Frequently Asked Questions
- What is the lawsuit about?
- What is a Derivative Claim?
- What happened in the case before the Settlement?
- What are the terms of the Proposed Settlement?
- What are the reasons for the Settlement?
- What attorneys’ fees and expenses will be paid?
- What will happen at the Settlement Hearing?
- What if I disagree with the Settlement?
- What is the effect of the Court’s Approval of the Proposed Settlement?
- How do you get more information about the lawsuit and the Proposed Settlement?
In August 2009, the first derivative complaint was filed in the Northern District of Illinois. In September 2009, another, similar shareholder action was filed in the same court. The two cases were later consolidated into the single action entitled Robert Booth Trust v. William Crowley, No. 1:09-cv-05314 (the "Lawsuit"). On October 13, 2009, Plaintiffs filed an Amended Consolidated Verified Derivative Complaint (the "Complaint") against the Individual Defendants and nominally against Sears.
The Lawsuit makes claims on behalf of Sears against the following present and former directors of Sears: William C. Crowley ("Mr. Crowley"), Edward S. Lampert ("Mr. Lampert"), Steven T. Mnuchin, Richard C. Perry, Ann N. Reese ("Ms. Reese"), Kevin B. Rollins, Emily Scott, and Thomas J. Tisch (collectively referred to as the "Individual Defendants").
The Complaint alleged that two directors of Sears, Mr. Crowley and Ms. Reese, committed violations of Section 8 of the Clayton Antitrust Act ("Section 8"). Section 8 prohibits individuals from serving at the same time as directors of corporations which compete with each other. This situation is sometimes referred to as having "interlocking directors." The antitrust laws prohibit the boards of competing companies from sharing directors because such interlocks can potentially lead to conduct that results in the stifling of competition between the companies. Director interlocks are only unlawful, however, if the competing companies sharing a director have at least a certain percentage of competing sales. The Complaint alleged that Crowley’s board service violated Section 8 because Sears, AutoZone and AutoNation competed for sales of automobile parts and service.
The parties to the Lawsuit disagree about whether the companies alleged to have interlocking directors - Sears, AutoZone and AutoNation as to automobile parts and services, and Sears and Jones Apparel Group as to women’s clothing and footwear - compete for sales to the same market of consumers in amounts large enough to make them subject to Section 8’s interlocking director rules.
2. What is a Derivative Claim?
A derivative claim is a claim brought by a shareholder on behalf of the company, rather than on behalf of the shareholders of the company. The recovery sought in a derivative action is for the benefit of the company rather than directly for individual shareholders.
3. What happened in the case before the Settlement?
The parties and the Court devoted considerable resources to this case before the Settlement was reached. Plaintiffs’ counsel conducted an extensive investigation before filing the case. The Defendants moved to dismiss the amended complaint on the ground that Plaintiffs were required to make a written, pre-suit demand on Sears’ current board, asking the Board to take action. Plaintiffs filed a brief opposing dismissal. After considering the briefs of both parties and the applicable law, the Court denied the motion to dismiss.
Plaintiffs then moved the Court for a preliminary injunction, to prevent the Sears Board from nominating Mr. Crowley and Ms. Reese for re-election to the board at the next Annual Shareholders Meeting. Plaintiffs asked the Defendants to produce numerous categories of documents to enable Plaintiffs to prepare for a hearing on this motion. Sears provided Plaintiffs’ lawyers with more than a thousand pages of responsive documents, which Plaintiffs’ counsel reviewed, as well as written answers to questions posed by Plaintiffs’ counsel concerning the matters in dispute.
After evaluating the strengths and weaknesses of their respective positions, and mindful of the expense and uncertainty of protracted litigation, the parties agreed to engage in initial discussions regarding a possible settlement. The Parties reached a Memorandum of Understanding setting forth the settlement, subject to further discovery. The Defendants then provided Plaintiffs’ attorneys with additional relevant documents. Plaintiffs’ attorneys also took the depositions of Ms. Reese and Mr. Crowley. After researching the applicable law, evaluating the results of their investigation, reviewing the documents obtained from Defendants, and questioning Mr. Crowley and Ms. Reese under oath, Plaintiffs’ attorneys concluded that a settlement on the terms described in the Notice was in the best interest of Sears and its shareholders.
4. What are the terms of the Proposed Settlement?
The primary objective of the Lawsuit was to eliminate the alleged Section 8 violation resulting from Mr. Crowley and Ms. Reese’s service on the Sears Board. As a result of the proposed settlement, Mr. Crowley did not stand for re-election to the Sears Board at the annual meeting of shareholders held on May 4, 2010, and will cease serving as an executive officer of Sears. This agreement will end his board membership and completely cure the alleged Section 8 violation that resulted from his interlocking board service. The Defendants have also agreed to guidelines governing Ms. Reese’s service on the Sears Board. You can read the Guidelines here. These guidelines will require Ms. Reese to remove herself from board meeting discussions concerning the operation of Sears’ women’s apparel and footwear businesses, except to the extent necessary to exercise her fiduciary duty as a director and as a member of the Sears Board’s audit committee, and from voting on such matters. Sears or its attorneys are required to report to Plaintiffs’ counsel on the steps taken to carry out the Guidelines. Plaintiffs’ and their attorneys believe that the limitations on Ms. Reese’s board service proposed in the Settlement address the underlying concerns of Section 8, namely, avoiding the potential for anti-competitive conduct, such as price fixing, monopolization, and attempts to injure the businesses of companies that might compete against Sears and Jones Apparel.
