Wednesday, September 14, 2005

Second Circuit Allows Privately Held Stock To Share in Settlement

Here’s a tip for the next time you find yourself drifting off while you’re crafting that settlement agreement. Make sure you define who the investors are. Think saying “purchasers of common stock” is enough? Well, if you do, you had better listen to this if you want to keep out of hot water.

After the Olsten litigation settled, a guy named Riedinger, who happens to be the nephew of Olsten's founder, sent in a claim form for his class B common stock (that is not traded on a public market). Why not? The Panel noted that “the Settlement Agreement drew no distinction between Olsten's two classes of common stock: Common Stock and Class B Common Stock.” Uh-oh, Spaghettios, this isn't going to be good. The Second Circuit, in reversing the District Court, said “Looking only at the face of the contract, as we must, we perceive no ambiguity in the term ‘common stock.’ The Agreement states that ‘persons and entities that purchased shares of common stock of Olsten Corporation’ during the Class Period are class members. We further note that the drafters of the Settlement Agreement could have, but did not, draw distinctions among common stockholders. Given that equity issuers frequently divide common stock into classes, and given the Trustee's conceded awareness that Olsten had more than one class of common stockholders, it would have been easy to specify in the Agreement which classes of common stockholders, if any, were meant to be excluded.”

So will the other class members' (including the lead plaintiff), claims be diluted by this? Not clear yet, but it’s certainly seems possible, as the Second Circuit said Riedinger’s stock (which was “worth more than $ 7 million at the time of closing”) will have to be valued by “the district court and Claims Administrator.”

Bet you're awake now.

You can read Waldman v. Reidinger, issued September 12, 2005, at 2005 U.S. App. LEXIS 19590.

Nugget: “Moreover, the Trustee's act of sending Riedinger notice of the settlement and a blank proof of claim is inconsistent with the Trustee's contention that Class B Common Stock shareholders were never intended to be class members.”

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