The opinion of the court was delivered by: Honorable David H. Coar
MEMORANDUM OPINION AND ORDER
This is a multi-district litigation consisting of three cases: Blau, et al. v. Harrison, et al., No. 04 C 6592 (or "Blau"); Hyland v. Harrison et al., No. 06 C 4675 (or "Hyland I"); and Hyland v. J.P. Morgan Securities Inc., No. 06 C 4674 (or "Hyland II"). The lead plaintiffs of each case have joined in a motion to approve the parties' global settlement (the "Settlement"), and intervenor Patrick Sherlock has filed his objections. For the following reasons, the motion to approve the settlement is DENIED.
The Blau, Hyland I, and Hyland II complaints are premised on an allegation that the defendants failed to disclose in the proxy statement soliciting votes for the 2004 merger between JPMorgan Chase & Co. ("JPMC") and Bank One Corporation ("Bank One"), that William Harrison, the then-CEO of JPMC, rejected an offer from James Dimon, the then-CEO of Bank One, to structure the deal as a zero-premium, stock-for-stock transaction, with Dimon as CEO of the combined company upon consummation. That purported offer had been reported in a June 27, 2004 article in The New York Times entitled "The Yin, the Yang and the Deal," which cited as sources "two people close to the deal"; articles in The Financial Times and The Wall Street Journal reported similar accounts. In their complaint, the plaintiffs alleged that Harrison had rejected the offer and agreed instead to a deal with a 14% premium (worth approximately $7 billion) so that he could retain his position as CEO for two years.
Despite two years of discovery, including reviewing more than 445,800 pages of documents, issuing interrogatories, deposing multiple current and former JPMC executives, and subpoenaing numerous third parties, the lead plaintiffs' attorneys represent that they have not found evidence to corroborate independently the newspapers' accounts. Rather, the merger-related documents produced by defendants show that (1) Dimon sought a premium throughout the merger negotiations; (2) Harrison resisted paying a premium until the final stages of the negotiations; and (3) the two had reached an agreement on succession issues before their final negotiations on pricing.
That account is consistent with JPMC's response to an interrogatory that "[a]t no time did Dimon make an offer to proceed with the merger for no premium or a lower premium to Bank One shareholders in exchange for Dimon becoming CEO or Chairman of the merged company immediately." The director defendants, too, deny knowledge of any similar offer. As do four JPMC executives, including two senior executives from its media relations department who had the most contact with Landon Thomas, the author of the New York Times article, and who had arranged and/or attended Thomas's interviews with Dimon and Harrison. Walter Shipley, the former CEO of JPMC, whom Harrison had consulted about the merger, and Steven Black, one of two co-CEOs of J.P. Morgan Securities and a longtime close friend of Dimon, also denied knowledge of the offer.
Failing independently to uncover anyone with knowledge of the alleged offer, the plaintiffs attempted to obtain the names of the sources cited in the publications that had reported the offer. Although Blau's counsel subpoenaed the journalists, each newspaper refused to name their sources, and Thomas himself has not volunteered the names. The plaintiffs say it would be "nearly impossible" to override the journalists' assertions of privilege in court.
The lack of a "smoking gun" is not the plaintiffs' only trouble. They note that, even if the alleged offer was made, they would have the burden of showing that it was material. On this score, they've found no evidence to contradict the defendants' assertion that, even if Dimon had made the alleged proposal, it was not a viable offer. They say that no evidence suggests that the board of directors and the shareholders of JPMC and Bank One, respectively, would have approved a no-premium merger with Dimon as the immediate CEO.
The steepest hurdle, according to the plaintiffs, is proving damages. They argue that the Seventh Circuit's method for calculating damages in a Section 14(a) case would not offer them much relief. They posit that damages would be awarded only if the merger was unfair, see Mills v. Elec. Auto-Lite Co., 552 F.2d 1239, 1247-48 (7th Cir. 1977), and they note that far higher premiums have been tendered in comparable mergers between large financial institutions, including Bank of America's payment of a 40% premium in favor of Fleet Boston when they merged. They add that JPMC's stock price did not drop significantly in the wake of the merger announcement, even though the stock price of an acquirer frequently falls after a stock-for-stock acquisition is announced.
As a result of these weaknesses, the plaintiffs attempted first to negotiate with defendants a monetary settlement. Defendants refused, so the Blau plaintiffs next considered a "corporate therapeutics" settlement. Blau's counsel retained Professor Jeffrey N. Gordon, the Alfred W. Bressler Professor of Law at Columbia Law School and Co-Director of the Columbia Center for Law and Economic Studies, who collaborated with counsel in drafting terms for a corporate therapeutics settlement.
JPMC was willing to agree to the proposed reforms, and so on December 7, 2007, Blau's counsel entered into a Stipulation of Settlement. The parties held off on seeking court approval of the settlement while the parties in Hyland I & II participated in mediation before Judge Nicholas H. Politan (D.N.J.)(Ret.). That mediation led to an agreement to settle the Hyland cases on terms substantially the same as the Blausettlement, with two modifications: (1) the settlement would be conditioned upon confirmatory discovery-including deposing Dimon and Harrison; and (2) a clause concerning the ability of the Board and/or the Designated Committee to modify the methods by which they would fulfill their duties was removed. The parties then agreed to enter into a global settlement that incorporated these changes.
After undergoing confirmatory discovery, the lead plaintiffs represent that the depositions of Dimon and Harrison failed to yield any evidence to support the allegation of a material no-premium offer. Specifically, Dimon and Harrison-who had at least five private meetings during the merger negotiations, and who alone have personal knowledge of the content of those negotiations-both testified under oath that the alleged offer was not made.
Accordingly, the parties moved for preliminary approval of the Settlement, which this court ...