Appendix (Click here to view document) - SC Superior Court E

1 AMY S. PARK (State Bar No. 208204)
[email protected]
2 ERIKA E. SCHMIDT (State Bar No. 295167)
[email protected]
3 SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
525 University Avenue, Suite 1400
4 Palo Alto, California 94301
Telephone: (650) 470-4500
5 Facsimile: (650) 470-4570
6 Attorneys for Defendants
SanDisk Corporation and Flight Merger Sub, Inc.
7
8
SUPERIOR COURT OF THE STATE OF CALIFORNIA
9
FOR THE COUNTY OF SANTA CLARA
10 WILLIAM MANDIGO, Individually and On
Behalf of All Others Similarly Situated,
11
Plaintiff,
12
v.
13
SHANE ROBISON, SCOTT D. SANDELL,
14 FOREST BASKETT, H. RAYMOND
BINGHAM, DANA L. EVAN, JOHN F.
15 OLSEN, EDWARD H. FRANK, FUSION-IO,
INC., SANDISK CORPORATION, FLIGHT
16 MERGER SUB, INC.,
17
Defendants.
Case No. 1:14-CV-259379
CLASS ACTION
APPENDIX OF AUTHORITIES
Hearing Date:
Time:
Dept.:
Judge:
September 5, 2014
9:00 a.m.
1
Hon. Peter H. Kirwan
Action Filed:
Discovery Cut Off:
Trial Date:
June 20, 2014
none set
none set
18
19
20
21
22
23
24
25
26
27
28
APPENDIX OF AUTHORITIES
CASE NO. 1:14-CV-259379
1
TABLE OF AUTHORITIES
2
3 CASES
TAB
4 Braun v. Playboy Enters., Inc.,
No. 10 CH 30121, slip op. (Ill. Cir. Ct. Oct. 6, 2010) ......................................................... 1
5
Devine v. Edison Sch., Inc.,
6
No. 602295/03, slip op. (N.Y. Sup. Ct. Feb. 13, 2004) ....................................................... 2
7 Ripley v. AMC Entm’t, Inc.,
No. 04CV220931 (Mo. Cir. Ct. Dec. 15, 2004) ................................................................. 3
8
Schurr v. CNX Gas Corp.,
9
Consol. No. 2010-2333 (Pa. Ct. C.P. Apr. 26, 2010) .......................................................... 4
10 Young v. Perez,
No. 08 CH 20577, slip op. (Ill. Cir. Ct. July 11, 2008) ....................................................... 5
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
1
APPENDIX OF AUTHORITIES
CASE NO. 1:14-CV-259379
Exhibit 1
IN THE CIRCUIT COURT OF COOK COUNTY, ILLINOIS
COUNTY DEPARTMENT — CHANCERY DIVISION
STEVEN BRAUN, Individually and on Behalf )
of All Others Similarly Situated,
)
)
Plaintiff,
)
)
v.
)
)
PLAYBOY ENTERPRISES, INC., HUGH
)
HEFNER, DENNIS S. BOOKSHESTER,
)
DAVID I. CHEMEROW, SCOTT N.
)
FLANDERS, CHARLES HIRSCHHORN,
)
RUSS PILLAR, SOL ROSENTHAL,
)
RICHARD ROSENZWEIG, and KAI-SHING )
TAO,
)
)
Defendants.
)
)
)
DAVID LORENZINI, Individually and on
)
Behalf of All Others Similarly Situated,
)
)
Plaintiff,
)
)
v.
)
)
HUGH HEFNER, SCOTT N. FLANDERS,
)
RICHARD ROSENZWEIG, CHRISTOPH
)
PACHLER, DAVID I. CHEMEROW, SOL
)
ROSENTHAL, DENNIS S. BOOKSHESTER, )
RUSS PILLAR, CHARLES HIRSCHHORN, )
KAI-SHING TAO, and PLAYBOY
)
ENTERPRISES, INC.,
)
)
Defendants.
)
)
[Caption continued on next page]
No. 10 CH 30121
Hon. James R. Epstein
Calendar 7
No. 10 CH 30171
(Consolidated)
JOSHUA KOCSES and BARRY
GOLDSTEIN, Individually and on Behalf of
All Others Similarly Situated,
Plaintiffs,
v.
10 CH 30349
(Consolidated)
PLAYBOY ENTERPRISES, INC., HUGH
HEFNER, DENNIS S. BOOKSHESTER,
DAVID I. CHEREROW, SCOTT N.
FLANDERS, CHARLES HIRSCHHORN,
RUSS PILLAR, SOL ROSENTHAL,
RICHARD ROSENTHZWEIG, and KAISHING TAO,
Defendants.
RAYMOND MALKIEWCZ, Individually and
on Behalf of All Others Similarly Situated,
Plaintiff,
v.
10 CH 30197
(Consolidated)
PLAYBOY ENTERPRISES, INC., RIZVI
TRAVERSE MANAGEMENT, LLC, HUGH
HEFNER, DAVID I. CHEREROW, DENNIS
S. BOOKSHESTER, SCOTT N. FLANDERS,
CHARLES HIRSCHHORN, RUSS PILLAR,
SOL ROSENTHAL, RICHARD
ROSENTHZWEIG, and KAI-SHING TAO,
Defendants.
[Caption continued on next page]
RALPH STONE, Individually and on Behalf
of All Others Similarly Situated,
Plaintiff,
v.
10 CH 31439
(Consolidated)
PLAYBOY ENTERPRISES, INC., HUGH
HEFNER, DENNIS S. BOOKSHESTER,
DAVID I. CHEREROW, SCOTT N.
FLANDERS, CHARLES HIRSCHHORN,
RUSS PILLAR, SOL ROSENTHAL,
RICHARD ROSENTHZWEIG, and KAISHING TAO,
Defendants.
ROBERT JASON MARTIN, Individually and
on Behalf of All Others Similarly Situated,
Plaintiff,
v.
