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

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
IN RE AMC ENTERTAINMENT )
HOLDINGS, INC. STOCKHOLDER ) Consol. C.A. No. 2023-0215-MTZ
LITIGATION )
OPINION
Date Submitted: June 30, 2023
Date Decided: July 21, 2023
Gregory V. Varallo, Daniel E. Meyer, BERNSTEIN LITOWITZ BERGER &
GROSSMAN LLP, Wilmington, Delaware; Mark Lebovitch, Edward Timlin,
BERNSTEIN LITOWITZ BERGER & GROSSMAN LLP, New York, New York;
Michael J. Barry, Kelly L. Tucker, Jason M. Avellino, GRANT & EISENHOFER,
P.A., Wilmington, Delaware; Thomas Curry, SAXENA WHITE P.A., Wilmington,
Delaware, Attorneys for Plaintiffs Allegheny County Employees’ Retirement
System and Anthony Franchi.
Raymond J. DiCamillo, Kevin M. Gallagher, Matthew W. Murphy, RICHARDS,
LAYTON & FINGER, P.A., Wilmington, Delaware; John A. Neuwirth, Joshua S.
Amsel, Tanner S. Stanley, WEIL, GOTSHAL & MANGES LLP, New York, New
York, Attorneys for Defendants AMC Entertainment Holdings, Inc., Adam M. Aron,
Denise Clark, Howard W. Koch, Jr., Kathleen M. Pawlus, Keri Putnam, Anthony
J. Saich, Philip Lader, Gary F. Locke, Lee Wittlinger, and Adam J. Sussman.
ZURN, Vice Chancellor.
Common stockholders of AMC Entertainment Holdings, Inc. (“AMC” or the
“Company”) brought direct claims on behalf of a putative class of common
stockholders. The plaintiffs sought injunctive relief to stop the Company from
holding a special meeting at which the common stockholders, together with holders
of fractional units of blank check preferred stock, would vote upon two charter
amendments. The first amendment would authorize more common stock, which
would trigger the conversion of those fractional units into shares of common stock.
The second would effect a reverse stock split.
The amendments were certain to pass because the AMC board of directors
(the “Board”) had used its blank check authority to issue units representing fractional
shares of preferred stock, and imbued those units with dispositive voting power.
Those units have a mirrored voting feature under which any uninstructed units vote
in proportion to the instructed units. The mirrored voting feature enables the
preferred units to dictate the outcome of any vote on which the common shares and
the preferred units vote together. During the leadup to the special meeting, the Board
sold a large block of preferred units to an institutional investor who promised to vote
in favor of the amendments. That promise, together with the mirrored voting feature,
ensured the amendments’ approval by a combined vote of the preferred units and
common shares.
1
The plaintiffs asserted two claims on behalf of the common stockholders.
First, they contended members of the Board breached their fiduciary duties by
issuing and “weaponizing” the preferred units, thereby interfering with the common
stockholders’ voting rights. Second, they contended AMC was statutorily required
to provide the common stockholders with a class vote on the creation of the preferred
units, and failed to do so.
The plaintiffs sought an expedited hearing on a preliminary injunction that
would prevent the special meeting from taking place until after the Court entered
judgment on the plaintiffs’ claims. Before the preliminary injunction hearing, the
plaintiffs negotiated a settlement with the defendants on behalf of the class of
common stockholders the plaintiffs purport to represent. The settlement
consideration consists of additional shares of common stock awarded to current
common stockholders. In return, the plaintiffs and defendants suggest the class of
common stockholders should release claims they hold as common stockholders as
well as any claims they may hold as owners of preferred units.
Under Delaware law, the Court must review all class action settlements to
ensure that (1) the representative plaintiffs negotiated a deal for the class that falls
within a range of reasonable results that a disinterested person could accept, and (2)
the representative plaintiffs satisfied the requirements of due process such that the
settlement can bind absent class members to the deal the representative plaintiffs
2
negotiated. The presentation of a settlement involves a series of prescribed steps
designed to permit briefing by the parties in support of the settlement, and to provide
notice to stockholders so they can object.
AMC’s stockholder base is extraordinary. It includes a great number of
human owners who care passionately about their stock ownership and the Company.
Many of them are connected to each other online. When notice went out to AMC
stockholders, the reaction was unprecedented. The Court received more than 3,500
communications from approximately 2,850 purported stockholders.
To ensure that the stockholder submissions received careful review, the Court
appointed a special master to review them and make recommendations. After
completing her review, the special master filed a report recommending how the
Court should weigh the objections against the terms of proposed settlement. The
objecting stockholders and parties received the opportunity to take exception to that
report. Then the Court held a hearing where the parties and objectors presented their
positions on the proposed settlement.
At this juncture, the Court’s only task is to approve or reject the proposed
settlement. The focus of the settlement is on the claims presented in this case. The
Court cannot address issues that do not pertain to the fairness of the settlement. Such
issues raised by AMC stockholders include theories about synthetic shares, Wall
Street corruption, dark pool trading, insider trading, and RICO violations, and a
3
request for a share count. The Court’s role is limited to considering settlement-
specific issues, like the strength of the plaintiffs’ claims, the consideration the class
would receive, and the scope of the release the class would give in exchange for that
consideration.
Citing AMC’s financial situation, the parties have sought to present their
settlement for approval on a compressed timeframe. Even moving quickly, the Court
must ensure that the proposed settlement is fair and fulfills the principles of due
process. To cut to the chase, the settlement cannot be approved as submitted.
The release purports to release not only claims associated with the common
stock, but also claims associated with preferred interests that common stockholders
might also hold. The release cannot properly extend to those latter claims, because
the plaintiffs were not appointed as fiduciaries for the holders of preferred interests
and did not bring claims based on preferred rights. The plaintiffs only sued on behalf
of a putative class of common stockholders, and only asserted claims based on the
voting rights of common stockholders. They can agree to a release that encompasses
the claims they asserted, and claims that the class holds and that arise out of the same
factual predicate.
The settlement purports to release claims that do not arise out of the same
factual predicate as the claims asserted in this action. The factual predicate on which
the plaintiffs’ claims are based depicts the plight of the common stockholders who
4
have been harmed by the issuance and voting power of the preferred units. The
factual predicate from the standpoint of the preferred units is the polar opposite.
True, the plaintiffs allege a unitary timeline of events that starts from AMC’s
creation of preferred units and ends with the proposals at the special meeting. But
those events affected common stockholders and the preferred units in opposite ways,
particularly as to their voting rights and equity in AMC.
More fundamentally, the direct claims arising out of preferred interests are
appurtenant to those interests, and can be represented and released only by preferred
unitholders. The plaintiffs, as common stockholders representing common
stockholder class members, cannot release direct claims appurtenant to the preferred
units. This is so even if some common stockholder class members happen to also
hold preferred units.
Finally, the release of claims arising out of preferred interests is not supported
by consideration. Awarding more shares to common stockholders necessarily comes
at the expense of preferred units; the settlement consideration harms preferred
unitholders.
The settlement therefore cannot be approved as presented. This decision
nevertheless takes the additional step of ruling on the various exceptions to the
special master’s report. They are dismissed. The Court thanks the special master
and her team for their outstanding work.
5
I. BACKGROUND1
What follows are not formal factual findings, but rather how the Court regards
the record for purposes of evaluating the proposed settlement (the “Proposed
Settlement”).
1
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.). Citations in the form of “Hr’g Tr. —” refer to the settlement
hearing held on June 29 and 30, 2023. D.I. 578; D.I. 579.
The facts are drawn from the allegations of the Verified Class Action Complaint
Seeking Declaratory, Injunctive, and Equitable Relief filed in this action (the “Allegheny
complaint”), the Verified Stockholder Class Action Complaint filed in Usbaldo Munoz, et
al. v. Adam M. Aron, et al. (the “operative complaint”), “from the affidavits and supporting
documents submitted in connection with the application for court approval,” and public
filings. D.I. 1 [hereinafter “Non-Op. Compl.”]; 2023-0216, D.I. 1 [hereinafter “Op.
Compl.”]; In re Activision Blizzard, Inc. S’holder Litig., 124 A.3d 1025, 1030 (Del. Ch.
2015); In re Rural Metro Corp. S’holders Litig., 2013 WL 6634009, at *7 (Del. Ch. Dec.
17, 2013) (“Applying [Delaware] Rule [of Evidence] 201, Delaware courts have taken
judicial notice of publicly available documents that ‘are required by law to be filed, and
are actually filed, with federal or state officials.’” (quoting In re Tyson Foods, Inc. Consol.
S’holder Litig., 919 A.2d 563, 584 (Del. Ch. 2007))); accord Wal–Mart Stores, Inc. v. AIG
Life Ins. Co., 860 A.2d 312, 320 n.28 (Del. 2004) (holding that the court may take judicial
notice of public documents such as SEC filings that are required by law to be filed).
On March 2, I entered an order consolidating the two matters into the instant action
and designated “[t]he Munoz Complaint” operative; AMC is not a defendant in the
operative complaint. D.I. 20 ¶ 7. I also asked counsel to confirm “whether the statutory
claim asserted in the Allegheny Action” would be included in the consolidated action. Id.
¶ 8. On March 13, the plaintiffs’ counsel filed a letter representing to the Court that the
statutory claim “will be included as a basis for Plaintiffs’ motion for a preliminary
injunction in this consolidated action.” D.I. 34 at 1–2 (double emphasis in original). The
plaintiffs never filed a consolidated complaint. Accordingly, I will draw facts from both
complaints, and I will also assume for the limited purposes of this opinion that AMC
Entertainment Holdings, Inc. is a “defendant,” based on the inclusion of “the statutory
6
A. AMC Sells Stock To Raise Capital And Seeks To Increase Its
Authorized Shares Of Common Stock.
AMC is a movie theater company; the COVID-19 pandemic was disastrous
for its revenue. To stay afloat, between the end of 2020 and the middle of 2021,
AMC sold nearly all of its available common shares in a remarkable connection with
retail investors, i.e., individuals rather than institutions.2 By April 2021,
approximately 85% of AMC’s stockholders were retail investors.3 As of March
2021, AMC had issued and outstanding 450,156,186 common shares out of a total
of 524,173,073 authorized in its certificate of incorporation (the “Certificate”).4
claim asserted in the Allegheny Action” and counsel for the defendants having entered their
appearance on AMC’s behalf after the Court consolidated the actions. D.I. 24.
2
AMC’s Certificate provided the Company with authority to issue up to 650,000,000
shares, consisting of (i) 524,173,073 shares of Class A common stock, (ii) 75,826,927
shares of high-voting Class B common stock and (iii) 50,000,000 shares of preferred stock.
Non-Op. Compl. ¶ 26. When this opinion refers to “common shares” or “common stock,”
it refers only to Class A common stock. See, e.g., D.I. 165 [hereinafter “Stip.”] at Recitals
¶ A (defining “Common Stock” to mean Class A common stock); D.I. 185, Ex. 1
[hereinafter “Notice”] at 1 (same); D.I. 185 [hereinafter “Sched. Ord.”] ¶ 3 (same).
3
Op. Compl. ¶ 6.
4
Id. ¶ 8; see also id. ¶ 61 (“As of August 3, 2020, there had been 109,319,377 shares of
common stock issued and outstanding. By June 2, 2021, this number had ballooned to
501,780.240. The total authorized under the Certificate was 524,173,073.”); D.I. 200,
Defendants’ Brief in Support of Proposed Settlement [hereinafter “DOB”], at 8 (stating the
Company had “only 63,096,124 shares of authorized but unissued shares of Common Stock
available by March 3, 2021”); Non-Op. Compl. at 13 n.3 (“As of December 28, 2020, there
were 164,298,527 shares of Class A common stock outstanding, 51,796,784 shares of
Class B common stock outstanding and no shares of preferred stock outstanding. The
Charter required the Company to reserve and keep available a number of authorized but
unissued shares of Class A common stock sufficient for conversion of all outstanding
shares of Class B common stock into shares of Class A common stock.”).
7
To continue to capitalize on the retail demand for AMC common stock,
AMC’s Board sought to increase the number of authorized common shares. On
January 27, 2021, the Board adopted a resolution proposing to amend AMC’s
Certificate to increase the total number of authorized common shares by
500,000,000 shares to 1,024,173,073 shares, and resolved to submit that proposed
amendment to a stockholder vote at the Company’s May 4, 2021, annual meeting
(the “2021 Annual Meeting”).5 On March 19, the Company filed a proxy statement
through which the Board solicited stockholder support of that proposed amendment.6
Stockholders appeared unsupportive, so on April 27, the Board determined not to
seek stockholder approval of the proposed amendment.7 On May 4, the Board
postponed the 2021 Annual Meeting until July to try to garner stockholder support
to amend the Certificate. The Board also amended the Company’s bylaws to lower
the quorum requirement from a majority to one-third of the issued and outstanding
stock entitled to vote at the meeting.8
5
Id. ¶ 35; Op. Compl. ¶ 62.
6
Op. Compl. ¶ 63; id. ¶ 64 (stating the March 19 proxy contemplated an increase of
500,000,000 shares to a total of 1,024,173,073 shares of common stock).
7
Id. ¶ 67; Non-Op. Compl. ¶ 39; D.I. 206, Plaintiffs’ Opening Brief in Support of
Settlement, Award of Attorneys’ Fees and Expenses, and Incentive Awards [hereinafter
“POB”] at 13.
8
Op. Compl. ¶ 71.
8
On June 3, the Company filed a preliminary proxy statement for its then-
delayed annual meeting, disclosing the Board had approved a proposal to amend the
Certificate to increase the total number of authorized common shares by 25,000,000
shares to 549,173,073 shares, which would be put to a stockholder vote at the
rescheduled 2021 Annual Meeting.9 Once again, the electorate was not on board.10
On July 6, AMC announced that it would no longer seek stockholder approval for
that proposed amendment, and withdrew it from the agenda for the 2021 Annual
Meeting.11
Retail investors, like those that comprise the majority of AMC’s stockholder
base, “traditionally have a poor record of attending and voting at meetings.”12
Commentators have described this phenomenon as “rational apathy.”13 When the
9
Non-Op. Compl. ¶ 41; AMC Entertainment Holdings, Inc., Preliminary Proxy Statement
(Schedule 14A) (June 3, 2021).
10
POB at 14 & n.19 (citing POB, Ex. 23 at AMC_00021609, and POB, Ex. 26 at
AMC_00026254, and POB, Ex. 30 at AMC_00033798, and POB, Ex. 32 at
AMC_00033845).
11
Op. Compl. ¶ 74; Non-Op. Compl. ¶ 45.
12
Op. Compl. ¶ 18; Non-Op. Compl. ¶ 80 (discussing low voter turnout of AMC’s retail
base).
