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Eric L. Zagar

Partner

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Eric L. Zagar, a partner of the Firm, co-manages the Firm’s Mergers and Acquisitions and Shareholder Derivative Litigation Group, which has excelled in the highly specialized area of prosecuting cases involving claims against corporate officers and directors.  

Since 2001, Eric has served as lead or co-lead counsel in numerous shareholder derivative actions nationwide and has helped recover billions of dollars in monetary value and substantial corporate governance relief for the benefit of shareholders.

Speaking Engagements

Eric has been a featured speaker on shareholder derivative litigation at national and international conferences, including the Rights & Responsibilities of Institutional Investors in Amsterdam, Netherlands, the Practicing Law Institute’s Annual Securities Regulation Institute in San Francisco, California, and the American College of Business Court Judges Annual Meeting in Chicago, Illinois. 

Experience

Ongoing Cases

  •   CASE CAPTION          In re Cardinal Health, Inc. Derivative Litigation
      COURT   United States District Court for the Southern District of Ohio
      CASE NUMBER   Case No. 2:19-cv-02491
      JUDGE   Honorable Sarah D. Morrison
      PLAINTIFF   Stanley Malone and Michael Splaine
      DEFENDANTS   Current and former members of Cardinal’s board of directors

    Plaintiff seeks to hold Cardinal Health’s directors and officers responsible for its role in the opioid crisis.  Plaintiff alleges that Cardinal’s board and certain officers ignored numerous “red flags” that should have alerted them to the company’s failure to abide by opioid distribution laws. 

    The action began in July 2019, when Cardinal Health shareholders represented by Kessler Topaz served a demand upon Cardinal Health’s board to access the Company’s records related to its opioid distribution practices. After reviewing thousands of pages of confidential, board-level documents, plaintiffs commenced their derivative action on December 13, 2019. Defendants moved to dismiss the complaint.  After briefing and oral argument, the Court denied defendants’ motion to dismiss on February 8, 2021. 

    Ohio law required plaintiff to plead that a majority of the board faced a substantial likelihood of liability that they “‘ignore[d] ‘red flags’” that Cardinal was not in compliance with laws and regulations requiring it to prevent the unlawful diversion of controlled substances.  In reaching its decision to allow the action to proceed, the court relied heavily on the board-level documents summarized in the complaint regarding the board’s reaction to mounting scrutiny by the Company’s principal regulators. Because of plaintiffs’ pre-suit investigation, the complaint described “no fewer than 53 specific instances in which the Board or one of its relevant committees met to discuss, or was otherwise notified of important information related to, compliance risks or issues in Cardinal Health’s distribution of prescription opioids.”  Even after the Company paid significant sums of money to settle multiple claims from regulators, the board members continued to sit on their hands, and essentially ignored the unlawful conduct. Crediting plaintiffs’ assertion that the board was more concerned with public relations than legal compliance, the court highlighted relatively recent board minutes that include “extensive discussion of a public relations strategy for ‘reorienting’ the narrative” without any discussion of the “track-record or effectiveness” of Cardinal Health’s internal controls.

    Since defeating the motion to dismiss, Plaintiff has been engaged in document discovery.

    Read Plaintiffs’ Consolidated Verified Shareholder Derivative Complaint Here

    Read Opinion and Order on the Motion to Dismiss Here

  • CASE CAPTION In re CBS Corporation Stockholder Class Action and Derivative Litigation
    COURT Delaware Court of Chancery
    CASE NUMBER Consolidated C.A. No. 2020-0111-JRS
    JUDGE Honorable Joseph R. Slights
    PLAINTIFF Bucks County Employees Retirement Fund
    DEFENDANTS ViacomCBS, Inc., Joseph Ianniello, Candace K. Beinecke, Barbara M. Byrne, Gary L. Countryman, Brian Goldner, Linda M. Griego, Martha L. Minow, Susan Schuman, Frederick O. Terrell, Strauss Zelnick, Thomas J. May, Judith A. McHale, Ronald Nelson, Nicole Seligman, National Amusements, Inc., NAI Entertainment Holdings LLC, Shari E. Redstone, Robert N. Klieger and the Sumner M. Redstone National Amusements Trust

    Plaintiff challenges the 2019 merger of CBS Corporation and Viacom Corporation (the “Merger”), alleging that the Merger was orchestrated by Shari Redstone, the controlling stockholder of both CBS and Viacom.  Plaintiffs allege that the Merger was the culmination of a years-long effort by Shari Redstone (“Redstone”) to combine the two companies in order to save the floundering Viacom, despite the lack of economic merit of the Merger and the opposition of CBS directors and stockholders alike. Plaintiffs alleged that Redstone wrested control of NAI (the holding company that controls CBS and Viacom) from her ailing father Sumner Redstone, and twice previously attempted to merge CBS and Viacom and failed. The first time she was rebuked by the CBS board of directors, after which she publicly proclaimed that “the merger would get done,” even if Redstone had to “use a different process.”

