because of our rule or law, or whatever it is, and they told me they were all happy with each other and they had gotten it done. I don't know what to do. I do think it's one of these situations where, honestly, if the defendants prove out to be right, that the plaintiffs' group that forged the settlement shouldn't expect to be rewarded. What I mean is, as a fair consequence to me of this kind of kerfuffle would be that a class might get the benefits of something without there being any real compensation for the lawyers, because that's the only way to be fair, frankly, to the process in general. Because you can't have a situation where part of why you have notice to the Court -- as many of you've heard, I'm not quite sure what we're supposed to do with the notice. supposed to do? We get the notice. What am I So

I was raised Catholic, but I leave to I'm just part of the I don't just stand up

the clergy the blessing. congregation.

And I'm a judge.


8 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 and bless the thing. So you told me about it. But

you can't have a situation where plaintiffs routinely go around, have defendants give extra consideration and get nothing. On the other hand, defendants do that at their own risk; right? I mean, there's a way you

can slow down the gears of a deal and say, "We're not doing this until there's a binding settlement, and that means notice and opportunity to be heard." think something would have to be done, as a consequence, honestly, if I find that the plaintiffs reneged. At the very least, you can't come in and say, "Give us our fee," just as if this was a normal situation. "Oh, we made a mistake, Your Honor. There was But I

We overreacted to what the defendants did.

no breach of the thing but we should get, you know, 3.3 million, which is a third of the 10 million in consideration, plus the therapeutic benefits." would be a pretty poor incentive structure. I guess I'm not sure what anybody really wants me to do at this point. I'm not sure That

anybody's really thought through how I would enforce a settlement against a class. I was kind of hoping


9 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 York lawyer. MR. GRANT: Maybe he should tell you you, Mr. Grant? MR. GRANT: Not with me. Mr. Ernst was here. I would say, on the record, I'm

certainly willing to have the New York lawyers talk to the Delaware lawyers. Has there been any communication with

Mr. Lebovitch had an interesting discussion. THE COURT: Mr. Lebovitch is a New

what the New York plaintiffs had in mind. THE COURT: Okay. Early on in the case, Certain of


I think we had a schedule set in place.

the New York lawyers called, said, you know, "Let's work something out together." They wanted us to

litigate in New York, kind of on the philosophy that you could get a bigger disclosure fee in New York. And I said, "Goodbye." MR. GRANT: We're not very interested

in further discussions with the people in New York. THE COURT: Before I talk about any

organizational structure, they all talk to the leadership. Hey, I'm open to anything. CHANCERY COURT REPORTERS If they have

10 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 some proposal apparently to propose a single firm -maybe it's one of you. Cross & Simon. I don't know. Maybe it's

I don't know. What I'm saying on the record -- and

you can deliver the transcript -- Mr. Ernst and his Delaware lawyer, he's welcome to make a motion -- you know, file a case. I think, if people want to be in

part of a case, generally they should file a complaint or move to intervene. I'm sure, from the defendants'

perspective, it should all be in one place anyway. That's my thoughts. You're all here. I don't know

what you want me to do and when. enjoin a vote. MR. WELSH: just speak to that briefly. Gray on behalf of GT capital.

I'm not inclined to

Your Honor, if I can maybe Peter Welsh from Ropes & In the near term, on an

expedited basis, we agree with Your Honor that there's no need to move forward with litigation over this matter, or other litigation between now and the shareholder vote. We agree with that.

At the same time, however, Your Honor, we, defendants in the underlying litigation, are very interested in proceeding with enforcement of the settlement. We had a binding settlement in this CHANCERY COURT REPORTERS

11 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 matter. We think the essential terms were all clearly

spelled out, reduced to writing in the MOU, agreed to by the plaintiffs. In fact, the plaintiffs have

acknowledged that there was a binding agreement reached over the Martin Luther King Day weekend. The

only issue at this point is an issue of whether that agreement has been breached. THE COURT: We are -Is it the only issue? You I

mean, I don't know how it got to this point. know, I have my own guesses. do in my position.

You don't guess what you I have my own

You learn things.

sense that maybe some people could have taken a walk around the block a couple times before they communicated with each other. It's not unusual to

face cases where that doesn't happen. How do I deal with the thing? Is

there some example in Wright and Miller where this had happened and a court has -- how would I do it? I I

would order them, as plaintiffs' lawyers, to what? understand dismissing -- I could -- I guess I could get to the point where I say there was a settlement with their named plaintiffs and they're out. what they got. And actually, by denying the

They got

defendants the possibility of getting the global CHANCERY COURT REPORTERS

12 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 release, it's really not at all fair for them to try to seek some sort of fee. could go to; right? I suppose that's a road you

Because they should -- each of

the plaintiffs' lawyers should have been talking to their own client. And so we shouldn't be in a

situation here, you know, unless I'm going to hear something unusual, which we could hear through discovery where somebody says, "Well, even for my own client it was really wait for the notice." we won't hear that. So you can imagine some situation where perhaps there could be -- maybe that means there's the dismissal of the Delaware case. Have you I suspect

really thought through that that's where you want me to go? Because what I understand what that would Maybe

leave is you might get these folks dismissed.

it reduces the size of your class, and then the people to whom notice and opportunity to be heard would be given -- could have other representatives pick up the cudgel and litigate the claims. MR. WELSH: Your Honor, when I say the

only request remains in this breach, speaking respectfully to the named plaintiffs -- the lead plaintiffs in this case -- we understand, Your Honor, CHANCERY COURT REPORTERS

13 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 on this point. with respect to classwide settlements, that's a much more complicated issue. We have thought quite a bit

about that, as a joint defense group here. Your Honor, I think a couple thoughts Certainly there are other shareholder

plaintiffs out there, apart from these named plaintiffs in New York, as Mr. Grant and Mr. Lebovitch mentioned. This settlement was a hard fought

arm's-length settlement reached in good faith, which Mr. Grant described in his letter to the Court as a settlement that would provide significant and arguably unprecedented corporate governance relief through a litigation settlement. THE COURT: "arguably" in there. MR. WELSH: That list, the litany of So you left that

corporate process enhancements that were agreed to, as part of the settlement, which are significant, gives, from our perspective, significant -- gets, we believe, from the shareholders perspective and is entirely possible. Your Honor, our view is that there's

another plaintiff out there who believes that this is a fair settlement and would be willing to assume the mantle of lead plaintiff and proceed with the class CHANCERY COURT REPORTERS

14 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 understanding. THE COURT: 10 million more now; right? MR. WILLIAMS: We've already You don't have to pay the settlement approval process. case -THE COURT: what does that mean? Wait a minute. I mean, If that's not the

The idea that someone would come

forward as a plaintiff's lawyer and -- you're in a difficult position now; right? Your friend would

argue, for the reasons in their complaint, you know, you deserve it. But you can choose now to either do

the original deal or pay the 10 million bucks more, and offer it to the stockholders; right? MR. WELSH: Sorry. I'm not

implemented much of the settlement, Your Honor. THE COURT: I understand that, with

respect to the go-shop and all that kind of stuff. The extra 10 million bucks -MR. WELSH: The 10 million bucks has We've taken steps

not been paid to the shareholders.

to pay it to the paying agent to pay the shareholders. THE COURT: MR. WELSH: If the vote goes up. Correct.


