Johnson Fistel Helps Secure a Significant Victory for Fresh Market Stockholders

Johnson Fistel recently helped secure another impressive achievement for stockholders in Morrison et al v. Berry et al, (Case Number 12808, in the Court of Chancery of the State of Delaware)  when on July 7, 2021, Vice Chancellor Sam Glasscock III  approved a $27.5 million settlement,  ending a stockholder class action over the 2016 $1.4 billion take-private sale of specialty grocery chain Fresh Market to Apollo Global Management LLC.  Vice Chancellor Sam Glasscock III, evidently impressed by the resounding outcome of the novel post-closing damages deal case, described the settlement amount as an “excellent result” for the shareholders, stating that the additional payout of $0.75 per share was over half of what was potentially achievable in additional merger consideration.

Plaintiffs accused Ray Berry, Fresh Market’s former CEO and Chairman, of acting disloyally in concealing his private communications on terms of Fresh Market’s sale to Apollo, along with the roll over of his equity as part of the deal.  Fresh Market’s former President and CEO Richard Anicetti, who succeeded Berry, and former Chief Legal Officer and Senior Vice President, Scott Duggan, were accused of fiduciary duty breaches and are parties to the settlement.

A sharply contested filing, Johnson Fistel stayed the course throughout the duration of the case, as it ardently fought alongside fellow class attorneys in opposition to the defendants’ multiple attempts to dismiss the suit.  Efforts by class counsel helped secure an appeal to and reversal by the Delaware Supreme Court in 2018 of the lower court’s granting of the first motion to dismiss in which the high court agreed with the plaintiffs that the defendant had disclosure deficiencies in its Schedule 14D-9 and was effectively misleading as a result, only to face yet another motion to dismiss by the defendants on remand. Vice Chancellor Glasscock, who watched the parties exchange blows both times the suit came through the Court of Chancery, described the case as full of “extraordinarily heavy [and] hard-fought litigation.” To illustrate, class attorneys fought for and subsequently analyzed some 286,000 documents in total, amounting to roughly 1.5 million pages, before arriving at the $27.5 million settlement through mediation.

Moreover, class counsel’s efforts in the litigation preceding the settlement created real “historical clarification of [Delaware] law,” according to the Vice Chancellor, as it helped blaze the trail for future merger challenges following the Delaware Supreme Court’s landmark decision in Corwin v. KKR Financial Holdings, LLC.  In Corwin, the court held that an uncoerced and fully informed vote in favor of a transaction by disinterested stockholders properly invokes the business judgement standard of review. In the wake of the decision, some commentators wondered if the invocation of the business judgement rule for such transactions rendered them essentially irrebuttable.[1] For example, addressing Corwin’s impact in the 2016 case, Singh v. Attenborough, the Delaware Supreme Court held that when the business judgement rule is invoked in this style of vote, “dismissal is typically the result.”  However, when the first motion to dismiss was on appeal in Morrison, the Supreme Court of Delaware discovered several holes in the defendants’ disclosures and as a result had omitted several facts that a reasonable stockholder would have found important to the tender offer, leading the court to reverse and remand the matter to the Court of Chancery.  The Delaware Supreme Court’s ruling in Morrison made clear that lower courts need to closely examine whether a company’s documents support the facts disclosed to the shareholders and in all matters carefully apply Corwin, as its application “is important due to its potentially case dispositive impact.”

Johnson Fistel also helped forge new pathways to success in litigating Morrision, as the favorable outcome is due in part to the innovative use of document inspection rights under Section 220 of Delaware’s general corporation law by class counsel to investigate post-closing damage claims and potential disclosure deficiencies.  Following the announcement of Apollo’s tender offer for The Fresh Market in 2016, class counsel, on behalf of Johnson Fistel’s client, demanded books and records in accordance with Section 220, thereby acquiring several key documents such as board minutes and emails between counsel for Fresh Market’s founder and counsel for the company. Vice Chancellor Glasscock stated that this was the first time he had seen a Section 220 demand used in such a manner, and fellow class counsel described it as an innovative approach which helped to lay the groundwork for the plaintiff’s aiding and abetting claims, the successful appeal to the Delaware Supreme Court, and the ensuing final settlement.

Johnson Fistel partners Frank J. Johnson and Brett M. Middleton served as additional counsel for the sole class representative and lead plaintiff Elizabeth Morrison.

[1] https://corpgov.law.harvard.edu/2017/02/21/the-corwin-effect-stockholder-approval-of-ma-transactions/