In Re AMC Entertainment Holdings, Inc. Stockholder Litigation ( 2023 )

COURT OF CHANCERY
OF THE
STATE OF DELAWARE
MORGAN T. ZURN LEONARD L. WILLIAMS JUSTICE CENTER
VICE CHANCELLOR 500 N. KING STREET, SUITE 11400
WILMINGTON, DELAWARE 19801-3734
April 5, 2023
Michael J. Barry, Esquire Raymond J. DiCamillo, Esquire
Grant & Eisenhofer P.A. Richards, Layton & Finger, P.A.
123 Justison Street, 7th Floor 920 North King Street
Wilmington, DE 19801 Wilmington, DE 19801
Thomas Curry, Esquire Gregory V. Varallo, Esquire
Saxena White P.A. Bernstein Litowitz Berger & Grossman LLP
824 North Market Street, Suite 1003 500 Delaware Avenue, Suite 901
Wilmington, DE 19801 Wilmington, DE 19801
RE: In re AMC Entertainment Holdings, Inc. Stockholder Litigation,
Consol. Civil Action No. 2023-0215-MTZ
Dear Counsel:
I write to resolve the plaintiffs’ Unopposed Motion to Lift the Status Quo
Order Due to the Parties’ Proposed Settlement (the “Motion”).1 For the reasons
that follow, the Motion is denied.
On February 27, 2023, the then-parties to the two actions constituting this
consolidated matter stipulated to expedited proceedings and a status quo order by
which the defendants agreed not to amend AMC Entertainment Holdings, Inc.’s
1
Docket Item (“D.I.”) 59 [hereinafter “Mot.”]. Citations in the form of “D.I. —” refer to
docket items in In re AMC Entertainment Holdings, Inc. Stockholder Litigation, C.A. No.
2023-0215-MTZ (Del. Ch.), formerly Allegheny County Employees’ Retirement System v.
AMC Entertainment Holdings, Inc., et al., C.A. No 2023-0215-MTZ (Del. Ch.).
Citations in the form of “2023-0216, D.I. —” refer to docket items in Usbaldo Munoz, et
al. v. Adam M. Aron, et al., C.A. No. 2023-0216-MTZ (Del. Ch.).
The plaintiffs assert “AMC Entertainment Holdings, Inc. (‘AMC’) and its board of
directors (the ‘Board’ and, together with AMC, ‘Defendants’) do not oppose, and
support, this motion.” Mot. at 1. AMC is not a party to the operative complaint in this
consolidated action. D.I. 14 ¶ 7; D.I. 20 ¶ 7; 2023-0216, D.I. 19 ¶ 7; 2023-0216, D.I. 26
¶ 7; 2023-0216, D.I. 1.
In re AMC Entertainment Holdings, Inc. Stockholder Litigation,
Consol. Civil Action No. 2023-0215-MTZ
April 5, 2023
Page 2 of 6
(“AMC” or the “Company”) certificate of incorporation as a result of any vote at
the Company’s March 14 special meeting, pending the Court’s ruling on the
plaintiffs’ forthcoming preliminary injunction motion.2 That same day, the Court
entered an order giving effect to those stipulations and setting a preliminary
injunction hearing date for April 27.3
On April 3, AMC filed a Form 8-K announcing the parties to the
consolidated action reached a proposed settlement.4 The same day, the plaintiffs
filed the Motion.5 As described in the Motion,6 the parties agreed that if the Court
approves lifting the status quo order, AMC will (1) “increase the authorized
number of shares of Common Stock,” (2) “convert the Company’s outstanding
AMC Preferred Equity Units (‘APES’) into shares of Common Stock,” (3) and
“effect a 1-to-10 reverse split of AMC equity.”7 Then, AMC’s pre-conversion
common stockholders would receive “one additional share of Common Stock for
every seven-and-one-half (7.5) shares of Common Stock held as of the issuance.”8
The Motion further explains that “the Settlement terms contemplate performance
before [a settlement] hearing takes place,” and “AMC anticipates executing the
convergence, and issuance of settlement shares, as soon as practicable after the
lifting of the status quo order.”9 The Motion asks the Court to lift the status quo
order to allow AMC to implement the issuance, conversion, reverse split, and
distribution of common shares before the settlement is noticed to stockholders and
approved by the Court.
2
D.I. 9; 2023-0216, D.I. 9.
3
D.I. 10; 2023-0216, D.I. 10.
4
AMC Entertainment Holdings, Inc., Current Report (Form 8-K) (Apr. 3, 2023).
5
Mot.
6
The Court does not have a copy of the settlement term sheet. To the Court’s
knowledge, the parties have not yet signed a final stipulation of settlement. Id. ¶ 3.