10 CH 31578
(Consolidated)
HUGH HEFNER, SCOTT N. FLANDERS,
DAVID CHEMEROW, DENNIS
BOOKSHESTER, CHARLES HIRSCHHOR,
SOL ROSENTHAL, RICHARD
ROSENZWEIG, KAI-SHING TAO,
PLAYBOY ENTERPRISES, INC., and RIZVI
TRAVERSE MANAGEMENT LLC,
Defendants.
[Caption continued on next page]
ENCLAVE ASSET MANAGEMENT, LLC,
Individually and on Behalf of All Others
Similarly Situated,
Plaintiff,
v.
No. 10 CH 31951
(Consolidated)
HUGH HEFNER, DENNIS BOOKSHESTER,
DAVID CHEMEROW, SCOTT N.
FLANDERS, CHARLES HJRSCHHOR, SOL
ROSENTHAL, RICHARD ROSENZWEIG,
KAI-SHING TAO, RIZVI TRAVERSE
MANAGEMENT LLC, and PLAYBOY
ENTERPRISES, INC.,
Defendants.
MEMORANDUM OPINION AND ORDER
This matter comes before the court on defendants Dennis S. Bookshester, David I.
Chemerow, Scott N. Flanders, Charles Hirschhorn, Christopher Pachler, Russ Pillar, Sol
Rosenthal, Kai-Shing Tao, and Playboy Enterprises, Inc.'s motion to dismiss plaintiffs'
consolidated class action complaints. For the reasons stated below, that motion is granted.
I.
Facts
This matter arises out of a July 12, 2010 announcement made by defendant Playboy
Enterprises Inc. ("Playboy") that it received a proposal from defendant Hugh Hefner ("Hefner")
to acquire all outstanding shares of Playboy common stock. Hefner proposed to partner with
defendant Rizvi Traverse Management, LLC ("Rizvi") in purchasing the stock for $5.50 per
share.
On July 13, 2010, Charles Germershausen, a purported Playboy shareholder, filed a
putative class action complaint in the Delaware Court of Chancery in a case captioned
Germershausen v. Hefner, et al., C.A. No. 5632-VCN (Del. Ch.). In that suit, Germershausen
named Heftier, Rizvi, Playboy and the members of its board of directors — Dennis S.
Bookshester, David I. Chermerow, Schott N. Flanders, Charles Hirschhorn, Russ Pillar, Sol
Rosenthal, Richard S. Rosenzweig, and Kai-Shing Tao — as defendants. Germershausen filed the
suit on behalf of himself and a purported class of all other public shareholders of Playboy, and
brings claims for breach of fiduciary duty against Hefner and the board members, and a claim
against Rizvi for aiding and abetting the alleged breaches of fiduciary duty. On July 15, 2010,
Germershausen served the defendants with a request for the production of documents.
On July 14, 2010, plaintiffs Steven Braun, David Lorenzini, and Raymond Malkiewcz
filed three separate complaints on behalf of themselves and a purported class of Playboy
1
shareholders in the Chancery Division of the Circuit Court of Cook County, Illinois, captioned:
Braun v. Playboy Enterprises, Inc., et al., No. 10 CH 30121; Lorenzini v. Hefner, et al., No. 10
CH 30171; and Malkiewcz v. Playboy Enterprises, Inc., et al., No. 10 CH 30197. All three of
these plaintiffs bring claims for breach of fiduciary duty against Hefner and the board members.
Malkiewcz additionally brings a claim against Playboy and Rizvi for breach of fiduciary duty,
and Lorenzini brings a claim against Playboy for aiding and abetting the alleged breaches of
fiduciary duty.
On July 15, 2010, plaintiffs Joshua Kocses and Barry Goldstein filed a similar class
action complaint in the Chancery Division of the Circuit Court of Cook County, Illinois,
captioned Kocses v. Playboy Enterprises, Inc., et al. 10 CH 30349, in which they bring claims
for breach of fiduciary duty against Hefner and the board members.
On July 21, 2010, a sixth class action complaint was filed in the Delaware Court of
Chancery, captioned Gottlieb v. Hefner, et al., No. 5654-VCN (Del. Ch.). The details of this
complaint are not of record; however, plaintiffs do not contest defendants' assertions that the
allegations and claims made therein are substantively similar to those made in the
Germershausen action.
On July 22, 2010, plaintiffs Ralph Stone and Robert J. Martin filed separate class action
complaints in the Chancery Division of the Circuit Court of Cook County, Illinois, captioned
Stone v. Playboy Enterprises, Inc., et al. 10 CH 31439, and Martin v. Hefner, et al., No. 10 CH
31573. Stone brings claims for breach of fiduciary duty against Heftier, the board members, and
Playboy. Martin brings claims for breach of fiduciary duty against Hefner and the board
members, and a claim against Playboy and Rizvi for aiding and abetting the alleged breaches of
fiduciary duty. That same day, a ninth class action complaint was filed in the Delaware Court of
2
Chancery, captioned DeVito v. Hefner, et al., No. 5661-VCN (Del. Ch.). The details of this
complaint are not of record; however, plaintiffs do not contest defendants' assertions that the
allegations and claims made therein are substantively similar to those made in the
Germershausen action.
On July 26, 2010, plaintiff Enclave Asset Management, LLC, filed a tenth class action
complaint in the Chancery Division of the Circuit Court of Cook County, Illinois, captioned
Enclave Asset Management, LLC v. Hefner, et al., No. 10 CH 31951, in which it brings claims
for breach of fiduciary duty against the board members and Hefner.
On July 28, 2010, an eleventh class action complaint was filed in the Delaware Court of
Chancery, captioned Glasser v. Playboy Enterprises Inc., et al., No. 5675-VCN (Del. Ch.). The
details of this complaint are not of record; however, plaintiffs do not contest defendants'
assertions that the allegations and claims made therein are substantively similar to those made in
the Germershausen action.
The defendants answered the four Delaware complaints and, on August 3, 2010, Vice
Chancellor John Noble of the Delaware Court of Chancery consolidated those actions
(collectively the "Delaware Actions"), appointed lead counsel, and designated Germershausen's
complaint as the operative pleading. The defendants in the Delaware Actions have since
responded to the aforementioned request for production of documents and discovery has
proceeded accordingly.