15 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 good spot. THE COURT: I'm not saying you're in a

Theoretically, you could take $10 million

off the table -- right? --and go back to the deal you had before and go to the stockholders. what you're saying. settlement. I understand

You may want to enforce I'm And

I'm talking about the time frame.

here with a lot of lawyers on an emergency basis. everybody wrote me a letter saying, "We got to get together."

There's a lot of reading on complex things Where

to do to even think about where you want to go.

you just raised to me the hypothetical that there's going to be a plaintiff's lawyer whose objective is not going to get more for the class but to step forward and say, "I want to present the done deal to the stockholders with notice and opportunity to be heard. And that's my role in life and then I'm going

to get what for that?" MR. WELSH: I mean, I don't want to I don't know

speak for other plaintiffs' counsel.

what they would expect to get for that. THE COURT: What would you expect to I mean, part of the

get, unless you pull the ten?

reason why I said to them -- one of the things I could imagine coming out of this, they get bupkus. CHANCERY COURT REPORTERS The only

16 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 pay the fee. pay. THE COURT: The company was going to Get equitable result from the defendants' standpoint is they get bupkus because they -- if I find that they induced you all to do this and then left you exposed, without getting the full benefit of the agreement, with the release that at least in equity you shouldn't have to, you know, face -- frankly, don't reduce the 10 million to the class, or -- I don't know -- half is going to pay the fee, whether it was you guys. MR. WELSH: The company was going to

You're just not going to do that. But that's all different.

you coming and going.

Somebody is going to come present to me this settlement -- some new lawyer? Because, from the

standpoint of a new lawyer coming from a class -- the duty of the new lawyer is to represent the class, not to represent the pristine nature of this and to do right by you guys. And I didn't know how somebody in

good faith could say, "We're just going to press to make sure that the class gives the release," because for all the reasons you feel ill-used -- right? --if

this goes down, would be a reason why the class has already gotten what it was going to get. CHANCERY COURT REPORTERS Why am I

17 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 coming as a representative of the class to just basically make sure that the class gives the release? MR. WELSH: Because part of the

settlement is the 10 million-dollar payment. THE COURT: MR. WELSH: But that's your choice. It's part -- that's part

of the terms of the settlement. THE COURT: What I'm saying is, you're

saying -- do you have some reason to believe, for example, that your friends in New York wanted press? Is that why they want to join us? MR. WELSH: received no inbound calls. communications. THE COURT: You guys might pull the We have no idea. We've had no We

ten, somebody comes in and says, "We want the ten." And over $10 million I'm supposed to have a hearing? MR. WILLIAMS: clear up one thing. Your Honor, let me

We're not pressing for any

expedited hearing with respect to whether or not this settlement is enforceable. We think it can be done on

whatever schedule Your Honor thinks is appropriate. But we think -- do I think that some plaintiff out there might say, "You know what? Yeah, I would like


18 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 issues. to get $10 million for the class. would." Absolutely I

And some plaintiff's lawyer might feel an Absolutely.

incentive to do that?

From our standpoint, we would like to litigate, on whatever schedule Your Honor thinks is appropriate, the question of whether or not Your Honor can direct these folks to go forward in good faith with what they agreed to do. I understand there's some procedural Even if we don't prevail on that, these

clients are bound by this agreement and we should not have to litigate against these people. THE COURT: No. No. I understand

that you have a right to do that.

All I'm saying is,

I think the difficult situation you're in -- I want to hear from Mr. Grant and Mr. Lebovitch about what they want to do. The difficult situation you're going to You're

be in is we're a good way through February.

going to present a deal on the first day of March. You're going to have to make a strategic decision whether you give them the 10 million that they have been led by everybody in this room to believe they would get or not. And the thing about this -- one of

the reasons why we usually do injunctions is CHANCERY COURT REPORTERS

19 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 irreparable injury. When it's a fight about the

consequences of 10 million bucks, you're not going to get an injunction because you can figure out -- I mean, frankly, the advisors on the deal probably got way more than 10 million bucks. And so, you know, I

doubt they want to have an injunction hearing to look at that. MR. WILLIAMS: Your Honor, we're not I'm fine to go

envisioning an injunction hearing.

forward but on some responsible schedule where somebody researches this. I want everybody to know --

I didn't want anybody to have a transcript where Strine didn't observe that it's a fairly unusual idea here that I'm going to impose some settlement on a class. I don't think that's what we're talking about.

I don't know of any precedent for that. And even the idea of this sort of -it's like when people put these silly things in merger agreements. Yes, you've heard a Delaware Judge say a

silly thing in a merger agreement or somebody can't change their recommendation. Right? So the merger

proxy is going to come out in six months and you can't change your recommendation. In the meantime, the deal

price is at $50, and the market cap of the company is CHANCERY COURT REPORTERS

20 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 1 billion. It makes pizzas and Warren Buffett and

Bill Gates stop by with Jimmy Buffett and they eat a slice of the pizza and it's the best thing they ever did, and concluded they want to buy at 10 billion to take it private so they could serve the pizza to their friends. But your board is sworn to sell it at a You can

billion and not change its recommendation.

put it in the agreement and then you can lie in your proxy. We still -- we are duty bound still to We recommend you take a billion. You should know that people with good money -- in fact, we have a certified check from the U.S. Government for $10 billion sitting in our thing because they want to eat our pizza. this material fact. You should know

recommend this.

Irrespective of that elderly

person, or person whose eyes have now changed and you've had lazer surgery, you can see far but you can't see near, and are too vain to actually put on the reading glasses, you've gotten the proxy thing and all you read in bold is we recommend the merger; right? Probably silly and immature. Here, I'm not sure how I craft something where I have -- I impress upon them the duty to go out and say, you know, go get the settlement CHANCERY COURT REPORTERS

21 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 things. THE COURT: I will -- these are not done after this happens. I think the best we're

talking about is the named clients may go away; right? Mr. Grant, where are we with this? This is a mess, honestly. MR. GRANT: Let me tell you a few

the clearest assertion of violations, let me just say, that I have ever heard. MR. GRANT: Understood. Let's talk

about kind of where we are and who is giving up what. Actually, we're the ones who have given up more in, you know, what happens if we don't have a settlement, because we have a right to go for a preliminary injunction. We now lost that right. There's not

enough time and Your Honor is not going to hear it. It's not like -THE COURT: anything responsively done. MR. GRANT: It's not like we're I don't think you can get

getting some kind of benefit here and they have all the detriment. We kind of got suckered into this and

with a certain amount that we have given up. THE COURT: Because you and


22 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 knishes. MR. GRANT: They want to enforce the I was just possibility. So the first thing they say -THE COURT: The first one selling Mr. Lebovitch and Miss Tikellis, you guys just kind of -MR. GRANT: THE COURT: Country lawyers. Yeah. Actually, I

understand that they were going to do a remake and you -- and the first three years you play Gomer. Then, when you left to have your own show, Mr. Lebovitch was going to be Goober. MR. GRANT: That's definitely a

settlement and they say it's enforceable.