13
See, e.g., Bernard S. Black, Shareholder Passivity Reexamined, 89 MICH. L. REV. 520,
584–91 (1990) (discussing rational apathy of retail investors); Christopher Gulinello, The
Retail-Investor Vote: Mobilizing Rationally Apathetic Shareholders to Preserve or
Challenge the Board’s Presumption of Authority, 2010 UTAH L. REV. 547, 573 (2010)
(same); Kobi Kastiel & Yaron Nili, In Search of the “Absent” Shareholders: A New
Solution to Retail Investors’ Apathy, 41 DEL. J. CORP. L. 55, 60–61 (2016) (“However,
despite the importance of voting, most retail investors are rationally apathetic. A
diversified investor, who holds a small stake in a large public company, knows that her
9
Board lowered the quorum necessary for a stockholder meeting, the Board cited the
fact that “nearly 85% of AMC’s stock is held by retail investors,” and “obtaining a
quorum this year has proven challenging.”14 By May 17, AMC’s proxy advisor was
suggesting alternative voting structures to AMC and its counsel such as
“[d]iscretionary voting – where brokers will vote any uninstructed shares with
management’s recommendations” and “[p]roportionate voting – where brokers will
vote any uninstructed shares in the same proportion that their instructed shares were
voted.”15 Even with these alternative structures, the proxy advisor suggested the
vote cast split might be “51.11% FOR & 48.89% against,” but “if the retail FOR
vote moves to 26.5% or below, . . . the advantage disappears.”16
vote probably will not affect the voting outcome. She, therefore has very little incentive,
if at all, to invest time and efforts in the costly process of collecting information and
studying the firm’s affairs in order to make an intelligent voting decision regarding the
election of directors or other corporate matters. For such a shareholder, it is simply
economically rational to stay uninformed and not to vote at all. Investors’ rational apathy,
which is a natural result of the dispersion of ownership and diversification of investor
portfolios, has been a long-standing problem of public firms.” (footnotes omitted)).
14
POB, Ex. 7 at AMC_00004343; id. at AMC_00004350 (“WHEREAS, the Corporation’s
stockholder base has become more diverse with a large number of retail stockholders with
small shareholdings making it more difficult to obtain the necessary quorum; and
WHEREAS, the Board has determined that it is in the best interests of the Corporation and
its stockholders to reduce the amount of stock necessary to constitute a quorum at meetings
of stockholders while still ensuring meaningful participation by stockholders.”).
15
POB, Ex. 20 at AMC_00019707 (emphasis omitted).
16
Id. at AMC_00019708.
10
Without the ability to authorize more shares, AMC could not raise capital by
issuing more common stock. AMC developed an alternative.17
B. AMC Creates The APEs.
In addition to common stock, AMC’s Certificate authorized fifty million
shares of preferred stock. None had been issued.18 AMC and its advisors decided
that selling preferred stock could raise capital and that the votes associated with the
preferred stock could carry the Certificate amendment.19 On July 28, 2022, after
months of discussions, the Board approved the creation of AMC Preferred Equity
17
DOB at 6 (noting that “AMC’s net loss [for 2022] remained just shy of $1 billion”); id.
at 8–9; see also POB at 14 & n.21 (citing POB, Ex. 8); Hr’g Tr. 23.
18
AMC Entertainment Holdings, Inc., Registration Statement (Form S-3) (Dec. 30, 2020),
Ex. 3.1, Third Amended and Restated Certificate of Incorporation of AMC Entertainment
Holdings, Inc., at art. IV(A)(iii) (authorizing issuance of “50,000,000 shares of Preferred
Stock”); see also AMC Entertainment Holdings, Inc., Annual Report (Form 10-K)
(Feb. 28, 2023), Ex. 4.5, Description of the Registrant’s Securities Registered Pursuant to
Section 12 of the Securities Exchange Act of 1934 (“Our authorized capital stock consists
of 524,173,073 shares of Class A common stock, par value $0.01 per share (‘Class A
common stock’) and 50,000,000 shares of preferred stock, par value $0.01 per share, of
which 10,000,000 have been designated as Series A Preferred Stock. As of December 31,
2022, there were 516,778,945 shares of Class A common stock outstanding and 7,245,871
shares of Series A Convertible Participating Preferred Stock outstanding, represented by
724,587,058 AMC Preferred Equity Units.”).
19
See POB at 16; POB, Ex. 20; see also Op. Compl. ¶ 93 (“On July 28, 2022, the full Board
took its first steps [to] dilute the Common Stock through an abusive ‘blank check’ preferred
stock issuance.”); id. ¶ 102 (“Thus, as long as more APEs vote for a charter amendment
than against it, the proposal will be far more likely (and perhaps assured) to pass.”);
Non-Op. Compl. ¶ 48 (“Instead of valuing and listening to the concerns and wishes of the
common stockholders, [in summer 2022] the Board began implementing a plan to
dramatically reduce the voting influence of the company’s existing stockholders so that it
could force through the sought-after increase in the authorized share count.”). Documents
indicate that AMC CEO Adam Aron viewed the APEs as an important tool for AMC to
pay down debt and to “avoid any future liquidity traps.” POB, Ex. 22 at AMC_00021432.
11
Units (“APEs” or “APE units”).20 Each APE is a depositary receipt representing an
interest in 1/100th of a share of the Company’s Series A Convertible Participating
Preferred Stock.21 Each share of preferred stock automatically converts into 100
shares of common stock as soon as AMC has enough authorized common shares to
effectuate the conversion. That makes each APE automatically convertible into one
share of common stock.22
On August 4, AMC announced it would issue one APE as a special dividend
for each share of Class A common stock outstanding as of the established record
20
POB at 14–18.
21
E.g., Notice ¶ 8.
22
POB, Ex. 10, Meeting Materials for July 28, 2022 Meeting of the Board of Directors of
AMC Entertainment Holdings, Inc., at AMC_00005215; id. at AMC_00005216 (“Each
Preferred Equity Unit is convertible into a common share subject to the approval of
shareholders to increase the authorized common share capital of AMC such that (a) there
are sufficient authorized common shares for the conversion, and (b) there is sufficient
remaining authorized common share capital, after the conversion, to allow AMC to
continue to raise common equity capital in the future.”); id. at AMC_00005218 (“Each
APE will automatically convert into common stock if and when AMC receives shareholder
approval to authorize more common stock[.]”); DOB, Ex. O, AMC Entertainment
Holdings, Inc., Registration Statement (Form 8-A) (Aug. 4, 2022) [hereinafter “Aug. 4,
2022 Form 8-A”] (“Each AMC Preferred Equity Unit, by virtue of its interest in the
underlying Preferred Stock: is automatically convertible into one (1) share of Common
Stock upon effectiveness of the Common Stock Amendment (as defined below), subject to
any adjustments described in the Certificate of Designations. Upon effectiveness of the
Common Stock Amendment, each share of Preferred Stock will convert into one hundred
(100) shares of Common Stock and each AMC Preferred Equity Unit in turn will represent
an interest in one (1) share of Common Stock and such shares of Common Stock will be
distributed upon conversion to holders of the AMC Preferred Equity Units on a one-to-one
basis, subject to the terms described in the Deposit Agreement and any adjustments
described in the Certificate of Designations; . . . .”); see also Op. Compl. ¶¶ 13, 30, 99
(discussing the APEs’ conversion rights).
12
date.23 The Company told stockholders that APEs had the same voting power as
common shares (i.e., one vote each).24 AMC did not prominently disclose that
pursuant to an August 4 deposit agreement (the “Deposit Agreement”), the
Company’s transfer agent25 was required to vote uninstructed APEs proportionally
with instructed APEs.26 Proportionate voting for uninstructed APEs pursuant to the
Deposit Agreement meant that APEs as a class would command greater voting
power at a meeting than common shares as a class, because all of the APEs would
be deemed present and voting at any meeting, even if voting instructions were only
23
Aug. 4, 2022 Form 8-A. The August 4 Registration Statement and Form 8-K indicate
the record date will be August 15, but the “Frequently Asked Questions” appended to the
August 18 Form 8-K states the record date will be August 19. Compare id. (“On August
4, 2022, AMC Entertainment Holdings, Inc., (the ‘Company’) declared a special dividend
of one depositary share (an ‘AMC Preferred Equity Unit’) for each share of Class A
common stock, par value $0.01 per share (the ‘Common Stock’) of the Company
outstanding at the close of business on August 15, 2022.” (emphasis omitted)), and AMC
Entertainment Holdings, Inc., Current Report (Form 8-K) (Aug. 4, 2022) (“On August 4,
2022, the Company announced that its Board of Directors declared a special dividend of
one AMC Preferred Equity Unit (an ‘AMC Preferred Equity Unit’) for each share of
Common Stock outstanding at the close of business on August 15, 2022, the record date.”
(emphasis omitted)), with AMC Entertainment Holdings, Inc., Current Report (Form 8-K)
(Aug. 18, 2022), Ex. 99.1, AMC Preferred Equity unit (“APE”) Dividend Frequently
Asked Questions [hereinafter “AMC FAQ”], at ¶ 4 (“To receive the dividend, you must
own shares of common stock at the end of trading on Friday, August 19, 2022.”).
24
POB at 19.
25
DOB, Ex. N, AMC Entertainment Holdings, Inc., Current Report (Form 8K/A)
(Aug. 4, 2022), Ex. 4.1 [hereinafter “Deposit Agr.”], at Recitals (defining “Depositary” as
Computershare, Inc. and its affiliate, Computershare Trust Company, N.A.).
26
POB at 19; Deposit Agr. § 4.5.
13
received for one APE. By contrast, shares of common stock would only be voted if
voting instructions were received.
Consider an illustrative example. Assume 100 APEs were outstanding, and
holders submitted instructions for 80 APEs, with 64 voted in favor of a proposal,
and sixteen against. The remaining 20 would be deemed present and voted in
proportion to voted units: 96 APEs would vote in favor of the proposal.27 In
contrast, common shares are only deemed present and entitled to vote if voting
instructions are received. Uninstructed shares are deemed absent and treated as a
non-vote. Assume 100 common shares were outstanding, and holders submitted
instructions for 80 shares, with all 80 voted in favor of a proposal. The remaining
20 are not voted. Thus, there would be 96 APE votes and only 80 common votes.28
AMC announced that APEs would trade on the New York Stock Exchange
under the symbol “APE” starting August 22.29 In an August 18, 2022, FAQ, AMC
27
Aug. 4, 2022 Form 8-A (“In the absence of specific instructions from holders of AMC
Preferred Equity Units, the Depositary will vote the Preferred Stock represented by the
AMC Preferred Equity Units evidenced by the receipts of such holders proportionately
with votes cast pursuant to instructions received from the other holders of AMC Preferred
Equity Units.”).
28
See DOB, Ex. X, AMC Entertainment Holdings, Inc., Current Report (Form 8-K)
(Mar. 14, 2023) [hereinafter “Mar. 14, 2023 Form 8-K”] (disclosing proportional voting
results).
29
Op. Compl. ¶ 106; Aug. 4, 2022 Form 8-A.
14
said that while the APEs could convert into shares of common stock, it “did not
currently expect AMC to make such a proposal anytime soon.”30
In addition to the APEs distributed as a dividend to primarily retail common
stockholders, AMC tried to sell APEs more broadly. On September 26, AMC
disclosed it had entered into an equity distribution agreement with Citigroup Global
Markets, Inc. to sell 425,000,000 APEs from time to time in at-the-market
offerings.31 This campaign was unsuccessful: by December, APEs were trading
below one dollar per unit, forcing AMC to stop selling additional APEs on the open
market.32
C. The Board Pursues Conversion.
At a December 21 Board meeting, the Board approved two Certificate
amendments and resolved to put them to a stockholder vote.33 The amendments
would: (i) increase the authorized number of shares of common stock to a number at
least sufficient to permit the full conversion of APEs into common stock (the “Share
30
D.I. 450, at Exhibit 2 to the Corrected Transmittal Affidavit of Thomas Curry in Support
of Plaintiffs’ Reply in Further Support of Settlement, Award of Attorneys’ Fees and
Expenses, and Incentive Awards [hereinafter “Izzo Obj.”], at 5 (quoting AMC FAQ ¶ 1);
AMC FAQ ¶ 3 (“However, we do not currently expect the AMC Board to make such a
proposal any time soon.”).
31
POB at 19.
32
Op. Compl. ¶ 119; POB, Ex. 13 [hereinafter “Dec. 21, 2022 Board Minutes”] at
AMC_00005968.
33
Dec. 21, 2022 Board Minutes at AMC_00005971 (resolving to amend the Certificate,
pending stockholder approval).
15
Increase Proposal”); and (ii) effect a 1-for-10 reverse stock split of AMC equity (the
“Reverse Split Proposal,” and together with the Share Increase Proposal, the
“Proposals”).34 Upon approval of the Share Increase Proposal and filing of the
amendment with the Delaware Secretary of State, each APE would convert into one
share of common stock (the “Conversion”).35 The Board specifically discussed how
the Deposit Agreement increased the likelihood the Proposals would pass.36
At that same December 21 meeting, the Board approved the sale of $110
million APEs to Antara Capital LP (“Antara”).37 AMC and Antara entered into a
“Forward Purchase Agreement,” pursuant to which AMC would (i) sell 106,595,106
APEs to Antara for $75.1 million and (ii) purchase from Antara $100 million of the
Company’s 10%/12% Cash/PIK Toggle Second Lien Notes due 2026 in exchange
for 91,026,191 APEs (the “Antara Transaction”).38 The Forward Purchase
Agreement also contained lock-up restrictions that prevented Antara from selling,
34
Op. Compl. ¶ 126; Dec. 21, 2022 Board Minutes at AMC_00005971.
35
See supra note 22.
36
Dec. 21, 2022 Board Minutes at AMC_00005968 (“Mr. Aron outlined the voting
dynamics for the special shareholder meeting indicating that there were presently
considerably more APEs in the float than common stock, . . . and that the non-voting APE
shares would be voted proportionately rather than as ‘no votes’, all of which [sic] factors
gave AMC a good chance to secure approval for conversion.”); id. at AMC_00005971
(resolving to amend the Certificate, pending stockholder approval).
37
Op. Compl. ¶ 120; Dec. 21, 2022 Board Minutes at AMC_00005969–70.
38
Op. Compl. ¶ 125; Dec. 21, 2022 Board Minutes at AMC_00005968; DOB, Ex. R., AMC
Entertainment Holdings, Inc., Current Report (Form 8-K) (Dec. 22, 2022) [hereinafter
“Dec. 22, 2022 Form 8-K”].
16
transferring, or otherwise disposing of the APEs for at least ninety days. 39 Antara
also purchased sixty million APEs at a price of $34.9 million through an
at-the-market offering.40 Antara agreed to vote all of its APE holdings in favor of
the Proposals.41 When approving the Antara Transaction, the AMC Board
specifically noted that “AMC had a good chance to secure approval” of the
Proposals, given that the APE unitholders would likely want to convert their units to
common shares.42
The next day, AMC announced that it would hold a special meeting within
ninety days for stockholders to vote on the Proposals (the “Special Meeting”).43 On
February 7, AMC issued the APE units called for by the Antara Transaction.44 Two
days later, the Company waived the Forward Purchase Agreement’s lock-up
restrictions, permitting Antara to sell up to twenty-six million APEs ahead of the
39
Dec. 22, 2022 Form 8-K.
40
Op. Compl. ¶ 125; Dec. 21, 2022 Board Minutes at AMC_00005968; Dec. 22, 2022
Form 8-K.
41
Op. Compl. ¶ 126; Dec. 22, 2022 Form 8-K; DOB, Ex. W, AMC Entertainment
Holdings, Inc., Proxy Statement (Schedule 14A) (Feb. 14, 2023) [hereinafter “Feb. 14,
2023 Proxy”], at 6 (“On the Record Date, Antara Capital LP ([] ‘Antara’) owned and was
entitled to vote an aggregate of 258,439,472 APEs, representing 17.8% of AMC’s issued
and outstanding shares of Common Stock and APEs (with each APE representing 1/100 of
a share of Series A Preferred Stock), and plans to vote in favor of the Share Increase
Proposal and the Reverse Split Proposal, and, if presented, we also anticipate they will also
vote in favor of the Adjournment Proposal.”).
42
Dec. 21, 2022 Board Minutes at AMC_00005968.
43
Op. Compl. ¶ 126.
44
Id. ¶ 127.
17
Special Meeting.45 Since the record date for the Special Meeting was February 8,
Antara could still vote any APEs that it sold.46 AMC did not disclose why it waived
the lock-up.
