Case 1:14-cv LTS Document 62 Filed 09/11/15 Page 1 of 26 UNITED STATES DISTRICT COURT DISTRICT OF MASSACHUSETTS

Transcription

1 Case 1:14-cv LTS Document 62 Filed 09/11/15 Page 1 of 26 UNITED STATES DISTRICT COURT DISTRICT OF MASSACHUSETTS IN RE COVIDIEN PLC SECURITIES LITIGATION Civil Action No. 1:14-cv LTS Class Action DATED: September 11, 2015 MEMORANDUM OF LAW IN SUPPORT OF OBJECTION OF WINONA A. CRIST TO PROPOSED SETTLEMENT AND REQUEST FOR ATTORNEYS FEES Robert R. Pierce (BBO# ) Thomas E. Kenney (BBO#561590) PIERCE & MANDELL P.C. 11 Beacon Street, Suite 800 Boston, Massachusetts Tel: (617) Fax: (617) bob@piercemandell.com tom@piercemandell.com Joseph Christensen (DE Bar #5146) JOSEPH CHRISTENSEN P.A. 921 N. Orange St. Wilmington, DE Tel: (302) Fax: (302) joseph@christensenpa.com Jacob Okun (NY Bar # ) SZENBERG & OKUN PLLC 152 W. 57 th Street New York, NY Tel: (212) Fax: (518) jacob.okun@szenok.com Counsel for Winona A. Crist

2 Case 1:14-cv LTS Document 62 Filed 09/11/15 Page 2 of 26 TABLE OF CONTENTS I. PRELIMINARY STATEMENT... 1 II. NATURE AND STAGE OF THE PROCEEDINGS... 4 A. The Transaction Is Announced and Complaints Follow... 4 B. The Companies Make Disclosures in a Joint Proxy Statement/Prospectus... 5 III. ARGUMENT... 7 A. The Settlement Is Unfair and Should Be Rejected Applicable Law: Settlement The Plaintiffs Irish Claims Are Copied and Pasted Delaware Claims and Cannot Support the Settlement The Settlement Provides No Benefit To Stockholders Under Irish Law The Settlement Relief Provided No Benefit B. There Is No Basis for an Award of Attorneys Fees The PSLRA Prohibits the Award of Attorneys Fees Attorneys Fees Cannot Be Awarded Under Irish Law C. PSLRA Requirement of Rule 11 Findings IV. CONCLUSION Index of Exhibits Exhibit A Proof of Ownership Exhibit B - Identification Information ii

3 Case 1:14-cv LTS Document 62 Filed 09/11/15 Page 3 of 26 TABLE OF AUTHORITIES Cases Acevedo v. Aeroflex Holding Corp., C.A. No VCL (Del. Ch. Jul. 8, 2015) (Transcript)... 8, 9 Assad v. World Energy Solutions, Inc., C.A. No CB (Aug. 20, 2015) (Transcript)... 9 Basic Inc. v. Levinson, 485 U.S. 224 (1988) City of Detroit v. Grinnell Corp., 495 F.2d 448 (2d Cir. 1974)... 8 City P ship Co. v. Atl. Acquisition Ltd. P ship, 100 F.3d 1041 (1 st Cir. 1996)... 7 Garber v. Legg Mason Inc., 347 Fed. Appx. 665 (2d Cir. 2009) Haverhill Retirement Sys. v. Asali, C.A. No VCL (Del. Ch. Jun. 8, 2015) (Transcript)... 9, 20 In re Activision Blizzard, Inc. S holder Litig., 2015 WL (Del. Ch. May 21, 2015)... 3 In re Genzyme Corp. S holder Litig., No. 10-cv (D. Mass. Sept. 13, 2011) In re Genzyme Corp. S holder Litig., No. 10-cv-11356, Order (D. Mass. Sept. 29, 2011) In re Intermune, Inc., S holder Litig., C.A. No VCN (Del. Ch. July 8, 2015) (Transcript)... 3, 9 In re Lupron Mktg. & Sales Practices Litig., 228 F.R.D. 75 (D. Mass. 2005)... 7 In re Medicis Pharma. Corp. S holders Litig., C.A. No CS (Del. Ch. Feb. 26, 2014) (Transcript)... 8, 10, 20 In re Novell, Inc. S holder Litig., 2012 WL (D. Mass. Feb. 10, 2012)... 9 In re Sauer-Danfoss Inc. S holders Litig., 65 A.3d 1116 (Del. Ch. 2011)... 9 In re Theragenics Corp. S holders Litig., C.A. No VCL (Del. Ch. May 5, 2014) (Transcript)... 9 iii

4 Case 1:14-cv LTS Document 62 Filed 09/11/15 Page 4 of 26 In re Transatlantic Holdings Inc. S holders Litig., C.A. No CS (Del. Ch. Feb. 28, 2013) (Transacript) In re Volkswagen & Audi Warranty Extension Litig., 692 F.3d 4 (1st Cir. 2012) Irish Press plc v. Ingersoll Irish Publications Ltd., 1994 No 117/223 (May 25, 1995) (Supreme Court of Ireland)... 1 Lonardo v. Travelers Indem. Co., 706 F.Supp. 766 (N.D. Oh. Mar. 31, 2010) Louisiana Municipal Plicie Employees Retirement Sys. v. Dickerson, No. 1:11-cv (Aug. 8, 2011)... 3 Louisiana Municipal Police Employees Retirement Sys. v. Cooper Indus. plc, et al., 2012 WL (N.D. Oh. Oct. 16, 2012) Masters v. Wilhelmina 473 F.3d 423 (2 nd Cir. 2007) Mostaed v. Crawford, 2012 WL (E.D. Va. Sept. 10, 2012) N.A. of Chain Drug Stores v. New England Carpenters Fund, 582 F.3d 30, 44 (1 st Cir. 2009)... 7 TSC Indus. Inc. v. Northway, Inc., 426 U.S. 438, (1976)... 9 United Paperworkers Int l Union v. Int l Paper Co., 985 F.2d 1190, 1199 (2d Cir. 1993) Washtenaw Cnty. Emp s Ret. Sys. v. Avid Tech., Inc., 28 F. Supp. 3d 93, 103 (D. Mass. 2014) Statutes 15 U.S.C. 78u-4(a)(6) U.S.C. 78u-4(c) Other Authorities H.R. Rep. No (1995) (Conf. Rep.) Rules LR 7.1(b)(4)... 2 iv