wondering whether it's this one that was sent to them, or whether it's this one, with all the red lining and cross out and everything else they sent us. I just

wondered which one is going to be enforced because that would be interesting. There's no doubt that we each thought we had a settlement. meeting of the minds? The question is, was there a And based on the letters that

went back and forth, I claim that there's not even a CHANCERY COURT REPORTERS

23 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 meeting of the minds, let alone whether there's a breach of that. There's no meeting of the minds, and

that's because we understood we were getting certain benefits, that there would be an extension of the go-shop. That information we kept confidential --

that they'd make an effort to try to actually really sell it. And they must have thought that they had

certain rights to do certain things, like announce what was going on to everyone, and to basically tell the world that the go-shop was a joke because here's the proxy and they didn't have to do that. They could

have waited until the end and sent all that out and sent a message that said, "We're not taking this thing seriously." minds. If there is a settlement, then the question is: what are the terms? materials? Did they violate the It's Part So that's the lack of meeting of the

Your Honor said we weren't clear.

not the clearest articulation of the violation.

of the problem is, I don't know what the terms are to tell you who violated what. get what we wanted. THE COURT: One of the issues, though, All I know is we didn't

that we face -- why I think Vice Chancellor Lamb put CHANCERY COURT REPORTERS

24 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 in a decision you should inform the Court, or something like that. Why I told you all, informing me If

of things like this I don't know what to do with. you actually have a negotiated stipulation of

settlement that's fully baked, then -- and everybody signed it -- then you're in a different situation. MR. GRANT: THE COURT: Absolutely. People come to the Court. You're in a

I understand the time pressures.

situation where you don't want to go forward with the injunction proceeding. You're going to do things. So

you don't actually -- I mean, I'm actually not of the view that it can't be fully scrivened. The only

reason why I'm saying that -- I'm not saying it doesn't take a lot of things. But we do know there

are situations where people have drafted full acquisition agreements in 48 hours. And part of what

the lesson of this may be for people is, you know, as ugly as it is, you're going to put in that 48 hours of work sometimes. And maybe have you to put it in So that there's any, you

before you call the Court.

-- and then you get into things like I know the defendants position. requirements. We got SEC disclosure

People get clear about what gets CHANCERY COURT REPORTERS

25 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 Come on. MR. GRANT: The release could only be So that, the merits. disclosed or not gets disclosed, or what it is. I'm saying, I don't want to get into I honestly don't really understand

exactly why the disclosure that no one else has come forward yet discourages someone who isn't in the process. You can't, by definition, discourage someone There might be some You

who was already in the process.

good reason, and I don't want to get into it.

know, it might suggest you have a wide open field and that you can just come in and, if you want preppy -buy preppy clothing -- we're in a good place for a J. Crew kind of hearing. kind of place. Delaware. It's a J. Crew All these

We have Talbots, J. Crew.

kind of -- I know J. Crew likes to think it's not preppy. Until it changes the name, it kind of is, by

definition. MR. GRANT: There's another part of Even if there is a

this that's really important. settlement -THE COURT:

You got Chinos Holding.

as of the time the settlement was released.

even if there was a settlement and there's a release CHANCERY COURT REPORTERS

26 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 as of that date, to the extent that there is conduct post that time -THE COURT: I understand. You also

understand the predicament of the nature of this was -- is -- and I understand your point about giving up the preliminary injunction. And in some ways,

let's be fair to the plaintiffs' lawyers here -right? --they did something that was unusual for another reason, which is cynical observers of the process. class. They could count the money, not just for the But the reality is, if they had come and

gone -- you know, they got -- definitely got a 10 million-dollar benefit. They got other benefits.

So they clearly got a non-- I mean, a substantial attorney fee that they're going to be able to get. That's what I'm saying. Maybe the ultimate police factor here is -- Mr. Grant, I think the thing I'm going to have to -- it's going to be up in the air. What do I do if

I determine that, frankly, whether you're acting in good faith or not, you actually did have a deal, and that what you're trying to do is kind of renegotiate something? MR. GRANT: You'd have to find we had


27 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 there is. things happened? be dismissed. a deal, what the deal is, we breached the deal. THE COURT: Assume I go down that. I

assume the consequences should be a dismissal against your named plaintiffs? MR. GRANT: Could it be, if all those

The answer is part of the case could

To the extent that we amend it to say,

look at this bad stuff that you did, from the time that you allegedly reached this deal on -- no, that couldn't be dismissed. THE COURT: You're saying things like,

if there was actually a bad faith shopping process? MR. GRANT: Correct. Which we think

We think that's part of this whole -- to

the extent there is one, you breached -- we think there wasn't even a meeting of the minds because they went and did something that obviously they will testify they believed they could do, and we didn't believe they could do, so hence there's no meeting of the minds. THE COURT: The thing about it is,

when you get a settlement, it doesn't -- you will have to prove -- one of the things that's at issue, you have to -- you obtain, by nature of this -- right? CHANCERY COURT REPORTERS

28 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 --you principally -- the restrictions on people's freedom are the things that other people are required to do, or something you extracted from the defendants. To the extent that there isn't something that prohibits them in the agreement from doing something, and you're back to argue that it's somehow impliedly prohibited by something, that's a much more difficult argument, you have to understand. That's not a

meeting of the minds argument because you're going to have -- these are the eight things the defendants were willing to do. You can't go and point out there's 16 Well, the point about the

other things that they did.

