In re Activision Blizzard, Inc. Stockholder Litigation
124 A.3d 1025
| Del. Ch. | 2015Background
- Vivendi, then controlling Activision shareholder, sold its stake in a 2013 Restructuring in which Activision repurchased a large block and ASAC (vehicle controlled by CEO Kotick and Chairman Kelly) bought a significant minority at a 10% discount.
- Plaintiffs (consolidated under Lead Plaintiff Pacchia) alleged breaches of fiduciary duty, waste, and unjust enrichment tied to management’s role in structuring the transaction to favor Kotick and Kelly; claims included derivative, direct, and dual-attribute theories. Hayes advanced a separate Voting Right Claim (arguing a stockholder vote was required).
- Delaware Supreme Court rejected Hayes’s Voting Right Claim on interlocutory appeal, undermining one direct claim and altering leverage in settlement negotiations.
- Parties mediated and settled shortly before trial: $275 million paid to Activision, cap on Kotick/Kelly voting power reduced from 24.9% to 19.9%, and two new independent board seats added. No direct cash distribution to class members who sold shares (the “Seller Class”).
- Court approved the settlement, awarded Lead Counsel $72.5 million (negotiated), permitted a $50,000 incentive payment to Lead Plaintiff, and denied fee requests from other intervenors (Pfeiffer/Benston counsel).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Class membership and whether sellers retain claims | Hayes: many former holders (sellers) retained personal claims that the settlement released without compensation; class should be tailored to compensate sellers | Defendants: Delaware corporate claims travel with shares; sellers surrendered those claims when they sold | Court: Class properly defined as holders of record on July 25, 2013 and successors; derivative/direct/dual claims travel with shares so sellers lack entitlement to settlement proceeds |
| Nature and transferability of claims (derivative vs direct vs personal) | Hayes: claims underlying settlement are personal to holders during announcement-to-closing window and do not pass with shares | Lead Plaintiff/Defendants: Delaware derivative and direct (and dual-attribute) claims are property rights tied to shares and generally pass to transferees; only certain personal tort/securities claims would remain with an individual | Court: Derivative, direct, and dual-attribute Delaware corporate claims travel with shares; personal claims (e.g., Rule 10b-5) are possible but neither pled nor shown to have value here |
| Adequacy of the settlement consideration | Plaintiffs (objector Hayes): settlement is unfair because no direct payment to sellers; allocation improper | Lead Counsel/Activision: settlement’s $275M to Activision plus governance changes are reasonable given litigation risks, remedies uncertainty, and likely recoverable relief (restitution/damages) | Court: Settlement falls within a reasonable range of outcomes; monetary and non-monetary relief adequate; allocative choice (all cash to Activision) reasonable given dominant derivative/dual claims and administrative efficiency |
| Fee award to Lead Counsel and payments to others | Hayes/objectors: challenge size/allocation of fee and special award to lead plaintiff; Pfeiffer/Benston counsel seek fees for contributions | Defendants/Lead Counsel: negotiated $72.5M fee reasonable for stage, complexity, results; $50k incentive to lead plaintiff reasonable; Pfeiffer/Benston counsel made no proximate contribution | Court: Approved $72.5M fee (within range for pre-trial settlement), allowed $50k to lead plaintiff paid from fee, denied Pfeiffer/Benston fee requests |
Key Cases Cited
- Zapata Corp. v. Maldonado, 430 A.2d 779 (Del. 1981) (describes derivative action framework and directors’ control over corporate suits)
- Brehm v. Eisner, 746 A.2d 244 (Del. 2000) (addresses appellate review standards for certain Chancery rulings)
- Tooley v. Donaldson, Lufkin & Jenrette, Inc., 845 A.2d 1031 (Del. 2004) (articulates the test for whether a claim is direct or derivative)
- In re Philadelphia Stock Exchange, 945 A.2d 1123 (Del. 2008) (discusses settlement allocation between direct and derivative claims)
- Triarc Companies, Inc. v. Tyco Int’l (In re Triarc Cos., Inc. S’holder Litig.), 791 A.2d 872 (Del. Ch. 2001) (treats dual-attribute claims and transfer of claims with shares)
- Goodrich v. E.F. Hutton Group, Inc., 681 A.2d 1039 (Del. 1996) (addresses common-benefit fee awards and equitable fee principles)
- Sugarland Indus., Inc. v. Thomas, 420 A.2d 142 (Del. 1980) (factors for determining reasonable attorneys’ fees)
- Kamen v. Kemper Financial Services, Inc., 500 U.S. 90 (U.S. 1991) (explains derivative suit purpose and limits)