7
Id. ¶ 4.
8
Id. ¶ 5.
9
Id. ¶¶ 23, 26 (emphasis omitted).
In re AMC Entertainment Holdings, Inc. Stockholder Litigation,
Consol. Civil Action No. 2023-0215-MTZ
April 5, 2023
Page 3 of 6
Once a status quo order is in place, the party seeking modification or vacatur
bears the burden of showing why it should be modified or vacated.10 Generally, a
status quo order binds the parties until this Court enters a final judgment in the
matter or specifically orders otherwise upon good cause shown.11 As with the
decision to enter a status quo order, the decision to order otherwise is “within the
discretion of the trial judge.”12
The parties seek to lift the status quo order to allow the defendants to
complete their settlement obligations before the settlement is noticed, considered,
and approved.13 This Court has cautioned against parties performing even partial
10
In re Coinmint, LLC, 2021 WL 1996961, at *8 (Del. Ch. May 18, 2021) (applying a
“good cause” standard to vacate a status quo order); R&R Cap. LLC v. Merritt, 2013 WL
1008593, at *8 (Del. Ch. Mar. 13, 2013) (citing Conn. Gen. Life Ins. Co. v. Pinkas, 2010
WL 4925832, at *2 (Del. Ch. Nov. 18, 2010)).
11
See Coinmint, 2021 WL 1996961, at *8 (“The [status quo order] binds the parties until
this Court enters a final judgment in the matter or specifically orders otherwise upon
good cause shown.” (citation omitted)); R&R Cap., 2013 WL 1008593, at *8 (citing
Conn. Gen. Life Ins., 2010 WL 4925832, at *2).
12
R&R Cap., 2013 WL 1008593, at *8 (citation omitted).
13
Mot. ¶ 23 (“Here, the parties agree that the Court should lift the status quo order
because the proposed Settlement would provide a substantial benefit to the [proposed]
settlement class—namely, receipt of Common Stock that will likely be worth more than
$100 million—but contingent upon lifting of the status quo order and the conversion and
reverse split being consummated. Importantly, while the term sheet contemplated that
the parties will work in good faith to achieve final approval of the [Proposed] Settlement
at an anticipated future hearing, the [Proposed] Settlement terms contemplate
performance before such hearing takes place.”); AMC Entertainment Holdings, Inc.,
Current Report (Form 8-K) (Apr. 3, 2023) (“However, in order to allow the Status Quo
Order to be lifted now and permit the Conversion of AMC Preferred Equity Units into
Class A common stock to proceed, the Company has agreed to make a settlement
payment to the Plaintiffs’ class in the form of Class A common stock (the ‘Settlement
Payment’). The obligation to make the Settlement Payment only arises if the Status Quo
Order has been lifted and the Conversion has taken place. Subject to these conditions,
the Company, on behalf of the named defendants, has agreed, promptly following the
Conversion, to make a settlement payment to the record holders of the Class A common
stock as of the Settlement Class Time (as defined below).”).
In re AMC Entertainment Holdings, Inc. Stockholder Litigation,
Consol. Civil Action No. 2023-0215-MTZ
April 5, 2023
Page 4 of 6
settlement obligations before a settlement hearing, as doing so prevents the Court
from meeting its obligation to oversee class action settlements.14 It is well settled
that the Court of Chancery’s role in approving class action settlements under Court
of Chancery Rule 23 “is intended to balance policies favoring settlement with
concerns for due process”15 and arises “from the fiduciary nature of representative
actions,” particularly “the need to assure that the interests of absent class members
or stockholders have been fairly represented, and the necessity of guarding against
the ever-present potential for surreptitious buyouts of representative plaintiffs at
the expense of those whom they purport to represent.”16
14
See Chickering v. Giles, 270 A.2d 373, 376 (Del. Ch. 1970); In re SS & C Techs., Inc.,
S’holders Litig., 911 A.2d 816, 819 (Del. Ch. 2006) (“This court, in reviewing
settlements, has often reminded counsel of the Chickering decision and of the necessity to
present settlements quickly and to advise the court when some exigent circumstance
makes it difficult or impossible to give the necessary notice and seek formal approval
before the performance of some part of the settlement.”). This Court has rejected
proposed settlements when they were partially performed before the settlement hearing.
See, e.g., SS & C Techs., 911 A.2d at 819; Reith v. Lichtenstein, C.A. 2018-0277-MTZ,
D.I. 196 (Del. Ch. Oct. 3, 2022) (TRANSCRIPT). Performance without approval is
particularly inappropriate where the parties have identified no need to circumvent Court
of Chancery Rule 23(e). See Chickering, 270 A.2d at 376; cf. Barkan v. Amsted Indus.,
Inc., 567 A.2d 1279, 1285 (Del. 1989).