16 other things is, unless they're somehow prohibited by the eight things, leaving some room obviously for something that would be impliedly prohibited, but you'd have to make a very clear kind of argument to that point, they're free to do that. America. MR. GRANT: You are not free in We're in

America to eviscerate the other person's consideration that you just bargained for. THE COURT: implied covenant. That's what I mean by the

You'd be arguing that within, say,

paragraph 4, that's your point about the go-shop -CHANCERY COURT REPORTERS

29 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 of the proxy. that there's something about the continuity of the go-shop period and the utility of that continuity which was fundamentally disturbed by the revelation that, as of a certain date during the go-shop period, no one had yet come forward. MR. GRANT: That, and the sending out

Scheduling the meeting and all those

things were done to basically eviscerate the effectiveness of the go-shop. THE COURT: Not as long as you have,

but for a pretty long time, things like asking that the meeting be held no earlier than X is a pretty obvious subject for negotiation. And for -- and I

understand how -- I understand, for example -- and part of the reason why I'm raising this, as candidly as I am with you, Mr. Lebovitch, I understand your point, which is I get -- one of the things that defense lawyers frequently do, but sometimes plaintiffs' lawyers -- because I had someone come in recently and try to argue for a fee -- about cutting a termination fee in a case where 50 percent of the votes were locked up. some disclosure. I think I gave him a fee for

I'm like, I just want to let

everybody know I didn't fall off the vegetable truck. CHANCERY COURT REPORTERS

30 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 Who cares what the termination fee is. Who is going

to come into a process where the majority of the votes are locked up in favor of the deal? I understand, from the standpoint of someone lacking to play in this process, if I were an outsider, knowing that the vote wouldn't be any earlier than April 15th, let's just say, would be an advantage, because I'd have more time to kick the tires, even with the go-shop period. People look at a

go-shop and maybe not even care about the fee enough, but they have got time to deal with it. Where, if

it's March 1st, you know, it's -- especially if you're strategic or something. There's real resource

allocation, internal entity factors that come into play to decide whether you're going to be involved in this kind of process. The reason why -- the fact that I get your argument is also why we're going to have a big discussion. What your friends are going to say, did

you, people, as matter as Mr. Grant, Mr. Lebovitch and Miss Tikellis, Mr. Kriner know that that could be a factor. They could have put on the table that we They never

won't have the meeting earlier than that. asked for that.

And if they didn't ask for it, how


31 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 risk. MR. GRANT: I understand that. But to can it be a breach for us to do something? MR. GRANT: I understand, Your Honor. Obviously we

I'm getting back to your other point.

didn't do this lightly, because we could have taken what I think was a sucker punch that was delivered from the other side and still claim victory and said, "Look what we got. We got new process. $10 million.

We can ask the Court for a large fee and all that kind of stuff." THE COURT: clients upset about this? MR. GRANT: That's what we feel like. We feel we got suckered. We are putting our -- we're What happened? Were some

putting our clients' interests and the class' interests first. We're doing what I think everyone

wants us to do, which is why, by the way, to say, if you want to do this, you're going to have to put your fee at risk, I'm not sure is the right thing to do. But to say because you -THE COURT: Something has to be at

say, well, we want to put an incentive on you that, if you truly believe that they have done wrong by you, if CHANCERY COURT REPORTERS

32 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 here. you truly believe they breached the settlement, or there wasn't a meeting of the minds that in order to protect your clients' interests you need to put your fee at risk, most law firms -- not the ones sitting here -- most law firms will say, "I don't want to do that. Thank you very much." THE COURT: You can't be in a

situation where, at the very least, what you get out of it is what you expected to get out of the settlement. The interesting thing there, not only

would the defendants have paid the benefits of the settlement, they will have had to incur litigation fees in order to enforce the settlement that they would not have had to pay, plus you would get the same fees. Plus you would have subjected them to the risks

that you were going to continue to litigate the case. There has to be some consequence in And because it's not a class action, you know,

an accountability mechanism where simply your clients get dismissed and you get the right to have the same fee, it seems to me it's not an equitable solution. I'm not ruling out anything. You know, that allows

people to prospect for more with really not much -- I understand you don't do this lightly. CHANCERY COURT REPORTERS

33 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 forward. that. on? MR. GRANT: we've never done this. THE COURT: I point out, ordinarily In fact, this Court knows

people would say -- most cynical people would say about the plaintiffs' bar, this is already -- they have already figured out -- they're already on to let's think about how much can we get from them in light of this. The key thing is push through. Make

sure the settlement stays on track and move on to other cases. MR. GRANT: That would be the

economically smart thing for us to do, from our own standpoint. THE COURT: What's the schedule you're

I don't know why I would -- I do think there is

some -- there is -- it's hard for me to say to the defendants they don't have the right to at least go forward and try to do something with the settlement. I don't think it really makes much sense, until we know it happens on the merger vote. MR. GRANT: I think we can move

I think they should make a motion to do

I also think they should not slow down our One of the reasons why I wanted to have CHANCERY COURT REPORTERS


34 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 first. litigation hold. I mean, I was prepared, you know. all the dreck I do, this is not the worst dreck. had a hearing scheduled. I Of merger passes. do anything. THE COURT: Why should I have them this is we're moving forward to prosecute a damage action. THE COURT: What I'm saying is, I'm

not going to have anything happen -- why should I do anything between now and the merger vote? MR. GRANT: I don't know you have to

have to answer discovery from you guys about anything until we see how the merger vote goes? MR. GRANT: Let's assume that the They're

Let's say it's voted up.

still going to face a damage action from the class. THE COURT: They're under a duty to a

I was perfectly fine to hear

all the wonderful lawyers come in and talk to me about whether I should enjoin the Chino's preppy merger. Greenville, Delaware is one of the ten preppiest places in the United States in the original book. I don't know why you guys get to go It seems to me actually, when you call me up CHANCERY COURT REPORTERS

35 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 or e-mail me -- I think it was e-mail on a weekend or whatever it was -- that kind of first order of business is to actually determine whether you got a settlement or not. MR. GRANT: the damage action for that? THE COURT: It's a damages action. I So are we going to delay

don't know how long it takes.

I don't think it's the I think one of the

most fruitful thing in the world.

things the defendants are going to have to figure out is, what do you get over all this? the 10 million is this. What I mean about

If we had something where

somebody is -- I don't doubt that you could find some lawyer in the world between now and March 1st, if you had some Judge who was more inclined than -- I was going to characterize it in some way that was different than more inclined -- more inclined than I was to hold a hearing between now and March 1st. could find some class action lawyer to come in and champion the settlement you would get. What you would You

get out of that process, I would suggest, would not be worth very much to your clients. happen? And what's going to happen -- this is CHANCERY COURT REPORTERS How would that

36 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 Yeah. THE COURT: back, if things go well. And so they'll have it But they're going to have to where, frankly, I guess your clients are the ones trying to take this thing private again; right? MR. WELSH: THE COURT: That's right. They miss it. And they

have been missing it for how long now? MR. WELSH: About three or four years.

decide between now and March 1st whether they have it back, whether they offer $10 million more. Even if

somebody wanted to champion the settlement, they don't have time to champion the settlement. If, by March 1st -- if March 1st you don't offer the $10 million, the stockholders either turn down the deal or not based on the original deal. If you offer the 10 million, you'll have offered it. It will get -- you'll have made binding representations under the SEC that, irrespective of what happened, you think you're still going to go forward because other people relied upon it and you'll have paid it out. In which case, really, the

plaintiff's lawyer cannot come in, I don't think, one whose re-entry vehicle was adequately insufflated, CHANCERY COURT REPORTERS

37 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 where they entered the earth's a atmosphere, could not come into a court and say, "I want to make sure the class gives the release." strange. It would be very, very

The class will have already gotten the Your client will have already paid it. Where your client will be in a

10 million.

situation is where your client felt like it bargained for and other defendants bargained for a release and they didn't get it, and you're now going to enforce it, to the extent that you can. And then we got the

New York suit and all that kind of good stuff. But Mr. Grant, I think, in the order of things, they kind of get to go first with that. MR. GRANT: Well, they go first.