5 Case 1:14-cv LTS Document 62 Filed 09/11/15 Page 5 of 26 MEMORANDUM OF LAW IN SUPPORT OF OBJECTION OF WINONA A. CRIST TO PROPOSED SETTLEMENT Winona A. Crist (the Objector ), a member of the Class (as such term is defined in the Stipulation of Settlement and Release filed in this action on May 15, 2015), through her counsel, respectfully submits this memorandum of law in support of her objection to the proposed settlement (the Objection ). I. PRELIMINARY STATEMENT The parties in this case are attempting to export American-style merger objection suits to Ireland. This would be a win-win for those proposing the settlement: the defendants would obtain a broad release of claims and the plaintiffs counsel would receive fees. But these wins come at the expense of the only loser in the proposal, the Class, which is required to give up any and all claims in exchange for having received nothing but one (1) additional page of worthless disclosure on top of over 7,000 pages of existing disclosure about this transaction. The Court should reject this export effort in part because it would never be accepted in Ireland. The plaintiffs literally copied and pasted allegations from suits governed by American state law that do not apply to the Irish company here. The only Irish law plaintiffs pointed to in their complaints is Section 205 of the Irish Companies Act of 1963, which is not part of merger (schemes of arrangement) regulation in Ireland and which the Supreme Court of Ireland has held does not empower a court to make an award of damages. 1 They did not even cite that much in their memorandum of law in support of the settlement, which, even though it is 25% longer than 1 Irish Press plc v. Ingersoll Irish Publications Ltd., 1994 No 117/223 (May 25, 1995) (Supreme Court of Ireland) available at see also Declaration of Brian Hutchinson in Support of Objection of Winona A. Crist to Proposed Settlement and Request for Attorneys Fees (the Hutchinson Declaration ) at 19. 1

6 Case 1:14-cv LTS Document 62 Filed 09/11/15 Page 6 of 26 allowed by the rules, 2 is completely devoid of Irish law. This is not surprising. Irish law provides a comprehensive regulatory process for mergers of Irish companies, which Covidien followed in full. The Irish aspects of this case provide no basis for a settlement or award of attorneys fees. In addition to their faux-irish law claims, the plaintiffs purport to bring federal securities law claims, but the litigation and worthless relief obtained for the Class make the proposed global release in favor of defendants underlying the settlement unfair. The supplemental disclosures provided as settlement consideration were worthless, are unconnected to the 89 separate disclosure claims made in the complaints and provided no benefit in trade for the global release. In contrast to the worthless disclosures, the releases the defendants seek have significant value in that they provide insurance against claims, known and unknown, that were neither made in the complaints nor litigated. In light of these facts, the settlement must be rejected as unfair and the Court should direct plaintiffs to dismiss the claims with prejudice as to their clients. The request for attorneys fees is wholly misplaced because the Private Securities Litigation Reform Act (the PSLRA ) limits the payment of attorneys fees in securities cases to a reasonable percentage of the monetary recovery actually received by the class. The Class received $0 in this case. Plaintiffs counsel is limited to the same amount. This litigation was taken from the mold of American merger objection suits filed following the announcement of a merger, but the copied-and-pasted claims are especially inappropriate here. In such suits, plaintiffs claim violations of state corporate law resulting in an unfair price and incomplete disclosure and, occasionally, add federal disclosure claims. The plaintiffs in these cases half-heartedly claim to want an injunction, but more than seventy percent 2 LR 7.1(b)(4). 2

7 Case 1:14-cv LTS Document 62 Filed 09/11/15 Page 7 of 26 of the time, as here, the parties settle before the injunction hearing. 3 An actual injunction is almost never issued. 4 The parties engage in what the Delaware Court of Chancery has called ritualized quasi-litigation in which defendants, as they did here, frequently agree to help the process along by providing discovery to the plaintiffs. 5 The defendants trade non-monetary supplemental disclosures that will not affect the transaction for the distinctly monetary release of claims against them and a host of related parties that are not even defendants. This ritual eliminates all risk of an injunction while also achieving a release as insurance against future claims relating to the transaction if something damaging later comes to light. 6 The final step is that plaintiffs counsel apply for a fee, making them the only participants in this process to walk away with more cash. Although Covidien plc ( Covidien ) was incorporated in Ireland, the parties danced to the tune of just such a typical American merger objection suit. Plaintiffs purported to bring suit under state law with two of the three complaints adding claims of federal securities law violations. The defendants, who continue to deny they did anything wrong, voluntarily provided some discovery. In consideration for obtaining a release of all claims that could have been brought by Covidien stockholders against any of the transaction participants, including those that 3 Olga Koumrian, Shareholder Litigation Involving Acquisitions of Public Companies: Review of 2014 M&A Litigation, Cornerstone Research, at 3, available at (providing data on jurisdiction of filing for merger objection suits). 4 Of the 20 merger objection suits of which the Objector is aware filed in this district in the past five years, zero have resulted in an injunction and it appears only one, Louisiana Municipal Plicie Employees Retirement Sys. v. Dickerson, No. 1:11-cv (Aug. 8, 2011), has even proceeded to an injunction hearing. 5 In re Activision Blizzard, Inc. S holder Litig., 2015 WL , at *34 (Del. Ch. May 21, 2015) (describing settlements involving Delaware corporations that are the inspiration for the settlement at issue in this case as routine disclosure-only settlements, entered into quickly after ritualized quasi-litigation, that plague the M & A landscape ). 6 [The Court:] This is a universal problem. The defendants want total peace. They do some... relatively minimal disclosures, and they buy deal insurance. In re Intermune, Inc., S holder Litig., C.A. No VCN, at 20 (Del. Ch. July 8, 2015) (Transcript). 3

