A class action filed by shareholders in the New York Stock Exchange over its planned merger with IntercontinentalExchange Inc. can go forward in New York alongside a nearly identical, earlier-filed class action in the Delaware Chancery Court, a Manhattan Commercial Division judge has ruled, decisively rejecting the "first filed" theory asserted by the defendants.
Justice Shirley Kornreich’s March 1 ruling in In re NYSE Euronext Shareholders/ICE Litigation, 654496/12, held that the lawsuit, which is centered on one of New York’s "iconic institutions," clearly belongs in New York court.
Atlanta-based energy and commodity exchange, IntercontinentalExchange, known as ICE, announced in a Dec. 20 press release that it planned to acquire NYSE Euronext, which owns the New York Stock exchange, for $8.2 billion.
A mere six hours later, according to Kornreich’s opinion, NYSE shareholders filed a proposed class action in the Delaware Chancery Court. The original complaint in that case was "relatively bare bones," according to Kornreich (See Profile), because little was publicly known about the merger at the time it was filed. The merger agreement was disclosed in an 8-K filing with the Securities and Exchange Commission later that evening.
The following evening, a more detailed class action was filed in Manhattan Supreme Court by NYSE shareholders challenging the merger. Three more such class actions followed and all the New York suits were consolidated. Seven additional shareholder actions were filed in Delaware, and the suits there were also consolidated as In re NYSE Euronext Shareholder Litigation, C.A. No. 8136. Chancellor Leo Strine is presiding over the Delaware case.
On Feb. 7, the New York plaintiffs filed a consolidated class action complaint asserting breach of fiduciary duty against NYSE and ICE and seeking to enjoin the merger. The defendants moved to dismiss the New York case on the grounds that both NYSE and ICE are incorporated in Delaware, and the first suit over the merger was filed in Delaware.
Kornreich rejected the argument based on place of incorporation, writing that both companies actually do business in other states.
"It is undisputed that virtually all of the parties, witnesses, evidence, and other affected parties (such as NYSE’s employees) are located in New York," she wrote. "Indeed, at least sixteen law, banking, and consulting firms have been retained to advise on the Merger, all of which are located in Manhattan. Negotiations for the deal occurred in New York. And, not to belabor the obvious, this is a case about the future of the New York Stock Exchange, one of New York City’s iconic institutions and the exchange at the heart of the international financial industry, to which no city is more important than New York. New York has a significant interest in this case."
The judge also rejected the argument that the case should proceed only in Delaware because it was filed there first.
She said that both state and federal appellate courts in New York had rejected the first-filed doctrine on the grounds that it encourages "procedural gamesmanship" and a "race to the courthouse," citing the First Department’s 1997 decision in White Light Prods. v. On the Scene Prods., 231 AD2d 90, 98, and the Second Circuit’s 1978 decision in Factors Etc. v Pro Arts, 579 F2d 215.
"This court cannot determine, on the record before it, whether the timing of the filing of the Cohen action was procedural gamesmanship," she wrote. "However, the court cannot ignore the fact that deferring to the Delaware court based on an action commenced one day earlier than the [New York] action incentivizes a race to the courthouse within hours of the announcement of every major corporate merger. This concern is further amplified by the startling statistics cited by defendants, such as the fact that stockholders bring class action lawsuits in 91 percent of merger transactions valued in excess of $100 million and that nearly half of litigated deals involve duplicative shareholders suits in multiple fora."
Kornreich further noted that Strine, who is presiding over the Delaware action, has argued strongly against the first-filed doctrine.
She quoted Strine’s 2005 decision in In re Cox Comm’ns S’holders Litig., 879 A2d 604, 608, in which he criticized "hastily-filed, first-day complaints that serve no purpose other than for a particular law firm and its client to get into the medal round of the filing speed (also formerly known as the lead counsel selection) Olympics."
Kornreich also noted that Strine recently coauthored a paper with Widener University School of Law professor Lawrence Hamermesh and Shearman & Sterling associate Matthew Jennejohn calling on courts to abandon the first-filed standard. The paper, titled " Putting Stockholders First, Not the First-Filed Complaint," was published by Harvard Law School’s John M. Olin Center for Law, Economics and Business on Jan. 10.
"This court agrees with Chancellor Strine that there are more important considerations than where a lawsuit was first commenced, especially in a situation, as here, where the first filed Delaware and New York cases were commenced a mere day apart," Kornreich wrote.
Herman Cahn, of counsel at Milberg and an attorney for the plaintiffs, declined to comment. The plaintiffs are also represented by Gregory Nespole, a partner at Wolf Haldenstein Adler Freeman & Herz, and by James Notis, a partner at Gardy & Notis.
William Savitt, a partner at Wachtell, Lipton, Rosen & Katz who represents NYSE, declined to comment.
Brian Frawley, a partner at Sullivan & Cromwell who represents ICE, declined to comment.
@|Brendan Pierson can be reached at email@example.com.