On January 27, 2023, AMC filed its preliminary proxy statement for the
Special Meeting.47 On February 14, AMC filed its definitive proxy statement and
scheduled the Special Meeting for March 14.48 AMC disclosed that Antara held
258,439,472 APEs, representing approximately 27.8% of all outstanding APEs and
approximately 17.8% of the Company’s total voting power.49 AMC disclosed that
Antara agreed to vote all of its APEs in favor of the Proposals.50 Antara’s APE votes
plus the mirrored-voting feature guaranteed the Proposals would pass.
All of these events affected the common stockholders and the APE unitholders
differently. Events that increased the APEs’ relative voting power decreased the
common’s relative voting power. The converse would be true as well, but the Board
did not do anything to increase the common stockholders’ relative voting power.
45
Id. ¶ 128.
46
Id.; POB at 24 (citing Feb. 14, 2023 Proxy at 2).
47
AMC Entertainment Holdings, Inc., Preliminary Proxy Statement (Schedule 14A)
(Jan. 27, 2023).
48
Feb. 14, 2023 Proxy.
49
Id. at 6.
50
Supra note 41.
18
D. Litigation Ensues, The Vote Goes Forward, But The
Proposals And Conversion Are Stayed.
On February 20, the plaintiffs filed suit. Allegheny County Employees’
Retirement System (“Allegheny”) filed a Verified Class Action Complaint Seeking
Declaratory, Injunctive, and Equitable Relief against AMC and its Board alleging
one count of breach of fiduciary duty and a second count for violation of 8 Del. C.
§ 242.51 That same day, Anthony Franchi (together with Allegheny, “Plaintiffs”)52
filed a Verified Stockholder Class Action Complaint against the Board alleging a
single count for breach of fiduciary duty.53
Plaintiffs claim the defendants’ issuance of APE units diluted the common
stock’s voting rights and economic value.54 The breach of fiduciary duty claim
51
Non-Op. Compl.
52
Usbaldo Munoz initially accompanied Franchi as a plaintiff. But on May 26, 2023,
Plaintiffs’ counsel filed a combined motion moving to withdraw Munoz as a lead plaintiff
and dismiss him from the action, which the Court granted on June 20. D.I. 344; D.I. 507.
53
Op. Compl.
54
E.g., Op. Compl. ¶ 156 (“There are questions of law and fact which are common to the
Class, including, inter alia, whether: . . . b. Defendants violated their fiduciary duties by
attempting to circumvent the franchise of the holders of the Common Stock; c. Defendants
violated their fiduciary duties by transferring economic value from members of the Class
to Antara and other holders of APEs; . . . .”); id. ¶ 164 (“As alleged above, Defendants
breached their fiduciary duties by creating and issuing Preferred Stock and APEs, entering
into the Deposit Agreement with Computershare, and entering into the various agreements
described herein with Antara, all of which are coercive, will sway the outcome of the
Certificate Proposals, and are designed to circumvent the franchise rights of the Class. The
Board’s actions are plainly intended to push through the Certificate Proposals
notwithstanding the previous, repeated opposition of the Class.”); id. ¶ 165 (“Moreover, as
alleged above, by creating and issuing Preferred Stock and APEs, Defendants have caused
19
paints the creation, issuance, sale, and voting capabilities of APE units as the
instrumentalities used to thwart the common stockholders’ franchise, and the
statutory claim contends the common stockholders should have voted as a class on
the issuance of APE units.55
and will continue to cause significant dilution and economic harm to the Class. Moreover,
if the Certificate Proposals carry and the APEs convert into shares of Common Stock, the
Class will suffer further economic harm and dilution.”); Non-Op. Compl. ¶ 103 (“Because
the creation and issuance of the Preferred Stock was never submitted to a vote of, nor
approved by, the Company’s Class A common stockholders, the Preferred Stock was never
properly authorized and is invalid.”); id. ¶ 104 (“Because the Preferred Stock is invalid,
the voting rights attached to each APE are likewise invalid.”); id. ¶ 106 (“Plaintiff and the
Class will be harmed if the Preferred Stock is not declared invalid and is permitted to be
voted in connection with the pending Proposals.”); see also Op. Compl. ¶¶ 4, 32, 93, 110,
151, 165.
55
POB at 1 (“Defendants weaponized their legal power to issue ‘blank check’ preferred
stock and massively diluted their common stockholders.”); id. at 3 (“In mid-2022,
management and their bankers at Citigroup conceived of a way to weaponize the Board’s
legal power to issue ‘blank check’ preferred stock with voting power amounting to 100
times that of Common Stock to override stockholders’ voting rights in a manner that could
not meet the equitable component of the ‘twice tested’ maxim of fiduciary conduct.”
(footnote omitted)); id. at 34 (“Defendants weaponized APEs’ mirrored voting power and
entered into the Antara Transaction to force through the Certificate Amendments. . . .
While negotiating with Antara, Defendants knew that APE’s mirrored voting power could
be weaponized against holders of Common Stock.”); id. at 37 (“Regardless of whether
Defendants needed to act the way they did when they weaponized APEs and entered into
the Antara Transaction . . . .”); id. at 39 (“The Board had the legal authority to create and
issue them, and any claim concerning APEs did not arise until Defendants weaponized
them alongside the Antara Transaction.”); D.I. 450, Plaintiffs’ Reply in Further Support of
Settlement, Award of Attorneys’ Fees and Expenses, and Incentive Awards [hereinafter
“PRB”], at 1 (“While Plaintiffs believe the Court should reject Defendants’ weaponization
of the APEs and prevent fiduciaries from using such aggressively anti-stockholder tactics
. . . .”); Op. Compl. at 36 (“The Board weaponizes APEs by giving Antara a massive
windfall to buy APEs and vote for the twice rejected Charter Amendments” (capitalization
altered)); see also id. ¶¶ 2, 12.
20
On February 27, the Court entered a stipulated order of expedition and status
quo order that permitted AMC “to hold its March 14, 2023 special meeting and
solicit and tabulate any votes in connection therewith,” but prohibited the defendants
from “amend[ing] AMC’s certificate of incorporation as a result of any vote of
shares at AMC’s March 14, 2023 special meeting (or any adjournment thereof),
pending a ruling by the Court on Plaintiffs’ to-be-filed preliminary injunction
motion.”56 The latter part of the order blocked the Conversion from taking effect
until the Court could make a preliminary ruling on Plaintiffs’ claims. The Court
scheduled a preliminary injunction hearing for April 27.57
On March 2, in implementing the parties’ stipulation, the Court consolidated
the two actions and designated Franchi’s complaint as the operative pleading.58 On
March 13, Plaintiffs’ counsel informed the Court that they would also pursue the
statutory claim set forth in Allegheny’s complaint in the consolidated action.59
Plaintiffs did not file a consolidated complaint.
AMC held the Special Meeting on March 14.60 Both Proposals passed. Of
the shares of common stock present at the meeting, 72.49% voted in favor of the
56
D.I. 10 ¶¶ A–C; 2023-0216, D.I. 10 ¶¶ A–C.
57
D.I. 10 ¶ 1; 2023-0216, D.I. 10 ¶ 1.
58
D.I. 20; 2023-0216, D.I. 26.
59
D.I. 34.
60
Mar. 14, 2023 Form 8-K.
21
Share Increase Proposal61 and 70.39% voted in favor of the Reverse Split Proposal.62
But only 35.23% of the 517,580,416 outstanding shares of common stock were
present and voted at the Special Meeting, meaning only 25.54% of the outstanding
common voted for the Share Increase Proposal, and 24.80% for the Reverse Split
Proposal.63
Due to the mirrored voting feature, all the APE units were present and voted
at the Special Meeting. Only 62.73% of APEs gave instructions on how to vote; that
figure includes the 27.8% of the APEs that Antara agreed to vote in favor of the
Proposals.64 91% of the APE units voted in favor of the Share Increase Proposal65
and 90.64% in favor of the Reverse Split Proposal.66 A majority of common
61
Id. (“A total of 182,342,728 out of 517,580,416 eligible shares of the Company’s Class
A common stock (‘Common Stock’) were present in person or represented by proxy at the
Special Meeting, and a total of 182,342,728 shares of Common Stock were voted after
excluding broker non-votes.”); id. (indicating 132,182,944 of the 182,342,728 common
stockholders who were present at the Special Meeting voted for the Share Increase
Proposal).
62
Id.; see also id. (indicating 128,344,709 of the 182,342,728 common stockholders who
were present at the Special Meeting voted for the Reverse Split Proposal).
63
Id. (defining “Common Stock” to mean Class A common stock).
64
Id.; Feb. 14, 2023 Proxy at 6.
65
Mar. 14, 2023 Form 8-K (“A total of 583,297,321 out of 929,849,612 eligible AMC
Preferred Equity Units (‘APEs’), each constituting a depositary share representing 1/100th
interest in a share of the Company’s Series A Convertible Participating Preferred Stock
(the ‘Series A Preferred Stock’), were present in person or represented by proxy at the
Special Meeting.”); id. (indicating while 530,779,405 APEs voted for the Share Increase
Proposal, the Depositary voted 846,129,420 in favor).
66
Id.; see also id. (indicating while 528,679,900 APEs voted for the Reverse Split Proposal,
the Depositary voted 842,782,544 in favor).
22
stockholders and a majority of the APE unitholders did not give any voting
instructions at all, let alone in favor of the Proposals.67
The Proposals passed only because of the APEs’ mirrored voting feature and
Antara’s promised APE votes. AMC acknowledged that fact internally.68
67
The defendants continue to misrepresent the nature of the vote by including the
uninstructed mirrored votes in the total. In this litigation, the defendants have touted,
“AMC’s Proposals to authorize additional shares of Common Stock and convert the APEs
into Common Stock were overwhelmingly supported by holders of both APEs and
Common Stock” and “[o]n March 14, 2023, holders of Common Stock and APEs voted
resoundingly in favor of the Charter Proposals.” DOB at 14–15 (capitalization altered);
see also, e.g., id. at 2 (“It is for this reason that AMC proposed—and the holders of
Common Stock and APEs overwhelmingly approved in a March 14, 2023 stockholder vote
. . . .”); id. at 30 (“[G]ranting Plaintiffs injunctive relief would have meant overriding the
will of holders of Common Stock and APEs, who voted overwhelmingly in favor of the
Charter Proposals.”); D.I. 441, at Defendants’ Reply Brief in Further Support of Proposed
Settlement [hereinafter “DRB”], at 26 (“[T]he Charter Proposals . . . were overwhelmingly
approved in the March 14, 2023 stockholder vote . . . .”); id. at 1 (same). But only 45.80%
and 45.39% of outstanding common stockholders and APE unitholders together instructed
a vote in favor of the Share Increase Proposal and Reverse Split Proposal, respectively.
Mar. 14, 2023 Form 8-K. 132,182,944 common stockholders plus 530,779,405 APE
unitholders instructed a vote in favor of the Share Increase Proposal, divided by
517,580,416 outstanding common shares plus 929,849,612 outstanding APE units, equals
45.80% of outstanding stockholders in favor of the Share Increase Proposal.
Id. 128,344,709 common stockholders plus 528,679,900 APE unitholders in favor of the
Reverse Split Proposal, divided by 517,580,416 outstanding common shares plus
929,849,612 outstanding APE units, equals 45.80% in favor of the Reverse Split Proposal.
Id. This is hardly “overwhelming” or “resounding.”
68
POB at 27 (citing POB, Ex. 37 at AMC_00049559).
23
E. The Parties Reach A Settlement And Seek To Effectuate The
Proposals; Common Stockholders Speak Up.
Beginning two weeks after the Special Meeting, the parties participated in
mediation and extensive follow-up negotiations.69 The parties reached an agreement
in principle to settle the case and executed a term sheet on April 2.70
The next day, Plaintiffs filed an unopposed motion to lift the status quo
order.71 Their application argued that the defendants should be permitted to
implement the proposed settlement and complete the Conversion before notice had
been provided to stockholders, before the proposed terms were considered by the
Court, and before the proposed settlement was approved as fair.72 Lifting the status
quo order was a condition of their settlement.73 On April 5, I found the parties failed
to make their case for implementing the proposed settlement before it was approved,
and therefore failed to establish good cause to vacate the stipulated status quo
order.74 The status quo order remains in place. On April 14, Plaintiffs’ counsel
69
Id. at 28.
70
Id.
71
D.I. 59.
72
D.I. 69 at 2 (citing D.I. 59 ¶¶ 23, 26). The parties had not provided the Court a copy of
the settlement term sheet. Id. at 2 n.6.
73
See D.I. 59 ¶ 32 (“Unlike the more typical recovery of cash in exchange for release of
claims, which this Court addresses in full at a final approval hearing, the settlement that
Plaintiffs are prepared to support in exchange for a release of claims—the lifting of the
status quo order and the effectuation of the issuance at the earliest possible date—requires
performance before the final approval hearing can take place.”).
74
D.I. 69.
24
informed the Court the parties had agreed to revised terms that were not conditioned
on lifting the status quo order, and requested a status conference with the Court “to
discuss timing and notice for presentation of the proposed settlement.”75
In the meantime, retail stockholders had contacted the Court via phone calls,
letters, and filings to weigh in on the case and the terms of proposed settlement,
which had yet to be disclosed.76 Taking this engagement as a sign of unprecedented
interest, the Court appointed Corinne Elise Amato, Esquire, as special master (the
“Special Master”) to “review[] any and all stockholder motions to intervene, as well
as any oppositions and replies thereto, and mak[e] recommendations as to whether
they should be granted,” and to review “all timely and properly submitted
stockholder objections and letters in support to the proposed settlement that post-
date the stockholder notice of the proposed settlement in this action,” and “provide
the Court with a summary of the Submissions and the Special Master’s
75
D.I. 92 at 1.
76
E.g., D.I. 15; D.I. 29; D.I. 30; D.I. 31; D.I. 32; D.I. 38; D.I. 39; D.I. 47; D.I. 62; D.I. 63;
D.I. 64; D.I. 65; D.I. 66; D.I. 67; D.I. 68; D.I. 70; D.I. 71; D.I. 72; D.I. 73; D.I. 74; D.I. 75;
D.I. 76; D.I. 77; D.I. 78; D.I. 79; D.I. 80; D.I. 81; D.I. 82; D.I. 83; D.I. 84; D.I. 85; D.I. 86;
D.I. 87; D.I. 88; D.I. 89; D.I. 94; D.I. 95; D.I 96; D.I. 97; D.I. 98; D.I. 99; D.I. 100; D.I.
103; D.I. 104; D.I. 105; D.I. 106; D.I. 107; D.I. 108; D.I. 109; D.I. 110; D.I. 111; D.I. 112;
D.I. 113; D.I. 114; D.I. 115; D.I. 116; D.I. 117; D.I. 118; D.I. 119; D.I. 120; D.I. 121; D.I.
122; D.I. 123; D.I. 124; D.I. 125; D.I. 126; D.I. 127; D.I. 128; D.I. 129; D.I. 130; D.I. 131;
D.I. 132; D.I. 133; D.I. 135; D.I. 136; D.I. 137; D.I. 138; D.I. 139; D.I. 140; D.I. 141; D.I.
142; D.I. 144; D.I. 145; D.I. 146; D.I. 147; D.I. 148. The foregoing were filed before the
Court appointed the Special Master, and comprise only those letters accompanied by the
requisite filing fee; the Court received many more letters.