They're going to have to show that it was a meeting of the mind, what that actual contract is, whether it's their draft, our draft, something in between. MR. WILLIAMS: MR. GRANT: The one we agreed on.

That's got a lot of They're

interesting things that seem to be missing. going to have to prove that.

Then, Your Honor, they

say now we ought to have a fairness hearing. THE COURT: Let me say the following.

I don't know that we're going to have a fairness CHANCERY COURT REPORTERS

38 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 be candid. hearing. The two things that I wanted on my shelves

that you might not -- I wanted Wright and Miller and Moores. Okay? I use them. I don't think that's

where we would go.

That's why I was saying about If you think that I I think that's

where I think we would be going.

don't think -- you talk about dreck.

proceedings to enforce settlement agreements are about -- they're about up there with motions to enjoin arbitrations or advancement cases, in my book. Fascinating things to do. They may rank somewhat

above books and records cases, except that I almost always deal with books and records cases from the bench. Having made a rare and novel exception for

that, I now find I as soon go back to dealing with that from the bench. You know, I hate them. I mean, I'll I

A little bit of therapy with you all. I don't enjoy them at all. But I'm

despise them. sorry.

You all e-mailed me.

You're some of the best

practitioners on both sides that we have in this court. You told me you had a deal. Now, you had


You had enough to tell me to take off a You got bullet And

preliminary injunction hearing. points.

We've enforced things like this before. CHANCERY COURT REPORTERS

39 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 it seems to me, in that circumstance, when the defendants have realtered a deal, whether you like it or not, they get at least the chance to go forth and say whether they have got a deal or not. Because if

they have a deal and it's enforceable against your own clients, then really they shouldn't have to face discovery from you. Now, what they have to think about is they end up in a bizarre situation where they have still given away the consideration, that the plaintiffs -- I don't know what the plaintiffs in Delaware as a group hold as a percentage of the class. Do you have any sense? MR. GRANT: THE COURT: MR. GRANT: Less than 1 percent. Less than 1 percent. And there are others out

there prepared to hire us for a damage case, if these people are dismissed, because there's a settlement. So we will be right back here filing the same claim again. THE COURT: other host of issues. MR. WILLIAMS: that one, too, Your Honor. CHANCERY COURT REPORTERS Could have a motion on That brings in a whole

40 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 THE COURT: I don't get it. Put aside

whether the same firms are back, which I hadn't really been contemplating until I was just -- absent by our candid friend absolutely said, you know, you've got a group. Mr. Ernst is not here. You got a group of

people in New York who will be all too happy to prospect for more. Right? So you still have time

between now and March 1st to get this resolved. Is it galling -- I guess it is. wasn't in all your discussions. I don't know the As I I

spirit of the deal and all this kind of stuff.

said, I'm a little bit -- these are not the clearest allegations I've ever seen of a breach of material terms that were outlined in the agreement that I've ever seen. But you're also in a situation where you

know that you're in an enviable procedure posture because it's a representative case. I would urge everybody to find out -for whatever it's worth -- find out what this New York group -- I hear them knocking. something. settlement. They have got

Maybe they're there to champion the But I suspect that they're more

interested in the situation where they pick up the codger and where they come in and simply say, well, CHANCERY COURT REPORTERS

41 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 regardless of what Mr. Grant and Mr. Lebovitch and Miss Tikellis did, you know, there are other people who are not bound by the settlement and who are free to litigate this case regardless. it before Your Honor. But even then, Mr. Grant, what I would say to them, even if they don't really face that predicament, it's not clear to me why I ought to have the defendants being whipsawed. dispute with you all. They can finish the They could just do

It can be done -- not really

looking forward to it -- but it can be done by early mid summer. against. MR. GRANT: is a schedule right now. this motion -THE COURT: What I'm saying to Maybe that's what we need If they want to bring on And then they know who they litigate

everybody is, it is not sane or useful for anybody to be doing anything until March 1st. Go spend time with You know,

the love of your life on Valentine's Day. if you don't have one, find one. finding one.

Spend that time

And then we'll figure out whether the I think you've got

people approve the merger or not.

a group decision to make about do you give them the CHANCERY COURT REPORTERS

42 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 ten or do you not. Right? Understood. But I don't know -- I know


that everybody -- I don't really understand the rationale. this. And there's no way for a court to analyze

The reason about the notice, there's no reason

for a court to have a hearing about the prospective fairness of a settlement. things play out. determinations. People need to see these

And then the classes have to make That's the way the process is.

People give sort of preview advisory things based on snippets. That's why I'm always hesitant. I told

Mr. Williams on a few occasions, Mr. Lafferty, Mr. Grant, I say to say anything when you call me about these things, because I don't know what anything I say you could try to take to the bank. thinks this is good. Strine

This is another example where

the parties to the deal now are not even going through with it. I think -MR. GRANT: That's why we decided to

e-mail this time, since we knew how you felt about it. THE COURT: mean to waste your time. the Court. I really don't. I don't

It's a bad predicament for

I think actually it's wiser in some ways CHANCERY COURT REPORTERS

43 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 for the Court to be honest and say, "I'm not going to give you an impulsive reaction. You're big boys and

girls and you're taking a risk by not having a fully documented settlement." that risk. You know that you're taking

You're not the only parties in the world When it

who do it, but most times it will pay.

doesn't, the last thing I want that somebody thought the Court of Chancery blessed -- imagine if I had given some preliminary blessing. Then I would be

implicated in preliminarily blessing something that you all now don't even -- at least -- I'm taking that you're all acting in good faith. People can disagree

because they were there and they heard -- they had a sense of things. MR. GRANT: Your Honor, if we didn't

have you on the phone, the flip side of that is -- and we had to articulate it and you made someone say, you know, now tell me about the settlement, tell me what you think it is. And then you said, we've had other

Judges in this court do that -- to turn around and say, you know, did you hear what he said? This is So

your time to speak up, if you disagree with that. it's an oral expansion to the agreement. THE COURT: Let me say this.

There is


44 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 on the fly. a written term sheet. What people typically do when

they put a settlement on the record is they read something like a term sheet or bullet points, and then you ask all the clients to say do they agree to them. What you and Mr. Lebovitch are saying is that they engaged in conduct that is impliedly prohibited by that term sheet. For example, there is nothing in

that term sheet where anybody would have stood up to me that day and said they cannot have a meeting until April 15th. So nothing would have happened in that situation to flesh out what came. MR. GRANT: THE COURT: You're probably right. And it would have all been I

Then for me -- how do I know?

actually -- you know, I am a fairly traditional dressing guy in terms of how I dress. clothes in the house. We have J. Crew

I have no idea how long you

should have a go-shop to effectively market a company like J. Crew. are. I don't know what the industry players

That sounds -- you know, if this were an oil But for a

company, I'd want a bit more of a go-shop. clothier, it seems fine. guidance.