The seven actions filed in Illinois (collectively the "Illinois Actions") were consolidated
in stages. On August 3, 2010, Presiding Judge Dorothy Kirie Kinnaird consolidated the Lorenzini
and Kocses actions in the first-filed Braun action. The Malkiewcz, Martin, and Enclave actions
were consolidated in the Braun action on August 10, 2010, and the Stone action was
3
consolidated in the Braun action on August 11, 2010. Playboy, Bookshester, Chemerow,
Flanders, Hirschhorn, Pachler, Pillar, Rosenthal, and Kai-Shing Tao now move to dismiss, or
alternatively to stay, the Illinois Actions pursuant to section 2-619(a)(3) of the Illinois Code of
Civil Procedure, 735 ILCS 5/1-101 (West 2003) ("the Code"). 735 ILCS 5/2-619(a)(3). Hefner
and Rozenzweig have joined and adopted that motion.
II.
Standard of Review
Section 2-619(a)(3) of the Code provides that a defendant may seek the involuntary
dismissal of a complaint where "there is another action pending between the same parties for the
same cause." 735 ILCS 5/2-619(a)(3). "The purpose of this section is to further judicial economy
by avoiding duplicative litigation." Doutt v. Ford Motor Co., 276 Ill. App. 3d 785, 788 (1st Dist.
1995). Section 2-619(a)(3) motions are construed liberally to effectuate this end. Forsberg v.
Chicago, 151 Ill. App. 3d 354, 372 (1st Dist. 1986). However, "[e]very section 2-619(a)(3)
movant must demonstrate by clear and convincing evidence that the two actions involve the
same parties and the same cause." Northbrook Prop. & Cas. Ins. Co. v. GEO Intl Corp., 317 Ill.
App. 3d 78, 80 (1st Dist. 2000).
III.
Analysis
a. The Illinois and Delaware Actions Involve the Same Parties and the Same Cause
"The 'same parties' requirement of section 2-619(a)(3) is met where the litigants'
interests are sufficiently similar, even though the litigants differ in name or number." Doutt, 276
Ill. App. 3d at 788. There can be no dispute that the Illinois and Delaware actions involve the
same parties. The consolidated actions involve the same defendants. More importantly, the
plaintiffs in both states purport to represent a class of similarly situated Playboy shareholders.
Plaintiffs do not contest this. Indeed, all plaintiffs necessarily seek to establish commonality and
4
typicality between them as prerequisites of class certification. This is sufficient to satisfy the
same parties requirement of section 2-619(a)(3). Cf. Forsberg, 151 Ill. App. 3d at 372 (finding
that parties were "substantially the same" where plaintiffs were members of the class in prior
pending actions).
The same cause requirement of section 2-619(a)(3) is met as well.
In evaluating whether two actions are for the same cause, a crucial inquiry is
whether the two actions arise out of the same transaction or occurrence, not
whether the legal theory, issues, burden of proof or relief sought materially differ
between the two actions. Neither the parties nor the cause need be identical to the
prior pending suit. Section 2-619(a)(3) refers to the same cause, not to the same
cause of action, and it may be invoked where there is a substantial similarity of
issues between the two actions. The central inquiry, then, is whether the relief
requested rests on substantially the same facts. The inquiry is guided by common
sense.
Kapoor v. Fujisawa Pharm. Co., 298 Ill. App. 3d 780, 786 (1st Dist. 1998) (citations and
quotations omitted) (emphasis added). Plaintiffs do not dispute that the Illinois and Delaware
Actions arise out of the same occurrence; specifically, Hefher's announced proposal to purchase
all outstanding common stock at a price plaintiffs assert is unfairly low. The factual allegations
underlying the complaints are substantively identical in this regard. Further, plaintiffs in both
states claim that Hefner is wrongfully profiting at the expense of the public shareholders and that
the board members are effectively under his control. While not necessary to satisfy the same
cause requirement, the fact that all plaintiffs bring substantively similar claims serves to
reinforce the similarity of their complaints and the conclusion that their claims arise out of the
same cause. Defendants have met the threshold requirements for dismissal under section 2619(a)(3).
5
b. The Kellerman Factors Weigh in Favor of Dismissal
Although section 2-619(a)(3) references only the same parties and same cause
requirement, Illinois courts generally prefer more before a case is dismissed or stayed in the
interest of avoiding duplicative litigation. Kapoor, 298 Ill. App. 3d at 789. Thus,
even if the movant has established both the same parties and the same cause, the
circuit court retains the discretion to grant or deny the section 2-619(a)(3) motion.
In its discretion, the circuit court should consider the following factors when
deciding whether to dismiss an action pursuant to section 2-619(a)(3): (1) comity;
(2) the prevention of multiplicity, vexation and harassment; (3) the likelihood of
obtaining complete relief in a foreign jurisdiction; and (4) the res judicata effect
of a foreign judgment in the local forum.
Id. at 786 (citations and quotations omitted). These considerations, often referred to as the
"Kellerman factors," from Kellerman v. MCI Telecommunications Corp., 112 Ill. 2d 428 (1986),
are not absolute and are not always applicable. Kapoor, 298 Ill. App. 3d at 789. For instance, the
res judicata effect of a foreign judgment in the local forum is not relevant in the context of
dismissal, as opposed to a stay, since after a dismissal there is no remaining action to which res
judicata principles can be applied. Id. at 790. Furthermore, the trial court must weigh the
prejudice to the nonmovant if the motion is granted against the policy of avoiding duplicative
litigation. Id. at 785-86. Here, the Kellerman factors weigh in favor of dismissal.