The Guidelines will also require Sears Board member Edward Lampert, who also serves as Chairman and Chief Executive Officer of ESL, to remove himself from Board discussions concerning the operations of Sears’ auto parts and auto repair service businesses, except to the extent necessary to exercise his fiduciary duty as a director, and voting on such matters.
In addition, Sears has agreed to changes in its board composition that Plaintiffs and their attorneys believe will foster the goals of Section 8. One of the concerns arising from Mr. Crowley’s board service was his employment by ESL, a company which has investment interests in many companies, including AutoZone and AutoNation. As part of the Settlement, the Defendants have agreed that any person not currently on the Sears Board or an officer of Sears who is nominated in 2010 to serve as a director will be an independent director who is not employed by ESL and who is not an officer or director of any Sears competitor in the apparel, footwear, automotive parts, or automobile repair services businesses. Defendants have also agreed that Sears will add at least one such independent director to its Board at or before its 2011 annual meeting of shareholders. Plaintiffs will have the right to withdraw from the settlement if any nominee does not meet the criteria provided for in the Settlement.
5. What are the reasons for the Settlement?
The Plaintiffs, the Defendants and Sears each believe that the proposed Settlement is fair, reasonable and adequate, and is in the best interests of Sears and its current shareholders. The Settlement removed Mr. Crowley from the Sears Board entirely and placed limitations on Ms. Reese’s board service to eliminate any potential anti-competitive effect from her alleged interlocking board memberships. In addition, the Settlement will require Sears to add an independent director to the Board. Even if Plaintiffs had prevailed at a trial, they could not have forced Sears to add such a director to its Board; this beneficial relief could only be achieved through a Settlement. Likewise, the Settlement requires Mr. Lampert to remove himself from Board discussions of the operation of Sears’ auto parts and service business. This relief was not sued for in the Lawsuit and was only obtained through the Settlement.
The Company believes that the Settlement provides substantial benefits to the Company, including assisting in the prevention and detection of potential violations of law, regulation or Company policy and is in the best interests of Sears and its current shareholders. The Company further believes that the Settlement allows Sears to avoid expensive and time-consuming litigation the outcome of which was uncertain and to maintain Ms. Reese, a highly-experienced independent director who is chair of the audit committee, on the Board.
In agreeing to settle the case, Sears and the Individual Defendants are not admitting that they did anything wrong. They have denied and continue to deny each and every allegation of liability and wrongdoing on their part and contend that the claims asserted against them in the Complaint are without merit. The Individual Defendants deny that they have breached any duty, violated any law, or engaged in wrongdoing of any form.
6. What attorneys’ fees and expenses will be paid?
The Plaintiffs are represented by Kenneth J. Vianale, Vianale & Vianale LLP; Matthew T. Hurst, Susman Heffner & Hurst LLP; and Ronen Sarraf and Joseph Gentile, Sarraf Gentile LLP.
Plaintiffs retained their attorneys on a contingent fee basis. In a contingent fee case, the attorneys only get paid if the case is resolved successfully. The Plaintiffs’ attorneys have not been paid anything for their legal services. Plaintiffs’ attorneys have paid all of the expenses to prosecute the Lawsuit, for which they have not yet been reimbursed.
An additional term of the Settlement is the parties’ agreement that Plaintiffs’ counsel will seek an award of attorneys’ fees for their work on the prosecution and settlement of the Lawsuit and reimbursement of expenses, which in total will not exceed $925,000. Sears has agreed not to oppose a request for attorneys’ fees and expenses up to $925,000. Plaintiffs’ Counsel will also seek permission from the Court to pay the Plaintiffs awards of up to $750 for their contribution to the case. The case contribution awards would be paid out of any attorneys’ fees awarded by the Court. The award of attorney’s fees and reimbursement of expenses and the payment of a case contribution award are subject to approval of the Court.
7. What will happen at the Settlement Hearing?
The Settlement Hearing on the proposed Settlement of this lawsuit has been rescheduled to a new date: September 10, 2010 before the Honorable Ronald A. Guzmán in Courtroom 1219, 219 South Dearborn Street, Chicago, Illinois 60604. The Court must determine whether to approve the Settlement and the payment of attorneys’ fees and expenses to Plaintiffs’ attorneys. If you are satisfied with the outcome of the lawsuit as described in the notice that was previously mailed to you, you do not need to do anything. You may attend the hearing, but you are not required to do so.
