Thank you for sharing!

Your article was successfully shared with the contacts you provided.
The $193 million settlement of the class action shareholders’ suit against Rite Aid Corp. has won final court approval now that the lawyers have tinkered with the terms and wording to satisfy the judge’s concerns. In June, U.S. District Judge Stewart Dalzell refused to approve the settlement — the largest ever in a securities case in the Eastern District of Pennsylvania — after finding that its “bar order” was too broadly worded and would improperly limit the rights of several former top executives who were not included in the settlement. But Dalzell strongly suggested at the time that he would approve the settlement once the bar order was modified, saying “plaintiffs’ co-lead counsel have … won the best possible settlement available under these very difficult circumstances.” Since then, lead plaintiffs’ attorney Sherrie Savett of Berger & Montague and Rite Aid’s lead lawyer, Alan Davis of Ballard Spahr Andrews & Ingersoll, submitted proposed modifications to the settlement’s wording. And when the new version still incurred objections, the settling lawyers tinkered with the language a bit more. Now Dalzell has issued an 18-page order in which he approved the changes and overruled all of the objections. If the settlement is upheld on appeal, the plaintiffs’ lawyers — led by Savett and David Bershad of Milberg Weiss Bershad Hynes & Lerach in New York — are entitled to a fee of 25 percent, or nearly $50 million. The three former executives who objected to the settlement — Chief Executive Officer Martin Grass; Chief Financial Officer Frank Bergonzi; and President and Chief Operating Officer Timothy Noonan — lost their jobs in the wake of revelations that Rite Aid had grossly overstated its income and earnings. In hearings on the settlement, lawyers revealed that a federal grand jury is investigating the executives for possible securities fraud charges. Although Grass testified at the hearing, Bergonzi said he wanted to invoke his Fifth Amendment right not to testify on the grounds that he might incriminate himself and ultimately was not even called to the stand. Rite Aid was hit with a slew of lawsuits soon after its March 1999 announcement of disappointing earnings. The market had reacted swiftly, with Rite Aid stock plummeting from $37 to $23, losing more than $3.7 billion in market capitalization in one day. Within weeks of the first shareholder suit, new suits added additional Rite Aid executives as defendants, including Bergonzi and Noonan. In October 1999, dramatic developments at Rite Aid led to Grass’ resignation when the company announced that its 1997, 1998 and 1999 financial statements would have to be restated, resulting later that month in a $500 million reduction of Rite Aid’s previously represented pre-tax earnings. An internal audit was begun and its report faulted Grass and Bergonzi for “serious breaches of their fiduciary duties,” both before and after the lawsuits were filed. In the settlement, Rite Aid agreed to pay $43.5 million in cash — nearly all of its available insurance — as well as at least 20 million shares of Rite Aid common stock promised to be worth at least $149.5 million and possibly more if the stock performs well in the immediate future. Rite Aid also promised to cooperate with the plaintiffs as they pursue their remaining claims against the nonsettling defendants — the three executives and the auditing firm KPMG. Dalzell noted that none of the 300,000 members of the class has objected to the economic aspects of the settlement and that only a tiny fraction — 73 — have opted out of it. The judge also said he agreed with an outside expert — Columbia University law Professor John C. Coffee Jr. — who praised the settlement as one of the largest and one of the highest percentage recovery of losses. Coffee said a recent study shows that settlements since 1995 of securities class actions have recovered between 5.5 percent and 6.2 percent of the class members’ estimated losses. Since the Rite Aid shareholders lost an estimated $2 billion, he said, their recovery is about 65 percent better than the average settlement. Dalzell also found that the shareholders “could not realistically ever collect anything approaching $2 billion in damages.” Pushing for more might force the company into bankruptcy, Dalzell said, and “no rational plaintiff would push Rite Aid into that condition, because to do so would, quite literally, kill the goose that once laid golden eggs and may, some day, do so again.” As a result, Dalzell said, the settlement “leaves open the possibility of such a happy conclusion to this so far unhappy financial story. The continued distraction and hemorrhaging of litigation, and the possibility of a bankruptcy-inducing catastrophic judgment, would not.”

This content has been archived. It is available through our partners, LexisNexis® and Bloomberg Law.

To view this content, please continue to their sites.

Not a Lexis Advance® Subscriber?
Subscribe Now

Not a Bloomberg Law Subscriber?
Subscribe Now

Why am I seeing this?

LexisNexis® and Bloomberg Law are third party online distributors of the broad collection of current and archived versions of ALM's legal news publications. LexisNexis® and Bloomberg Law customers are able to access and use ALM's content, including content from the National Law Journal, The American Lawyer, Legaltech News, The New York Law Journal, and Corporate Counsel, as well as other sources of legal information.

For questions call 1-877-256-2472 or contact us at [email protected]

Reprints & Licensing
Mentioned in a Law.com story?

License our industry-leading legal content to extend your thought leadership and build your brand.


ALM Legal Publication Newsletters

Sign Up Today and Never Miss Another Story.

As part of your digital membership, you can sign up for an unlimited number of a wide range of complimentary newsletters. Visit your My Account page to make your selections. Get the timely legal news and critical analysis you cannot afford to miss. Tailored just for you. In your inbox. Every day.

Copyright © 2021 ALM Media Properties, LLC. All Rights Reserved.