A recent ABA Journal story, “7th Circuit Nixes ‘Feeable’ Sears Class Action, Says Its ‘Only Goal’ is Fees for Plaintiffs Lawyers,” reports that a federal appeals court said a shareholder derivative suit’s “only goal” appeared to be generating fees for plaintiffs counsel. The appeals court not only held a federal district judge had erred in refusing to permit a professional fee objector to intervene, but directed the judge to dismiss the case on remand.
“The suit serves no goal other than to move money from the corporate treasury to the attorneys’ coffers, while depriving Sears of directors whom its investors freely elected,” wrote Chief Judge Frank Easterbrook in a three-judge panel’s unanimous opinion (pdf).
The plaintiffs in this suit contented that antitrust law was violated by having two directors sit on competing boards of other companies following the 2005 merger of Sears, Roebuck & Co. with Kmart Corp. However, as Sears pointed out to the district court in a motion to dismiss, “Delaware usually allows investors to sue derivatively only if, after a demand for action, the board cannot make a disinterested decision.” The plaintiffs made no such demand prior to suit, the Seventh Circuit says, although they argued it would have been futile to do so.
Antitrust suits are notoriously expensive and Sears was willing to settle for $925,000 in attorney’s fees to opposing counsel rather than likely pay over $1 million in defense costs. But Easterbrook says, shareholders would derive no benefit from this and neither the Department of Justice not the Federal Trade Commission, which ordinarily enforce antitrust violations, have shown any interest in pursuing enforcement action here.