That's my expert judicial

It's -- that's not what we get paid to do. CHANCERY COURT REPORTERS

45 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 MR. GRANT: Understood. Would it be

possible to get on Your Honor's calendar the first week in March? THE COURT: Why don't you report back.

What day of the week is the first? MR. WELSH: THE COURT: Tuesday, I want to say. Why don't you report back

on Friday after the vote -- what happened on the vote. Before anybody gets on my calendar, I want you all to get together. I think, Mr. Grant and Mr. Lebovitch,

your friend Mr. Ernst and his colleagues, you probably need to give them a call and figure out what's on their mind. The defendants are probably wanting to

want to do that, anyway, to figure out what's going on. MR. GRANT: They stayed up in New York. forward. We know what's going on. This case is moving

Now that the case has no longer settled, That's what's going on. The two words that you

they want in on it.


should always never use, as you become older and wiser, are what? What? Always, and never. My dear wife, Right?

Especially when you have kids.

everybody who knows her will tell you she's a much CHANCERY COURT REPORTERS

46 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 You do. nicer -- Mr. Lafferty, Mr. Grant -- so much nicer than I am. She uses "always" and "never" much more than

me, and she finds herself backtracking, like you will never, ever. again. I'm like, the next day it's happening Mr. Grant, your intuition about It may be absolutely

I don't know.

what they want at this stage? right.

Unless you talk to them, you don't know. The other reality about this

situation, all I'm saying is, the fact that this is gummed up is unfortunate. People have gotten

emotional, but that doesn't mean you shouldn't act rationally. I know defendants hate paying twice. But the New York people being on the scene, For example, I could see

you know, I could say this.

the defendants saying, "We'll pay more to the class if you jerks take nothing in a fee." the heroes here? Fine. You wanted to be

I could see, frankly, you

guys want to be -- you're the ones who are willing to blow up your own deal? Fine. That could be rational

at this stage, because you get what you want and you pay instead of -- I have no -- the world -- all I'm saying is everybody on both sides ought to be open to thinking about the situation that you're in, because CHANCERY COURT REPORTERS

47 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 stage? what we're looking for, instead of enjoining a deal or doing anything, is talking about some goofy thing where we're going to spend a couple months -- here's another fun fact. How are we going to litigate this next The thing that I know is probably not going to

be hearing from my friends Mr. Grant, Mr. Lebovitch from the podium. afternoon. Right? I haven't heard Miss Goldstein this I probably won't be. Because you

guys are going to be in a very unusual -- somebody is looking a little confused. There's going to be --

you're going to be in a seat that you're usually putting other people in. deponent. You're going to be the

And there's a couple of you in the room

that people have been waiting to depose for a long time. It's just going to be -- it's just like there's Has Greg been

going to be a line -- I don't know. deposed before? I don't know.

He might have been It's just going to

smart enough to stay out of this.

be kind of interesting, because some of the better litigators in the country will now see how good they are as witnesses. Right? How are you going to prove

the spirit of the deal is going to be the people that negotiated it? Right? CHANCERY COURT REPORTERS

48 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 bit different. witness. THE COURT: Expert witness is a little MR. GRANT: I'm sort of an expert

We'll have witnesses who make their It will be

own speaking objections, things like that. lovely.

But seriously, you're going to have to get other people in your firm involved probably in the situation. And it's going to be -- as I said, in some But it's really not. The reason

ways it's amusing.

why I encourage everybody to talk to the New York people, get this transcript and digest it. some time between now and March 1st. can be restructured. What I'm saying about the restructuring, just to be, I think, kind of blunt about what seems to me to be some of the obvious human dynamics involved, is the defendants will be probably close to vomitous about the idea that there would be any reward for this on the plaintiffs' side. MR. GRANT: has encouraged that. best for the class. THE COURT: From your perspective, if I don't know why the Court There is

Maybe something

We've worked very hard to do


49 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 joke. you put -- I'm not saying they're right. saying you're wrong. dynamics. I'm not

I'm saying I know human

And they're going to take the position that

you were wrong and that they had a deal with you. They're in a situation now, as a practical matter, in which to get a global resolution of the case, because I know you suggest somebody could come in and pick up the cudgel for the settlement. Who would want to be You may have

written about as the one who did that?

to pay more just because of you guys deciding not to go forward. You may be right. about it, I'm being blunt. What I'm saying

Mr. Grant, I observe Right?

things from various people's perspectives.

You would have to get more now to go forth with the settlement because you've said that this is not what you all bargained for. MR. GRANT: We said the go-shop was a

My guess is, if we got evidence on what they

have done to move forward with this go-shop that they agreed to, after all the things they did to give the signal that this is a joke, that there would be an awful lot of embarrassment on the other side of the table here. That's how we would prove a lot of what CHANCERY COURT REPORTERS

50 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 our -THE COURT: Look, that's a whole --

what I'm saying is any situation -- then there's nothing to put together. And there's -- we're just

putting it off until we're going to have a trial some day and figure out if there's a settlement. All I was

observing was that, if I were the defendants and they were trying to globally resolve this, you know, you have to sometimes take a deep breath. What I was

observing for you guys is I think a pretty obvious thing is they wouldn't be looking to reward you all because they perceive you as having rightly or wrongly having pulled out of a deal that they had struck in good faith with you. And that -- who knows? --with

the New York plaintiffs -- everybody ought to be talking to each other. If what you're saying is this deal is so far off the mark that the only -- it's not even close, then we're going to go down the line, obviously. MR. GRANT: there's no mistake. Your Honor, just so

There's two things we're

asserting: one is that either there is no meeting of the minds here and therefore no settlement, or they CHANCERY COURT REPORTERS

51 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 breached the settlement. For you to -- for the Court

to take the view that we should somehow be punished personally as lawyers because we are protecting our clients' interests and asserting a breach from what they have done, I don't get. THE COURT: I'm not -- no one is

saying you'll be personally punished. MR. GRANT: I keep hearing that the

remedy here, if we're wrong, is to take our fee away. We've never raised fee at any time in the discussions with the defendants, at any time before the Court. any time. THE COURT: I don't know how have you At

a situation in which the expectancy of the one party to a settlement was that the representative -- the lead plaintiff representatives who negotiated it would honor their agreement, present it to a class, with the potential for the defendants to get a complete and global release. Have a situation -- remember, I have

not said one thing about the merits, about who is right or wrong. not. I've expressly said that. I have

But if you get to a situation where I were to

conclude that the plaintiffs in this case had reached a binding agreement, then reneged, the defendants CHANCERY COURT REPORTERS

52 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 had -- as a practical matter -- had to put up the consideration, including the $10 million, not gotten the release, to have a situation -- I'm not talking about punishment. It would be up to you.

