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Chief U.S. District Judge Sue L. Robinson has certified a securities fraud class action against poultry giant Tyson Foods Inc., naming four institutional investors that collectively lost more than $20 million as the lead plaintiffs in the case. In the sixth opinion by a Delaware court to address the fallout of a soured merger between Tyson and beef-and-pork titan IBP Inc., Robinson permitted a group of former IBP stockholders to proceed with the class action, in part because the class is anticipated to include thousands of investors who lost money in stock trades after the merger tanked. John Reed of Duane Morris’ Wilmington, Del., office, who represents the plaintiffs, said damages in the case could total hundreds of millions of dollars if the plaintiffs prevail. The lead plaintiffs in In re Tyson Foods Inc. Securities Litig. have asserted that during the 11 weeks between March 30 and June 15, 2001, IBP securities prices dropped because, on March 29, 2001, Tyson issued a letter and press release stating it had been fraudulently induced to enter into the merger with IBP and was backing out of the deal due to a Securities and Exchange Commission investigation into an IBP subsidiary’s accounting. In the same documents, Tyson claimed that IBP breached the companies’ merger agreement. IBP publicly denied that it had misled Tyson or breached the agreement. THE LAWSUITS IBP sued Tyson in the Delaware Court of Chancery, seeking specific performance of the merger agreement. Tyson, meanwhile, sued IBP in Arkansas state court, requesting rescission or termination of the merger agreement. The parties ultimately argued their cases before Vice Chancellor Leo E. Strine Jr., who, on June 15, 2001, ordered specific performance of the merger agreement. Strine determined that Tyson tried to back out of the merger due to buyer’s remorse and not the SEC’s inquiries into IBP’s subsidiary. In an opinion dated June 18, 2001, Strine said Tyson wished it had paid less for IBP, particularly in view of both companies’ poor performances in 2001. Strine also called into question Tyson’s claims that it had relied on misleading information about the SEC inquiries, and thereby was inappropriately induced into the merger. Less than 10 days after the Delaware Chancery Court ordered specific performance of the companies’ agreement, Robinson’s opinion states that the first of several class actions was filed in the matter in the Delaware District Court. The district court on Sept. 20, 2001, consolidated the class actions and named hedge funds Aetos, Pelican, Stark Investments and Shepherd Investments International as lead plaintiffs. A week later, the IBP/Tyson merger closed and Tyson acquired IBP. The hedge funds filed the instant consolidated class action on Dec. 4, 2001. In January 2002, Tyson asked the Delaware Chancery Court to vacate its previous orders and opinion. The court denied the request, and Tyson appealed but was unsuccessful in the state Supreme Court. At the end of January 2002, the class action defendants — Tyson and three of its officers — moved for dismissal of the complaint. In October 2002, Robinson granted in part and denied in part the motion to dismiss. In her October 2002 opinion, Robinson noted that the case was unusual in that the veracity of Tyson’s public statements had already been determined through prior litigation. Because Strine had concluded that certain statements were misrepresentations, Robinson said she was not convinced that the plaintiffs would be unable to demonstrate facts that would entitle them to relief, and she permitted the suit to go forward. On Feb. 23, 2003, the lead plaintiffs moved for class certification. They sought to certify as a class all people and entities who purchased IBP stock on or before March 29, 2001, and sold it between March 30, 2001, and June 15, 2001. CLASS CERTIFICATION DECISION According to Robinson’s recent opinion, the hedge fund plaintiffs engage in merger arbitrage, a short-term, higher-risk investment strategy in which they target corporations for which they believe the market price does not reflect an accurate valuation of a potential merger. The opinion states that during the 11 weeks following Tyson’s announcement that it was backing out of the merger, the funds jointly lost more than $20 million in trading IBP stock. In opposition to the class certification motion, defendants claimed that the plaintiffs failed to meet almost all of the requirements for class certification set forth in the Federal Rules of Civil Procedure. Rule 23(a) states that parties seeking certification must demonstrate that the class is so numerous that joinder of all members is impractical; that there are questions of law or fact common to the class; that the claims or defenses of the representative party are typical of the claims or defenses of the class; and that the representative parties will fairly and adequately protect the interest of the class. Plaintiffs must also meet at least one of three additional requirements under Rule 23(b). Here, Robinson said, the plaintiffs asserted that pursuant to 23(b)(3), common questions of law and fact predominate, making class action a superior method for the fair and efficient resolution of the controversy. The defendants, however, contended that individual issues of reliance on Tyson’s public statements would predominate at trial, thus precluding class certification. Tyson and its officers argued that over the 11-week class period, the information available in the marketplace changed so substantially that the materiality of the alleged misleading statements was called into question. But the district court said that taken to its logical conclusion, the defendants’ assertion would require exclusion of nearly any class extending beyond a single day or two. Robinson identified several common legal and factual issues shared by class members. These include: whether the defendants violated federal securities laws; whether the defendants during the class period made material misrepresentations about why they terminated the planned merger; whether the defendants failed to disclose certain facts and thereby misled the investing public; and whether members of the proposed class sustained damages and what the measure of the damages should be. Accordingly, Robinson said the plaintiffs had satisfied the Rule 23(a) commonality requirement as well as the Rule 23(b) predominance requirement. “A securities fraud action based upon false and misleading statements to the market is a prototypical class action claim,” the judge noted. On the typicality requirement, the defendants contended that the lead plaintiffs did not believe the alleged misstatements and would have sold their shares anyway; that reliance by the lead plaintiffs could not be presumed because they had an “idiosyncratic interpretation” of Tyson’s statements; and that the lead plaintiffs had not relied on the integrity of the market price of IBP stock, the opinion states. The court said the extent to which the lead plaintiffs relied on Tyson’s statements and whether they are entitled to a presumption of reliance go to the merits of the case and are not dispositive of class certification. “In this case, the claims of lead plaintiffs and of the proposed class stem from the same operative facts and the same provisions of federal law,” Robinson said. According to the opinion, the defendants also asserted that the lead plaintiffs could not represent the interests of the proposed class because they had disposed of their IBP holdings at an early point during the 11-week class period. Robinson disagreed, stating that the lead plaintiffs have a strong interest in establishing liability and are seeking similar damages for similar injuries. Consequently, the court concluded that the lead plaintiffs will serve as adequate representatives, the opinion states. The district court additionally held that lead plaintiffs’ attorneys are qualified to represent the class. Finally, turning again to Rule 23(b)(3), the court rejected the defendants’ argument that the sophistication of the lead plaintiffs cut against class certification. “Federal securities laws do not protect investors any differently, and certainly no less, simply because they engage in more complicated investment strategies,” Robinson wrote. “The court finds that the factors enumerated in Rule 23(b)(3) militate in favor of the conclusion that a class action is superior to other available methods of litigating the claims. There are potentially thousands of claimants with varying degrees of injury.” Additional counsel for the plaintiffs are: Timothy Dudderar of Duane Morris’ New York office; Mark Gardy and Karin Fisch of Abbey Gardy in New York; and Michael Schaalman and Cristina Hernandez-Malaby of Quarles & Brady in Milwaukee. Attorneys for the defendants are: Anthony Clark, Robert Saunders and Michelle Davis of Skadden Arps Slate Meagher & Flom in Wilmington, Del.; Cynthia Carrasco of Skadden Arps’ New York office; and David Graham and Anne Rea of Sidley Austin Brown & Wood in Chicago.

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