8 Case 1:14-cv LTS Document 62 Filed 09/11/15 Page 8 of 26 were not actually claimed and those that are unknown, and not limited to claims against the defendants, defendants provided the supplemental disclosures, which were costless to them and worthless to stockholders. Now the parties seek the court s stamp of approval on that unfair trade. But for the reasons set forth herein, the Court should reject the proposed settlement and request for attorneys fees and direct the plaintiffs to dismiss the case with prejudice as to their clients alone. II. NATURE AND STAGE OF THE PROCEEDINGS A. The Transaction Is Announced and Complaints Follow On June 16, 2014, Covidien announced that Medtronic, Inc. ( Medtronic ) would acquire it through an Irish scheme of arrangement, which is similar to a merger but is supervised proactively by the Irish Takeover Panel and requires affirmative approval by an Irish court. 7 After this announcement, three complaints were filed in this District and one was filed in Massachusetts state court. 8 Various Medtronic stockholders filed suit in Minnesota state and federal court against Medtronic and its directors and officers. 9 No claims were brought in Ireland under the process laid out for such claims under Irish law. The complaints filed in this District included state claims and federal securities claims. The Taxman complaint alleged breaches of fiduciary duty, aiding and abetting breaches of fiduciary duty and/or other violations of state law arising out of defendants efforts to complete 7 Covidien, Current Report (Form 8-K) (June 16, 2014) available at 8 Taxman v. Covidien plc, et al., No. 1:14-cv (July 10, 2014); Lipovich v. Covidien plc, et al., No. 1:14-cv (Aug. 11, 2014); Rosenfeld Family Foundation v. Covidien, plc, et al., 1:14-cv (Aug. 26, 2014); Cobb v. Covidien plc, et al., SUCV BLS2 (Sup. Ct., Suffolk Cty.) (Aug. 26, 2014). 9 Merenstein v. Medtronic, Inc., et al., 27-CV (Dist. Ct., 4 th Jud. Dist., Hennepin Cty.) (July 2, 2014); Steiner v. Richard H. Anderson, et al., 27-CV (Dist. Ct., 4 th Jud. Dist., Hennepin Cty.) (Aug. 21, 2014); Houston v. Omar Ishrak, et al., 14-cv-0354 (D. Minn.) (Sept. 19, 2014); Clark v. Omar Ishrak, et al., 14-cv (D. Minn.) (Oct. 3, 2014). 4

9 Case 1:14-cv LTS Document 62 Filed 09/11/15 Page 9 of 26 the sale of [Covidien] to Medtronic, pursuant to an unfair process and for an unfair price... [and arising] out of the Board s breaches of their fiduciary duties owed to the Company s stockholders under state law. 10 As detailed further below, the other complaints made claims that were based on United States state corporate law as well rather than Irish corporate law. B. The Companies Make Disclosures in a Joint Proxy Statement/Prospectus Between the transaction announcement and the filing of the supplemental disclosures, Covidien and Medtronic made approximately 150 separate filings of disclosure relating to the transaction, comprising over 7,000 pages, many of which were necessitated by the regulatory regime applicable to Irish companies undergoing takeovers. 11 On the dates indicated below, Medtronic and Covidien filed versions of a joint proxy statement/prospectus, which is the only document plaintiffs allege was defective among the hundreds of documents and thousands of pages filed. Date Covidien Filing Medtronic Filing July 14, 2014 Letter to investors linking to preliminary proxy Preliminary proxy statement/prospectus 13 statement/prospectus 12 August 27, 2014 None Amendment No September 19, 2014 None Amendment No October 21, 2014 Letter to investors linking to filing and specifically pointing out changes 16 Amendment No Taxman v. Covidien plc, et al., Complaint for Breaches of Fiduciary Duty, No. 1:14-cv (July 10, 2014) (emphasis added). 11 See e.g., Covidien, Current Report (Form 8-K) (Nov. 21, 2014) available at (making substantive disclosures about the projections and synergies expected by the transaction parties as required by the Irish Takeover Rules). 12 Covidien, Letter filed pursuant to Rule 425 of the Securities Act of 1933 ( Rule 425 ) (July 15, 2014) available at 13 Medtronic Holdings Limited, Registration Statement (Form S-4) (July 14, 2014) available at 14 Medtronic Holdings Limited, Amendment No. 1 to Registration Statement (Form S-4) (Aug. 27, 2014) available at 15 Medtronic Holdings Limited, Amendment No. 2 to Registration Statement (Form S-4) (Sept. 19, 2014) available at 5

10 Case 1:14-cv LTS Document 62 Filed 09/11/15 Page 10 of 26 Date Covidien Filing Medtronic Filing November 10, 2014 Letter to investors linking to filing and Amendment No specifically pointing out changes 18 November 20, 2014 Definitive Proxy; 20 Press Release Announcing Mailing of Definitive Proxy 21 December 23, 2014 (5 pm Eastern) 8-K with supplemental disclosures; no letter or press release Amendment No. 5 (definitive version) 22 None At the extraordinary general meeting of Covidien stockholders on January 6, 2015, 99.01% voted in favor of the scheme of arrangement; 0.22% voted against. 23 On September 8, the Objector s counsel requested access to the discovery conducted. As of the filing of this memorandum, the parties have not responded in any way to the request and thus have not allowed Objector s counsel to judge the scope and content of the discovery or provide the Court with an outside assessment. According to a letter filed with the Court on September 11, 2015, another stockholder raised concerns about the settlement and the procedure for objecting to the settlement through correspondence with counsel and received a similar response. Given that the correspondence took place over a month ago, it is difficult to see how 16 Covidien, Letter filed pursuant to Rule 425 (Oct. 21, 2014) available at 17 Medtronic Holdings Limited, Amendment No. 3 to Registration Statement (Form S-4) (Oct. 21, 2014) available at 18 Covidien, Letter filed pursuant to Rule 425 (Nov. 10, 2014) available at 19 Medtronic Holdings Limited, Amendment No. 4 to Registration Statement (Form S-4) (Nov. 10, 2014) available at 20 Covidien, Definitive Proxy Statement (Schedule 14A) (Nov. 20, 2014) available at 21 Covidien, Press Release filed pursuant to Rule 425 (Nov. 21, 2014) available at 22 Medtronic Holdings Limited, Amendment No. 5 to Registration Statement (Form S-4) (Nov. 19, 2014) available at 23 Covidien, Current Report (Form 8-K) (Jan. 6, 2015) available at 6