25
recommendations as to how the Submissions should inform the Court’s decision to
approve or deny the proposed settlement.”77 The next day, the Special Master
accepted her appointment.78 On May 2, the Court expanded the Special Master’s
purview “to include other submissions from interested parties styled as motions.”79
The Special Master wrote nineteen reports and recommendations.80
On April 27, after prompting from the Court,81 the parties filed a stipulation
of settlement (the “Stipulation”).82 Under its terms, AMC agreed to distribute
6,922,565 shares of common stock to existing common stockholders, at a ratio of
one share of common for every seven and a half shares of common stock held, after
the Reverse Split but before the Conversion.83 Any fractional shares would be sold
77
D.I. 149 ¶¶ 1–2.
78
D.I. 158.
79
D.I. 187 at 1.
80
D.I. 182; D.I. 224; D.I. 292; D.I. 293; D.I. 301; D.I. 302; D.I. 307; D.I. 324; D.I. 326;
D.I. 331; D.I. 341; D.I. 350; D.I. 365; D.I. 434; D.I. 451; D.I. 475; D.I. 482; D.I. 518; D.I.
536.
81
D.I. 163.
82
Stip.
83
POB at 31; Stip. ¶ A.1(aa) (“‘Settlement Payment’ means one share of Common Stock
for every 7.5 shares of Common Stock owned by record holders of Common Stock as of
the Settlement Class Time (after giving effect to the Reverse Stock Split).”); Notice ¶ 44
(“If the proposed Settlement is approved, AMC will promptly effect the Conversion and
issue to the record holders of Common Stock as of the Settlement Class Time one share of
Common Stock for every 7.5 shares of Common Stock owned by such holders (after giving
effect to the Reverse Stock Split and taking into account cash payments in lieu of fractional
shares).”); id. ¶ 30 (“Only record holders of Common Stock as of the ‘Settlement Class
Time’ will be entitled to a Settlement Payment.”); id. ¶ 47 (“As noted above, the Settlement
26
and the cash proceeds distributed pro rata.84
The Proposed Settlement has the practical effect of reallocating the ownership
of AMC’s equity between its common stockholders and the APE unitholders. If the
settlement is approved, the existing common stockholders would own a slightly
bigger slice of the AMC pie at the expense of the APE unitholders. The Proposed
Settlement thus ameliorates some of the dilution that the APEs inflicted on the
common stock. Without the Proposed Settlement, the existing common stockholders
would own 34.28% of AMC’s equity after the Conversion and the former APEs
unitholders would own 65.72%.85 With the Proposed Settlement, the existing
common stockholders would own 37.15% of AMC’s equity after the Conversion
and the former APEs unitholders would own 62.85%.86 In exchange for this
increased slice of ownership, the common stockholders would release all claims
Payment will be issued to record holders of Common Stock as of the Settlement Class
Time; that is, the time after the Reverse Stock Split has effected but immediately before
the APEs are converted into Common Stock.”).
84
Notice ¶ 45 (“No fractional shares of Common Stock will be issued as part of the
Settlement Payment. Settlement Class Members who would otherwise be entitled to
receive a fractional share of the Settlement Payment will receive a cash payment in lieu
thereof in the same manner as will be provided in connection with the Reverse Stock Split
. . . . In other words, Settlement Class Members entitled to payment will receive one share
of Common Stock for every 7.5 shares of Common Stock they owned as of the Settlement
Class Time and will receive cash for the remaining shares of Common Stock they own that
add up to less than 7.5 shares.”).
85
POB at 31.
86
Id.
27
asserted in or relating to the allegations in the Allegheny complaint or the operative
complaint “that relate to the ownership of Common Stock and/or [APEs] during the
Class Period.”87
The Stipulation attached a Proposed Scheduling Order with Respect to Notice
and Settlement Hearing (the “Scheduling Order”), and a Notice of Pendency of
Stockholder Class Action and Proposed Settlement, Settlement Hearing, and Right
to Appear (the “Notice”).88 After filing revised versions of the Scheduling Order
and the Notice, the Court entered the scheduling order attaching the final version of
the Notice on May 1.89 The Stipulation and Notice define a proposed “Settlement
Class” to mean “all holders of AMC Common Stock between August 3, 2022,
through and including the Settlement Class Time,” or record time, “after the Reverse
Stock Split is effected, but before the Conversion.”90 The Scheduling Order and
87
Stip. ¶ A.1(r); accord Notice ¶ 51(a) (defining “Released Plaintiffs’ Claims”); see also
Stip. ¶ A.1(d) (“‘Class Period’ means the period from August 3, 2022 through and
including the Settlement Class Time.”).
88
Stip.
89
Sched. Ord.; Notice; see also D.I. 175; D.I. 181; D.I. 183; D.I. 184.
90
Notice ¶ 29 (“The ‘Settlement Class’ means all holders of AMC Common Stock between
August 3, 2022, through and including the Settlement Class Time, whether beneficial or of
record, including the legal representatives, heirs, successors-in-interest, transferees, and
assignees of all such foregoing holders, but excluding Defendants. ‘Settlement Class
Time’ means the record time, expected to be set as of the close of business in accordance
with any New York Stock Exchange and/or Depository Trust Company requirements or
policies, on the business day prior to Conversion on which the Reverse Stock Split is
effective. Put slightly differently, if you owned AMC Common Stock between August 3,
2022, through and including the time after the Reverse Stock Split is effected, but before
28
Notice set the objection deadline for May 31 and the settlement hearing for June 29
and 30 (the “Settlement Hearing”).91 On May 3, the Court filed a letter to
stockholders explaining procedures for objecting and speaking at the Settlement
Hearing (the “May 3 Letter”).92
Approximately 2,850 purported stockholders submitted more than 3,500
communications, many of which were styled as objections, that were emailed or
postmarked between May 1 and May 31, 2023.93 Two objecting stockholders
the Conversion, you are a member of the Settlement Class.”); id. ¶ 64(v) (requiring
stockholders to “include documentation sufficient to prove that the Objector or Supporter
is a member of the Settlement Class (i.e., held shares of AMC Common Stock between
August 3, 2022, though and including the date the objection or statement of support is
made).”); Stip. ¶ A.1(d) (“‘Class Period’ means the period from August 3, 2022 through
and including the Settlement Class Time.”); id. ¶ 1(w) (“‘Settlement Class’ means a
non-opt-out class for settlement purposes only, and pursuant to Court of Chancery Rules
23(a), 23(b)(1), and 23(b)(2), consisting of all holders of Common Stock during the Class
Period . . . .”); D.I. 537 at 4 (“The Settlement Class includes all stockholder who held at
any time between August 3, 2022 through and including the Class Settlement Time.”); cf.
Op. Compl. ¶ 153 (“Plaintiffs, who are stockholders of the Company, bring this action as
a class action pursuant to Rule 23 of the Rules of the Court of Chancery of the State of
Delaware on behalf of all similarly situated holders of shares of AMC Common Stock (the
‘Class’).”); Non-Op. Compl. ¶ 84 (“Plaintiff brings this Action pursuant to Chancery Court
Rule 23, on behalf of all other holders of Class A common stock (except Defendants herein
and any person, firm, trust, corporation or other entity related to or affiliated with them and
their successors-in-interest) who are or will be threatened with injury arising from
Defendants’ wrongful actions, as more fully described herein (the ‘Class’).”).
91
Sched. Ord. ¶¶ 6, 18; Notice at 3; id. ¶¶ 60, 63.
92
D.I. 190, Ex. 1 [hereinafter “May 3 Ltr.”].
93
PRB at 8; D.I. 518 [hereinafter “Rpt.”], at 22.
29
retained counsel: Rose Izzo and Anthony Kramer, who joined in Izzo’s objection.94
The parties filed briefs in support of the Proposed Settlement and responded to the
objections.95 On June 21, the Special Master filed her report and recommendations
(the “Special Master’s Report”).96 Plaintiffs and thirteen putative stockholders
timely filed exceptions to the Special Master’s Report by the June 28 deadline.97 I
held the Settlement Hearing on June 29 and 30.98
94
D.I. 310; D.I. 315; Izzo Obj.; D.I. 505; D.I. 506. Kramer states in his joinder that he was
unaware of the Proposed Settlement until June 2, 2023, citing to an email he sent to
Plaintiffs’ counsel on June 2, 2023. D.I. 506 at 1, D.I. 506, Ex. B. The email he submitted
as Exhibit B, however, does not support the statement in his joinder. Kramer’s Exhibit B
only says he had not received a post card by June 2, 2023. D.I. 506, Ex. B. Kramer did
not verify under oath that he was unaware of the Proposed Settlement until June 2, 2023.
In any event, Kramer did not provide any new substantive arguments against approval of
the Proposed Settlement.
95
DOB; POB; DRB; PRB.
96
Rpt.
97
D.I. 533; D.I. 541; D.I. 543; D.I. 547; D.I. 552; D.I. 553; D.I. 554; D.I. 556; D.I. 558;
D.I. 559; D.I. 560; D.I. 564; D.I. 565; D.I. 566; D.I. 573; Sched. Ord. ¶ 23 (“The Parties
may file any exceptions to the Special Master’s Report and Recommendation no later than
June 28, 2023.”); May 3 Ltr. at 3 (“Exceptions must be received and docketed by June 28,
2023 for the Court to consider them.” (emphasis omitted)).
98
D.I. 572; Hr’g Tr.
On July 19, a putative stockholder submitted a document entitled “Interlocutory appeal”
that the Delaware Supreme Court “deemed a notice of appeal from an unknow[n] Order”
in this action. In RE: AMC Ent. Hldgs. Inc. S’holder Litig., C.A. No. 258,2023, D.I. 1 (Del.
July 19, 2023). On July 20, the Supreme Court filed a Notice to Show Cause to the pro se
appellant directing him “to show cause why this appeal should not be dismissed under
Supreme Court Rule 29(b) for [his] failure to identify a court order subject to appellate
review.” In RE: AMC Ent. Hldgs. Inc. S’holder Litig., C.A. No. 258,2023, D.I. 4 (Del.
July 20, 2023). The Supreme Court directed the putative stockholder to respond in writing
within ten days after receipt of the notice. Id. The filing of what, if perfected, would be
an interlocutory appeal does not divest this Court of jurisdiction. Radulski ex rel. Taylor
30
During the leadup to the Proposed Settlement, the conflicting interests
between the common stockholders and APE unitholders were on display. First,
objector Izzo, who owns more APEs than common shares, intimated she seeks to
become lead plaintiff. In opposing this move, Plaintiffs acknowledged the adversity
between the common stockholders and the APE unitholders by asserting that Izzo is
not “qualified to speak for the Class” because she owns more APE than common,
“and thus would benefit financially if the Settlement were rejected and the
Conversion happened someday on worse terms to the Class,” giving rise to “a facial
conflict of interest.”99 Second, a putative intervenor who held APE units, but not
any common stock, sought to intervene to protect the value of his APEs from the
Proposed Settlement.100
II. ANALYSIS
“Although Delaware law has traditionally favored a voluntary settlement of
contested claims, the settlement of claims raised in a class action require certain
v. Del. State Hosp. ex re. Div. of Alcoholism, Drug Abuse & Mental Health, of Dep’t of
Health & Soc. Servs., 541 A.2d 562, 567 (Del. 1988) (“With the exception of interlocutory
appeals, the proper perfection of an appeal to this Court generally divests the trial court of
its jurisdiction over the cause of action.” (collecting authorities)); Matter of Heizer Corp.,
1989 WL 112547, at *7 (Del. Ch. Mar. 28, 1989) (concluding the trial court retains
jurisdiction “either because of the interlocutory nature of the attempted appeal or the fact
that the appeal was not properly perfected” (citing Radulski, 541 A.2d at 567)).
99
PRB at 5–6 n.7, 43 n.113.
100
D.I. 346 (seeking intervention); D.I. 536 (denying intervention).
31
safeguards to ‘insure that the interests of parties who are before the Court only
vicariously are not inequitably abrogated.’”101 Under Court of Chancery Rule 23(e),
“class action[s] shall not be dismissed or compromised without the approval of the
Court, and notice . . . to all members of the class.”102 The Court must consider
whether the terms of the settlement are fair and reasonable, recognizing that “[t]his
Court generally favors settlement of complicated litigation.”103
“When parties have reached a negotiated settlement, the litigation enters a
new and unusual phase where former adversaries join forces to convince the court
that their settlement is fair and appropriate.”104 “The settlement’s proponents bear
101
Rinaldi v. Iomega Corp., 2001 WL 34890424, at *5 (Del. Super. June 29, 2001)
(citations omitted) (citing Nottingham P’rs v. Dana, 564 A.2d 1089, 1102 (Del. 1989), and
Polk v. Good, 507 A.2d 531, 535 (Del. 1986), and then quoting Donald J. Wolfe, Jr. and
Michael A. Pittenger, Corporate and Commercial Practice in the Delaware Court of
Chancery § 9-4[a] (2000))); id. (“If settlements of pending litigation are the cherished
offspring of the law, settlements of representative actions are no doubt the least ingratiating
of the brood.” (quoting Donald J. Wolfe, Jr. and Michael A. Pittenger, Corporate and
Commercial Practice in the Delaware Court of Chancery § 9-4[a] (2000))); 2 Donald J.
Wolfe, Jr. and Michael A. Pittenger, Corporate and Commercial Practice in the Delaware
Court of Chancery [hereinafter “Wolfe & Pittenger”] § 13.03[a] at 13-11 (2d ed. 2022)
(same).
102
Ct. Ch. R. 23(e).
103
Gatz v. Ponsoldt, 2009 WL 1743760, at *2 (Del. Ch. June 12, 2009); accord id.(“However, the settlement of a class action is unique because the fiduciary nature of the
class action requires the Court of Chancery to participate in the consummation of the
settlement to the extent of determining its intrinsic fairness.” (alterations and internal
quotation marks omitted) (quoting Rome v. Archer, 197 A.2d 49, 53 (Del. 1964), and citing
Nottingham, 564 A.2d at 1102)).
104
Ginsburg v. Phila. Stock Exch., Inc., 2007 WL 2982238, at *1 (Del. Ch. Oct. 9, 2007);
accord In re Trulia, Inc. S’holder Litig., 129 A.3d 884, 893 (Del. Ch. 2016) (“Once an
32
the burden of persuasion by a preponderance of the evidence.”105 “[I]n most
instances, the court is constrained by the absence of a truly adversarial process, since
inevitably both sides support the settlement and legally assisted objectors are
rare.”106
Typically, the Court considers whether to approve a settlement in steps.107
First, it determines whether it can certify the putative class under Rules 23(a) and
23(b). If the Court certifies a class, it next examines whether the notice of the
settlement that the parties provided to the class was sufficient to satisfy the
requirements of due process. If it finds that notice was adequate, it moves on to
considering whether the settlement terms fall within a range of reasonableness. If
agreement-in-principle is struck to settle for supplemental disclosures, the litigation takes
on an entirely different, non-adversarial character. Both sides of the caption then share the
same interest in obtaining the Court’s approval of the settlement.” (footnotes omitted)).
105
In re TD Banknorth, 938 A.2d 654, 658 n.4 (Del. Ch. 2007) (citing In re First Boston,
Inc. S’holders Litig., 1990 WL 78836, at *9 (Del. Ch. Jun. 7, 1990)).
106
In re Caremark Int’l Inc. Deriv. Litig., 698 A.2d 959, 961 (Del. Ch. 1996).
107
See, e.g., Activision, 124 A.3d at 1043 (“The tasks assigned to the court include
(i) confirming that the Settlement is properly structured, (ii) ensuring that adequate notice
has been provided, (iii) assessing the reasonableness of the ‘give’ and the ‘get,’ as well as
the allocation of the ‘get’ among various claimants, (iv) approving an appropriate award of
attorneys’ fees, and (v) authorizing any payment from the fee award to the representative
plaintiff.”); CME Grp., Inc. v. Chi. Bd. Options Exch., Inc., 2009 WL 1547510, at *4 (Del.
