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Griffith v. Quality Distribution, Inc.

Florida Court of Appeals, Second District

July 13, 2018

SEAN J. GRIFFITH, Appellant,


          Appeal from the Circuit Court for Hillsborough County; Steven Scott Stephens, Judge.

          Adam M. Schachter and Christian G. Montelione of Gelber Schachter & Greenberg, P.A., Miami; and Anthony A. Rickey of Margrave Law LLC, Georgetown, Delaware, for Appellant.

          Ernest J. Marquart of Schumaker, Loop & Kendrick, LLP, Tampa; and Peter L. Simmons of Fried, Frank, Harris, Shriver & Jacobson, LLP, New York, New York, for Appellees Qualify Distribution, Inc.; Gary R. Enzor; Thomas R. Miklich; Richard B. Marchese; Alan H. Schumacher; and Annette M. Sandberg.

          Bryan D. Hull and J. Carter Anderson of Bush Ross, P.A., Tampa; and Edward P. Welch and Jenness E. Parker of Skadden, Arps, Slate, Meagher & Flom LLP, Wilmington, Delaware, for Appellees Apax Partners LLP; Apax VIII-A L.P.; Apax VIII-B L.P.; Apax VIII-I L.P.; Apax VIII-2 L.P.; Gruden Acquisition, Inc.; and Gruden Merger Sub, Inc.

          John F. Keating, Jr., of The Brualdi Law Firm, P.C., New York, New York; and Kenneth J. Vianale and Julie Prag Vianale of Vianale & Vianale LLP, Boca Raton, for Appellee Richard Delman.

          MORRIS, JUDGE.

         Sean J. Griffith appeals an order certifying a class and approving a class action settlement in a case brought by shareholders of Quality Distribution, Inc. (Quality), against the corporation for breach of fiduciary duty and failure to disclose relevant information relating to a proposed acquisition by Apax Partners, LLC (Apax). We have jurisdiction pursuant to Florida Rules of Appellate Procedure 9.030(b)(1)(A) and 9.130(a)(3)(C)(vi). We affirm the trial court's certification of the class without further comment; however, we reverse the trial court's approval of the class action settlement and the denial of Griffith's request for fees.

         I. Background

         On May 6, 2015, Quality, a Florida corporation, announced that it had entered into a merger agreement whereby Apax would acquire Quality for $16 per share of its publicly-traded stock. This price "represent[ed] an approximate premium of . . . 62% to the $9.85 closing price per share" on May 5, 2015, the day before the merger was announced. The transaction was valued at $800 million, including the assumption of Quality's debt by Apax. On June 8, 2015, Quality filed a preliminary proxy statement with the Securities and Exchange Commission (SEC).

         On June 17, 2015, Richard Delman, a shareholder of Quality, filed a class action complaint against Quality, its board members, and Apax. Delman alleged a count against the board members for breach of fiduciary duties, a count against Quality and the board members for failure to disclose, and a count against Apax for aiding and abetting in the breaches of fiduciary duties. Delman alleged that Quality and its board members engaged in a flawed sale process and agreed to an inadequate sale price. Delman also alleged that Quality and its board members failed to include in the proxy statement information that is material to the shareholders' decisions on whether to approve the merger.

         On July 24, 2015, Delman filed a motion for preliminary injunction. Also in July, Quality filed a definitive proxy statement with the SEC and the parties began to engage in expedited discovery. Quality and Apax agreed to produce additional documents, and Delman conducted two depositions, one of Quality's chief executive officer and one of an executive from Quality's investment banker, RBC Capital Markets, LLC (RBC). The parties engaged in settlement negotiations, and Delman notified the court that there was no need to hold a hearing on his motion for preliminary injunction in light of the settlement negotiations. By August 2015 the parties had reached a settlement agreement. The agreement required Quality to serve its shareholders with supplemental disclosures containing information regarding the following: (1) potential conflicts of interest of Quality's senior management and Apax's expressed intention to retain Quality's management team as employees; (2) the potential conflicts of interest of Quality's investment banker, RBC, and its connection with Apax; and (3) the sale process and alternatives to the merger. On August 10, 2015, Quality filed the supplemental disclosures with the SEC.