11 Case 1:14-cv LTS Document 62 Filed 09/11/15 Page 11 of 26 plaintiffs counsel could represent that there has not been a single substantive objection to the Settlement. 24 III. ARGUMENT A. The Settlement Is Unfair and Should Be Rejected 1. Applicable Law: Settlement Under Federal Rule of Civil Procedure 23(e)(2), the Court must determine whether a proposed settlement of a putative class action is fair, adequate and reasonable. In making this determination, the Court acts as a fiduciary for the absent class members. 25 The settlement proponents bear the burden of showing that a settlement is reasonable. 26 If the settlement proponents have not conducted adequate discovery, any presumption in favor of settlement is rebutted. 27 The First Circuit has characterized the case law as offering laundry lists of factors, most of them intuitively obvious and dependent largely on variables that are hard to quantify in making the assessment under Rule One list that is frequently used in the First Circuit comes from the Second Circuit: (1) the complexity, expense, and likely duration of the litigation; (2) the reaction of the class to the settlement; (3) the stage of the proceedings and the amount of discovery completed; (4) the risks of establishing liability; (5) the risks of establishing damages; (6) the risks of maintaining the class action through the trial; (7) the ability of the defendants to withstand a greater judgment; (8) the range of reasonableness of the settlement fund in light of the best possible 24 Memorandum of Law in Support of Lead Plaintiff s Unopposed Motion for Final Approval of Settlement, Class Certification, and Award of Attorneys Fees and Expenses at 3 (emphasis original). 25 In re Lupron Mktg. & Sales Practices Litig., 228 F.R.D. 75, 93 (D. Mass. 2005). 26 N.A. of Chain Drug Stores v. New England Carpenters Fund, 582 F.3d 30, 44 (1 st Cir. 2009). 27 Id. ( Usually, there is a presumption in favor of the settlement if discovery has been adequate... ) (emphasis added) (citing City P ship Co. v. Atl. Acquisition Ltd. P ship, 100 F.3d 1041, 1043 (1 st Cir. 1996)). 28 N.A. of Chain Drug Stores, 582 F.3d at 44. 7

12 Case 1:14-cv LTS Document 62 Filed 09/11/15 Page 12 of 26 recovery; (9) the range of reasonableness of the settlement fund to a possible recovery in light of all the attendant risks of litigation. 29 Since Delaware courts see the most merger objection suits like this one, the Delaware courts frequently review settlements of putative class actions in which additional disclosures are provided in exchange for a release of claims against defendants. 30 Plaintiffs rely heavily on Delaware law in their opening memorandum of law. It is worth noting that while Delaware law provides a useful reference point for evaluating disclosures and specifically as understanding disclosures as a trade for the release, ultimately, it is plaintiffs burden to moor their settlement and request for fees to the applicable Irish and federal securities law. In merger objection settlements, the Delaware courts focus on the intuitively obvious factor of what benefit was conferred by the supplemental disclosures as compared to the benefit conferred by the release, determining whether, as a fiduciary to the class, the court finds the trade reasonable. 31 With increasing frequency, the Delaware courts have registered their discomfort with merger objection settlements and, like the First Circuit courts in the cases cited above, noted their concern that the scope of discovery is insufficient in these cases to justify the breadth of the releases, which they call intergalactic releases that leave too many unknown unknowns and effectively provide cheap insurance to defendants. 32 As noted by one of the Delaware Chancery 29 City of Detroit v. Grinnell Corp., 495 F.2d 448, 463 (2d Cir. 1974) (internal citations omitted). 30 Olga Koumrian, Shareholder Litigation Involving Acquisitions of Public Companies: Review of 2014 M&A Litigation, Cornerstone Research, at 3, available at (providing data on jurisdiction of filing for merger objection suits). 31 [The Court:] I don t think [this disclosure-only settlement is] enough to justify a release... giving out releases lightly, I think, is something we ve got to be careful about. In re Medicis Pharma. Corp. S holders Litig., C.A. No CS, at 24 (Del. Ch. Feb. 26, 2014) (Transcript); Acevedo v. Aeroflex Holding Corp., C.A. No VCL, at 73 (Del. Ch. Jul. 8, 2015) (Transcript) ( [The Court:] I don t think this relief [deal term changes and supplemental disclosures] is sufficient to support an intergalactic release. ). 32 Acevedo, C.A. No VCL, at 15 (Transcript) ( [The Court:] You re giving a global release. Right? Before you do that, you ought to look into these things. And you ought to 8