Ch. June 3, 2009) (“The Court starts with consideration of whether class certification is
appropriate and whether the Settlement in gross should be approved. It then turns its
attention to the various specific objections to the terms of the Settlement.”); cf. In re
Countrywide Corp. S’holders Litig., 2009 WL 846019, at *6 (Del. Ch. Mar. 31, 2009)
(“Because their contentions define the principal, discrete issues for resolution, the Court
turns to them first, before taking the more familiar path through the thickets of class
certification and consideration of whether to approve the Proposed Settlement.”).
33
they do, then the Court will approve the settlement. Only then will the Court
determine whether to award fees and expenses to the plaintiff’s counsel and
incentive awards to the representative plaintiff.
Here, in an effort to accommodate the parties’ repeated requests for expedited
resolution,108 my analysis begins and ends with the Proposed Settlement’s
reasonableness. I conclude the Proposed Settlement cannot be approved because the
release encompasses APE claims that Plaintiffs, who only sued on behalf of a
putative class of common stockholders and only brought common claims, cannot
release. The claims arising out of APE units are based on a different factual
predicate, adhered to a different security, and not supported by consideration.
A. The Release Is Unsound.
A key consideration in the approval of a derivative or class action settlement
is to ensure that the interests of the represented parties have not fallen victim—
intentionally or inadvertently—to the personal interests of the representative
plaintiff and its counsel. The Court’s involvement arises from the need to ensure
absent stockholders are adequately represented, and to guard against buyouts of
108
See, e.g., D.I. 25 (requesting an expedited schedule); D.I. 10 ¶ A (granting an expedited
schedule); 2023-0216, D.I. 10 ¶ A (same); D.I. 217 (asking the Court for an expedited
settlement timeline due to financial constraints); Sched. Ord. (granting an expedited
settlement timeline).
34
plaintiffs at the expense of those whom they purport to represent.109 The Court must
act as a fiduciary on behalf of the class to ensure that the outcome falls within a
range of reasonable outcomes that a disinterested decision-maker, acting on behalf
of the class and with the benefit of the information available, could accept.110
Because of the limited inquiry involved, “[t]he Court’s role in reviewing the
proposed Settlement . . . is quite restricted.”111 The Court does not approve
settlements on the theory that any settlement is a virtue. The Court “must balance
the policy preference for settlement against the need to insure that the interests of
the shareholders . . . had been fairly represented.”112
“Settlement agreements ‘almost invariably’ include general release provisions
that bind the class and release all liability claims associated with the challenged
109
E.g., In re Celera Corp. S’holder Litig., 59 A.3d 418, 434 (Del. 2012) (“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 omitted) (citing then quoting Prezant v. De Angelis, 636
A.2d 915, 923 (Del. 1994))); id. (“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.” (quoting Countrywide, 2009 WL
846019, at *10)).
110
Activision, 124 A.3d at 1064 (quoting Forsythe v. ESC Fund Mgmt. Co. (U.S.), 2013
WL 458373, at *2 (Del. Ch. Feb. 6, 2013)).
Sullivan v. Hammer, 1990 WL 114223, at *4 (Del. Ch. Aug. 7, 1990), aff’d sub nom.
111
Kahn v. Sullivan, 594 A.2d 48 (Del. 1991).
112
Kahn, 594 A.2d at 63 (citing Barkan v. Amsted Indus. Inc., 567 A.2d 1279, 1283 (Del.
1989)).
35
transaction ‘to the broadest extent allowable under law.’ Such broad release
provisions are intended to accord the defendants ‘global peace.’”113 The Delaware
Supreme Court has made plain that the Court’s duty to protect absent stockholders
carries particular significance when reviewing a release.114 While the Court need
not second-guess or optimize every element of a settlement, the breadth of the
release requires careful inspection. In the words of the Delaware Supreme Court,
“the Court of Chancery must scrutinize releases to ‘ensure [(i)] that the fiduciary
nature of the class action is respected, and [(ii)] that its approval of any class-based
settlement does not offend due process.’”115 The scope of a release “cannot be
limitless, if only because of substantive due process concerns.”116
Here, the Stipulation includes the following release from those Settlement
Class Members (the “Release”):
113
Celera, 59 A.3d at 433 (footnotes omitted) (quoting Countrywide, 2009 WL 846019, at
*10).
114
See Griffith v. Stein ex rel. Goldman Sachs Grp., Inc., 283 A.3d 1124, 1133–37 (Del.
2022) (citations omitted).
115
Id. at 1134 (quoting Celera, 59 A.3d at 434).
116
In re Phila. Stock Exch., Inc., 945 A.2d 1123, 1145 (Del. 2008) (citing Matsushita Elec.
Indus. Co., Ltd. v. Epstein, 516 U.S. 367, 388 (1996) (Ginsburg, J., concurring), Phillips
Petroleum Co. v. Shutts, 472 U.S. 797, 105 (1985), and In re Advanced Mammography
Sys., Inc. S’holders Litig., 1996 WL 633409, at *1 (Del. Ch. Oct. 30, 1996)).
36
“Released Plaintiffs’ Claims” means any and all actions, causes of
action, suits, liabilities, claims, rights of action, debts, sums of money,
covenants, contracts, controversies, agreements, promises, damages,
contributions, indemnities, and demands of every nature and
description, whether or not currently asserted, whether known claims
or Unknown Claims, suspected, existing, or discoverable, whether
arising under federal, state, common, or foreign law, and whether based
on contract, tort, statute, law, equity, or otherwise (including, but not
limited to, federal and state securities laws), that Plaintiffs or any other
Settlement Class Member: (i) asserted in the Allegheny Complaint or
the Munoz [Franchi] Complaint; or (ii) ever had, now have, or hereafter
can, shall, or may have, directly, representatively, derivatively, or in
any other capacity that, in full or part, concern, relate to, arise out of, or
are in any way connected to or based upon the allegations, transactions,
facts, matters, occurrences, representations, or omissions involved, set
forth, or referred to in the Complaints and that relate to the ownership
of Common Stock and/or AMC Preferred Equity Units during the
Class Period, except claims with regard to enforcement of the
Settlement and this Stipulation.117
The Stipulation defines “Settlement Class Member” as “a Person who is a member
of the Settlement Class.”118 It defines “Settlement Class” as “a non-opt-out class for
settlement purposes only, and pursuant to Court of Chancery Rules 23(a), 23(b)(1),
and 23(b)(2), consisting of all holders of Common Stock during the Class Period.”119
The “‘Class Period’ means the period from August 3, 2022 through and including
the Settlement Class Time,” which is “the record time, expected to be set as of the
close of business on the business day prior to Conversion on which the Reverse
117
Stip. ¶ A.1(r) (emphasis added); accord Notice ¶ 51(a) (defining “Released Plaintiffs’
Claims”).
118
Id. ¶ A.1(x).
119
Id. ¶ A.1(w).
37
Stock Split is effective.”120 Plaintiffs have clarified that the definition of Settlement
Class “includes all stockholders who held [or purchased] at any time between August
3, 2022 through and including the Settlement Class Time,” as long as they continued
to hold at the Settlement Class Time.121
The Release purports to cause common stockholders who held common stock
at any time after the APE issuance to release not only claims that “relate to the
ownership of Common Stock,” but also claims that relate to the ownership of “AMC
Preferred Equity Units,” or APEs. Under controlling precedent, Plaintiffs cannot
release APE claims.
1. Plaintiffs Cannot Release APE Claims Because They
Do Not Arise From The Identical Factual Predicate As
The Claims Asserted On Behalf Of The Class Of
Common Stockholders.
“When a stockholder of a Delaware corporation files suit as a representative
plaintiff for a class of similarly situated stockholders, the plaintiff voluntarily
assumes the role of fiduciary for the class.”122 “[W]hile the stockholders have
120
Id. ¶¶ A.1(d), (y).
121
D.I. 537 at 4.
122
Steinhardt v. Howard-Anderson, 2012 WL 29340, at *8 (Del. Ch. Jan. 6, 2012) (citing
Emerald P’rs v. Berlin, 564 A.2d 670, 673 (Del. Ch. 1989), and Youngman v. Tahmoush,
457 A.2d 376, 379 (Del. Ch. 1983)); accord Straight Path Commc’ns Inc. Consol. S’holder
Litig., 2022 WL 728844, at *5 (Del. Ch. Mar. 11, 2022) (“When filing as a representative
plaintiff for a class of stockholders, that party seeks out the role of fiduciary for the class.”
(citing Steinhardt, 2012 WL 29340, at *8, and then OptimisCorp v. Atkins, 2021 WL
2961482, at *5–7 (Del. Ch. July 15, 2021))).
38
chosen the corporate director or manager, they have no such election as to a plaintiff
who steps forward to represent them. He is a self-chosen representative and a
volunteer champion.”123 The bedrock principles underlying class actions “limit the
powers of the representative parties to the claims they possess in common with other
members of the class.”124 In a class action, the representative plaintiffs can only
bring claims on behalf of similarly situated class members and can only release
claims that the class members could have asserted on the facts pled.125
123
Straight Path, 2022 WL 728844, at *5 (Del. Ch. Mar. 11, 2022) (quoting Cohen v.
Beneficial Indus. Loan Corp., 337 U.S. 541, 549 (1949)).
124
Nat’l Super Spuds, Inc. v. N.Y. Mercantile Exch., 660 F.2d 9, 16 (2d Cir. 1981); accord
id. at 18 (“Under the circumstances here being considered, the named plaintiffs were
authorized to represent other members of the class solely with respect to liquidated
contracts. They were never authorized to represent such members with respect to
unliquidated contracts. Having received authority to represent class members solely with
respect to liquidated contracts, plaintiffs had no power to release any claims based on any
other contracts.”).
125
Steinhardt, 2012 WL 29340, at *8 (citing Emerald P’rs, 564 A.2d at 673, and
Youngman, 457 A.2d at 379); Nottingham, 564 A.2d at 1106 (quoting TBK P’rs, Ltd. v. W.
Union Corp., 675 F.2d 456, 460 (2d Cir. 1982)); cf. 7A Charles Alan Wright, Arthur R.
Miller & Mary Kay Kane, Federal Practice and Procedure § 1751 (4th ed.) (describing
the history and purpose of a class action as “enabl[ing] an equity court to hear an action by
or against representatives of a group if plaintiff could establish that the number of people
involved was so large as to make joinder impossible or impracticable, that all the members
of the group possessed a joint interest in the question to be adjudicated, and that the named
parties adequately represented those absent from the action”); Gen. Tel. Co. of Sw. v.
Falcon, 457 U.S. 147, 155 (1982) (“The class-action device was designed as ‘an exception
to the usual rule that litigation is conducted by and on behalf of the individual named parties
only.’ Class relief is ‘peculiarly appropriate’ when the ‘issues involved are common to the
class as a whole’ and when they ‘turn on questions of law applicable in the same manner
to each member of the class.’ For in such cases, ‘the class-action device saves the resources
of both the courts and the parties by permitting an issue potentially affecting every [class
39
“In Delaware, the limiting principle is that a settlement can release claims that
were not specifically asserted in the settled action, but only if those claims are based
on the same identical factual predicate or the same set of operative facts as the
underlying action.”126 The identical factual predicate test imposes meaningful limits
on the scope of a release. All released claims must be based on the identical factual
predicate that gave rise to the claims that were actually asserted in the settled
action.127 “[A] release may be overbroad if it could be interpreted to ‘encompass
any claim that has some relationship—however remote or tangential—to any “fact,”
“act,” or conduct “referred to” in the Action.’ In other words, a release is overly
broad if it releases claims based on a common set of tangential facts, as opposed to
operative or core facts.”128
member] to be litigated in an economical fashion under Rule 23.’” (citations omitted)
(quoting Califano v. Yamasaki, 442 U.S. 682, 700–01 (1979))); id. at 156 (“We have
repeatedly held that a class representative must be part of the class and possess the same
interest and suffer the same injury as the class members.” (internal quotation marks
omitted) (quoting E. Tex. Motor Freight Sys., Inc. v. Rodriguez, 431 U.S. 395, 403 (1977))).
126
Phila. Stock Exch., 945 A.2d at 1146 (internal quotation marks omitted) (quoting
UniSuper, Ltd. v. News Corp., 898 A.2d 344, 347 (Del. Ch. 2006)).
127
Nottingham, 564 A.2d at 1106 (“We therefore conclude that in order to achieve a
comprehensive settlement that would prevent relitigation of settled questions at the core of
a class action, a court may permit the release of a claim based on the identical factual
predicate as that underlying the claims in the settled class action even though the claim
was not presented and might not have been presentable in the class action.” (emphasis
added) (quoting TBK P’rs, 675 F.2d at 460)).
128
Phila. Stock Exch., 945 A.2d at 1146 (quoting UniSuper, 898 A.2d at 347).
40
If an identical factual predicate exists, and if the settlement is otherwise fair
and comports with due process, then the release can encompass claims “not
specifically asserted” in the settled class action.129 The release can even extend to
claims arising from that identical factual predicate that “might not have even been
presentable in the class action.”130 Here, that means (i) federal claims over which a
state court lacks subject matter jurisdiction131 and (ii) class members’ personal
claims for which the representative plaintiffs lack standing.132
Federal precedent relied on by the Delaware Supreme Court makes clear that
when a released claim is based on a property interest that is different than the interest
that underlies the claims asserted in the action, then the release fails for lack of an
identical factual predicate. In National Super Spuds, Inc. v. New York Mercantile
129
Id. (quoting UniSuper, 898 A.2d at 347).
130
Id. (quoting Nottingham, 564 A.2d at 1106)).
131
E.g., In re MCA, Inc., 598 A.2d 687, 691 (Del. Ch. 1991) (“It is not disputed that this
Court may enter a judgment in connection with the settlement of a class action that results
in the release of both state law claims and exclusively federal claims if the claims arise
from the same factual predicate, even if the state court could not dismiss or adjudicate the
federal claims.” (citations omitted)); Ryan v. Gifford, 2009 WL 18143, at *8 (Del. Ch.
Jan. 2, 2009) (citing Matsushita, 516 U.S. at 380–86, and In re Union Square Assocs. Sec.
Litig., 1993 WL 513232, at *5 (Del. Ch. Nov. 29, 1993), and MCA, 598 A.2d at 691);
Nottingham, 564 A.2d at 1106).
132
E.g., Activision, 124 A.3d at 1044.
Courts have also upheld class action settlement releases barring subsequent
litigation of: (i) state claims based on the identical factual predicates as claims asserted in
a federal settlement (TBK P’rs, 675 F.2d 456); and (ii) arbitration claims based on the
identical factual predicate of the claims settled in court (Union Square, 1993 WL 513232,
at *6).
41
Exchange, the underlying facts involved defaults under May 1976 Maine potato
futures contracts.133 The representative plaintiffs asserted claims on behalf of parties
who suffered damages from liquidating their contracts at a loss.134 Dexter Richards
held not only contracts that he liquidated at a loss, but also contracts that he had not
liquidated.135 In an attempt to protect both interests, Richards first sought to opt out
of the liquidated contracts class settlement and bring his own individual action
seeking damages for his unliquidated contracts.136 Later, he repudiated his opt-out,
dismissed his individual action, and rejoined the liquidated contracts class action.137
Then, he filed a second class action seeking damages for unliquidated contract
claims.138
The liquidated contracts class action settled.139 In addition to the liquidated
contracts claims, the release purported to include claims for damage to unliquidated
contracts.140 The trial court approved the settlement, and Richards appealed.
