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Seven years after being approved by a Delaware Chancery Court judge, a settlement of shareholder suits against Matsushita Electric Industrial Co. over its $6.1 billion purchase of MCA Corp. has been upheld again. Chancellor William B. Chandler III rejected ex-MCA shareholders’ bid to overturn the $2 million settlement, which already has been upheld twice by the U.S. Supreme Court and been bounced to the federal courts in California before winding up back in Delaware. An appeal of Chandler’s ruling to the Delaware Supreme Court is expected. Disgruntled MCA stockholders, led by Lawrence Epstein, argued the settlement amounted to a sweetheart deal in which their interests weren’t protected and the only people who benefited were class-action attorneys. They wanted Chandler to let them intervene in the case to challenge the settlement. But Epstein and his group made a strategic decision not to challenge the settlement in 1993 so they could attack it in federal court in California, Chandler noted in a 29-page decision. “This court cannot force a party to litigate in Delaware against their wish, but it can refuse to countenance a belatedly filed motion borne out of a desire to litigate elsewhere,” Chandler wrote. The Matsushita settlement’s tortured procedural history begins in February 1993, when then-Vice Chancellor Maurice Hartnett approved the deal, which added about 3 cents to the Japanese company’s $71-per-share bid for the entertainment company. The settlement also provided an opt out provision so dissatisfied MCA shareholders could join with other investors pressing a securities fraud suit over the buyout in federal court in California. The Delaware Supreme Court later upheld the Chancery Court settlement. Epstein and his group chose not to opt out of the Chancery Court settlement, but termed it inadequate in their filings as part of the federal class-action in California. A federal judge in California later dismissed that suit, saying the Delaware settlement preempted it. The 9th U.S. Circuit Court of Appeals reversed that decision after finding that state courts lack the power to settle suits involving federal claims. Matsushita appealed the case to the U.S. Supreme Court, arguing the Delaware settlement was valid and should be enforced. Epstein’s group countered that class-action lawyers representing MCA stockholders — led by New York’s Milberg Weiss Bershad Hynes & Lerach — were motivated by legal fees, and not the best interests of investors, when they agreed to settle the case. The group argued that this part of their suit has never been heard on the merits because the 9th Circuit decided it couldn’t try the case after the Delaware settlement was reached. Some criticism of Chandler’s opinion indicated that the merits of the case, according to the Epstein group’s perspective, weren’t adequately addressed. This could become the basis for an appeal to the state Supreme Court. The U.S. high court concluded in 1996 that federal courts must respect the conclusions of state court judges who rebuff shareholders’ complaints about a securities settlement. It sent the case back to the 9th Circuit for more hearings, however, on the issue of whether investors’ due process rights were violated by the settlement’s approval process. A 9th Circuit panel again concluded in 1997 that the Delaware hearing didn’t adequately protect dissident shareholders’ rights, but the full 9th Circuit overruled that finding. The U.S. Supreme Court refused to hear an appeal of that decision in November 1999. Epstein then filed a motion seeking the right to intervene in the case under Chancery Court Rule 24 and to overturn the settlement under rule 60(b). Rule 24 allows parties to intervene in a case when “the applicant claims an interest relating to the property or transaction which is the subject of the action and the applicant is so situated that the disposition of the action may, as a practical matter, impair or impede the applicant’s ability to protect the interest, unless the applicant’s interest is adequately represented by the existing parties.” Chandler noted that Chancery Court precedent shows that investors unhappy with a securities class-action settlement who waited a year to file their motion to intervene were rebuffed. ( In Re U.S. Robotics Corp., CA No. 15580, 1999, Strine, V.C.) “A one-year delay concerned Vice Chancellor Strine in U.S. Robotics,” Chandler noted. “The Epstein petitioners have delayed seven times longer. They had ample time to move in Delaware for what they now seek.” Epstein and his group chose not to appear before then-Vice Chancellor Hartnett to object to the settlement, opting “to pursue a collateral attack in federal court,” Chandler added. Epstein’s group shouldn’t be allowed to intervene in the case seven years after it was completed because their motion is “untimely, barred by the law of the case doctrine and without substantive merit,” the judge added. He also noted that Epstein’s group argued as part of their Rule 60(b) motion to overturn the settlement that Milberg Weiss lawyers and other class counsel lawyers “duped” Vice Chancellor Hartnett into approving the deal without understanding it or reading it. “This is a serious accusation,” Chandler said. “But no evidence whatsoever supports it, let alone evidence of capable of meeting the high Rule 60(b) standard, which requires the most egregious conduct involving a corruption of the judicial process itself.” The Epstein group’s arguments that the settlement involved fraud, misrepresentation and other misconduct were based on “sinister suspicions and dark imaginings” rather than facts, Chandler said. “A party must point to evidence that would lead a reasonable mind to the conclusion that an adverse party improperly obtained a final judgment,” the judge wrote. “The Epstein petitioners have failed to proffer facts of that caliber in this case.” The Epstein group was represented in the case by Joel Friedlander of Wilmington’s Bouchard Margules & Friedlander along with Stuart L. Shapiro of New York’s Shapiro Forman & Allen. The group also was represented by Robert W. Kirby and Peter S. Linden of New York’s Kirby McInerney & Squire and Henry P. Monaghan of New York. Along with Milberg Weiss, MCA investors who backed the settlement were represented by Joseph A. Rosenthal of Wilmington’s Rosenthal Monhait Gross & Goddess and lawyers from New York’s Abbey Gardy & Squitieri and Wolf Popper and from Philadelphia’s Berger & Montague. Matsushita was represented in the case by R. Franklin Balotti, Anne Foster and Michael J. Merchant of Wilmington’s Richards Layton & Finger. The company also was represented by Barry Ostrager, Mary Kay Vyskoeil, Paul C. Curnin and Joseph M. McLaughlin of New York’s Simpson Thacher & Bartlett. The case was In Re MCA Inc. Shareholders Litigation, Consolidated CA No. 11740.

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