13 Case 1:14-cv LTS Document 62 Filed 09/11/15 Page 13 of 26 judges recently, This is a universal problem. The defendants want total peace. They do some... relatively minimal disclosures, and they buy deal insurance. 33 A settlement of a merger objection suit will be rejected if the trade is unfair, issues that the Chancellor of the Delaware Court of Chancery has recently emphasized have become the source of a lot of concern to the members of that court. 34 In order to constitute a fair trade for the release, the disclosures obtained must be material. In this context, it is axiomatic that [r]emedying an immaterial omission through supplemental disclosure does not benefit stockholders. 35 In order to qualify as a material misrepresentation or omission, the plaintiff must indicate that a reasonable investor would have viewed the information as having significantly altered the total mix of information made available. 36 The total mix of information includes prior public disclosures, such as the have an informational basis from which to make a decision. ); Haverhill Retirement Sys. v. Asali, C.A. No VCL, at 39 (Del. Ch. Jun. 8, 2015) (Transcript) ( [The Court:] The fundamental problem in this case is I simply do not know the types of things that may have gone on here or the types of things that might be covered by this global release. ). See also In re Theragenics Corp. S holders Litig., C.A. No VCL, at 4 (Del. Ch. May 5, 2014) (Transcript) ( [The Court:] [B]ased upon my review of the record... there were issues that I don t think were adequately explored. As a result, I cannot approve the settlement as presented today. ). 33 In re Intermune, Inc., S holder Litig., C.A. No VCN, at 20 (Del. Ch. July 8, 2015) (Transcript). 34 Assad v. World Energy Solutions, Inc., C.A. No CB at 37 (Aug. 20, 2015) (Transcript) (Chancellor Bouchard noting that it should be pretty clear from some of the questions I m asking and some of the recent hearings that have been occurring that there is a lot of concern in this court about nonmonetary settlements. ). 35 In re Sauer-Danfoss Inc. S holders Litig., 65 A.3d 1116, 1128 (Del. Ch. 2011); see also In re Novell, Inc. S holder Litig., 2012 WL , at *8 (D. Mass. Feb. 10, 2012) ( Although federal disclosure law may not parallel that under Delaware common law in every respect, both require proof that an alleged misstatement or omission was material. [and use] the same standard of materiality as the Supreme Court recognized for 14(a) claims in TSC Indus. Inc. v. Northway, Inc., 426 U.S. 438, (1976)). 36 Washtenaw Cnty. Emp s Ret. Sys. v. Avid Tech., Inc., 28 F. Supp. 3d 93, 103 (D. Mass. 2014) (citing and quoting Basic Inc. v. Levinson, 485 U.S. 224, 232 (1988); TSC Indus., 426 U.S. at 449 (1976)). 9

14 Case 1:14-cv LTS Document 62 Filed 09/11/15 Page 14 of 26 thousands of pages of disclosures made by Covidien and Medtronic prior to the supplemental disclosures. 37 A disclosure that only reinforces the view already advocated by a board of directors is immaterial; to alter the total mix, a disclosure achieved by plaintiffs should be in a way that contradicts, not reinforces, management s recommendation The Plaintiffs Irish Claims Are Copied and Pasted Delaware Claims and Cannot Support the Settlement The plaintiffs claims of breach of fiduciary duty in this action were allegedly made under Irish law, but, in fact, the allegations were copied, in many instances verbatim, from Delaware law claims and never had any basis in Irish law. Accordingly, the suits had no potential to benefit the class because the claims were based on inapplicable law and the settlement of these inapplicable claims cannot result in requiring the class to forfeit any actually litigable claims through the release. To sanction such a release would be unfair. The fact that plaintiffs were simply pursuing an American-style merger objection suit was clear from the outset when, as noted above, plaintiffs alleged violations of state law. But the copying-and-pasting is still more pronounced in other instances. For example, the complaint of the lead plaintiff claimed that, [U]nder Irish law : In any situation where the directors of a publicly traded corporation undertake a transaction that will result in either (i) a change in corporate control or (ii) a break-up of the corporation s assets, the directors have an affirmative fiduciary obligation to obtain the highest value reasonably available for the corporation s shareholders, and if such transaction will result in a change of corporate control, the shareholders are entitled to receive a significant premium. To diligently comply with these duties, the directors may not take any action that: Garber v. Legg Mason Inc., 347 Fed. Appx. 665, 668 (2d Cir. 2009) ( The total mix of information may include information already in the public domain and facts known or reasonably available to the shareholders. ) (quoting United Paperworkers Int l Union v. Int l Paper Co., 985 F.2d 1190, 1199 (2d Cir. 1993)). 38 In re Medicis, C.A. No CS, at 22 (Transcript) (Chancellor Strine, now Chief Justice of the Supreme Court of Delaware, explaining this concept). 39 Rosenfeld Family Foundation v. Covidien plc, et al., complaint at 34 (Aug. 26, 2014). 10

15 Case 1:14-cv LTS Document 62 Filed 09/11/15 Page 15 of 26 The complaint then listed in sub-paragraphs (a) through (e), specific prohibitions allegedly applicable to Irish directors. A few weeks earlier, in an unrelated action filed in New York involving Delaware fiduciary duty claims, the plaintiff in that case alleged that: In any situation where the directors of a publicly traded corporation undertake a transaction that will result in either (i) a change in corporate control or (ii) a break-up of the corporation s assets, the directors have an affirmative fiduciary obligation to obtain the highest value reasonably available for the corporation s shareholders, and if such transaction will result in a change of corporate control, the shareholders are entitled to receive a significant premium. To diligently comply with these duties, the directors may not take any action that: The complaint in the unrelated case then listed in sub-paragraphs (a) through (e), the same specific prohibitions that, apparently, lead plaintiffs in this case copied verbatim. These are not isolated instances. 41 The claims simply had no basis in Irish law 42 and were ripped from inapplicable complaints. It is not a fair settlement to stockholders that they be required to give up any causes of action that are based on actually applicable law simply because a complaint with no basis was brought and settled. 3. The Settlement Provides No Benefit To Stockholders Under Irish Law The plaintiffs do not make a single argument that they have vindicated stockholder rights under applicable Irish law. They have not cited a single case in which an Irish court requires supplemental disclosures like those achieved here and no cases in which a settlement like this for an Irish corporation was deemed fair under Irish law. Plaintiffs have effectively admitted that the settlement and fee request have no roots in Irish law. The settlement provides no benefit and should be rejected because Irish law regulates takeovers of Irish companies comprehensively. The declaration of Brian Hutchinson, Senior 40 Gawlikowski v. Forest Oil Corp. et al., No /2014, complaint at 26 (May 16, 2014). 41 A search of U.S. dockets available on Bloomberg Law for the phrase in any situation where the directors of a publicly traded corporation produces 299 cases using such phrase. 42 See Hutchinson Declaration at

