No Cash for the Class, No Cash for Counsel

In 2009, a class of shareholders challenged the stock-for-stock merger between Centex Corp. and Pulte Homes, charging that the board breached its fiduciary duties by failing to obtain an adequate price for the shareholders.  As often happens, the parties quickly settled, and Centex and Pulte agreed to disclose additional information about the merger in the proxy statements.  While the settlement provided class counsel with a hefty cash payment of attorneys’ fees, the shareholder’s reward was simply more information.

Rocker raised several objections to the settlement, but his most salient objections were (1) that the settlement’s release was too broad because it waived all known and unknown claims without granting the shareholders an opportunity to opt-out; and (2) that class counsel could not recover their attorneys’ fee in cash, when the class received only injunctive relief.  The Court credited both of Rocker’s arguments.  Regarding the first, the Court held that “[i]f appellees require a ‘limitless release,’ then due process requires that class members be afforded the option to be excluded from the class.” Regarding the second, it found that “if there is no cash recovery for the class, fees could not be awarded in cash, regardless of the value of the benefit to the class.”    The Court then remanded the case to the trial court for further proceedings.

Rocker v. Centex Corp, No. 05-10-00903