         On August 18, 2015, 98.8% of the shareholders voted to approve the merger with Apax.

         On October 28, 2016, the parties entered into a formal stipulation of settlement. On December 16, 2016, the parties filed a joint motion for entry of an order granting joint motion for all parties for notice and hearing for settlement. The trial court entered the requested order on January 20, 2017. The order directed Quality to serve its shareholders with notice of the settlement, and it conditionally certified the shareholders as a class of plaintiffs. The order also designated Delman as the class representative, preliminarily approved the settlement, and set a hearing for April 24, 2017.

         On April 3, 2017, Griffith filed an objection to the proposed settlement. He had purchased $160 worth of Quality's shares after the merger was formally announced. Griffith described himself as "an activist investor who has served as a watchdog in the movement to curtail abusive [merger and acquisition] litigation."[1] He objected to the proposed settlement and class certification on four main grounds: (1) the supplemental disclosures were not plainly material to the shareholder's decision on whether to approve the merger, (2) the released claims had not been adequately investigated by plaintiffs' counsel, (3) questions remain regarding the adequacy of class counsel, and (4) plaintiffs' fee request should be rejected because the litigation did not provide a substantial benefit to the shareholders. Griffith argued that Florida should adopt the test for approval of "disclosure settlements" set forth in In re Trulia, Inc. Stockholder Litigation, 129 A.3d 884 (Del. Ch. 2016). Last, Griffith asked the trial court to retain jurisdiction so that he could submit a request for fees he incurred in objecting to the settlement.

         Delman filed memorandums of law in support of the proposed settlement and in response to Griffith's objection. He also filed an affidavit from a financial analyst, in which the analyst attested that the supplemental disclosures were material. Quality and Apax filed a joint memorandum in support of the settlement and in opposition to Griffith's objection.

         On April 24, 2017, the trial court held a hearing at which the trial court considered argument from all parties and Griffith. On June 21, 2017, the trial court entered an order partially approving the class action settlement. The trial court concluded that the settlement in this case "survives the heightened scrutiny standard," citing Grosso v. Fidelity National Title Insurance Co., 983 So.2d 1165, 1170 (Fla. 3d DCA 2008). The court also found that the four requirements for class certification are present. The court then went on to address Griffith's objection and his argument that In re Trulia should apply. The court ruled that In re Trulia "is good law in Florida, at least for the proposition that a class action settlement should not be approved when the scope of the claims released exceeds the scope of the issues litigated in the case." The trial court concluded that the release in this case is "narrowly tailored to match the scope of the issues litigated in the case." Turning to whether the supplemental disclosures were material, the trial court stated that even if they were immaterial, the settlement "is the better choice among the alternatives."

[T]he Florida courts have such a strong policy favoring resolution of cases by jury trial that an action of this nature would almost certainly not be resolvable on summary judgment. Plaintiffs have filed an affidavit from an apparently qualified expert that would be sufficient to create an issue of fact regarding the materiality of the disclosure. Accordingly, the consequence of simply refusing to approve the settlement would most likely be to require the case to proceed to jury trial over the course of a year or two. Given the finding above that the release is properly matched to the scope of the issues litigated, the class is not damaged by the settlement even if it was all a charade, if it can be protected from excessive transaction costs. And since there is no mention of the settlement of separate payment to the class representative, transaction cos[t] issues are limited to attorney fee issues.

         (Footnote omitted.) The trial court further ruled that because the settlement does not include plaintiffs' attorney's fees, the issue of fees would be determined in a true adversarial process. The trial court approved the settlement, essentially reserving jurisdiction on the issue of attorney's fees. The trial ...

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