16 Case 1:14-cv LTS Document 62 Filed 09/11/15 Page 16 of 26 Lecturer at the UCD Sutherland School of Law at University College Dublin, Ireland, describes this process in more detail. Irish authorities proactively review the terms of takeovers. Stockholders of Irish companies have the opportunity to participate in such process and raise any concerns. None did. Thus, the supplemental disclosures here added no value from an Irish law perspective. Since the relief has no value under Irish law, the supplemental disclosures are not a fair settlement for providing defendants with a broad release of claims. 4. The Settlement Relief Provided No Benefit The relief obtained by plaintiffs is illusory. None of the relief is tied to plaintiffs claims of oppression under Irish law, again because this case was litigated without any attention to the applicable law. Even leaving aside the Irish law disconnection, the relief is disconnected to any of the claims made in the complaints. The plaintiffs central theory in their complaints was that the price to be paid in this transaction was unfair to Covidien stockholders and was driven chiefly by tax considerations. The disclosures plaintiffs achieved made clear that those claims were utterly wrong. Further, the disclosures obtained do not even tie back to the very specific disclosure claims made in the complaints. 43 While the disclosures provided no benefit to stockholders, the releases proposed in the settlement will provide substantial benefits to defendants. Given this stark imbalance, the proposed settlement is an unfair and unreasonable trade for stockholders. (a) The Supplemental Disclosures Are Immaterial and Worthless to the Class The four disclosures included in the supplemental disclosures are immaterial. As in their complaints, Plaintiffs cite primarily cases involving U.S. state law in their memorandum of law in support of the settlement rather than cases under the Exchange Act or Irish law. A similar 43 Plaintiffs have made no effort to satisfy the PSLRA s heightened pleading standard for the disclosures they achieved had they tried to prosecute them to a preliminary injunction. 12

17 Case 1:14-cv LTS Document 62 Filed 09/11/15 Page 17 of 26 issue arose in Louisiana Municipal Police Employees Retirement Sys. v. Cooper Indus. plc, et al., 44 also a merger objection suit against an Irish company, where the District Court dismissed federal disclosure claims that had no basis and consequently refused to exercise supplemental jurisdiction over the Irish claims. Like the plaintiffs in Cooper, the plaintiffs here do not explain how existing statements in the proxy statement would have been rendered materially misleading if the supplemental disclosures had not been made, which they would need to do under Section The reason plaintiffs do not is simple and explained in further detail below: the supplemental disclosures did not significantly alter the total mix and their omission would not have rendered any existing statements misleading. Their addition provided no value to stockholders. (1) Ascription of (Unspecified) Value to Irish Domicile Plaintiffs claim that they achieved a disclosure that the Covidien board ascribed value to the company s Irish domicile. But this was disclosed months earlier and its repetition added nothing of utility. On page 72 of the preliminary proxy filed on July 14, 2014, it was disclosed that [the Covidien CEO] noted that the Covidien board of directors ascribed value to Covidien s Irish domicile, and that the Covidien board believed that domiciling the combined company in Ireland would create incremental value in addition to the strategic benefits of a combination. 46 The supplemental disclosures did not disclose how much value was ascribed to the Irish domicile. The supplemental disclosures did not disclose how much the value changed in light of the IRS guidance issued on September 22, 2014 (discussed further below), if at all. The supplemental disclosure simply added more verbiage to the basic point that some unknown WL (N.D. Oh. Oct. 16, 2012). 45 Id. at * Medtronic Holdings Limited, Registration Statement (Preliminary Proxy) (Form S-4) at 72 (July 14, 2014) available at 13

18 Case 1:14-cv LTS Document 62 Filed 09/11/15 Page 18 of 26 amount of value had been ascribed (all along, as already disclosed) to Covidien s Irish domicile. Even on its face the verbiage was not material. In substance, the disclosure relates that in light of the IRS guidance, Medtronic would not be able to use a tax-free intercompany loan to finance the transaction, something that had been repeatedly disclosed before in greater detail. The disclosure further relates that Covidien stockholders would bear a portion of the incremental cost of the change in financing structure, but does not share what the incremental cost actually was or direct stockholders to such disclosure, changing nothing about the then-current mix of information. Since this disclosure did not significantly alter the total mix, it is immaterial and not fair consideration to the class as settlement consideration. (2) Lack of Impact on Value Considerations of IRS Guidance The second disclosure shows only that the main thrust of the complaints that the deal was financially unfair had no basis. As noted above, on September 22, 2014, well after the plaintiffs filed their complaints, the IRS issued guidance aimed at curbing the tax benefits of inversion transactions. 47 Covidien and Medtronic immediately responded to the IRS guidance with unequivocal disclosures about what impact the guidance would have on the transaction: the IRS announcement would have no material impact on the merits of the transaction because the transaction was not based primarily on tax savings. Thus, on September 23, 2014, Covidien s Chairman, President & CEO issued a letter to investors that re-confirmed (without involvement from plaintiffs) that tax issues had never been the driving force behind the transaction, the exact 47 Treasury Announces First Steps to Reduce Tax Benefits of Corporate Inversions, Sept. 22, 2014 available at These transactions were the subject of intense political pressure because of the view that companies were engaging in them for the sole purpose of avoiding US taxes. See, e.g., Obama Explores Tax-Code Weapons in Inversion- Merger Fight, The Wall Street Journal, Aug. 8, 2014 available at