The principle of comity, defined as "giving respect to the laws and judicial decisions of
other jurisdictions out of deference" (Hapag-Lloyd, Inc. v. Home Ins. Co., 312 Ill. App. 3d 1087,
1096 (1st Dist. 2000)) weighs in favor of dismissal. Plaintiffs do not dispute that the legal
questions in the Illinois and Delaware Actions are controlled by Delaware law, under which
Playboy is incorporated. The decision most in keeping with the principle of comity is that which
grants appropriate deference to the Delaware Court of Chancery as to issues that arise under
Delaware law. Plaintiffs contend, however, that the application of "the substantive law of another
6
b. The Kellerman Factors Weigh in Favor of Dismissal
Although section 2-619(a)(3) references only the same parties and same cause
requirement, Illinois courts generally prefer more before a case is dismissed or stayed in the
interest of avoiding duplicative litigation. Kapoor, 298 Ill. App. 3d at 789. Thus,
even if the movant has established both the same parties and the same cause, the
circuit court retains the discretion to grant or deny the section 2-619(a)(3) motion.
In its discretion, the circuit court should consider the following factors when
deciding whether to dismiss an action pursuant to section 2-619(a)(3): (1) comity;
(2) the prevention of multiplicity, vexation and harassment; (3) the likelihood of
obtaining complete relief in a foreign jurisdiction; and (4) the res judicata effect
of a foreign judgment in the local forum.
Id. at 786 (citations and quotations omitted). These considerations, often referred to as the
"Kellerman factors," from Kellerman v. MCI Telecommunications Corp., 112 Ill. 2d 428 (1986),
are not absolute and are not always applicable. Kapoor, 298 Ill. App. 3d at 789. For instance, the
res judicata effect of a foreign judgment in the local forum is not relevant in the context of
dismissal, as opposed to a stay, since after a dismissal there is no remaining action to which res
judicata principles can be applied. Id. at 790. Furthermore, the trial court must weigh the
prejudice to the nonmovant if the motion is granted against the policy of avoiding duplicative
litigation. Id. at 785-86. Here, the Kellerman factors weigh in favor of dismissal.
The principle of comity, defined as "giving respect to the laws and judicial decisions of
other jurisdictions out of deference" (Hapag-Lloyd, Inc. v. Home Ins. Co., 312 Ill. App. 3d 1087,
1096 (1st Dist. 2000)) weighs in favor of dismissal. Plaintiffs do not dispute that the legal
questions in the Illinois and Delaware Actions are controlled by Delaware law, under which
Playboy is incorporated. The decision most in keeping with the principle of comity is that which
grants appropriate deference to the Delaware Court of Chancery as to issues that arise under
Delaware law. Plaintiffs contend, however, that the application of "the substantive law of another
6
jurisdiction is by itself insufficient to dismiss or stay an action as a matter of comity." Pls.' Resp.
Br. 6. The court agrees that comity alone is an insufficient basis for the dismissal of an action
under section 2-619(a)(3). Comity is only one factor to consider. Nevertheless, it is a factor that
weighs in favor of dismissal here.
The second Kellerman factor, prevention of multiplicity, vexation and harassment,
weighs in favor of dismissal as well. While there is no evidence of vexation or harassment, with
the same parties and same cause at issue in the earlier-filed action, the avoidance of multiplicity
is best served by dismissal of the latter-filed case. Relying on Whittmanhart Inc. v. CA, Inc., 932
N.E.2d 520, 2010 Ill. App. LEXIS 627 (1st Dist. 2010), plaintiffs contend that "it is not
dispositive that the Delaware action was filed first" and therefore dismissal is unwarranted. Pls.'
Resp. Br. 7. In Whittmanhart, the Appellate Court reversed a trial court's section 2-619(a)(3)
dismissal of an Illinois action in deference to a New York action. Whittmanhart, 2010 Ill. App.
LEXIS 627 * 16. In doing so, the Appellate Court referenced A. E. Staley Manufacturing
Company v. Swift & Company, 84 Ill. 2d 245 (1980), in which the Supreme Court stated that "the
fact that one suit was filed prior to the other is not determinative in resolving a section
2-619(a)(3) motion to dismiss." Id. at 11 (quoting A. E. Staley, 84 Ill. 2d at 253) (emphasis
added). However, in reversing the opinion of the trial court, the Appellate Court relied, at least in
part, on the fact that the Illinois action was the first to be properly filed. Id. at 11-13. Clearly, the
fact that one suit is filed prior to the other is a factor to consider under section 2-619(a)(3).
Further, the Court in Whittmanhart expressly recognized that the dismissal of the Illinois action
would prevent the multiplicity of lawsuits. Id. at 13. The same can be said of the Illinois Actions
sub judice. The filing of the Germershausen action is not itself a sufficient basis for the dismissal
7
of the Illinois Actions, however, it is a factor to consider. The dismissal of these claims would
prevent duplicative lawsuits.
The third Kellerman factor, the likelihood of obtaining complete relief in the foreign
jurisdiction, also weighs in favor of dismissal. The breadth of relief sought in the Delaware
Actions is similar to that sought in the Illinois Actions. Assuming arguendo that the putative
class succeeds on the merits of its claim in the Delaware Chancery Court, as shareholders,
plaintiffs here will receive the benefit of any relief granted by that court. Plaintiffs' argument that
it is unclear whether shareholders will be able to obtain complete relief in the Delaware Actions
because no class has been certified and the cases are in the pretrial phrase is unavailing. The
question is not whether plaintiffs certainly will obtain complete relief in Delaware, but rather
whether complete relief is available in that forum. See e.g., Cont'l Cas. Co. v. Radio Materials
Corp., 366 Ill. App. 3d 345, 348 (1st Dist. 2006).
The last Kellerman factor, the res judicata effect of a foreign judgment, is, for the reasons
stated above, not a relevant consideration in the context of a dismissal. Kapoor, 298 Ill. App. 3d
at 790.
Finally, any prejudice to the Illinois plaintiffs that might result from the dismissal of this
suit is de minimus. Plaintiffs assert that the dismissal of their claim "will effectively result in
plaintiffs losing their day in court." Pls.' Resp. Br. 9. The court does not agree. Plaintiffs can
pursue their claims in the Delaware Court of Chancery, where substantively identical claims
have been brought on behalf of a class that purportedly includes them.
8
IV. Order
Defendants' motion to dismiss plaintiffs' consolidated class action complaints pursuant to
section 2-619(a)(3) is granted with prejudice. This is a final order disposing of this litigation.