If you made an application saying, "Look, Your Honor, even though you're dismissing our clients, we should get attorneys' fees for the benefit we produced" -- that's where I'm saying -- what I was talking about in the last instance is this. idea what they did during the go-shop or not. I have no They

might have been the best bankers in the world, best shoppers. They may have been totally disloyal I don't know. You all have more insight

fiduciaries. than I do.

And there's a period of time between now and March 1st where I was urging the defendants to do this. The fact that you feel like you put up

10 million for nothing doesn't mean you should be stupid. If you put up 15 and got the whole deal done, But I think, because you're

it might still be wise.

pretty good at human nature, Mr. Grant, that's part of how you've been so successful -- you know, one of the things from their point is they put up 15. They're

going to want to know that they're not providing a CHANCERY COURT REPORTERS

53 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 windfall to the folks that they dealt with on the other side who they feel like don't honor the settlement. Rightly or wrongly, that's going to be a

human instinct. MR. GRANT: should be resisted. It's an instinct that

What we're talking about here is

not just -- if there is a settlement, the thing is, we still have a claim post that settlement for the breaches of the settlement and the breaches of fiduciary duty that occurred post that settlement. THE COURT: No. I think here's the

thing that the reason why I think what I just said about that you're going to get a deal between now and March 1st is just not going to happen. People don't People And if

usually settle -- I understand the whole idea. don't settle cases to just have them reopen.

you already believe that the shopping process is just infected, then there's no possibility to have a settlement now. And I understood one of your

stronger points, although I have to look at the scrivening, is this argument -- that somehow it was releasing future conduct. that. Obviously you can't do

People usually, when a transaction closes and

you do everything related to the transaction -- you CHANCERY COURT REPORTERS

54 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 know, the point would be, unless you have some discernible reason, that's why you do confirmatory discovery; right? MR. GRANT: after the transaction. the transaction. Usually deals are reached

There's something wrong with

You'll pay more money, do whatever.

And this is the transaction that's going to move forward, which is how this could have worked had they not decided to say, "Well, we're going to schedule the meeting while we're doing the go-shop." THE COURT: I understand. One of the

things that always exists here is a lot of times people present things that provide inarguably greater opportunity for some superior transaction to come forward. And the consideration that's given is that The fact that the superior

greater opportunity.

transaction comes -- doesn't come forward doesn't mean that anybody did anything wrong. Why you would have

confirmatory discovery is you take a deposition or something like that. the banker? MR. WELSH: THE COURT: special committee. Perella Weinberg. They were representing the If you somehow think -- who is

You know, take confirmatory


55 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 just done here. discovery. thing. You find out they actually shopped the And you make a judgment If you find out

Is there something?

as a representative of the class.

during that that you bargained for a longer go-shop and nobody actually shopped and they treated it as a no-shop, I think what you would say there is that you can't support the settlement. MR. GRANT: THE COURT: Right. That you've learned

something else about the behavior of it that undermines it. The whole premise was obviously that

it would be in fact a go-shop, which means you would affirmatively shop and they actually treat it as a no-shop, and you would say we can't support the settlement. MR. GRANT: That's exactly what I've

Without the confirmatory discovery, I

saw what they did. THE COURT: Part of what I'm saying --

Mr. Grant, part of why I'm saying I want to take it slow and deliberate is there is a lot of layers thinking that has to be done before you start treating settlements in this representative action context as being analogous to settlements that are not. CHANCERY COURT REPORTERS And

56 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 that's why I want to think through it and that's why I'm not moving fast. What I'm trying to observe for everybody, you can't -- you guys can't take this personally, even though it was your decision as class representatives; right? But it was your decision.

Obviously they're going to have some fairly strong feelings in this situation -- particularly their clients probably do. I'm sure that some of the -- we

would need Rosemary Woods to help clean up the tapes of some of these conversations; right? I'm sure we've

got a few expletive deleteds there when the clients found out that this wasn't going to happen. I'm just

being real about the strong feelings that are probably running through. I saw some e-mail correspondence

between your colleague Mr. Lebovitch and Miss Goldstein. sides. MR. GRANT: It's also going to get It wasn't always the nicest on both

worse, because one of the things we'll wind up doing is having to depose a lot of lawyers on what advice that they gave to say do we have to schedule a meeting now. That's going to be their defense. We had to

schedule a meeting. CHANCERY COURT REPORTERS

57 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 in the room. THE COURT: I said that to everybody

Part of why I was urging everybody to

rethink before March 1st is, you know, it's going to be enjoyable because it's going to cost a lot of money. It's also a fairly high profile matter, I I don't know if that's influencing things

understand. or not.

Having high profile lawyers have their

depositions taken can also be something that people follow these kind of things and enjoy. hear from you that Friday. I'll wait to

I do not wish to hear from Okay?

any of you until you've talked to each other. Do not write me.

Remember, I mentioned the people with the -- I actually have -- still do not need reading glasses, but I'm starting to notice a change. And

getting three page single-spaced letters in small type is not helping. reading them. What I'm starting to do is, I'm not If you want to send -- I would suggest

that there's not a Judge in this court who wouldn't rather get a double-spaced letter than a single-spaced letter, just for guidance. We'd all rather -- if you

want something, you file a motion -- please, if you're going to write us a letter, give me a little space. But don't pop off to me until you've spoken to each CHANCERY COURT REPORTERS

58 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 one thing? other. And I would think, find out -- just as a courtesy to Mr. Ernst and the Delaware bar -Mr. Grant, you and Mr. Williams gave him a call and say together, "What's up? What do you want? The

Court mentioned you wrote a letter. to say? Say it.

You got something

If you want to intervene, you know, But tell us what you're

there's a way to do that. interested in." MR. GRANT:

If Mr. Williams is around

on Monday, I'll be happy to get together with him to make that call. MR. WILLIAMS: Your Honor, may I say

There's been a long extended discourse

between Your Honor and Mr. Grant and, in the course of that, Mr. Grant has said many things which we could well respond to, which we want to respond to, but we're not going to respond to today. Please

understand, we don't acquiesce in much of anything that he said, other than we agree that if we can't resolve this in some way that we should have that trial in the time period that Your Honor mentioned. The other thing I would say, Your Honor, you have rightly said, "Look, this will be a CHANCERY COURT REPORTERS

59 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 mess and you should all think about it." And we will We and

think about it, and we have thought about it.

our clients have no desire to litigate settlements. That's not what we are about. When you look at it

from our standpoint, we simply cannot be put in a position where we agreed to a document that's not -it's not nonbinding. nonbinding. A lot of MOUs say they're We can't be

This one doesn't say that.

in a position where we agree to something and implement it and then we're told, "Thanks but no thanks. Now we're going to have our cake and eat it We can't

too by prosecuting a claim for damages." acquiesce in that.