15
In re Celera Corp. S’holder Litig., 59 A.3d 418, 434 (Del. 2012) (quoting, 567 A.2d at
1283); id. (“Rule 23(e)’s requirement that court approval be obtained before any
settlement is consummated and the Court of Chancery’s role in reviewing the settlement
is required to safeguard due process rights, to ensure that the settlement represents ‘a
genuine bargained-for exchange between adversaries with a bona fide stake in the
litigation,’ and also that the settlement agreement’s terms ‘provide a benefit to the
members of the class and not merely a promise to pay the fees of their counsel.’”
(footnotes and citations omitted)).
16
Donald J. Wolfe, Jr. & Michael A. Pittenger, Corporate and Commercial Practice in
the Delaware Court of Chancery § 13.03[f][1] at 13-28–29 (citations omitted); id. at 13-
29 n.95 (citing Wied v. Valhi, Inc., 466 A.2d 9 (Del. 1983), cert. denied, 465 U.S. 1026(1984), and In re Activision Blizzard, Inc. S’holder Litig., 124 A.3d 1025, 1042–43 (Del.
Ch. 2015), and De Angelis v. Salton Maxim Housewares, Inc., 641 A.2d 834, 841 (Del.
Ch. 1993), rev’d on other grounds sub nom. Prezant v. De Angelis, 636 A.2d 915 (Del.
1994), and Erickson v. Centennial Beauregard Cellular LLC, 2003 WL 1878583, at *4
In re AMC Entertainment Holdings, Inc. Stockholder Litigation,
Consol. Civil Action No. 2023-0215-MTZ
April 5, 2023
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The parties offer no good cause to lift the status quo order. The plaintiffs
assert the status quo order must be lifted only to permit performance of the
settlement agreement, which would allow the putative class members to receive the
settlement consideration more quickly and “remove significant uncertainty”
weighing on AMC.17 That is true in every class action or derivative settlement,
and yet we pause to follow Rules 23 and 23.1. In the absence of any demonstrated
need to reorder the established and purposeful order of operations, I must conclude
that harm to the putative class suffered by foregoing Rule 23’s required protections
of proper notice, opportunity to object, and approval exceeds the benefit of
receiving the common stock sooner.18
The defendants’ proposed premature performance under the proposed
settlement is not justified, and so the parties have not shown good cause to vacate
the stipulated status quo order. And while the plaintiffs acknowledge that “the
parties agree that the stipulated status quo order should be lifted,” and suggest that
the proposed settlement is contingent on lifting the stipulated status quo order, such
(Del. Ch. Apr. 11, 2003) (citing Prezant, 636 A.2d at 922), and Chickering, 270 A.2d
373).
17
Mot ¶ 7; id. at 8 (“[T]he status quo order should be lifted because the proposed
settlement’s substantial benefits to the class should be effected as soon as feasible.”)
(capitalization altered); id. ¶ 25; cf. Polk v. Good, 507 A.2d 531, 538 (Del. 1986) (“[T]his
case does not present the sort of abuse of the settlement process which Chickering
addressed.”).
18
Celera, 59 A.3d at 434 (“Equitable notions of fairness and efficiency justify the use of
the class action device. Yet its departure from the usual course requires ardent respect for
the limits of due process, limits that dictate when a party may be constitutionally bound
by litigation conducted by another. Court of Chancery Rule 23 is designed to protect the
due process rights of absent class members. Only through strict compliance with Rule 23
may a court’s judgment bind the absent members. Settlements reached in the absence of
strict compliance will fail to deliver the ‘global peace’ defendants seek.” (quoting In re
Countrywide Corp. S’holders Litig., 2009 WL 846019, at *10 (Del. Ch. Mar. 31, 2009)));
De Angelis, 641 A.2d at 841 (“The requirement that leave of court be obtained to dismiss
a class action suit is not a mere technicality. It serves an important function in ensuring
that class representatives are faithful in carrying out the fiduciary duties which they owe
to class members.” (citing Wied, 466 A.2d 9)).
In re AMC Entertainment Holdings, Inc. Stockholder Litigation,
Consol. Civil Action No. 2023-0215-MTZ
April 5, 2023
Page 6 of 6
agreement does not rise to good cause in view of this Court’s Rule 23
obligations.19
Accordingly, the Motion is DENIED.
Sincerely,
/s/ Morgan T. Zurn
Vice Chancellor
MTZ/ms
cc: All Counsel of Record, via File & ServeXpress
19
Mot. ¶ 3 (emphasis omitted); id. ¶ 7 (“[A]ll parties agree that the status quo order
should be lifted.”); supra note 13.