Kazman v. Frontier Oil Corp.

398 S.W.3d 377, 2013 WL 1244376, 2013 Tex. App. LEXIS 4037
CourtCourt of Appeals of Texas
DecidedMarch 28, 2013
DocketNo. 14-12-00320-CV
StatusPublished
Cited by1 cases

This text of 398 S.W.3d 377 (Kazman v. Frontier Oil Corp.) is published on Counsel Stack Legal Research, covering Court of Appeals of Texas primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Kazman v. Frontier Oil Corp., 398 S.W.3d 377, 2013 WL 1244376, 2013 Tex. App. LEXIS 4037 (Tex. Ct. App. 2013).

Opinion

OPINION

JEFFREY V. BROWN, Justice.

Appellant Sam Kazman appeals the trial court’s final judgment approving a class-action settlement of consolidated shareholder lawsuits challenging the merger of Frontier Oil Corporation and Holly Corporation. In the settlement, the class obtained injunctive relief in the form of additional disclosures regarding the merger, and class counsel received attorney’s fees of $612,500.00. On appeal, Kazman contends that the cash award of attorney’s fees to class counsel violates Texas Rule of Civil Procedure 42(i)(2), which requires that “[i]f any portion of the benefits recovered for the class are in the form of coupons or other noncash common benefits,” then the attorney fees awarded “must be in cash and noncash amounts in the same proportion as the recovery for the class.” For the reasons explained below, we hold that, because the settlement class received only the “noncash common benefit” of in-junctive relief and no cash, Rule 42(i)(2) precludes an award of attorney’s fees in cash to class counsel. We therefore strike the attorney’s fee award and affirm the trial court’s judgment as modified.

I

In February 2011, Frontier Oil Corporation and Holly Corporation1 announced that they had entered into a merger agreement. Under the terms of the merger, Frontier shareholders were entitled to receive 0.4811 shares of Holly common stock in exchange for each share of Frontier common stock they owned just before the merger. All Frontier shareholders of record on a stated date were also entitled to receive a special dividend of $0.28 per share.

Several Frontier stockholders immediately challenged the merger by filing putative class-action lawsuits in Harris County against Frontier, Holly, and Frontier’s board of directors. The lawsuits, which were eventually consolidated, included claims for breach of fiduciary duty and for aiding and abetting breach of fiduciary duty in connection with the merger. ’ In an amended petition, the named plaintiffs (the “class representatives”) alleged that preliminary proxy statements filed with the Securities and Exchange Commission (SEC) failed to disclose to shareholders [380]*380material information concerning the merger. The class representatives sought only injunctive and other equitable relief.

In April, the trial court appointed the law firms of Edison, McDowell & Hether-ington, LLP, and Robbins Geller Rudman & Dowd, LLP, as interim class counsel. Counsel conducted discovery, including reviewing more than 12,000 pages of documents from Frontier and 8,000 pages from Holly, and deposing Frontier’s chief executive officer and representatives of Frontier’s two financial advisors.

After about two months, counsel for the class representatives and defendants engaged in negotiations that resulted in a “Memorandum of Understanding” that ultimately led to a proposed class-action settlement. The Memorandum of Understanding provided that, in exchange for broad releases for all defendants, Frontier and Holly would supplement their proxy statements by making additional disclosures regarding the merger in SEC filings.

According to Kazman, the additional disclosures, consisting of just over 1,300 words, were at best of “marginal” value, citing as examples:

• disclosing that “the merger agreement would include terms which were ‘reciprocal and customary’
• specifying that Holly’s financial advis- or, Morgan Stanley & Co. “considered, inter alia, a specific number of analysts (nine) publishing price targets for both Holly and Frontier, instead of an unspecified number of analysts”;
• specifying that Deutsche Bank Securities, Inc., considered “a specific number of analysts (eleven) publishing price targets, instead of an unspecified number of such analysts”;
• disclosing that Morgan Stanley & Co. “would not receive ‘a portion’ of its fees on announcement and a ‘substantial portion’ on completion, but would receive approximately 30% and 70% respectively’;
• “wordsmithing” of the discounted cash flows analysis provided by Frontier’s financial advisor, Credit Suisse Securities (USA), LLC; and
• including “a table summarizing information that appears elsewhere in the original proxy statement.”

For their part, the class representatives maintain that the disclosures were “clearly material and allowed Frontier shareholders to make a fully informed decision regarding the disposition of their shares.”2

The additional disclosures also mentioned the proposed settlement of the Harris County lawsuits, noting that “[t]he settlement will not affect the amount of merger consideration to be paid in the merger.” At a special meeting of shareholders held shortly after the additional disclosures were made, the Frontier shareholders overwhelmingly voted to approve the merger.

The district court granted preliminary approval of the class-action settlement on October 7, 2011. Beginning in early November, notice was sent to the absent class members informing them of the pending settlement and hearing scheduled for January 6, 2012. In response, only three shareholders objected. These three share[381]*381holders held just 10,350 out of more than 106,750,000 Frontier shares outstanding at the time of the shareholder vote on the merger.

Kazman, one of the objecting shareholders, timely filed a notice of his objection to the proposed class-action settlement in December. The class representatives moved the trial court to approve the settlement over the objections of Kazman and the other unnamed class members. After holding the settlement hearing on January 6, the trial court approved the settlement in an order and final judgment signed that same day. The judgment reflected that the trial court found the settlement to be “in all respects, fair, reasonable and adequate to the Class, and in the best interest of the Class under Rule 42 of the Texas Rules of Civil Procedure.” The trial court further found that the requested attorney’s fees and expenses were “fair and reasonable.” 3

Kazman filed a motion for new trial and a request for findings of fact and conclusions of law, as well as a notice of past due findings of fact and conclusions of law. The trial court did not make findings and conclusions, and Kazman’s motion for new trial was overruled by operation of law.

On appeal, Kazman raises five issues, contending that the trial court erred by finding: (1) Texas Rule of Civil Procedure 42(i)(2) does not preclude the cash award of attorney’s fees; (2) the settlement was fair, reasonable, and adequate; (3) the notice of the proposed settlement was sufficient; (4) the class representatives fairly and adequately protected the interests of the class; and (5) class counsel was entitled to an award of attorney’s fees without conducting a hearing or making findings of fact and conclusions of law regarding the reasonableness and necessity of the attorney’s fees.4 Because we conclude that Kazman’s first issue is dispositive, we do not reach the other issues.

II

The trial court determines whether the substantive and procedural aspects of a class-action settlement are fair, adequate, and reasonable, and whether the settlement was the product of honest negotiations or of collusion. See Gen.

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Bluebook (online)
398 S.W.3d 377, 2013 WL 1244376, 2013 Tex. App. LEXIS 4037, Counsel Stack Legal Research, https://law.counselstack.com/opinion/kazman-v-frontier-oil-corp-texapp-2013.