ENTERED
JUDGE JAMES EPSTEIN•1783
Dated:
OCT 0 6 2010
Entered:
James
9
CIARKEOF1,300111s0CPS3OURT
OF COOK CTP1LINTY, IL
DEPUTY CLERK
Exhibit 2
sUPREMS COURT OF THE STATE OF NEW YORK
COUNTY Or NEW YORK: IAS PART 17
- -X
PATRICIA DEVINE, an behalf of herself
and all others similarly situated,
Pla3ntiffS,
Index No. 602295/03
-againstEDISON SCHOOLS, INC, BENNO C. SCHKID'i',
JR., ma's WHITTLE, JOHN B. BALOUSEK,
.___CHRIS_DIETUI, JOAN COONEY, CHARLES
DELANEY, FLOYD FLAKE, RONAUD r. PURTUNE7
EDWARD S. HARRIS, PAUL L. LINCOLN,
LOWELL W. ROBINSON, and TIMOTHY P.
ICED
amammt,
FFS 1 3 20
Defendants.
X
Emily' one Goodman, J.
NEW YORK
COUNTYGUMC$ OPMC8
rn this action brought by shareholders to enjoin the
proposed merger between. defendant Edison Schools, Zno. (Edison)
and defendant Liberty PartnerS (Liberty), plaintiffs move, by
order to show cause, for an order compelling expedited discovery.
Defendants Edison, and John B. Balousek, Joan Ganz Cooney. Rev.
rioyd H. Flake, Ronald F. Fortune, Edward S. Harris, Lowell W.
Robinson and Timothy P. Shriver (the director defendants) cross-
ye
for an order dismissing the shareholder first amended class
action complaint (amended complaint). Defendants Benno C.
Schmidt, Jr., Chris Whittle, Chris Cerf, Adam T. Feild, Chris
Soarlatta, John Chubb, Jim Howland, Deborah McGriff, Donald
Sunderland, Laura Eshhaugh, Kathleen Hamel, Joe Keeney, Martha
3.
Olson, and David Graff (the officer defendants) join in the
director defendants' cross motion.
X• Background
Edison is a publicly traded company in the business of the
private operation of public schools. It is incorporated in
Delaware, but is headquartered in New York. The named
plaintiffs,'Patricia Devine
and
ROA Young (Young) are
shareholders in Edison, and purport to represent a potential -clasofimrytuedpsn.
According to the amended complaint, Edison has experienced a
nuMber of financial reversals since its initial, and highly
hopeful, public offering in 1999. On July 14, 2003, Edison
announced that it had signed a merger agreement for a "goingprivate" transaction with a company formed by defendant (bums
Whittle (Whittle), Edison's fonder and CEO, and an affiliate of
defendant Liberty. Pursuant to the terms of the merger
agreement, each share of Edison Class A and Class E stock would
be acquired for $1.76 per share, in cash. The new company would
continue to be managed by Whittle, and some other members of
Edison's oenior management.
It is plaintiffs' contenal5E th fner - prtce - ol $1.7G petshare does
not
represent the "attractive premium" suggested by
Whittle (Amended Complaint, 1 50), but is, rather, a "substantial
discount" off the true worth of Edison's stock (id., % 51),
2
rendering the consideration provided for in the merger agreement
'woefully inadequate° and "unfair° to Edison's Shareholders, and
which "clearly does not represent the true value of the Company."
Id., Si 52 .
In the present action, plaintiffs bring claims for breach of
fiduciary duty an the part of defendants to approving the merger
without, among other things, considering alternatives to the
transaction with Whittle and Liberty; . eillirkg- toridtra-tauction to obtain the best value for Edison's shareholders;
failing to conduct a market check to ensure that the Price of
$1.76 per share was the best obtainable; and relying on a flawed
valuation analysis from Edison's financial advisor, Evercore
Group, lac. (Everccre). Plaintiffs also allege that Evercore had
a conflict of interest, having had a prior relationship with
Liberty. Plaintiffs also briag a claim for defendants' alleged
failure to disclose material information in the preliminary proxY
statement which it presented to the.Securities and Exchange
Commission (SEC), which allegedly resulted in harm to plaintiffs.
Immediately upon the announcement of the merger agreement,
on July 14, 2003, several lawsuits were filed in'the Chancery
Court in the State:n""1="Del-aWarec- whEe-Edi-son—i-s.inom:ponated.„. all
seeking class action status. Proceedings are presently taking
place to determine lead counsel in those actions.
One of the
actions was commenced by Young, a named plaintiff herein (Young v
3
Belousek, C.A. No. 20426 [Del Ch]). However, Young claims that
he commenced the instant action on July 17, 2003 to add the claim
of failure to disclose, and to include the officer defendants,
some or all of whom are allegedly not amenable to jurisdiction in
Delaware. Young claims that ,he will discontinue the Delaware
action if the present action is allowed to proceed.
IX, Present Motions
Plaintiffs are seeking expediteU discovarT,--hecause they-believe that the sp cial meeting at which the merger will be
voted upon is imminent, and that discovery is necessary before
they can make a proper motion to enjoin the vote.
Defendants
move for dismissal of the complaint on grounds of forum non
convenience (CPLR 327), prior pending action (CPLR 3211[a][41),
and failure to state a cause of action (CPLR 3211[a][7])MIT. Discussion
A. Prior Pending Action and FOrm Egon Convenienm
Pursuant to CPLR 3211(a)(4), an action may be dismissed
where "there is another action penAillg between the same parties
for the same cause of action in a court of any state or the
United States ...
."
Id.
Courts have broad discretion in
deciding whether to dismiss an action ofi—efii s ground (see,
Whitney v Nhibney, 57 NY2d 731 [1982]), and the court, instead,
"may make such order as justice requires ... ." CPLR 3211(a)(4).
Defendants have also moved for dismissal under CPLR 327(a),
4
which calls for the dismissal of an action if in the interest of
substantial justice the action should be heard in another forum
if Id.