    Two years later, Redstone was back at it, attempting to force a CBS-Viacom merger. This time the CBS board was so concerned that Redstone would force a merger over their objections, that they took the “extraordinary” measure of attempting to dilute her control of CBS to protect CBS and its stockholders from her influence. After hard-fought, expedited litigation, a settlement was reached that resulted in the CBS board turning over, and the addition of six new directors hand-picked by Redstone. Importantly, Redstone and NAI also agreed that they would not propose that CBS and Viacom merge for a period of two years following the settlement.

    Nonetheless, only four months after the settlement, Redstone again caused the new CBS board to evaluate a merger with Viacom. Redstone sidelined carry-over directors who opposed her, and enticed CBS’s acting CEO Joseph Ianniello (who previously opposed the Merger) to support her with a hefty compensation package. The Board approved the Merger in August 2019, and it closed on December 4, 2019.

    Plaintiff commenced the action by seeking documents pursuant to 8 Del. C. § 220, which allows stockholders to review a company’s “books and records.”  After reviewing these materials, Plaintiff filed its complaint on February 20, 2020.  Plaintiffs allege that the Merger forced the poorly performing Viacom on CBS and destroyed value for CBS and its stockholders for NAI’s benefit. The Court appointed Plaintiff and another stockholder to lead the case on March 31, 2020.  Defendants moved to dismiss.  On January 27, 2021, the Court denied the motion, in a 157-page opinion containing references to diverse sources as Rolling Stone magazine, Game of Thrones author George R.R. Martin, and Greek mythology. 

    Since February 2021, Plaintiff has been engaging in document and deposition discovery.  At the same time, Plaintiffs are coordinating their efforts with former Viacom stockholders who assert the opposite of what Plaintiffs allege, namely that the Merger underpaid them. 

    A ten-day trial is set to commence on April 17-28, 2023. 

    Read Plaintiffs’ Verified Consolidated Class Action and Derivative Complaint Here

    Read Memorandum Opinion on the Motion to Dismiss Here

  •   CASE CAPTION   In re Tesla Motors, Inc. Stockholder Litigation
      COURT   Delaware Court of Chancery
      CASE NUMBER   Consol. C.A. No. 12711-VCS
      JUDGE   Honorable Joseph R. Slights
      PLAINTIFF   Arkansas Teacher Retirement System (“ATRS”)
      DEFENDANTS   Elon Musk

    Plaintiff challenges the $2.1 billion acquisition of SolarCity, Inc. by Tesla Motors, which closed on November 21, 2016 (the “Acquisition”).  Plaintiff alleges that the Acquisition was essentially a bailout of the financially struggling SolarCity, which was founded and run by Elon Musk’s cousins. At the time of the acquisition, Elon Musk was chairman of both boards of directors and the largest stockholder of both Tesla and SolarCity. Plaintiff alleges that Musk proposed the Acquisition in an effort to save SolarCity from going bankrupt, and the rest of Tesla’s board of directors approved the Acquisition despite knowing that it was not in Tesla’s best interests.

    On October 19, 2016, ATRS and KTMC were appointed co-lead plaintiffs and co-lead counsel.  On March 9, 2017, plaintiffs filed a consolidated complaint, naming Musk and the other Tesla directors as defendants.  On March 28, 2018, the Court denied defendants’ motion to dismiss the case. Plaintiffs then took discovery, including reviewing 3 million pages of documents and taking 22 fact and expert depositions.  Trial was originally set for March 16, 2020.  After two mediation sessions, on January 22, 2020 plaintiffs agreed to settle the case for $60 million against all of the defendants except Elon Musk.  On February 4, 2020, the Court denied motions for summary judgment.  On August 17, 2020, the Court approved the partial settlement and set the case for trial against Elon Musk alone.  On March 13, 2020, the Court adjourned the trial because of the COVID-19 pandemic.

    Plaintiffs tried the case as a bench trial before the Court from July 12 to July 23, 2021.  Plaintiffs called Elon Musk, his brother (Tesla board member) Kimbal Musk, and three expert witnesses in their case-in-chief.  Plaintiffs cross-examined Musk’s 13 fact and expert witnesses.  At trial, Plaintiffs sought to prove that Musk breached his fiduciary duties to Tesla by proposing the Acquisition and pushing it through, while knowing that SolarCity was worth nowhere close to the $2.1 billion Tesla paid for it.  Plaintiffs also sought to prove that Tesla stockholders who voted to approve the Acquisition were not given true information about Musk’s involvement in the Acquisition negotiations or SolarCity’s true financial condition, among other things.  After hearing witness testimony, the Court adjourned the trial for post-trial briefing.

    The parties filed opening post-trial briefs on October 1, 2021, and will file response and reply briefs on November 19 and December 17, 2021.  Post-trial oral argument will take place on January 18, 2022.  The Court will then likely take the matter under advisement, and typically will issue a written decision within 90 days.  

