In re Harris Teeter Merger Litigation
| Decision Date | 24 September 2014 |
| Docket Number | 13 CVS 14264,13 CVS 12579,13 CVS 13852 |
| Citation | 2014 NCBC 44 |
| Court | Superior Court of North Carolina |
| Parties | In re Harris Teeter Merger Litigation |
Wallace & Graham, P.A. by John Hughes and Mona Lisa Wallace; Cohen, Placitella & Roth, P.C. by Stuart J. Guber and Jacob A. Goldberg; Wolf Haldenstein Adler Freeman & Herz LLP by Gregory M. Nespole, Benjamin Y. Kaufman, and Daniel Tepper for Plaintiff Westmoreland County Employees Retirement Fund.
The Jackson Law Group, PLLC by Gary W. Jackson and Levi & Korsinky LLP by Donald J. Enright and Elizabeth K. Tripoldi for Plaintiff Patricia Gerlach.
Essex Richards, P.A. by Norris A. Adams, II and Marc E. Gustafson and The Weiser Law Firm, P.C. by Joseph M. Profy and James M. Ficaro for Plaintiff Tabitha Hamrick.
McGuireWoods LLP by Peter J. Covington, L. D. Simmons, II, Joshua D. Davey, and R. Locke Beatty for Defendants John R. Belk, John P. Derham Cato, Thomas W. Dickson, James E.S. Hynes, Anna Spangler Nelson, Mark S. Ordan, Bailey W. Patrick, Robert H. Spilman, Jr., Harold C. Stowe, Isaiah Tidwell, William C. Warden, Jr., and Harris Teeter Supermarkets, Inc.
Arnold & Porter LLP by Scott B. Schreiber and James W. Thomas, Jr., and Parker Poe Adams & Bernstein LLP by Eric D. Welsh and Sarah Hutchins for Defendants The Kroger Co. and Hornet Acquisition, Inc.
ORDER AND FINAL JUDGMENT
{1} THIS MATTER is before the Court on Plaintiffs' Unopposed Motion for Final Approval of Settlement ("Approval Motion") and Plaintiffs' Unopposed Motion for Award of Attorneys' Fees and Expenses and Plaintiff Incentive Awards, each filed with supporting briefs on May 28, 2014, and arising from a settlement stipulation conditionally entered on or about February 20, 2014, and subsequently finalized subject to Court approval (the "Settlement"), implementing an earlier tentative settlement subject to confirmatory discovery. Appropriate notice to potential class members following the Court's preliminary approval of the Settlement was sent, and no objection to the Settlement has been made. The Court held a final fairness hearing at which it examined Plaintiffs' counsel, and the Court is satisfied as to the fairness, reasonableness, and adequacy of the Settlement and the fairness and reasonableness of the fees, costs, and incentives requested. The Court now GRANTS each of the Motions, CERTIFIES the class as defined below for purposes of the Settlement only, APPROVES the Settlement, AWARDS the requested attorneys' fees, costs, and incentives to class representatives, and ENTERS FINAL JUDGMENT for the reasons more fully indicated below.
{2} Plaintiffs Priscilla Gerlach ("Gerlach"), Westmoreland County Employees Retirement Fund ("Westmoreland"), and Tabitha Hamrick ("Hamrick") are former shareholders of Defendant Harris Teeter Supermarkets, Inc. ("Harris Teeter").
{3} On July 8, 2013, Harris Teeter executed its Merger Agreement with Defendant Hornet Acquisition, Inc., ("Hornet"), a wholly owned subsidiary of The Kroger Co. ("Kroger") formed for the purposes of the merger.
{4} Harris Teeter announced the Merger Agreement on July 9, 2013. The Merger Agreement grew out of a process that had begun at least as early as 2011. After preliminary discussions regarding a potential acquisition, Harris Teeter engaged J.P. Morgan Securities LLC ("J.P. Morgan") as its financial advisor in November, 2012. The media first reported that Harris Teeter was evaluating strategic options on January 18, 2013, when the closing share price of Harris Teeter was $36.94. The Merger Agreement provided for a share purchase value of $49.38, yielding an overall merger valuation of $2.44 billion.
{5} Gerlach was the first to file her Complaint challenging the merger on July 16, 2013. Westmoreland filed its Complaint on August 1, 2013, and Hamrick filed her Complaint on August 12, 2013. Each of the three actions was designated as a mandatory complex business case and assigned to this Court. In addition to the corporate Defendants, the actions were brought against the individual members of Harris Teeter's Board of Directors. The claims included breaches of duties of care, good faith, loyalty, and candor; failures to disclose; self-dealing; failure to secure adequate merger consideration; and agreeing to unreasonable deal-protection measures. Plaintiffs alleged that Kroger aided and abetted these breaches and failures.
{6} Harris Teeter filed its Preliminary Proxy Statement on August 2, 2013.
