June 13 (Reuters) - A federal appeals court on Wednesday put
the kibosh on a shareholder antitrust suit against the board
members of Sears Holding Corp, finding that the suit only served
to enrich the plaintiffs' lawyers.
The ruling from the Chicago-based U.S. Court of Appeals for
the 7th Circuit marks the latest victory for Ted Frank, of the
Center for Class Action Fairness, who argued that the suit was
an abuse of the legal system and conferred no benefit on Sears
shareholders at large. The 7th Circuit agreed.
"The only goal of this suit appears to be fees for the
plaintiffs' lawyers," Judge Frank Easterbrook wrote for a
unanimous three-judge panel.
Several law firms, including Vianale & Vianale, filed the
proposed class action on behalf of two named investors in 2009.
The derivative suit accused two Sears directors of holding
positions on the boards of several competing companies, in
violation of federal antitrust law.
Given the high cost of litigating an antitrust suit, Sears
reached a settlement with the investor plaintiffs, agreeing to
get rid of one of the directors and pay $925,000 to the
Frank, who specializes in challenging class action
settlements, argued that the resolution was a raw deal for Sears
shareholders, costing them legal fees and a director they had
recently re-elected. The deal also would not prevent someone
else from filing a copycat suit, given that one of the two
targeted directors would remain on the Sears board. What's more,
the problem of interlocking boards is usually resolved when the
Department of Justice or the Federal Trade Commission asks a
company to fix the violation.
Frank, himself a Sears shareholder, asked to intervene in
the case to block the settlement, but the Illinois district
court refused, finding that the plaintiff investors adequately
represented the interests of Frank and the other shareholders.
On appeal, the 7th Circuit panel reached the opposite
conclusion, finding the interests to be "entirely incompatible."
The panel sent the case back to the district court, with
instructions to allow Frank to intervene and to rule in favor of
the Sears defendants.
"The suit serves no goal other than to move money from the
corporate treasury to the attorneys' coffers, while depriving
Sears of directors whom its investors freely elected,"
Kenneth Vianale, a lawyer for the plaintiff investors, did
not immediately respond to a request for comment.
Frank described the decision as an important win that would
help clamp down on shareholder derivative suits that primarily
serve to generate fees for the plaintiffs' lawyers.
"Attorneys don't just get to show up and represent
themselves. They represent a class. If they're not working for
the benefit of the shareholders, they don't meet the adequacy
requirement of the federal rules and should not be allowed to
prosecute the case," Frank said.
Sears welcomed the ruling. "We believe it vindicates our
position from the outset as to the lacking merits of the case,"
said lawyer for Sears Paul Vizcarrondo of Wachtell, Lipton,
Rosen & Katz.
The case is Frank v. Robert F Booth Trust et al, U.S. Court
of Appeals for the 7th Circuit, No 10-3285.
For Robert F Booth Trust et al: Kenneth Vianale of Vianale &
For the Sears defendants: Paul Vizcarrondo of Wachtell,
Lipton, Rosen & Katz.
(Reporting By Terry Baynes)
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