It is appropriate to consider these alternative
grounds of relief, because "ih deciding a motion, to dismiss based
on the pendency of another action, the analysis is similar to
that employed in entertainAng a motion predicated on forum non
conveniene." White Light Productions, Inc. v On The Scene
Proauctions r
AD2a-911,
Mpt: 1:997T.
ma the present case, Young commenced a suit substantially
similar to the present one several days after the announcement of
the merger, and shortly before the commencement of the present
action. According to plaintiffs, Young joined in the present
action, by the filing of the amended complaint with plaintiff
Devine, when he allegedly realized that claims existed which
allegedly include the officer defendants, with regard to the
alleged deficits in the preliminary proxy statement.•
If an action is to be dismissed pursuant to CPLR 3211(a)(4),
-it is necessary that there be a sufficient identity as to both
the parties and the causes of action asserted ia the respective
actions
White Light Productions, Inc. v On Mhe Scene
producfTargTi; -/nc., -rn-watno:-19-Tr
,xiz-a-rximp-Empire state
Part. era v Znipire State Building Associates, 24$ mod 188 apt
Dept 1997) (dismissal under CPLR 3211(a)(4) appropriate when
there is a 'substantial identity of parties" and "'essential'
5
identity of issue [citation omitted)"). The existence of "some
additional parties' does-not bar dismissal. Barringer v Zgoda,
91 AD2d 811, 811 (3d Dept 1982); see also White Light
Productions, Inc. v On The Scene Productions, Inc., 231 AD2d 90,
supra.
In the present instance, the two actions share a substantial
identity of parties, and an essential identity of issue, i.e.
whether the merger should be enjoined due to the breacfiiii
fiduciary duty allegedly perpetrated by the defendants.
See
Schaller rr tracco, 241 AD2d 663, 663 (3d Dept 1997) (while legal
theories in different actions may differ, dismissal under
3211[alf41 appropriate where actions are based on"same
actionable wrong" and "seek the same relief'). Here, the wrongs
allegedly committed by the defendants, with regard to their
alleged breaches of fiduciary duty, mirror the faults allegedly
affecting the preliminary- proxy statement, and both claims call
for the identical injunctive and monetary relief. And, while
jurisdiction over the officer defendants might be unfeasible,
plaintiffs have failed to state that their claim for failure to
disclose arising from the preliminary proxy statement cannot be
br6Ught against thaliaiector detendafit-A-in thbor that the officer defendants are necessary parties to such a
claim. As a result, disc
of the present action, in favor of
the action which Young previously commenced in Delaware, is
appropriate under CESR 3211(a)(4).
The action must be dismissed pursuant to Ma 327 as well.
"An action, properly subject to jurisdiction in the courts of
this State, may nevertheless be dismissed if a court determines
that, in the interest of substantial justice - the action should
, be heard in another forum." World Point. 2'rading 112% Ltd, v
CreditoIan,25ADd138(ept196),quoing
MR327(4) and 2-02amicr Repub. 1ft of Iran- v Pahlavi, ea- N1r2d- 4/4,
478-479 (1984), cert denied 469 UB 1108 (1985). The doctrine is
based on "justice, fairness and convenience [internal quotes and
citation amittedl"
(Grizzle v Hertz Corporation, 305 AD2d 311,
312 frt Dept 20031), "and the burden is or. the Party challenging
the foram to demonstrate that the action would be best
adjudicated elsewhere." Id.; see also Islamic Republic of Iran v
Pahlavi, supra.
Among the factors to be considered in determining a motion
under CI, LR 327 are 'the burden on the New York courts, the
potential hardship to the defendant, and the unavailability of an'
alternative forum in which plaintiff may bring suit."
Islamic
Republic of Iran vPablavi, 62 NY2d at 479; see also Grizzle v
Hertz Corporation,5DTA8a6f3.117—...litgra.- CeTUftb nave
also .
considered the likelihood that, in a shareholder action, th e
state Of incorporation will have an interest in the outcome,
especially since "the issue of corporate governance
7
is
governed by the law of the State in*which the corporation is
chartered ... ."
Bart v General Motors Corporation, 129 AD2d
179, 182 (1" . Dept 1987) . 2
In a case decided by the Appellate Division, First
Department, it was determined that a case, otherwise
jurisdictionally sound, should nonetheless be beard in the courts
of the State of Delaware, where the defendant corporation was
inkiOrporatWF, especiallg rdieTt-e-, a:s- b:Ore -,- there- WM multiplelitigations (i.e., two) already pending in that jurisdiction,
See Sturman v Singer, 213 AD2d 324 (1" Dept 1995). The sturman
court reasoned that "Delaware, the State of incorporation, has a
paramount interest in this claim that corporate decisions to .make
investments and hire a consulting firm amounted to a breach of
fiduciary duty ... ."
Xd. at 325. The Sturman court concluded
that 'the New York court would be burdened with the task of
deciding a dispute with the knowledge that the State of
incorporation could decide quite differently," so as to raise the
concern of inconsistent decisions between the tWo jurisdictions,
Xd.
In the present case, there are 12 similar actions pending in
This court notes that there is no support for defendants'
claim that the affairs of a foreign corporation must be
adjudicated in the state of incorporation, the so-called
"internal affairs doctrine." However, as stated in Hart (supra),
the matter should be adjudicated under the law of the state of
incorporation, and will be a matter of concern to that state.
Delaware, one brought by one of the plaintiffs herein,
Defendants have the burden of defending in two jurisdictions,
facing the possibility that the actions in two states will result
in inconsistent rulings. Based on these facts, Delaware's
obvious interest in the natter, concerning the management and
operation of a Delaware corporation; and the applicability of
Delaware law to this action, this court determines that Delaware
iWthe- appropr±ateforuarfor the resolution of.the present
aOtion. Therefore, defendants' cross motion should be granted.
IV. Conclusion
Because there is a prior pending action, and this
jurisdiction is an inconvenient forum for the determination of
this action, where numerous similar actions are already pending
in. Edison's state of incorporation, defendants' cross motion
should be granted, and plaintiffs' motion denied.