133
660 F.2d 9.
134
Id. at 12.
135
Id.
136
Id.
137
Id.
138
Id. at 13.
139
Id.
140
Id. at 13–14.
42
The United States Court of Appeals for the Second Circuit reversed the order
approving the settlement. It began from the premise that the representative
plaintiffs’ complaint was brought only “on behalf of all persons who liquidated long
positions” in the relevant potato future contracts.141 “The gravamen of the complaint
was the claim that defendants’ wrongful conduct had depressed the price of the
contracts and had thereby caused injury to persons who liquidated long positions.”142
“At no point did plaintiffs seek authority to represent members of the class with
respect to claims based on unliquidated contracts.”143 “Plaintiffs were thus
empowered to represent members of the class solely with respect to the contracts in
which all members of the class had a common interest:” liquidated contracts.144
Because liquidated contract claims defined the class, plaintiffs with a
liquidated contract claim were authorized to represent only those claims and others
based on the identical factual predicate. The Second Circuit observed that
unliquidated contract claims depended “upon proof of further facts, namely, the
holding of unliquidated contracts after May 7, wrongful default on those contracts,
141
Id. at 16; see also id. at 17 n.6 (discussing Federal Rule of Civil Procedure 23’s typicality
requirement and stating: “This justification for permitting the representatives to sue on
behalf of the class has no application to claims of class members in which the
representatives have no interest and which, as shown here, they are willing to throw to the
winds in order to settle their own claims.”).
142
Id. at 16–17.
143
Id. at 17.
144
Id.
43
and the damages caused by default.”145 In other words, unliquidated contract claims
were not based on the identical factual predicate as the asserted liquidated contract
claims. The representative plaintiffs could not represent an unliquidated contract
claim.146
From there, the Second Circuit reasoned that the release could not encompass
unliquidated contract claims. “Having received authority to represent class members
solely with respect to liquidated contracts, plaintiffs had no power to release any
claims based on any other contracts.”147 It provided pragmatic context:
If the case had proceeded to trial and a judgment had been entered in
favor of the defendants, that judgment would have barred all members
of the class who had not opted out from bringing any claim based on
contracts they liquidated. Such a judgment would not have barred
members of the class from bringing any other claim they might be able
to assert against the defendants, including claims based on contracts
unliquidated at the close of trading on [the operative date]. If a
judgment after trial cannot extinguish claims not asserted in the class
action complaint, a judgment approving a settlement in such an action
ordinarily should not be able to do so either.148
145
Id. at 18 n.7.
146
Id. at 16–18; see also id. at 18 (“[I]n representative suits (i.e., class actions, as opposed
to derivative suits) there is no one with power to give a release of the class rights in addition
to the judgment. The protection afforded the defendants by the judgment rests on its res
judicata effect and is, therefore, limited to the claims alleged in the pleadings.” (internal
quotation marks and citations omitted) (quoting William E. Haudek, The Settlement and
Dismissal of Stockholders’ Action Part II: The Settlement, 23 SW.L.J. 765, 773 (1969))).
147
Id. at 18 (footnote omitted).
148
Id. at 17–18.
44
The Delaware Supreme Court looked to National Super Spuds in Nottingham
Partners v. Dana.149
This Court has similarly concluded that a class action release did not
encompass claims based on a property interest different from the property interest
giving rise to the claims in the complaint. In In re Union Square Associates
Securities Litigation, the plaintiff was a member of a class of holders of limited
partnership interests in the “Union Square Partnership.”150 That action settled, the
plaintiff received notice, and the plaintiff did not opt out. This Court approved the
settlement, including a release of claims arising out of purchases of Union Square
Partnership interests.151 Two years later, the plaintiff brought an action alleging
violations of the Indiana Securities Act based on the defendants’ investment of her
money in not only the Union Square Partnership, but also other partnerships.152 The
Indiana defendants asked this Court to determine whether the plaintiff’s claims were
149
564 A.2d at 1106 (“The decision of the Second Circuit Court of Appeals in National
Super Spuds, Inc. held that a general release given by a class plaintiff who represented only
those persons who had liquidated their positions in potato future contracts between April
13 and May 7, 1976, could not extend to the claims of persons outside of the class holding
unliquidated contracts after May 7, 1976.”). I read National Super Spuds to explain that
while Richards was a member of the liquidated contract claim class, his unliquidated
contract claim was still beyond the reach of the class plaintiff’s release. 660 F.2d at 18.
150
1993 WL 513232, at *1.
151
Id. at *1–2, *9.
152
Id. at *2.
45
barred by res judicata.153 This Court determined “[b]ecause plaintiff’s individual
complaint and the Class Action are based on the same factual predicate, plaintiff is
barred from raising her claims by the doctrine of res judicata, if she was given
sufficient notice to object to the fairness of the Union Square Partnership
Settlement.”154 But then-Vice Chancellor Chandler specified that the “[p]laintiff’s
claims regarding other limited partnership investments, however, are not affected by
this Order.”155 These claims were not barred by the release because they were not
based on the identical factual predicate underlying the class action.
Here, Plaintiffs are AMC common stockholders who purport to represent a
class of common stockholders in pursuit of direct claims belonging to the common
stockholders based on rights appurtenant to their shares of common stock.156 The
153
Id.
154
Id. at *6.
155
Id. at *9.
156
Op. Compl. ¶ 153 (“Plaintiffs, who are stockholders of the Company, bring this action
as a class action pursuant to Rule 23 of the Rules of the Court of Chancery of the State of
Delaware on behalf of all similarly situated holders of shares of AMC Common Stock (the
‘Class’).”); id. ¶ 39 (“Anthony Franchi is a holder of AMC Common Stock and has held
such stock at all relevant times.”); id. at caption (“USBALDO MUNOZ and ANTHONY
FRANCHI, individually and on behalf of all others similarly situated”); Non-Op. Compl.
¶ 16 (“Plaintiff Allegheny County Employees’ Retirement System is a stockholder of AMC
and has owned AMC common stock at all material times alleged in the Complaint.”); id. ¶
84 (“Plaintiff brings this Action pursuant to Chancery Court Rule 23, on behalf of all other
holders of Class A common stock (except Defendants herein and any person, firm, trust,
corporation or other entity related to or affiliated with them and their successors-in-interest)
who are or will be threatened with injury arising from Defendants’ wrongful actions, as
more fully described herein (the ‘Class’).”); id. ¶ 16 (“Plaintiff Allegheny County
46
parties stipulated to—and the Court granted—them status as lead plaintiffs for a
putative class of common stockholders. In that capacity, they sought to enforce the
rights belonging to and to remedy the alleged harm suffered by the common
stockholders.157 Plaintiffs did not bring an action on behalf of a class of APE
unitholders. They did not plead their status as APE unitholders, assert claims
enforcing the rights of APE unitholders, or allege damage suffered as a result of
holding APE units.158 Plaintiffs have undertaken a fiduciary role only as to the
claims asserted enforcing the common stock’s rights on behalf of, and remedying
the alleged harm suffered by, the class of common stockholders.
National Super Spuds found the bare facts necessary to plead the possession
of, and harm to, a separate interest were enough to divorce claims arising out of that
interest from the underlying complaint’s factual predicate. Richards, a holder of
liquidated contracts and therefore a member of the class, would have had to plead
his holding of unliquidated contracts and harm to those interests in order to state a
Employees’ Retirement System is a stockholder of AMC and has owned AMC common
stock at all material times alleged in the Complaint.”); id. at caption (“ALLEGHENY
COUNTY EMPLOYEES’ RETIREMENT SYSTEM, on behalf of itself and all other
similarly-situated Class A stockholders of AMC ENTERTAINMENT HOLDINGS,
INC.”).
157
D.I. 14 ¶ 5; D.I. 20 ¶ 5; 2023-0216, D.I. 24 ¶ 5; 2023-0216, D.I. 26 ¶ 5.
Hr’g Tr. 82 (“[W]e’re not representing a class of APE holders.”); id. at 83 (“But, again,
158
we’re not representing APEs.”).
47
claim, which would therefore not be based on the identical factual predicate of the
liquidated class claim.
So too here. At a minimum, APE claims require the additional facts of holding
APE units and harm to APE unitholder rights.159 A common stockholder would have
to plead her holding of APE units and harm to that interest. Resolution of Plaintiffs’
common claims at trial would not resolve APE claims.
And the facts diverge further from there. The antagonism between common
and APE interests means the events set forth in Plaintiffs’ complaints affected those
interests in divergent ways. The factual predicate for this action asserts
“weaponized” APEs harmed the rights of common stockholders. 160 It asserts the
creation, issuance, and voting power of APE units infringed the common law and
statutory voting rights of common stockholders.161 Fundamentally, in voting and
value, what is bad for the common is good for the APE. Any APE claim sounding
159
I will not speculate as to what those APE claims based on the events in the complaints
could be. But each of them would require demonstrating proof of those additional facts.
Further, certain facts mentioned in the complaint were not advanced as claims or
investigated. See Izzo Obj. at 31–32 (“This astonishingly broad release would cover not
only claims Plaintiff pursued, but potentially: [(i)] Derivative claims related to the Hycroft
mine or similar investments made by AMC. They are mentioned in the Complaint, and
even if the purchases precede the class period, they ‘relate’ to class ownership due to the
continuous ownership requirement; [(ii)] Derivative challenges to AMC’s decision to grant
awards under or amend the Company’s long-term incentive plan, for the same
reasons; . . . .” (footnotes omitted)).
160
Supra note 55.
161
E.g., supra notes 54 and 55.
48
in voting or value would have to explain why the defendants’ actions harmed APE
unitholders, when the complaint paints all of those actions as harming common to
the benefit of APE. APE claims are not based on the identical factual predicate as
Plaintiffs’ common claims.
2. Plaintiffs Cannot Represent Or Release Direct Claims
Appurtenant To APE Units Because The APE Units
Are A Different Security Than The Common Stock
Underpinning The Putative Class.
APE direct claims require not only proof of different facts than the claims
asserted on behalf of the class of common stockholders: APE direct claims are
appurtenant to a different security than common stock. APE direct claims can be
brought only by APE unitholders. The class of common stockholders cannot release
APE claims.
Under Delaware law, direct claims for violating voting rights associated with
stock ownership are appurtenant to the share of stock that carries the voting power;
they are not personal rights belonging to the stockholder who happens to own the
shares.162 Rights attached to shares include statutory rights under the DGCL and the
162
Activision, 124 A.3d at 1049 (“Shares of stock carry with them particular rights that a
holder of the shares can exercise by virtue of being the owner. A stockholder can invoke
these rights directly, rather than derivatively.”); accord Urdan v. WR Cap. P’rs, LLC, 244
A.3d 668, 677 (Del. 2020) (“The rights in the security are rights ‘arising from the
relationship among stockholder, stock and the company.’ Rights that are personal to the
security holder, however, do not travel with the sale of a security. The distinction between
rights in the security and personal rights is best illustrated by examples. A corporate charter
violation claim travels with a stock sale because the injury ‘is to the stock and not the
49
right to enforce a claim for breach of fiduciary duty based on interference with the
right to vote.163
Any direct claims arising out of the rights appurtenant to the APE units are
property rights associated with the APE units. They are not personal rights of the
unitholder.164 APE holders can assert direct claims adhered to APE units because
holder.’” (footnotes omitted) (quoting I.A.T.S.E. Local No. One Pension Fund v. Gen. Elec.
Co., 2016 WL 7100493, at *5 (Del. Ch. Dec. 6, 2016), and then citing Activision, 124 A.3d
at 1050, and then quoting Schultz v. Ginsburg, 965 A.2d 661, 667 (Del. 2009), rev’d on
other grounds by Urdan, 244 A.3d 668))). Plaintiffs’ counsel has concisely explained why
Franchi can assert common claims under the Activision framework. D.I. 537.
163
Activision, 124 A.3d at 1049.
164
Id.; see also id. at 1056 (“The foregoing discussion of the direct, derivative, and dual-
attribute claims does not mean that an individual holder of shares cannot have personal
claims. . . . Quintessential examples of personal claims would include a contract claim for
breach of an agreement to purchase or sell shares or a tort claim for fraud in connection
with the purchase or sale of shares. One major distinction between these types of claims
and the Delaware corporate law claims discussed previously is that for the personal claims,
the nature of the underlying property does not matter. The property happens to be shares,
but the cause of action is not a property right carried by the shares, nor does it arise out of
the relationship between the stockholder and the corporation. For the breach of contract
claim, the cause of action arises out of the contract between the buyer and the seller. For
the fraud claim, the cause of action arises out of the false representations made by the buyer
or seller on which the counterparty relied to her detriment, suffering causally related
damages as a consequence. The underlying property could just as easily be land or a car.
A Rule 10b–5 claim under the federal securities laws is a personal claim akin to a tort claim
for fraud. The right to bring a Rule 10b–5 claim is not a property right associated with
shares, nor can it be invoked by those who simply hold shares of stock. It arises only when
there has been fraud in connection with the purchase or sale of a security. As such, the
Rule 10b–5 claim is personal to the purchaser or seller and remains with that person; it
does not travel with the shares. The personal nature of federal securities claims manifests
itself in the fact that class certification generally must be obtained under Rule 23(b)(3). By
contrast, because Delaware corporate law claims are tied to the shares themselves, they are
certified under Rules 23(b)(1) and (b)(2).” (citations omitted)).
50
they hold APE units.165
A common stockholder acting as a representative plaintiff for a class of
common stockholders cannot pursue direct APE claims. As explained, Plaintiffs
here have been appointed and authorized to bring only those claims that can be
brought by common stockholders. Plaintiffs are fiduciaries for the class of common
stockholders and only asserted claims seeking to enforce the rights of and remedy
the harms to the common. The direct fiduciary and statutory claims Plaintiffs present
are appurtenant to shares of common stock.166 They have nothing to do with the
APEs.
Because Plaintiffs are empowered to speak in this putative class action only
as and for common stockholders, they cannot represent or release APE direct claims
adhered to APE units in this action.167 Direct APE claims require APE unitholders
165
See id. at 1049–50.
I.A.T.S.E., 2016 WL 7100493, at *5 (citing In re Sunstates Corp. S’holder Litig., 2001
166
WL 432447, at *3 (Del. Ch. Apr. 18, 2001)).
167
It appears Delaware law would permit the release of personal claims belonging to
common stockholders. Activision, 124 A.3d at 1058 (“[I]t is theoretically possible that
members of the Seller Class might have some personal claims, such as federal securities
law claims, that the Settlement releases. The possible existence of those claims does not
require a separate class or subclass.”); id. at 1044.
Objector Alexander Holland interprets Activision differently in his exceptions to the
Special Master’s Report. D.I. 547. The Court has reviewed his exceptions de novo. Infra
at 63, 65–66. They are dismissed. The Court will proceed with its interpretation of
Activision as adopted by the Delaware Supreme Court. E.g., Daniel v. Hawkins, 289 A.3d
631, 649 n.79 (Del. 2023) (quoting Urdan v. WR Cap. P’rs, LLC, 2019 WL 3891720, at
51
to be part of the class. APE units are not represented in the complaints or in the
common stockholder class.
Franchi owns common stock. He does not own any APE units. He plainly
cannot represent or release APE claims.168 Franchi’s interests are aligned solely with
the common, and he is incented to negotiate on behalf of the common alone. He
cannot serve as an adequate fiduciary for APE claims.169
While Allegheny is also an APE unitholder, Allegheny is a lead plaintiff only
in its capacity as a common stockholder bringing claims adhered to common stock.