We have no desire to litigate on

settlements, but we're also in a position where acquiescing is very difficult for our clients and for us. THE COURT: appreciate the restraint. pretty restrained today. merits. No. I get that. I

Most people have been I don't want to get into the

You're right, when I mentioned the discovery It's not even clear that -- and I'm not

of the thing.

giving some advance opinion about whether you even need depositions. One of the quandaries we're in, we CHANCERY COURT REPORTERS

60 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 depositions. something? talk about confirmatory discovery, which is one of the things for to you think about is -- not to answer today but to think about this. many times. You've all done this

There's a situation where it's binding in It's binding in the sense that And those are sufficiently

this sense; right?

those were the terms. clear.

And that their argument that things that your It's not enough of a

clients did just doesn't fly. connection.

You then have the issue of, though, activity, which is not covered by that but which would be the subject of confirmatory discovery. shaking your head a little bit. MR. WILLIAMS: Can I interject You're

Say they're not binding, and then they say Now, I

it's all subject to confirmatory discovery.

didn't directly have this conversation with the plaintiffs. But they told us they did not want

confirmatory discovery and so we have -THE COURT: Had you already given --

you already had how much depositions. MR. WILLIAMS: We hadn't had But the

I wasn't part of the call.

plaintiffs told us they don't want confirmatory CHANCERY COURT REPORTERS

61 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 discovery, back when we were negotiating this. MR. GRANT: The other thing that needs

to be added is, I also made absolutely clear to Mr -I'm drawing a blank now -- Tariq. sorry. I'm sorry. MR. WILLIAMS: MR. GRANT: already argued one today. THE COURT: He goes blank. You never It's a common name. I I said, you know --

It's been a long day.

remember handsome, well-dressed people's names? MR. GRANT: I made clear to Tariq, I

said, "You're not going to get a forward-looking release. it. So if we reach the agreement today, that's

That's as far as you're getting the release."

That's why we didn't need confirmatory discovery. Anything that happens from that point forward is fair game. out. You're right. Didn't want So that's the evidence that's going to come

confirmatory discovery because there was going to be no forward-looking release. MR. MUNDIYA: Your Honor, I have no

recollection of talking about the scope of the release with Mr. Grant. Zero recollection of that.


62 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 also. MR. LEBOVITCH: I was on the phone. THE COURT: remember your name. MR. GRANT: Mark was on the phone Although Mr. Grant didn't

What it's worth, the other aspect of this is the driver here, which was discussed, was the process. Not about the money. While you set a meeting,

whatever you want, paragraphs one and eight say expressly you're extending a go-shop and you don't make disclosures. And what happened when we had our Why are we in

first conversation was, "Why the hurry? such a hurry?" go-shop.

The answer was, "You can't restart a That's

You can't disclose things to TPG."

why there was a hurry here. THE COURT: I really -- I just say, in

the interest of everybody's mental health, we're not going to do this now. restrained. restrained. And Mr. Williams was

And really he didn't -- he was I have actually, I think, given you guys I don't want

more of an ability to tell your story.

to hear -- I don't want -- this is so fascinating that I want to hear it fresh and full. You know, I'll just say, this was a CHANCERY COURT REPORTERS

63 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 am now over 50. problem. THE COURT: There are things I am able really -- it shows some of the clarity around things, when Mr. Lebovitch, you jump in to correct a person, when the only reason that person is speaking is because you had to suggest to Mr. Grant that that might have been the person to whom he said something. There's a possibility Mr. Grant actually said what he said, but not to the handsome lawyer named Tariq. don't know. But all I'm saying is, a moment ago I

Mr. Grant didn't even recollect which lawyer he spoke to. I forget -MR. GRANT: Let the record reflect, I

That's becoming a more common

to discuss -- my own prior decisions -- with almost total objectivity now because I have no -- I mentioned this to Mr. Williams. It's really true. I have no I'm

current recollection of what I was thinking.

happy -- I usually read them and happy to think I still pretty much agree with that. good. That sounds pretty

It's not like I recall struggling over that. I was bewildered the

Most I don't even know the name. other day.

Saw this thing in the Delaware Law Weekly,

and there was an appeal and I had done a bench ruling CHANCERY COURT REPORTERS

64 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 and awarded fees. I'm the kind of guy that does a But heck, I don't think No,

bench ruling and awards fees. I did it in this case.

It wasn't that long ago.

it was one of my colleagues. five years before.

I mediated the case like And I I

But I really couldn't tell.

have had people argue to me about some precedent. ask them who wrote it and it was me.

So I don't remember, like, from last Monday what I ate. If you guys are all going to tell

me that you have photographic memories of what you all said to each other, or that you don't get so caught in your own hot air at times that you don't listen to what's said back in response accurately, every one in this room does that at times. have reporters. Right? That's why we And as

And we have great reporters.

hard -- and they don't always get it right because we talk over each other. And imagine, when you argue

about what happens at conferences with the Judge when it wasn't on the record? people guidance. People get upset. Mr. Grant thought I I wasn't. I Sometimes we -- I give

was attacking the plaintiffs personally.

was trying to be realistic about the way you get to things is a look from each other's perspectives, and CHANCERY COURT REPORTERS

65 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 familiar. they ain't -- really the clients on the defense side aren't really probably thinking, Grant, Lebovitch, Tekillis and Kriner are high in their pantheon right now of people they want to give money to. real. I've talked to people about things and I know they don't hear the same things. the same words. You can say That's just

I understand how it might be This confirmatory discovery It's also the scope

surgical, it might not.

issue is going to be interesting.

of the release, and all that kind of stuff. We have to think, Mr. Williams, how much, you know -- how we do this. I don't want to move fast. That's part of why

You guys have to think

after you hit the books about what actual relief you can get. And I didn't know. Again, I'm not

I didn't memorize the release -- or

whatever it was -- the bullet points -- to know whether there was confirmatory discovery or not. MR. WILLIAMS: Your Honor, we agree.

We think we should think about where things are and, absent some better idea, we will be back before Your Honor after the deal closes -- assuming it closes -CHANCERY COURT REPORTERS

66 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 CHANCERY COURT REPORTERS to schedule a hearing on our claim. THE COURT: Good. Thank you.


(Conference adjourned at 3:50 p.m.)

67 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 CHANCERY COURT REPORTERS Certification Number: 108-PS Expiration: Permanent /s/ Diane G. McGrellis ---------------------------Official Court Reporter of the Chancery Court State of Delaware CERTIFICATE I, DIANE G. McGRELLIS, Official Court Reporter of the Chancery Court, State of Delaware, do hereby certify that the foregoing pages numbered 3 through 66 contain a true and correct transcription of the proceedings as stenographically reported by me at the hearing in the above cause before the Vice Chancellor of the State of Delaware, on the date therein indicated. IN WITNESS WHEREOF I have hereunto set my hand at Wilmington, this 12th day of February, 2011.

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