Accordingly, it is
ORDERED that plaintiffs' motion for expedited discoyery is
6Enaied as moot; and it is further
oRDERED that defendants' cross 1iiotion to dismiss the
complaint is granted to the extent that the complaint is
--
z missed pursuant-to cylloc..321/4s) f4)-.and .227.; ,and it is. further,
ORDERED that the first amended class action complaint is
dismissed, with costs and disbursements to the moving defendants
as taxed by the Clerk of the Court; and it is further
ORDERED that the Clerk is directed to enter judgment
accordingly. ,
Dated: ?abruary 5, 2004
Rite°
KB oti
iNIEW vORK.
cog:a VI, CLERK'S OFF:lee
10
Exhibit 3
Exhibit 4
Exhibit 5
IN THE CIRCUIT COURT OF COOK COUNTY, ILLINOIS
COUNTY DEPARTMENT — CHANCERY DIVISION
RON YOUNG, on behalf of himself and all )
others similarly situated,
)
)
Plaintiff,
)
)
vs.
)
)
WILLIAM D. PEREZ, WILLIAM
)
WRIGLEY, JR., JOHN F. BARD,
)
HOWARD B. BERNICK, THOMAS A.
)
KNOWLTON, JOHN RAU, MELINDA R. )
RICH, STEVEN B. SAMPLE, ALEX
)
SHUMATE, RICHARD K. SMUCKER, )
WM WRIGLEY JR. COMPANY, and
)
MARS, INCORPORATED,
)
)
Defendants.
)
No. 08 CH 20577
Hon. James R. Epstein
MEMORANDUM OPINION AND ORDER
This matter comes before the court on Defendants' motion to dismiss the Plaintiff's
amended class action complaint. For the reasons stated below, the motion is granted.
Facts
This case concerns a putative class action brought by the Plaintiff on behalf of other
public holders of Wm. Wrigley Jr. Company ("Wrigley") common stock, and against Wrigley,
Wrigley's directors, and Mars, Incorporated ("Mars"). The Plaintiff alleges that Wrigley's
directors breached their fiduciary duties in connection with Wrigley's planned merger with Mars,
and that Mars aided and abetted those alleged breaches.
On April, 28, 2008, Wrigley announced that it agreed to be purchased by Mars for, inter
alia, $23 billion in cash. One day after the announcement, on April 29, 2008, Robert L. Garber, a
purported holder of Wrigley shares, filed in the United States District Court for the Northern
District of fllinois a class action and derivative complaint for breach of fiduciary duty against
Wrigley and its directors. Garber v. Wrigley, No. 08 CV 2449 (N.D. 111. 2008).
On May 8, 2008, Insulators and Asbestos Workers Local. No. 14, a purported shareholder,
filed in the Delaware Chancery Court a class action complaint, Insulators & Asbestos Workers
No. 14 v. Wrigley, C.A. No. 3750 (Del. Ch.), and purported shareholder Cora E. Bennett filed in
the Delaware Chancery Court another class action complaint, Bennett v. Wrigley, C.A No. 3756
(Del. Ch.). Wrigley answered both of these complaints on May 16, 2008. On May 20, 2008, the
Delaware Chancery Court consolidated the two Delaware actions as In re Wm. Wrigley Jr. Co.
Shareholders Litigation, Consolidated C.A. No. 3750 (Del. Ch.) ("Consolidated Delaware
Complaint").
In view of the Delaware state proceedings, the Northern District of Illinois granted
Wrigley's motion to stay the Garber action under the Colorado River abstention doctrine on
June 9, 2008.
Also on June 9, 2008, the Plaintiff filed this putative class action, which was amended
two days later, on June 11, 2008.
II.
Discussion
a. The Proceedings in Illinois and Delaware are Between the "same parties"
and Concern the "same cause"
Section 2-619(a)(3) of the Illinois Code of Civil. Procedure provides that a defendant may
seek involuntary dismissal of a complaint on the basis that "there is another action pending
between the same parties for the same cause." 735 ILCS 5/2-619(a)(3) (West 2001) (emphasis
added). The purpose of this section is to further judicial economy by avoiding duplicative
litigation. Doutt v. Ford Motor Co., 276 Ill. App. 3d. 785, 788 (1st Dist. 1995). The "same
parties" requirement is satisfied "where the litigants' interests are sufficiently similar, even
2
though the litigants differ in name or number." Id.; see also Forsberg v. City of Chicago. 151
App. 3d 354, 372 (1st Dist. 1986) (finding that parties were "substantially the same" where
plaintiffs were members of the class in the prior pending actions). The "same cause" requirement
is satisfied when the relief requested is based on substantially the same facts. Overnight
Transportation Co. v. International Brotherhood of Teamsters, Chauffeurs, Warehousemen &
Helpers of America, 332 111. App. 3d 69, 76 (1st. Dist. 2002). In considering the latter
requirement, the court asks "whether the two actions arise out of the same transaction or
occurrence, and not whether the legal theories or the relief sought materially differs between the
actions." Kapoor v. Fujisawa Pharmaceutical Co. Ltd., 298 Ill. App. 3d 780, 786 (1st Dist.
1998). "Thus, the central inquiry... is whether the relief requested rests on substantially the same
facts." Combined Ins. Co. of America v. Certain Underwriters at Lloyd's London, 356 Ill. App.
3d 749, 753 (1st Dist. 2005). This inquiry is guided by common sense. Id. It is not necessary that
the purpose of the two actions be identical. Rather, section 2-619(a)(3) may be invoked where
there is a substantial similarity of issues between the two actions. Overnight Transportation Co.,
332 Ill. App. 3d at 76.
The action before the court involves the same parties as the pending consolidated action
in Delaware. The Plaintiff does not appear to dispute this question. The defendants in. both
Illinois and Delaware are identical: Wrigley's directors, Wrigley itself; and Mars. Moreover, the
plaintiffs in each action purport to represent a class comprised of all Wrigley shareholders. In
this way, the interests of the plaintiffs in each action align. Indeed, the very nature of both
plaintiffs' class action complaints seeks to establish the required elements of commonality and
typicality between them as prerequisites of class certification. Am. Compl. 1 22; Consolidated
Del. Compl. 1 22.