Allegheny is authorized to serve as a fiduciary only as a common stockholder and
for a putative class of other common stockholders. In that capacity as a common
stockholder who only asserted class claims appurtenant to the common stock,
Allegheny cannot represent or release APE direct claims.
*11 (Del. Ch. Aug. 19, 2019), aff’d, 244 A.3d 668 (Del. 2020), and then Activision, 124
A.3d at 1050).
168
Hr’g Tr. 80 (“Your question is, if you don’t accept – I mean, what you’re really saying
is if you don’t accept the premise that the APEs release just flows with the common, if it’s
separate, then, yeah, I think – I mean, I wouldn’t dispute what you’re saying, that we
wouldn’t give that release.”); id. at 79–82; Nat’l Super Spuds, 660 F.2d at 19 (“In the
present case, by contrast, the parties to the settlement have attempted to release claims with
respect to which none of them was authorized to represent members of the class.”).
169
E.g., In re Fuqua Indus., Inc. S’holder Litig., 752 A.2d 126, 127 (Del. Ch. 1999) (“In
order to meet the adequacy requirements of Rules 23 or 23.1, a representative plaintiff must
not hold interests antagonistic to the class . . . .”); Leon N. Weiner & Assocs., Inc. v. Krapf,
584 A.2d 1220, 1225 (Del. 1991) (“In an application of the fourth prerequisite of Rule
23(a), the predominant considerations are due process related: (i) that there be no conflict
between the named party and the other class members; and (ii) that the named party may
be expected to vigorously defend not only themselves but the proposed class.”).
52
Plaintiffs, as fiduciaries for common stockholders, cannot represent or release
direct claims appurtenant to APE units. “Having received authority to represent
class members solely with respect to [common stock claims], [P]laintiffs ha[ve] no
power to release any claims based on any other [securities].”170
At the Settlement Hearing, the defendants argued they were “entitled to
peace” on the APE claims because “the claims held by APE holders that would be
released are personal claims” and “weak in nature.”171 Indeed, Activision
contemplates that a class settlement can release not only direct and derivative claims
adhered to shares, but also directionally consistent personal claims on the same facts
held by the holders of those shares, where those personal claims “have not been
articulated and are hypothetical at best” and so their release is supported by the same
consideration as the meaningful claims.172 Activision explained that personal claims,
as for a breach of contract, fraud, or a Rule 10b-5 violation, require facts specific to
the person, like reliance, regardless of the underlying property.173
170
Nat’l Super Spuds, 660 F.2d at 18 (footnote omitted); Ct. Ch. R. 23(a)(3) (requiring “the
claims or defenses of the representative parties [to be] typical of the claims or defenses of
the class”).
171
Hr’g Tr. 121.
172
Activision, 124 A.3d at 1068.
173
Id. at 1056 (“For the fraud claim, the cause of action arises out of the false
representations made by the buyer or seller on which the counterparty relied to her
detriment, suffering causally related damages as a consequence. The underlying property
could just as easily be land or a car.”); accord Urdan, 244 A.3d at 677 (“In contrast,
53
The APE claims are distinguishable from the personal claims in Activision.
First, as explained, APE claims are not based on the same facts as the common
claims in this action. Second, the APE claims in the Release encompass not only
personal claims carried by the unitholder, but also direct and derivative claims
attached to the APE units.174
And finally, significantly, and as the next section explains, this case is
distinguishable from Activision because the proposed settlement consideration
cannot support release of APE claims.175
personal claims do not depend on the relationship between the stockholder and the
corporation or the existence of an underlying security.”).
174
Stip. ¶ A.1(r) (releasing claims “arising under federal, state, common, or foreign law, []
whether based on contract, tort, statute, law, equity, or otherwise (including, but not limited
to, federal and state securities laws), that Plaintiffs or any other Settlement Class Member:
. . . ever had, now have, or hereafter can, shall, or may have, directly, representatively,
derivatively, or in any other capacity that, in full or part, concern, relate to, arise out of, or
are in any way connected to or based upon the allegations, transactions, facts, matters,
occurrences, representations, or omissions involved, set forth, or referred to in the
Complaints and that relate to the ownership of . . . AMC Preferred Equity Units during the
Class Period . . . .” (emphasis added)).
175
Activision, 124 A.3d at 1044 (“Under controlling Delaware Supreme Court precedent,
a settlement can release claims of negligible value to achieve a settlement that provides
reasonable consideration for meaningful claims.” (citing Phila. Stock Exch., 945 A.2d at
1140)).
54
3. The Proposed Settlement Provides No Consideration
For Releasing APE Claims.
A release must be supported by consideration to be valid.176 The Proposed
Settlement consideration is detrimental to the APE position; the release of APE
claims is therefore not supported by consideration.
As Chancellor Allen observed in In re Advanced Mammography Systems, Inc.
Shareholders Litigation, a release that purports to release claims held by entities that
are differently situated than the plaintiffs (there, derivative claims as compared to
the plaintiff’s direct claims) “in exchange for no consideration” “would certainly
offend fundamental notions of fairness.”177 The Second Circuit reasoned similarly
in National Super Spuds. There, “[t]he stipulation of settlement provided that
members of the class submitting valid claims would divide the settlement proceeds
176
E.I. DuPont de Nemours & Co. v. Fla. Evergreen Foliage, 744 A.2d 457, 462 (Del.
1999) (“A release is a form of contract with the consideration typically being the surrender
of a claim or cause of action in exchange for the payment of funds or surrender or an
offsetting claim.”); Cigna Health & Life Ins. Co. v. Audax Health Sols., Inc., 107 A.3d
1082, 1088 (Del. Ch. 2014) (“It is the blackest of black-letter law that an enforceable
contract requires an offer, acceptance, and consideration. . . . Consideration is a benefit to
a promisor or a detriment to a promisee pursuant to the promisor’s request.” (internal
quotation marks omitted) (quoting James J. Gory Mech. Contracting, Inc. v. BPG
Residential P’rs V, LLC, 2011 WL 6935279, at *2 (Del. Ch. Dec. 30, 2011))); New Enter.
Assocs. 14, L.P. v. Rich, 295 A.3d 520, 591 n.296 (Del. Ch. May 2, 2023) (“The Court of
Chancery has refused to enforce a release in a transmittal letter for lack of consideration.”
(citing Cigna, 107 A.3d at 1091)); Brinckerhoff v. Tex. E. Prod. Pipeline Co., LLC, 986
A.2d 370, 385 (Del. Ch. 2010) (“[A] reviewing court can and should question how much
consideration was provided for the release that blesses the transaction and exonerates the
defendants.”).
177
1996 WL 633409, at *1.
55
in proportion to the number of contracts they had liquidated at a loss.”178 “Persons
in Richards’[s] position,” who held both liquidated and unliquidated contracts, “were
thus to release claims based on both liquidated and unliquidated contracts in return
for payments that were to be determined solely on the basis of the contracts they had
liquidated.”179 The Second Circuit held “[t]here is no justification for requiring
Richards or persons similarly situated to release claims based on unliquidated
contracts as part of a settlement in which payments to class members are to be
determined solely on the basis of the contracts they liquidated.”180
Here, the Proposed Settlement compensates common stockholders to the
exclusion—and dilution—of APE unitholders. The settlement consideration offers
common stockholders more AMC equity, which necessarily comes at the expense
of the APE position.181 The parties propose to pay that consideration after the
178
Nat’l Super Spuds, 660 F.2d at 14.
179
Id.
180
Id. at 18 (footnote omitted).
181
Indeed, an APE unitholder moved to intervene in this action to protect his APE position
from the settlement consideration. D.I. 346; id. at 3 (asserting that he purchased APE units
“reasonably relying on the Company’s promises” of a one-for-one conversion, and that the
proposed settlement will dilute his APE units and “deprive [him] of the benefit of his
bargain”). The Special Master recommended the Court deny his motion concluding the
APE unitholder “does not have an interest at risk in the action because he is not a member
of the class and ‘is free to pursue [his] claims . . . elsewhere. . . . [E]ven if he did have an
interest at risk in the action, that interest is based on a collateral, indirect impact of the
action rather than the claims asserted in the action. I do not view that as a sufficient basis
to permit [the unitholder] to intervene as of right.’” D.I. 536 at 4 (quoting Marie Raymond
Revocable Tr. v. MAT Five LLC, 980 A.2d 388, 398 (Del. Ch. 2008), aff’d sub nom.
56
Reverse Split, but before the Conversion.182 In that scenario, when the APEs convert
to shares of common stock, former APE unitholders will represent a smaller
percentage of the total common than they would have if not for the Proposed
Settlement consideration received by the class.183 The release of APE claims is not
supported by consideration.
4. No Objector Raised The APE Claim Release, And No
Party Demonstrated Its Reasonableness.
No putative class member raised the Release’s problematic mechanics in
encompassing APE claims.184 Neither the Special Master nor Plaintiffs indicated
objectors raised the inclusion of APE claims in the Release as an issue with the
Proposed Settlement.185 Izzo, who as noted holds more APE units than common
Whitson v. Marie Raymond Revocable Tr., 976 A.2d 172 (Del. 2009), and then citing In re
AMC Entm’t Hldgs., Inc. S’holder Litig., 2023 WL 2518479, at *4 (Del. Ch.
Mar. 15, 2023)). She also recommended the Court deny permissive intervention because
the unitholder “is not part of that class of stockholders, and intends to intervene for the
purpose of protecting his economic interest in the value of his APE units. [He] has no
interest in the merits of the plaintiffs’ claims.” Id. at 5 (footnotes and internal quotation
marks omitted).
182
Stip. ¶ A.1(y).
183
POB at 30–31 (explaining how the proposed settlement consideration improves the
Class’s position at the expense of the APEs).
184
The Court gave de novo and specific review to 310 objections that raised the topic of
the release or “immunity” for the defendants. Brian Tuttle, who did not submit a compliant
objection, raised the inclusion of the APE claims in the Release in an untimely second set
of objections filed on July 3, after the Court raised the issue at the Settlement Hearing.
Infra note 204.
185
Rpt. at 73–75; PRB at 38–41.
57
shares, is represented by competent counsel. She asserted the Release improperly
released future claims and others, but did not raise the release of APE claims as a
fault in the Proposed Settlement.186 The other compliant objections did not object
to the release of the APE claims.187 For example, while the “Form Objection” argued
the Release improperly applied to potential claims belonging to former AMC
stockholders, it did not address the released APE claims.188 Perhaps this is because
the class interests as common stockholders are adverse.
The Special Master identified the fact that “the Stipulation provides for Class
members to release claims ‘that relate to the ownership of Common Stock and/or
AMC Preferred Equity Units during the Class Period’” as a reason why the Court
186
Izzo Obj. at 30–34. Rather, Izzo argued the Release improperly releases tangential and
future claims, while the parties assert the scope of the release is “appropriate” and “typical.”
Id.; PRB at 38–41; DRB at 19–24. Izzo argues the Release encompasses claims “that could
arise based on a future event,” citing the language in the Release that it applies to any claim
settlement class members “ever had, now have, or hereafter can, shall, or may have.” Izzo
Obj. at 31, 33. This reading misinterprets the Release. The language Izzo cites is subject
to two conjunctive limitations: (i) the claim must be “connected to or based upon the
allegations, transactions, facts, matters, occurrences, representations, or omissions
involved, set forth, or referred to in the Complaints;” and (ii) the claim must “relate to the
ownership of” AMC equity “during the Class Period.” Stip. ¶ A.1(r). These two limitations
make clear the Release does not apply to future events.
187
One noncompliant objection did object to the Release releasing the Settlement Class
members’ individual claims—as opposed to derivative claims—without adequate
consideration, citing Activision. PRB, Ex. 11 (attaching Brian Tuttle’s objection); D.I. 529,
Ex. EE (same); see also D.I. 533; D.I. 573. Tuttle did not address the Release’s inclusion
of APE claims.
188
PRB, Ex. 3, Form Objection, at 14–15.
58
should “consider that some Class members own APE units received through the
dividend” when weighing the value of the “give” against the “get.”189
I raised the fact that the Release included APE claims released by common
stockholders at argument to Plaintiffs and the defendants.190 Plaintiffs’ counsel first
tried to describe the APEs as a share split to color the APE claims as appurtenant to
the common shares, then deferred to the defendants’ counsel, and then wondered
aloud if the defendants would drop that part of the Release.191 The defendants’
counsel simply insisted they were “entitled to complete peace.”192 As explained,
189
Rpt. at 38–39.
190
Hr’g Tr. 68 (“[THE COURT:] Why does the release include APE claims, and how can
the class reach those if the class is common?”); id. at 70 (“THE COURT: How does that
work under Activision?’); id. at 79 (“THE COURT: Do you have a theory as to how Mr.
Franchi, who doesn’t own any APE, can be a fiduciary for APE claims included in the
release?”); id. at 127 (“THE COURT: Can you address the fact that the APE claims --
again, I certainly don’t want to be the one to speculate what they might be, but certainly
what we know is that the APE interests, when it comes to voting, are divergent from
common interests when it comes to voting, which is what the claims were about in the
complaint. ATTORNEY NEUWIRTH: Right. THE COURT: Can you address why it
would be appropriate and commensurate with due process to release those divergent claims
here?”).
191
Id. at 79 (“[ATTORNEY LEBOVITCH:] Again, we weren’t giving a release for
completely unrelated securities. Like, it wasn’t an all-securities release, which, again, is
done in federal court in other contexts. We’re not doing it here, and in Delaware we’re not
giving an all-securities release. It was an AMC common share release. And whether you
think of it as the APEs are literally a splitting of the common share or not, that’s the way it
was presented. We felt that it was reasonable legally. But ultimately, it’s a negotiated
term, and maybe Mr. Neuwirth, you know, can understand it better. But it didn’t seem
unreasonable to us at all.”); id. at 83 (“And -- if -- if defendants were willing to do a deal
without the APEs release, we’d say fine.”).
192
Id. at 128; see also id. at 119 (“And in return for the settlement of those claims, and the
consideration that we’re providing to the class, like any defendant, we want complete
59
releasing APE claims in this Proposed Settlement is not possible based on the class
composition and proposed consideration.
I will not speculate or hazard to guess what APE claims a class member who
also owns APE, in their capacity as an APE unitholder, might bring, or what risk
such claims might present to the Company. The parties bear the burden of
demonstrating that the Proposed Settlement is fair, reasonable, and in accordance
with due process.193 It is up to the parties to decide if the risk of unreleased APE
claims is worth rejection of a settlement that might pave the way for the Conversion,
peace.”); id. at 121 (“But, nevertheless, we think we’re entitled to peace on those claims
. . . .”); id. at 122 (“And I think this is, by the way, part of the reason why it’s fair to release
these claims, is that we do want peace with respect to APE claims for members of the
class.”); id. at 128 (“And I think, given the consideration that we’re paying to common
stockholders and given that the thrust of this whole lawsuit is that APEs are benefiting at
the expense of the common, I think we’re entitled to complete peace. And I think that -- I
think Delaware law recognizes that, that when defendants are providing what we think is
more than adequate consideration, we are entitled to that kind of peace for issues arising
out of the complaint and facts and circumstances relating to the complaint.”); id. at 129
(“[ATTORNEY NEUWIRTH:] And we think we’re entitled to peace from all of that in
return for the proposed consideration that we’ve offered. THE COURT: Given that the
proposed consideration is meant to improve the lot of the common, how does it serve as
consideration for the APE claims? ATTORNEY NEUWIRTH: I don’t think it is,
necessarily, consideration for the APE claims. But I think Activision permits us to get
peace with respect to those types of personal claims that may be weak, notwithstanding
that. So the APE holders are not receiving -- I mean, they’re receiving consideration
wearing their common stockholder hat, to the extent that they’re both, but they’re not
receiving consideration on their APE shares.”).