19 Case 1:14-cv LTS Document 62 Filed 09/11/15 Page 19 of 26 opposite of plaintiffs theory. 48 The letter stated: [T]he combination of Medtronic and Covidien has always been primarily driven by the companies strategic decision to become the world s premier medical technology and services company. Nothing that was announced yesterday changes that or impacts our commitment to moving forward and closing the transaction. 49 All later disclosures reinforced and were consistent with that initial disclosure. The first revised proxy statement/prospectus filed after the IRS guidance (on October 21, 2014) provided extensive disclosure about the impact (or lack thereof) of the IRS guidance on the transaction s substance, including specifically the resulting change in financing (which was also disclosed and explained extensively separate from the proxy statement/prospectus). Plaintiffs were not responsible for these disclosures. In connection with the October 21, 2014 proxy statement/prospectus revision, Covidien separately sent a letter to its stockholders specifically pointing out the new disclosure related to the IRS guidance, specifically and separately calling out such changes at Page Pages [specifically regarding the new financing structure]... Page Page Page Pages Page Pages and Pages [regarding financing structure]... Page Plaintiffs were not responsible for these disclosures either. Thus, the existing disclosures included painstaking detail about the consequences of the IRS guidance without plaintiff involvement. 48 Covidien, Letter filed pursuant to Rule 425 (Sept. 23, 2014) available at 49 Id. (emphasis added). This was consistent with previous disclosures. For example, on July 21, Medtronic and Covidien disclosed that [t]his combination is driven by a strategic decision to further our Mission and strategy with highly complementary medical technologies and solutions, rather than by tax considerations. Covidien, Acquisition Memorandum filed under Rule 425 (Jul. 21, 2014) available at (emphasis added). 50 Covidien, Letter filed pursuant to Rule 425 (Oct. 21, 2014) available at 15

20 Case 1:14-cv LTS Document 62 Filed 09/11/15 Page 20 of 26 The supplemental disclosures for which plaintiffs do claim credit simply recast the extensive substantive information that had already been disclosed in an immaterially different way. The supplemental disclosures repeat, in substance, that the Covidien board did not enter into the transaction as a tax-saving scheme for Covidien stockholders and the IRS notice had no material impact on their view that the transaction was advisable for Covidien stockholders. This disclosure did not significantly alter the total mix of available information, confirms the invalidity of plaintiffs underlying claims, and provides no basis for the settlement. It should also be noted that the plaintiffs never filed an amended complaint challenging the fairness of the transaction price in light of this announcement and they did not file any claims attacking any of the disclosures related to the tax effects resulting from the September 22, 2014, IRS announcement. Thus, this disclosure relief does not relate to any of the relief that the class could have achieved from prosecution of the filed complaints and should not be considered settlement relief for that reason alone. (3) Goldman Sachs: Accretion/Dilution Analysis Applicable to Medtronic (not Covidien) Stockholders The disclosure relating to Medtronic stockholders expected accretion is irrelevant to the Covidien stockholders who make up the putative class. The supplemental disclosures add that Goldman Sachs compared the projected value of Medtronic stock in the absence of a merger (a world where the Covidien stockholders never have any interest in Medtronic) with the projected value of Medtronic stock if Medtronic were combined with Covidien. This analysis showed that the proposed transaction would be accretive to Medtronic s shareholders. 51 In other words, the transaction is better for Medtronic s stockholders than if Medtronic stayed alone. This supplemental disclosure does not provide information about whether the transaction is better for 51 Covidien, Current Report (Form 8-K) available at 16

21 Case 1:14-cv LTS Document 62 Filed 09/11/15 Page 21 of 26 Covidien stockholders compared to Covidien staying alone. Thus, this supplemental disclosure did not significantly alter the total mix of available information and provides no basis for the settlement. (4) Goldman Sachs: Analyst Price Targets Not Part of Financial Analyses Finally, the settlement proponents provided a disclosure about information that was not considered part of Goldman Sachs financial analyses. 52 In other words, the analyst price targets disclosed played no part in the financial fairness conclusion that Goldman Sachs provided to Covidien. This is the very definition of immaterial information: it does not matter. Moreover, the disclosure is not even consistent with what plaintiffs claimed analysts had estimated. In their complaints, plaintiffs alleged that certain analysts estimated Covidien would rise to as much as $114 per share 53 while the highest price in the supplemental disclosure is $ Furthermore, the analyst price targets disclosed were publicly available research analysts reports and, thus, the proxy did not provide any material benefit by repeating the already publicly available information and accordingly provides no basis for the settlement. (5) Non-Disclosure Relief : The Goldman Sachs Confirmation Plaintiffs try to transmute the utter lack of basis for their claims into relief that should justify a settlement and award of attorneys fees. The plaintiffs claim credit for Goldman Sachs confirming the fairness of the price of a deal that plaintiffs, in the actual claims that they filed, attacked as being proposed at an unfair price. By this logic, had Covidien simply rejected each of plaintiffs allegations and explained why they were completely unmeritorious, the plaintiffs would argue that such explanation of the lack of merit provided a material benefit to the class. 52 Id. 53 Rosenfeld Family Found. v. Covidien plc, complaint at 65 (Aug. 26, 2014). 54 Covidien, Current Report, Form 8-K (Dec. 23, 2015) available at 17