8. What if I disagree with the Settlement?
If you are a shareholder of Sears as of the date of the Settlement Hearing and you wanted to object to any feature of the Settlement, you must have done so in writing by August 20, 2010. If you filed your objection in a timely manner, you also may, if you wish, attend the hearing and speak to the Court about your objection. If you wrote to the Court with an objection, you do not need to also go to the hearing. The Court will read and consider your written objection whether you are at the hearing or not.
| Court |
Plaintiffs' Counsel |
| Clerk of the Court United States District Court Northern District of Illinois Everett McKinley Dirksen United States Courthouse 219 South Dearborn Street Chicago, Illinois 60604 |
Kenneth J. Vianale, Esq. VIANALE & VIANALE LLP 2499 Glades Road, Suite 112 Boca Raton, Florida 33431 Tel.: (561) 392-4750 |
The date of the Settlement Hearing may be changed without further notice to Sears shareholders. If you or your lawyer intends to attend the Settlement Hearing, you should confirm the date and time with Plaintiffs’ counsel.
9. What is the effect of the Court’s Approval of the Proposed Settlement?
The Stipulation gives a full description of the terms for dismissal of the Settled Claims. The following is only a summary. If the Court approves the Settlement, on the date the Judgment approving the Settlement becomes Final (as defined in the Stipulation), the Releasing Parties (which includes Plaintiffs and all Sears shareholders) will fully, finally and forever release all Released Claims against the Released Parties.
The "Releasing Parties" means the Plaintiffs (individually, and derivatively on behalf of Sears), Sears, to the extent a derivative claim was properly brought, and the Sears shareholders and any of their heirs, executors, attorneys, administrators, predecessors, successors, and assigns, and all Persons acting in concert with any of the aforementioned persons and entities.
The "Released Parties" are Sears, to the extent that it may be subject to a direct claim, the Individual Defendants (collectively, the "Settling Defendants"), and each and all members of their families, parent entities, affiliates, or subsidiaries, and each and all of their respective past, present, or future officers, directors, employees, attorneys, accountants, auditors, heirs, executors, personal representatives, estates, administrators, predecessors, successors, and assigns.
The "Released Claims" are any and all claims, demands, rights, remedies, or causes of action, whether based on federal, state, local, statutory, common or foreign law or any other law, rule, regulation, or principle of equity, whether known or unknown, including without limitation Unknown Claims, whether suspected or unsuspected, whether contingent or non-contingent, whether accrued or unaccrued, whether or not concealed or hidden, whether factual or legal, and for any remedy whether at equity or law, that were or that could have been asserted from the beginning of time through the Effective Date against the Released Parties in the Amended Complaint, or by any Sears shareholder claiming in the right of, or on behalf of, Sears arising out of or related, directly or indirectly, in any way to any of the facts, allegations, transactions, events, occurrences, acts, disclosures, statements, omissions, failures to act, or matters set forth, referred to, or that could have been alleged in the Amended Complaint. By operation of the Judgment, the Releasing Parties shall have waived any and all provisions, rights, and benefits conferred by any law of any state or territory of the United States, or principle of common law, which is similar, comparable, or equivalent to California Civil Code § 1542. "Unknown Claims" means any Released Claims that the Plaintiffs (individually, and derivatively on behalf of Sears), Sears, or any Sears shareholder does not know or suspect to exist in his, her, or its favor at the time of the release of the Released Parties that, if known by him, her, or it might have affected his, her, or its settlement with, and release of, the Released Parties, or might have affected his, her, or its decision not to object to this Settlement, including claims based on the discovery of facts in addition to or different from those which he, she, or it now knows or believes to be true with respect to the Released Claims. The Settling Parties further agree that the Released Claims constitute an express waiver of all rights and protections to the fullest extent permitted by California Civil Code § 1542 and all similar federal, state, or foreign laws, rights, rules, or legal principles. Section 1542 states:
A general release does not extend to claims which the creditor does not know or suspect to exist in his or her favor at the time of executing the release, which if known by him or her must have materially affected his or her settlement with the debtor. Upon final approval of the Settlement, all Releasing Parties will be enjoined and barred from bringing any Released Claims against any of the Released Parties.
Upon final approval of the Settlement, all Releasing Parties will be enjoined and barred from bringing any Released Claims against any of the Released Parties.
10. How do you get more information about the lawsuit and the Proposed Settlement?
The Stipulation of Settlement, including the proposed Final Judgment attached to the Stipulation as Exhibit A, sets forth the complete terms of the Settlement. You can view the Stipulation here. You can view other relevant documents filed in connection with the Settlement of the Lawsuit by inspecting the papers filed in the Lawsuit at the office of the Clerk of Court, United States District Court for the Northern District of Illinois, Everett McKinley Dirksen United States Courthouse, 219 South Dearborn Street, Chicago, Illinois 60604, during normal business hours or by requesting a copy of the relevant documents from Plaintiffs’ counsel. If you have questions about the Settlement, you can contact Plaintiffs’ counsel listed above.