193
TD Banknorth, 938 A.2d at 658 n.4 (citing First Boston, Inc, 1990 WL 78836, at *9).
60
which the parties have intimated is necessary to save the Company from financial
ruin.194
B. Objections And Exceptions To The Special Master’s Report
Though I conclude I cannot approve the Proposed Settlement, I want to take
this opportunity to address the Special Master’s Report and the exceptions to it. The
Court is grateful to the Special Master and her team, who devoted unbiased expertise
and many hours to give prompt and careful attention to the numerous motions and
nearly 2,000 compliant and noncompliant objections that were received from
putative stockholders (the “Objections”).195 The Special Master recommended that
her fee be split evenly between the parties; no exception was taken to that
194
E.g., DOB at 7–8 (“Given AMC’s financial condition, AMC’s ‘current cash burn rates
are not sustainable,’ and there are no guarantees that AMC will be successful in generating
the liquidity necessary to meet its financial obligations beyond 2023. As AMC reported
earlier this year, while the Company had approximately $631.5 million of cash on hand as
of December 31, 2022, its cash position deteriorated by approximately $961 million in
2022, despite raising approximately $220.4 million from the sale of APEs in 2022. Unless
revenue and attendance levels rise, the failure to obtain additional liquidity through equity
capital would likely result in bankruptcy, in which holders of Common Stock and APEs
would likely suffer a total loss of their investment.” (footnotes omitted)); Hr’g Tr. 86
(“[ATTORNEY LEBOVITCH:] We understand that if this company is facing imminent
failure, whether or not we could prove a claim, we don’t want to ask the Court to throw a
company into bankruptcy.”).
I asked Plaintiffs’ counsel to point the Court to a document in the discovery record
that convinced them the Company was facing imminent bankruptcy if the Proposals were
not enacted. They did not. Id. at 93–96.
195
D.I. 567, Appendix A [hereinafter “Am. Appendix A”] (listing “Timely Objections With
Proof of Ownership”); D.I. 567, Appendix B [hereinafter “Am. Appendix B”] (listing
“Timely Objections Without Proof of Ownership”); Rpt. at Appendix C (listing “Untimely
Objections”).
61
recommendation, and I adopt it de novo. The Special Master should submit an
affidavit for Court approval.196
Stockholders objecting to the Proposed Settlement were required to submit a
written objection that complied with the requirements set forth in the Notice, the
Scheduling Order, and the Court’s May 3 Letter.197 To be compliant, an Objection
must have been (1) submitted in writing to Plaintiffs’ counsel, (2) received by
May 31, 2023, and (3) accompanied by proof that the objector was the record or
beneficial owner of AMC common stock at the relevant time.198
Approximately half the communications submitted by purported stockholders
did not include any information regarding their holdings.199 In accordance with the
May 3 Letter, the Special Master considered the subset of Objections that were
accompanied by proof of stock ownership.200 Amended Appendix A to the Special
Master’s Report lists the 1,445 Objections submitted between May 1 and May 31,
196
D.I. 149 ¶ 7; Ct. Ch. R. 88.
197
Notice ¶¶ 63–70; Sched. Ord. ¶¶ 18–19; May 3 Ltr. at 2, 4.
198
Notice ¶¶ 63–66, 69; Sched. Ord. ¶¶ 18–19; May 3 Ltr. at 2.
199
PRB at 8.
200
Rpt. at 22; see also May 3 Ltr. at 2 (“Objections must be accompanied by documentary
evidence of beneficial ownership of AMC common stock. Such evidence must show the
stockholder’s full name and can comprise copies of an official brokerage account
statement, a screen shot of an official brokerage account, or an authorized statement from
the stockholder’s broker containing the transactional and holding information found in an
account statement.”). As set forth in the May 3 Letter, exceptions must have been received
on or before June 28 to be considered timely. Id. at 3.
62
2023 that provided some form of proof of AMC common stock ownership.201 As
reflected in the Report, the Special Master concluded that none of the compliant
Objections raised issues warranting a denial or modification of the Proposed
Settlement.202 Because I find the inclusion of APE claims in the Release dispositive,
and because no compliant Objection raised the issue of APE claims being included
in the Release, the compliant Objections do not inform my decision.203
Thirteen exceptions to the Report were timely filed; nine were compliant.204
201
All documents identified in Appendices A through F to the Special Master’s Report
were delivered to the Court on June 22, 2023. The documents identified in Amended
Appendices A and B are not new, just recategorized. Am. Appendix A; Am. Appendix B.
Few stockholders complied with all of the ownership requirements to submit a
compliant Objection. See Notice ¶ 64; Sched. Ord. ¶ 19. Despite that, if a stockholder
made a good faith effort to submit some form of proof of ownership of AMC common
stock, I deemed the Objection compliant. Likewise, a few stockholders at the end of
Amended Appendix A did not utilize their actual name. I still considered these Objections,
but they did not affect my analysis.
202
Rpt. at 87.
203
E.g., In re Cent. Banking Sys., Inc., 1993 WL 410421, at *2 n.2 (Del. Ch. Oct. 6, 1993)
(“Rafton objected on other grounds as well, but those grounds are not relevant to the issue
being decided here.”); Goldman v. Aegis Corp., 1982 WL 525016, at *2–3 (Del. Ch.
May 3, 1982) (objections based on issues “not before [the] [c]ourt” are “without merit”);
cf. Trulia, 129 A.3d at 907 n.90 (“Because I reject the proposed settlement, I do not address
the issue of class certification, although stockholder classes in cases such as this are
typically certified.”).
204
D.I. 533 (Brian Tuttle); D.I. 573 (same); D.I. 546 (Douglas Miller); D.I. 547 (Alexander
Holland); D.I. 541 (same); D.I. 580 ¶ 7; D.I. 552 (Howard Chen); D.I. 553 (Slwormir
Sochur); D.I. 554 (Magdalena Georgopoulos); D.I. 556 (Roze Izzo); D.I. 558 (Samer
Kurait); D.I. 559 (same); D.I. 560 (Leta Anderson and Emily Anderson); D.I. 564
(Plaintiffs); D.I. 565 (Karen Grelish); D.I. 566, Ex. A (Fonda Furtivo); D.I. 566, Ex. B
(John Hartranett).
63
I do not consider Furtivo or Hartranett’s exceptions because they did not submit
them to the Court. May 3 Ltr. at 3 (requiring all exceptions be submitted to the Court and
not to Plaintiffs’ counsel).
Submissions styled as “exceptions” filed by individuals who did not submit a
compliant objection will not be considered. Sched. Ord. ¶ 20; Notice ¶ 69; May 3 Ltr. at 3.
For this reason, I do not consider the exceptions submitted by Grelish or Tuttle.
While Plaintiffs catalogued Grelish’s submission as a compliant Objection, the
Special Master catalogued Grelish’s submission as an inquiry. D.I. 509, Third Revised
Transmittal Affidavit of Michael J. Barry Providing Log of Stockholder Communications,
Ex. B; Rpt. at Appendix F, no. 702. Reviewing Grelish’s submission de novo, I conclude
it is neither compliant nor an Objection because it lacks proof of ownership and does not
object to the settlement, but rather informs Plaintiffs that Grelish had not received a
postcard.
On July 3, 2023, after the Court raised the inclusion of APE claims in the release at
the Settlement Hearing, Tuttle filed either a second set of exceptions, or a brief in support
of his exceptions, that mentions this issue. D.I. 573. I will not consider Tuttle’s July 3
filing for two reasons. First, Tuttle failed to comply with the requirements for submitting
a valid Objection. Tuttle argued that the Special Master erred by declining to consider his
Objection because he failed to include proof of stock ownership in a form authorized by
the Court’s May 3 Letter. D.I. 533 ¶¶ 2.a–c. While conceding he did not attach compliant
proof of ownership, he argues that the Special Master should have considered his Objection
because he filed a pro se affidavit on May 9 stating he held AMC common stock at the
relevant time. D.I. 253 ¶ 7. The Special Master was correct not to consider that affidavit
and the Objection.
To be sure, requiring strict compliance with procedures for submitting objections is
the exception in this Court. Activision, 124 A.3d at 1062 (“Experience demonstrates that
objecting stockholders are not sticklers about complying with the procedures for filing
objections, and the court generally considers objections on the merits. ‘[I]n the absence of
resulting prejudice to other participants, the Court’s general practice has been to hear and
consider all such objections and to deal with them substantively, notwithstanding the
objector’s failure to comply with the letter of the notice.’” (alteration in original) (quoting
Donald Wolfe, Jr. & Michael A. Pittenger, Corporate and Commercial Practice in the
Delaware Court of Chancery § 9.04[d] at 9-192 (2012))); 2 Wolfe & Pittenger § 13.03[d]
at 13-24 (same). But this case posed unique administrative challenges prompted by a large
and highly engaged retail stockholder base. The Court implemented the objection filing
requirements in the May 3 Letter in anticipation of purported stockholders filing an
extraordinary number of objections to the Proposed Settlement. The administrative
challenges of intaking and reviewing so many objections required baseline standards and
adherence to them. Other class action or derivative settlement approval proceedings have
64
I have reviewed each compliant exception de novo.205 The exceptions touch on a
range of issues, including but not limited to: the adequacy of the notice, with a focus
on postcard notice;206 the strength of the claims and the value of the claims being
released, or the “give” as compared to the “get”;207 the Special Master’s
categorization of some purported stockholder correspondence as “inquiries”;208 the
not needed such measures. But here, the Special Master was correct in declining to
consider Tuttle’s Objection because it was not accompanied by proof of ownership as
required by the Court. I will not consider the Tuttle exceptions.
Second, even if Tuttle had filed a compliant Objection, the July 3 exceptions are
untimely. Sched. Ord. ¶ 23 (“The Parties may file any exceptions to the Special Master’s
Report and Recommendation no later than June 28, 2023.”); May 3 Ltr. at 3 (“Exceptions
must be received and docketed by June 28, 2023 for the Court to consider them.” (emphasis
omitted)).
205
DiGiacobbe v. Sestak, 743 A.2d 180, 184 (Del. 1999); see also Aveta, Inc. v. Colon,
942 A.2d 603, 607 (Del. Ch. 2008) (“When considering objections to a master’s report,
this Court reviews de novo the master’s legal and factual conclusions. Where, as here,
neither party takes exception to any of the master’s factual findings, the Court ‘may review
the record de novo accepting the master’s facts in the same way that the judge would
resolve a dispute presented on a stipulated set of facts.’” (quoting DiGiacobbe, 743 A.2d
at 184, and citing Sutherland v. Dardanelle Timber Co., 2006 WL 1451531, at *7 (Del.
Ch. May 16, 2006), and DiGiacobbe, 743 A.2d at 184, and Dolan v. Villages of Clearwater
Homeowner’s Ass’n, Inc., 2005 WL 2810724, at *1 (Del. Ch. Oct. 21, 2005))).
206
See, e.g., D.I. 553 ¶ 6; D.I. 560; D.I. 565 at 4; D.I. 566, Ex. B at 2, 5.
207
See, e.g., D.I. 546 at 4; D.I. 547 ¶¶ 2–13; D.I. 556 at 10–28; D.I. 558; D.I. 560; D.I. 565
at 5–9; D.I. 566, Ex. A ¶¶ 3–4; D.I. 566, Ex. B at 6–7.
208
D.I. 552 at 2; D.I. 566, Ex. B at 2. Both Howard Chen and John Hartranett filed
exceptions on this basis. The original appendix to the Special Master’s report listed Chen’s
objection as an “inquiry.” Rpt. at Appendix F, no. 320. The Special Master recategorized
Chen’s submission as a compliant Objection in a June 28 revised appendix. Rpt. at Am.
Appendix A, no. 211. The Special Master explained that “[n]one of these changes impact
[her] analysis or alter [her] recommendation and all of the files and records that [she]
previously provided to the Court remain accurate and properly labeled.” D.I. 567 at 2.
65
Special Master’s decision to give little weight to the volume of objections;209
Plaintiffs’ counsel’s fee award;210 and whether the Special Master adequately
reviewed and assessed each Objection.211 As stated above, I rejected the Proposed
Settlement because the agreement releases APE claims in a representative action by
and for common stockholders. Though a handful of the exceptions focus on the
scope of the release, no compliant exception raised this particular issue. The pending
exceptions do not inform the basis for my opinion, and so I need not reach them.
Nevertheless, I will briefly address one specific concern.
Multiple objectors filed exceptions asserting that the Special Master could not
have considered all the compliant Objections, based on their extraordinary volume
and the limited time she had to review them and draft her report.212 These concerns
are unfounded. Plaintiffs’ counsel liberally categorized stockholder correspondence
as “objections,” including emails and letters stating only a desire to opt out of the
Indeed, the Special Master’s report engages with Chen’s Objection several times in the
footnotes, showing that it was in fact considered. Rpt. at 58 n.175, 72 n.234, 83 n.274.
Hartranett is listed in the original appendix as having submitted both a Compliant
Objection and an inquiry. Rpt. at Appendix A, no. 477; Rpt. at Appendix F, no. 761. The
revised appendix lists him as having submitted a compliant Objection. Rpt. at Am.
Appendix A, no. 508. Although the Special Master did not expressly address his Objection,
there is no indication that she evaluated it as an inquiry rather than an Objection.
209
See, e.g., D.I. 547 ¶ 14; D.I. 556 at 28–32; D.I. 565 at 5.
210
See, e.g., D.I. 556 at 38–42.
211
See, e.g., D.I. 547 ¶ 16; D.I. 553 ¶¶ 1, 5; D.I. 560; D.I. 565 at 4–5; D.I. 566, Ex. A ¶ 5.
212
See, e.g., D.I. 547 ¶¶ 17–18.
66
settlement.213 Many Objections were only a few sentences.214 The Special Master
could address these submissions quickly. Many objections assert the same themes,
allowing the Special Master to address them as a group.215 Many themes were
previewed in stockholder correspondence on the docket that predated formal
Objections.216 The Special Master received the Objections on a rolling basis. And
the Special Master led a team: the April 25 order appointing the Special Master
expressly authorized her to “make use of partners, counsel, associates, and support
staff within her firm.”217 Exceptions asserting the Special Master failed to give each
Objection due attention are dismissed.
213
This is not a criticism of Plaintiffs’ counsels’ handling of the Objections; Plaintiffs’
counsel were correct to err on the side of categorizing such correspondence as Objections
to ensure the Special Master had the widest possible scope of review.
214
Because the May 3 Letter contemplated sending Objections directly to Plaintiffs’
counsel, the objectors do not have access to each other’s Objections unless they were filed
by Plaintiffs or shared online. D.I. 527; D.I. 528; D.I. 529; D.I. 545; Rpt. at 24–25.
215
The order appointing the Special Master expressly permitted her to do so. D.I. 149 ¶ 2.
See Rpt. at 24–25 (“Many stockholders submitted community or ‘form’ Objections that
were disseminated widely online. . . . Plaintiffs also state that Bubbie Gunter used
ChatGPT to develop a community form . . . . Finally, various Objectors submitted what
appears to be a community form submitted by Frank Maribito. This form is similar, but
not identical to the Bubbie Gunt[]er ChatGPT form.”).
216
See, e.g., supra note 76.
217
D.I. 149 ¶ 4.
67
III. CONCLUSION
For the foregoing reasons, the Proposed Settlement is not approved. The
parties should confer on and submit a schedule for the remainder of the case, and
Plaintiffs should file a consolidated complaint.
68