In Re Pacer International, Inc.
M2015-00356-COA-R3-CV
Tenn. Ct. App.Jun 30, 2017Background
- Pacer International and XPO Logistics agreed to a merger announced January 2014; Pacer shareholders sued in consolidated class actions alleging the board breached fiduciary duties and defendants aided and abetted those breaches.
- Plaintiffs alleged conflicts of interest (Morgan Stanley's role), inadequate price ($9.00/share), onerous deal protections, and omissions in the proxy statement; defendants denied wrongdoing and contended the board acted properly.
- Court-appointed lead plaintiffs and counsel conducted expedited, limited discovery (document production and key depositions) and retained financial advisors; supplemental disclosures were negotiated as settlement consideration.
- Parties executed a settlement providing additional disclosures (methodologies, financial data, projections, advisor compensation) but no monetary relief; notice was sent to 6,306 class members.
- Black Oak Investments (≈3% of shares) was the sole objector, seeking access to Lead Counsel’s discovery materials and arguing the settlement undervalued claims and improperly released monetary claims.
- The chancery court approved the settlement as fair, denied Black Oak access to confidential discovery (holding an objector must make a colorable claim of unfairness or collusion), and this decision was affirmed on appeal.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the disclosure-only settlement was fair, reasonable, and adequate | Settlement provided meaningful benefit via supplemental disclosures given weak monetary claims | Settlement was reasonable given lack of viable damages claim and disclosures aided informed voting | Court upheld settlement as within range of reasonableness; disclosures furnished adequate consideration |
| Whether Lead Counsel investigated sufficiently and negotiated at arm’s length | Lead Counsel vigorously prosecuted, investigated, and concluded monetary claims lacked value | Defendants relied on Lead Counsel’s investigation and the negotiated disclosures | Court found Lead Counsel’s investigation and negotiations adequate; no evidence of collusion |
| Whether Black Oak was an adequate objector to defeat settlement approval | Black Oak argued inadequacy of representation and that price was below market; sought more discovery to prove it | Settlement proponents emphasized court-appointed counsel’s experience and class reaction (only one objector) | Court found no basis to question adequacy of representatives or counsel; declined to reject settlement |
| Whether an objector is entitled to access confidential discovery and obtain additional discovery pre-fairness hearing | Black Oak sought full access to discovery and experts’ work product to develop objections | Defendants opposed disclosure as competitively sensitive; court can limit objector participation absent a colorable claim of unfairness or collusion | Court denied broad discovery; held objector must show a colorable claim of unfairness/collusion to obtain discovery and Black Oak failed to do so |
Key Cases Cited
- United Auto Workers v. Gen. Motors Corp., 497 F.3d 615 (6th Cir. 2007) (factors for evaluating class settlement fairness and limits on objector discovery)
- Denver Area Meat Cutters & Emp’rs Pension Plan v. Clayton, 209 S.W.3d 584 (Tenn. Ct. App. 2006) (Tennessee considerations in assessing class settlement fairness)
- Lee Med., Inc. v. Beecher, 312 S.W.3d 515 (Tenn. 2010) (standard for abuse of discretion review)
- Lewis ex rel. Sav. Bank & Trust Co. v. Boyd, 838 S.W.2d 215 (Tenn. Ct. App. 1992) (deference to corporate board business judgment)
- Bayberry Assocs. v. Jones, 783 S.W.2d 553 (Tenn. 1990) (directors’ duty when selling a corporation to obtain best possible price)
- Geier v. Alexander, 801 F.2d 799 (6th Cir. 1986) (objectors must make a clear showing that vital material was ignored to obtain relief)