DALLAS (CN) – A Texas appeals court tossed out a $1 million settlement for Centex shareholders after finding that the class members were not given a chance to opt out of the offer.
At least four class actions were filed after Dallas-based Centex and its board of directors agreed in April 2009 to receive 0.975 shares of Bloomfield Hills, Mich.-based Pulte for each of its common shares.
Facing claims that the buyout was too low, the parties reached a settlement in January 2010.
But one shareholder, Daniel Rocker, argued that class counsel had “settled for a judgment that provides no benefits whatsoever for class members, but a hefty fee for the lawyers.”
Summarizing those objections, the Fifth District Court of Appeals said: “Rocker contends that the defendants received the benefit of a complete release from all claims, class counsel received attorney’s fees of $1.1 million, and the class representatives received $750 each, ‘while the judgment provided nothing to class members: no money, no coupons, no injunction, no equitable relief, and no declaration of their rights against the defendants; absolutely nothing.'”
Though the companies batted down the damages claims as “wholly untenable and speculative,” they nevertheless “bargained for, and received, a waiver of all unknown claims, including those that would have been material to a class member in making the decision whether or not to object to the settlement,” Justice Martin Richter wrote for a three-member panel.
“And appellees did not establish that any damages released were ‘incidental to the requested injunctive or declaratory relief,’ that is, ‘damages that flow directly from liability to the class as a whole on the claims forming the basis of the injunctive or declaratory relief,’ that might be certified without opt-out rights,” he added.
This unlimited release meant that the companies would have to give class members the right to opt out, the panel concluded.
That offer, however, never happened.
In addition to overturning the settlement and class approval, the court also threw out the cash award of attorneys’ fees.
Under state rules of civil procedure, none of the attorneys’ fees could be awarded in cash if no part of the settlement benefits were in cash.
“Here, if there was no cash recovery for the class, fees could not be awarded in cash, regardless of the value of the benefit to the class,” Richter wrote. “We may not apply an equitable doctrine to achieve a result prohibited by the statute.”