Judge Rejects Xerox Investors’ Settlement

The complicated legal wrangling between Xerox investors and Fujifilm took a new turn last week, with a Manhattan Supreme Court justice now rejecting class certification and the settlement in a Xerox shareholder challenge over the aborted takeover of Xerox by Japan’s Fujifilm.

In a 15-page ruling issued last week, Justice Barry R. Ostrager said that activist investors Darwin Deason and Carl Icahn, who together own about 15 percent of Xerox shares, did not adequately represent a proposed class action. Ostrager said that the Deason and Icahn deal – which included  the termination of the proposed Xerox-Fujifilm deal, the resignation of Xerox CEO Jeff Jacobson  (and relinquishment of a $21 million severance for Jacobson), as well as the resignation of four Xerox board members – wasn’t in the best interests of the group of 34 other Xerox shareholders.

Background

The abandoned Xerox-Fujifilm deal would have seen Fujifilm pay $6.1 billion for a 50.1-percent majority stake in Xerox, but was terminated last year under intense pressure by Icahn and Deason.

However, a settlement in May 2018 appeared to be reached, as Icahn and Deason agreed to drop claims against Xerox management in  a class-action lawsuit in exchange for the scrapping of the Xerox-Fujifilm deal, and the resignation of then-Xerox CEO Jacobson and four other Xerox board members. Jacobson and the five board members subsequently resigned.

However,  a group of 34 other Xerox shareholders hadn’t been certified for the Deason-Icahn class-action lawsuit at the time, and they opposed this settlement on the grounds that it didn’t adequately compensate them.

In the 15-page ruling issued last week, Justice Ostrager said that Deason and Icahn didn’t adequately represent a proposed class action, and that the settlement wasn’t in the best interests of the group of 34 other Xerox shareholders. The settlement, he said, sought to bind a class that had not been certified to major corporate actions, “without providing any monetary relief  in exchange for broad releases of derivative claims against Xerox directors.”

The justice also denied a proposed $7.5 million award of attorney fees on behalf of the 34 other investors to  law firm Bernstein Litowitz Berger & Grossmann, Kessler Topaz Meltzer & Check and Grant & Eisenhofer.

In his September 10th ruling, Justice Ostrager stated:

“There were not exigent circumstances requiring purported class counsel to enter into the [settlement] other than the desire of Deason and Icahn to achieve control of the Xerox board, which purported class counsel facilitated.

“The net result of the actions of the purported class representatives and purported class counsel was to transfer control of a public corporation to Messrs. Deason and Icahn via a private agreement that offered no tangible benefits to the interests of the class.”

Summary

Ultimately, the Xerox shareholders, along with Deason and Icahn, have contended that Xerox management breached its duty by entering into an agreement with Fujifilm. (Editor’s note: this article previously incorrectly stated that the plaintiffs in this case – Xerox Corporation Consolidated Shareholder Litigation – were Deason and Icahn. The 34 other Xerox investors were actually the plaintiffs.) The complete ruling for the case can be found here.

In Justice Ostrager’s opinion,  Xerox investors were not served well by the Deason and Icahn settlement – receiving “nothing of value from it” – a settlement which would have released Xerox directors from liability in their role in the scuttled Fujifilm deal. That means, Xerox investor litigation against Xerox will continue, with another separate investor lawsuit also in the legal system.

Next Step: Ribbe vs. Jacobson

What’s next in the litigation? Xerox investors will continue to litigate against Xerox.

According to Law.com, Eduard Korsinsky, founding partner of Levi & Korsinsky, which represented objecting Xerox shareholder Carmen Ribbe,  Korsinsky’s law firm will “continue to press claims on behalf of Xerox shareholders who were harmed in the deal.” Korsinsky also stated: “We’re gratified that Justice Ostrager saw our point of view, and we look forward to litigating the case on behalf of shareholders of Xerox, who have been damaged considerably.” That case is Ribbe vs. Jacobson, and will be heard on November 19, 2019 (Ribbe appears to be  one of the Xerox investors; while Jacobson appears to refer to former Xerox CEO Jeff Jacobson, who was recently appointed CEO of Electronics for Imaging.)

For its part, in February 2018, Fujifilm filed a lawsuit seeking $1 billion in damages for the termination of the proposed merger. That case is still being actively litigated.

Justice Ostrager, it should be noted, also issued the preliminary injunction in April 2018 that blocked a shareholder vote on the Xerox-Fujifilm proposal – a move that’s said to have effectively led to Xerox’s giving up on  the merger.

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