Similarly, the action before the court involves the same cause as the pending action in
Delaware. Both actions arise out of the same transactions or occurrence, indeed, the exact same
set of facts; namely, the negotiations and agreement for the planned merger of Wrigley and
Mars, and subsequent related disclosures. While it is true that the claims and remedies sought by
each named plaintiff are not identical, it is also true that they do not need to be for the court to
consider them the be of the "same cause." See Schnitzer, v. O'Connor, 274 III. App. 3d 314, 319
(1st Dist. 1995); Kapoor, 298 Ill. App. 3d at 786; Hapag-Lloyd, Inc., v. Home Ins. Co. et al, 312
Ill. App. 3d 1087, 1096 (1st Dist. 2000); Overnight Transportation Co., 332 111. App. 3d at 76;
Combined Ins. Co., 356 III. App. 3d at 753.
b. The "Kellerman Factors" Weigh in Favor of Dismissal
Even when the same cause and same parties requirements are rnet, section 2-619(a)(3)
does not mandate automatic dismissal. Rather, the decision to grant or deny a defendant's section
2-619(a)(3) motion is discretionary. Combined Ins. Co., 356 III. App. 3d at 754. "The more
reasonable construction [of section 2-619(a)(3)] is that the circuit court possesses some degree of
discretion in ruling upon the motion and that multiple actions in different jurisdictions, but
arising out of the same operative facts, may be maintained where the circuit court, in a sound
exercise of its discretion, determines that both actions should proceed." Id. (quoting A.E. Staley
Manufacturing Co. v. Swift & Co., 84 111. 2d 245, 252-53 (1980)).
The factors that a court should consider in deciding whether a stay under section 2619(a)(3) is warranted include: comity; the prevention of multiplicity, vexation, and harassment;
the likelihood of obtaining complete relief in the foreign jurisdiction; and the res judicata effect
of a foreign judgment in the local forum. Combined Ins. Co., 356 111. App. 3d at 754; see
Kellerman v. MCI Telecommunications Corp., 112 111. 2d 428 (1986). These considerations,
4
often referred to as "the Kellerman factors," are not absolute, and are not always applicable.
Kapoor, 298 Ili. App. 3d at 789 (res judicata not relevant consideration in the context of
dismissal, as opposed to a stay, since after a dismissal, there is no remaining action to which res
judicata principles can be applied). Furthermore, the trial court must weigh the prejudice to the
nonmovant if the motion is granted against the policy of avoiding duplicative litigation. Id. at
785. None of these factors counsel denial of the Defendants' motion.
The consideration of comity, defined as "giving respect to the laws and judicial decisions
of other jurisdictions out of deference," weighs in favor of dismissal. Hapag-Lloyd, 312 Ill. App.
3d at 1096. While there are differing opinions amongst Illinois courts with regard to how best to
balance questions of comity, the nature of the questions in the pending Delaware action cannot
be ignored. Both plaintiffs' claims largely challenge issues concerning Wrigley's internal affairs
and governance, which are controlled by Delaware law. See, e.g., Newell Co. v. Peterson, 325 111.
App. 3d 661, 687 (2nd Dist. 2001) (emphasizing the pervasive and fundamental nature of the
internal affairs doctrine, a conflict of laws principle that states matters relating to a corporation's
internal governance should be controlled exclusively by the state of incorporation). The decision
most in keeping with the principle of comity is that which grants appropriate deference to the
Delaware Court of Chancery as to issues of Delaware law that arise from the internal affairs of
Delaware corporations.
The second Kellerman factor, prevention of multiplicity, vexation and harassment,
weighs in the Defendants' favor as well. The court makes no judgment as to the Defendants'
insinuations regarding the motives of the Plaintiffs, as there is not enough evidence on the matter
for it to do so. However, common sense dictates that if the same parties and same cause are at
issue in an earlier-filed case, and the purpose of 2-619(a)(3) is to avoid multiplicity, then, as the
5
Northern District of Illinois stayed its consideration of the case, so too should this court. The
Plaintiffs' argument that if the Defendants are truly concerned with defending multiple related
actions, they can imply ask the Delaware court to stay that suit, is unconvincing and amounts to
little more than a game of "you first."
The third Kellerman factor, the likelihOod of obtaining complete relief in the foreign
jurisdiction, also weighs in Defendants' favor. Assuming the putative class succeeds on the
merits of its claim in the Delaware Chancery Court, as a shareholder, the Plaintiff will receive
the benefit of any relief granted by that court. Contrary to the Plaintiffs assertions, it does appear
that the plaintiffs in the Delaware suit will bring a motion for preliminary injunction, aligning the
relief sought in. Delaware ith that sought in Illinois. Although the Plaintiff hints that the
Delaware long arm statute cannot reach a possible defendant, Goldman Sachs, no explanation or
support for this assertion is provided. Moreover, the Plaintiff here has not named Goldman Sachs
a defendant, making any assertion on this point highly speculative.
The last Kellerman factor, the res judicata effect of a foreign judgment, is not a relevant
consideration in the context of a dismissal. Combined Ins. Co., 356 111. App. 3d at 754. Although
res judicata is relevant in the context of deciding whether to stay an action under 2-619(a)(3), it
is only so when considering whether a judgment entered in the other action at some point in the
future would be res judicata in an. Illinois court. As discussed above, the action before this court
is extremely similar to that before the court in Delaware. In light of this, and the Plaintiffs
complete lack of argument on this point, there is no basis upon which this court can now
conclude that a judgment entered by the Delaware court would not be subsequently considered
res judicata in Illinois. As such, this final factor weighs in the same direction as the other
Kellerman factors, in the Defendants' favor.
6
Finally, any prejudice to the Plaintiff that might result from the dismissal of this suit is de
minimus, as the Plaintiff's rights in the cause are already being asserted in the consolidated class
action pending in Delaware.
III. Order
The Defendants' motion for involuntary dismissal pursuant to section 2-61.9
granted. This matter is set for ruling on July 11, 2008 at 10:00 a.m. in Courtroom 2405.
Dated:
JUL 12
Entered:
James R. Epstein, Judge 1783
7
is

Download Report