22 Case 1:14-cv LTS Document 62 Filed 09/11/15 Page 22 of 26 This confirmation that plaintiffs theory had never been viable provided as much benefit to the class as plaintiffs original claims of unfairness: none. As such, it cannot form the basis for the settlement. B. There Is No Basis for an Award of Attorneys Fees 1. The PSLRA Prohibits the Award of Attorneys Fees Rule 23(h) of the Federal Rules of Civil Procedure allows a court to award attorneys fees that are authorized by law. Fees in this case are unauthorized by law because the PSLRA prohibits the award of fees in federal securities class actions that provide no monetary benefit to stockholders. The PSLRA supersedes the substantial benefit doctrine under which plaintiffs seek compensation. In 1995, Congress passed the PSLRA. One of the perceived problems that the PSLRA sought to fix was the situation of the tail wagging the dog where stockholders received very little benefit from securities litigations while plaintiffs counsel benefitted disproportionately through payment of attorneys fees. 55 To curb this problem, the PSLRA included a limitation on the payment of attorneys fees in securities class actions. Total attorneys fees and expenses awarded by the court to counsel for the plaintiff class shall not exceed a reasonable percentage of the amount of any damages and prejudgment interest actually paid to the class. 56 It is 55 H.R. Rep. No , at 36 (1995) (Conf. Rep.) available at ( The House and Senate heard testimony that counsel in securities class actions often receive a disproportionate share of settlement awards.... [A]ttorney s fees can constitute 35% or more of the entire settlement awarded to the class. The Conference Committee limits the award of attorney s fees and costs... to a reasonable percentage of the amount of recovery awarded to the class. ) U.S.C. 78u-4(a)(6) (emphasis added). In this action, plaintiffs have not received a monetary judgment, so [Section 78u-4(a)(6) of the PSLRA] clearly precludes them from seeking attorneys fees based on alleged Securities and Exchange Act violations. Mostaed v. Crawford, 2012 WL , at *7 (E.D. Va. Sept. 10, 2012) (proceeding to reject fee application for disclosures on state law bases also). See also Masters v. Wilhelmina 473 F.3d 423, 438 (2 nd Cir. 2007) (declining to apply PSLRA in an anti-trust action but noting 18

23 Case 1:14-cv LTS Document 62 Filed 09/11/15 Page 23 of 26 undisputed that this litigation is subject to the PSLRA and has resulted in no damages actually paid to the class. The plain language of the PSLRA prohibits the payment of fees in respect of federal securities claims in such a situation Attorneys Fees Cannot Be Awarded Under Irish Law Where state law, or in this case foreign law, applies, the issue of attorneys fees is a matter of substantive law to be determined under such non-federal jurisdiction s law. 58 The Irish aspect of this litigation which, as noted above, is a Delaware claim masquerading as Irish provides no basis for payment of attorneys fees. The substantial benefit doctrine under federal law does not apply under Irish law in part because, under Irish law, class actions are not permitted and attorneys are compensated only for work done for specific clients. 59 Thus, Irish law provides no basis for payment of plaintiffs counsel fees. that The PSLRA would not allow for the computation of fees on the basis of such nondamages items as discounts or coupons received in settlement. ); Lonardo v. Travelers Indem. Co., 706 F.Supp. 766, 800 (N.D. Oh. Mar. 31, 2010) (holding in a non-securities action that where class counsel s fees are not tied to the monetary amount actually received by the class, it provid[es] defendants with a powerful means to enticing class counsel to settle lawsuits in a manner detrimental to the class... [and] encourage the filing of needless lawsuits ). 57 Federal law is not alone with this policy. Massachusetts common law would dictate the same result for the same reasons if Massachusetts state law applied. In re Genzyme Corp. S holder Litig., No. 10-cv (D. Mass. Sept. 13, 2011) (rejecting attorneys fee request for purported non-monetary benefits in merger objection suit and holding that Under Massachusetts law, such attorneys fees are only paid from the common fund created by the action. If an action does not create a common fund, a court will not award attorneys fees. ) (citations omitted); In re Genzyme Corp. S holder Litig., No. 10-cv-11356, Order (D. Mass. Sept. 29, 2011) (accepting and adopting the Magistrate Judge s report and recommendations for the same reasons). 58 See e.g., In re Volkswagen & Audi Warranty Extension Litig., 692 F.3d 4, 15 (1st Cir. 2012) ( We also start with the basic premise that the issue of attorneys fees has long been considered for Erie purposes to be substantive and not procedural, and so state-law principles normally govern the award of fees. ) (collecting cases). 59 See Hutchinson Declaration at

24 Case 1:14-cv LTS Document 62 Filed 09/11/15 Page 24 of 26 C. PSLRA Requirement of Rule 11 Findings Finally, the Objector observes that the PSLRA requires the court to make specific findings regarding compliance with Rule IV. CONCLUSION The Irish law claims in this litigation were not actually Irish, the relief obtained was not actually relief, and there is no basis for the award of fees in this case where the PSLRA specifically prohibits such an award. For the reasons stated herein, the Objector respectfully requests that the settlement be rejected and that no fees be awarded to plaintiffs counsel. As the Delaware courts have done in similar circumstances, 61 the Court should direct the plaintiffs to dismiss the action with prejudice as to their clients only and, to the extent that defendants want to volunteer to pay plaintiffs counsel a mootness fee for the value of the disclosures, they could do so, but it should not be done under the auspices of a class action U.S.C. 78u-4(c) ( In any private action arising under this chapter, upon final adjudication of the action, the court shall include in the record specific findings regarding compliance by each party and each attorney representing any party with each requirement of Rule 11(b) of the Federal Rules of Civil Procedure as to any complaint, responsive pleading, or dispositive motion. ). 61 In re Transatlantic Holdings Inc. S holders Litig., C.A. No CS at 10 (Del. Ch. Feb. 28, 2013) (Transacript); In re Medicis Pharma. Corp. S holders Litig., C.A. No CS at 24 (Del. Ch. Feb. 26, 2014) (Transcript); Haverhill Retirement Sys. v. Asali, C.A. No VCL (Del. Ch. Jun. 8, 2015) (Transcript). In fact, in Haverhill, the Court suggested that where claims are weak, but plaintiffs have not dropped the claims, a class action may be dismissed by the Court for inadequate representation, i.e. that, as fiduciaries, plaintiffs counsel should have abandoned weak claims after balancing cost and benefit to the class. Haverhill Retirement Sys., C.A. No VCL (Del. Ch. Jun. 8, 2015) (reasoning that if the claims had been meritorious, the meagure results would demonstrate inadequate representation and, conversely, if the claims were not meritorious, it was the responsibility of plaintiffs counsel to drop such claims because their prosecution was ultimately detrimental to the class and, thus, representation was inadequate). 20