Following the recall of millions of vehicles equipped with malfunctioning Takata air bag inflators (the so-called “PSAN Inflators”), TK Holdings, Inc. and certain of its affiliates (the “Debtors”) filed for chapter 11 bankruptcy protection in June 2017 to effectuate the sale of substantially all of their non-PSAN Inflator assets to Joyson KSS Auto Safety, S.A. and certain of its subsidiaries or affiliates as part of a global sale of the non-PSAN Inflator assets of the Debtors’ ultimate parent, Takata Corporation. The United States Bankruptcy Court for the District of Delaware, the Court overseeing the Debtors’ bankruptcy proceedings, appointed Roger Frankel as the legal representative for Future Claimants – i.e. those individuals who sustain personal injuries after the filing of the bankruptcy arising from or related to PSAN Inflators or their component parts manufactured by the Debtors or their affiliates prior to the effective date of a chapter 11 plan of reorganization in the Debtors’ bankruptcy cases. Mr. Frankel selected, among others, Ashby & Geddes to represent him as the Future Claimants’ Representative in the proceedings.
Following expedited and contested complex restructuring proceedings, a global settlement was reached in February 2018 among all key stakeholders, including the Future Claimants’ Representative, and embodied in the Fifth Amended Joint Chapter 11 Plan of Reorganization of TK Holdings Inc. and Its Affiliated Debtors (the “Plan”), which was confirmed by the Court on February 21, 2018. The Plan contemplates the creation and funding of a trust – the “PSAN PI/WD Trust” – that will assume responsibility for present and future “PSAN PI/WD Claims” asserted against the Debtors and certain third-parties, and is expected to be funded with approximately $130 million of contributions, subject to possible additional contributions from various sources. The Plan is expected to go effective in early April.
Ashby & Geddes Bankruptcy and Insolvency attorneys William P. Bowden, Karen B. Skomorucha Owens, and Katharina Earle and Corporate and Commercial Litigation and Counseling attorneys Philip Trainer, Jr. and Catherine A. Gaul represent Mr. Frankel in the Debtors’ bankruptcy proceedings.
The Delaware Supreme Court Issues Key Opinion on Shareholder Standing to Challenge Stock Options
On May 30, 2008, the Delaware Supreme Court issued its opinion in the case of Feldman v. Cutaia, and provided further guidance on the nature of direct and derivative stockholder claims. The decision is certain to play a key role in the continued development of Delaware corporate jurisprudence on shareholder litigation.
In Feldman, the plaintiff initially raised several derivative claims alleging that stock options issued by The Telx Group, Inc. to certain defendants (represented by Ashby & Geddes) were invalid. Following a cash-out merger with an unrelated third-party, which extinguished his standing to maintain those derivative claims, the plaintiff amended his complaint. The plaintiff purported to add a direct claim challenging the merger on the grounds that the company had not reconsidered the validity of the challenged options before approving a merger transaction in which the holders of the options would participate in the distribution of the merger proceeds. The defendants moved to dismiss, and the Court of Chancery granted the motion finding, among other things, that the plaintiff lacked standing as plaintiff’s asserted claims were derivative rather than direct. On appeal, the Supreme Court, relying on settled authority, affirmed the Court of Chancery and concluded that the plaintiff’s challenges to the merger were, in fact, derivative in nature and, therefore, had been properly dismissed by the Court of Chancery for want of standing. In so doing, the Court further clarified the distinction between direct and derivative shareholder claims under Delaware law.
This opinion is significant for its discussion of the standard by which shareholder claims are characterized as derivative or direct. That threshold determination is critical as it will often dictate whether a plaintiff may maintain a cause of action following a merger. A team of Ashby & Geddes attorneys from the Corporate Litigation and Counseling practice group, including Stephen E. Jenkins, Richard L. Renck and Andrew D. Cordo, represented defendants Rory J. Cutaia, Jonathan Lawrence and J. Todd Raymond in this action. The case is Feldman v. Cutaia, No. 466, 2007 ( Del. May 30, 2008) (read the opinion here).