The court stated that the settlement provided members of the proposed class "nothing of real value" and that the class would be better off with the legal right to pursue its claims and any other claims arising out of the tender offer. The court acknowledged the contention by plaintiffs' counsel that plaintiff had obtained independent verification that the price paid shareholders in the tender offer was fair, and thus that while the settlement "puts no additional money in class members' pockets" it does provide "reassurance that the price they received is 'not unfair.'" The court stated that this benefit is of "little value," that it was not satisfied that plaintiffs' counsel had adequately investigated the merits of the suit, and that the settlement has "earmarks of a non-arm's length, 'politely' collusive settlement: one providing a nonpecuniary benefit of very little value to shareholders and a fairly substantial award of attorneys' fees to plaintiffs' counsel for a modest amount of work."
The court added the following observations:
Another consideration, which has recently received significant congressional attention, is the reduction of exposure of corporate defendants to securities class actions of little merit, otherwise known as "strike suits." Admittedly, disapproving the settlement presented here deprives defendants of a release from claims arising out of the tender offer and, should the current plaintiff (or another) decide to pursue these claims, exposes them to further expense, which is a significant concern if plaintiff's claims have as little merit as the parties would now lead the Court to believe. Certainly, $200,000 in the context of a $1.4 billion transaction is a small price to pay for immunity, particularly when compared to the costs of defending against a suit alleging securities fraud.
This goal, however, is not furthered by approving settlements that provide quick, easy money to plaintiffs' attorneys and nothing to shareholders. A practice of rubber stamping settlements of dubious merit that give attorneys significant fee awards but do not require defendants to contribute anything will, in the long run, encourage the filing of more frivolous suits. Moreover, it may reduce the deterrent value of lawsuits: "the ultimate danger is that the corporate law-breaker will know that, even if detected, it can bribe the plaintiff's attorney - who represents the real threat of financial sanction - through the medium of the nonpecuniary settlement coupled with a high fee award."
(quoting John C. Coffee, Jr., Rescuing the Private Attorney General: Why the Model of the Lawyer as Bounty Hunter is Not Working, 42 Md. L. Rev. 215, 246 (1983)).