{7} Gerlach amended her Complaint on August 20, 2013. The Amended Complaint included an increased emphasis on alleged failures to disclose. These alleged failures to disclose related to Harris Teeter's having agreed to confidentiality agreements with various potential suitors, including provisions now commonly referred to as "don't ask, don't waive" agreements, and various factors related to J.P. Morgan's evaluation and fairness opinion.
{8} The Court consolidated the three actions on August 29, 2013, designating the Gerlach Amended Complaint as the operative pleading, and the following day appointed the Plaintiffs' lead counsel committee, comprised of individuals and firms with extensive, well-documented experience and success in this type of litigation. A substantially similar suit brought in the United States District Court for the Western District of North Carolina was stayed in deference to proceedings in this Court. See generally Krieger v. Harris Teeter Supermarkets, Inc., No. 3:13CV00453, 2013 U.S. Dist. LEXIS 134113 (W.D. N.C. Sept. 18, 2013).
{9} The claims in the Gerlach Amended Complaint were asserted on behalf of a purported class of Harris Teeter common stockholders as of July 9, 2013, exclusive of persons or entities closely associated with the corporations. The Amended Complaint alternatively alleged direct and derivative claims. Plaintiffs did not make a demand upon Harris Teeter before bringing their initial actions but instead claimed that the initial Complaint was an adequate demand for purposes of the Amended Complaint, and that making a demand upon Harris Teeter after the initiation of litigation satisfied any statutory demand requirement.
{10} Harris Teeter filed its Final Proxy on August 27, 2014.
{11} Plaintiffs and Defendants both proceeded vigorously. The Harris Teeter Defendants filed a Motion to Dismiss on September 9, 2013, and the Kroger Defendants filed a Motion to Dismiss on September 10, 2013. These motions challenged the claims on their merits, heavily emphasizing the business judgment rule. Both Motions further asserted that the claims were derivative, and failed because the demand requirement for a derivative action had not been met.
{12} Plaintiffs undertook expedited document review and received an initial set of documents by September 6, 2013. Plaintiffs, on September 18, 2013, filed a Motion for Preliminary Injunction to enjoin the merger, which was scheduled for a shareholder vote on October 3, 2013.
{13} The Court ordered expedited briefing, setting the respective motions for a consolidated hearing on September 30, 2013.
{14} On September 24, 2013, the parties entered a Memorandum of Understanding ("MOU"), resolving all claims, subject to confirmatory discovery. The Settlement focused on Plaintiffs' disclosure-based claims. Pursuant to the MOU, Harris Teeter made supplemental disclosures by filing a Form 8-K on September 24, 2013.
{15} The shareholder vote was held as scheduled on October 3, 2013, at which 40, 818, 430 shares voted in favor of the merger, 370, 228 shares voted against, and 204, 960 shares abstained.
{16} Plaintiffs conducted a confirmatory deposition of Harris Teeter's lead independent director on October 31, 2013.
{17} Harris Teeter and Kroger received an early termination of the Hart-Scott-Rodino waiting period and completed the merger on January 28, 2014.
{18} The parties then executed a Stipulation and Agreement of Compromise, Settlement and Release ("Stipulation") on February 20, 2014. Plaintiffs then filed their Unopposed Motion for Preliminary Approval on March 14, 2014.
{19} The Court issued its Preliminary Approval Order on April 3, 2014, preliminarily certifying the Settlement Class, directing that notice be given, and setting a fairness hearing for June 17, 2014.
{20} Initial notice was sent as directed. By consent, the fairness hearing was continued until August 6, 2014, to allow additional notice to be sent.
{21} Harris Teeter engaged Broadridge Financial Solutions, Inc. ("Broadridge") as an agent to undertake the mailing of notice of the Settlement as directed by Court. As of July 30, 2014, Broadridge had mailed notice to a total of 16, 442 recipients.
{22} The Court held the fairness hearing on August 6, 2014. Neither the Court, the parties, nor Broadside received any objection to the Settlement, either before, during, or after the fairness hearing.
{23} This Court has broad discretion in determining whether a case should continue as a class action. Harrison v. Wal-Mart Stores, Inc., 170 N.C.App. 545, 547, 613 S.E.2d 322, 325 (2005) (citing Faulkenbury v. Teachers' and State Employees' Ret. Sys. of N.C. , 345 N.C. 683, 699, 483 S.E.2d 422, 432 (1997)). Class certification is controlled by North Carolina Rule of Civil Procedure 23, as interpreted by our courts. See N.C. R. Civ. P. 23.
Specifically, the Court, in its discretion, may certify a class action where these requirements are met: "(1) the existence of a class, (2) . . . the named representative will fairly and adequately represent the interests of all class members, (3) . . . there is no conflict of interest between the representative and class members, (4) . . . class members outside the jurisdiction will be adequately represented, (5) . . . the named party has a genuine personal interest in the outcome of the litigation, (6) . . . class members are so numerous that it is impractical to bring them all...
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