    Read Second Amended Verified Class Action and Derivative Complaint Here

    Read Memorandum Opinion on the Motion to Dismiss Here

    Read Memorandum Opinion on the Motions for Summary Judgment Here 

    Read Plaintiffs’ Opening Post Trial Brief Here

Representative Outcomes

  • On October 5, 2021, Vice Chancellor Glasscock of the Delaware Court of Chancery approved a $110 million settlement against John Malone and other former members of GCI Liberty Inc.’s board of directors in a case involving a challenge to the telecom holding company’s merger with its affiliate, Liberty Broadband Corp.  The outstanding result was in addition to substantial equitable relief obtained via the parties’ November 21, 2020 settlement of plaintiffs’ suit to preliminarily enjoin the merger.

    On behalf of plaintiff Sheet Metal Workers’ Local Union No. 80 Pension Trust Fund, KTMC had brought a class action alleging that Malone and CEO Greg Maffei used their super-voting shares to opportunistically merge the companies in an all-stock deal at a time when the exchange ratio was tilted in their favor due to market volatility created during the Covid-19 pandemic.  After weeks of expedited discovery, the defendants issued new disclosures and drastically altered the previously announced terms of the deal by agreeing to convert the super-voting shares into shares of one-vote common stock, so that Malone and Maffei would no longer obtain special treatment resulting in outsized control of the post-merger company.  Subsequently, plaintiffs amended their complaint and successfully pursued monetary relief to correct for the unfair merger price that resulted from Malone’s previously undisclosed, improper leveraging of his control position.

    KTMC counsel were Eric Zagar, Matthew Benedict, and Daniel Baker.

  • In re Comverse Technology, Inc. Derivative Litigation, Index No. 601272/06 (N.Y. Sup. Ct.)

    KTMC served as Co-Lead Counsel in a stockholder derivative action brought for the benefit of Comverse Technology, Inc. (“Comverse”) to remedy a years-long stock option “backdating” scheme that unfairly enriched Comverse executives, including founder/Chairman/CEO Jacob “Kobi” Alexander, who notoriously fled to Namibia to escape prosecution.  After significant investigation and litigation, we negotiated a settlement that required Alexander and certain other executives to disgorge more than $62 million in ill-gotten assets and overhauled the company’s corporate governance and internal controls. Among other things, the new measures replaced a number of directors and corporate executives, split the Chairman and CEO positions, and instituted majority voting for directors.

  • Kessler Topaz represented an individual stockholder who asserted in the Delaware Court of Chancery class action and derivative claims challenging merger and recapitalization transactions that benefitted the company’s controlling stockholders at the expense of the company and its minority stockholders.

    Plaintiff alleged that the controlling stockholders of Erickson orchestrated a series of transactions with the intent and effect of using Erickson’s money to bail themselves out of a failing investment. Defendants filed a motion to dismiss the complaint, which Kessler Topaz defeated, and the case proceeded through more than a year of fact discovery. Following an initially unsuccessful mediation and further litigation, Kessler Topaz ultimately achieved an $18.5 million cash settlement, 80% of which was distributed to members of the stockholder class to resolve their direct claims and 20% of which was paid to the company to resolve the derivative claims. The settlement also instituted changes to the company’s governing documents to prevent future self-dealing transactions like those that gave rise to the case.

  • Just one day before trial was set to commence over a proposed reclassification of Facebook's stock structure that KTMC challenged as harming the company's public stockholders, Facebook abandoned the proposal.

    The trial sought a permanent injunction to prevent the reclassification, in lieu of damages. By agreement, the proposal had been on hold pending the outcome of the trial. By abandoning the reclassification, Facebook essentially granted the stockholders everything they could have accomplished by winning at trial.

    As background, in 2010 Mark Zuckerberg signed the "Giving Pledge," which committed him to give away half of his wealth during his lifetime or at his death. He was widely quoted saying that he intended to start donating his wealth immediately.

    Facebook went public in 2012 with two classes of stock: class B with 10 votes per share, and class A with 1 vote per share. Public stockholders owned class A shares, while only select insiders were permitted to own the class B shares. Zuckerberg controlled Facebook from the IPO onward by owning most of the high-vote class B shares.

    Facebook's charter made clear at the IPO that if Zuckerberg sold or gave away more than a certain percentage of his shares he would fall below 50.1% of Facebook's voting control. The Giving Pledge, when read alongside Facebook's charter, made it clear that Facebook would not be a controlled company forever.

    In 2015, Zuckerberg owned 15% of Facebook's economics, but though his class B shares controlled 53% of the vote. He wanted to expand his philanthropy. He knew that he could only give away approximately $6 billion in Facebook stock without his voting control dropping below 50.1%.

    He asked Facebook's lawyers to recommend a plan for him. They recommended that Facebook issue a third class of stock, class C shares, with no voting rights, and distribute these shares via dividend to all class A and class B stockholders. This would allow Zuckerberg to sell all of his class C shares first without any effect on his voting control.

    Facebook formed a "Special Committee" of independent directors to negotiate the terms of this "reclassification" of Facebook's stock structure with Zuckerberg. The Committee included Marc Andreeson, who was Zuckerberg's longtime friend and mentor. It also included Susan Desmond-Hellman, the CEO of the Gates Foundation, who we alleged was unlikely to stand in the way of Zuckerberg becoming one of the world's biggest philanthropists.

    In the middle of his negotiations with the Special Committee, Zuckerberg made another public pledge, at the same time he and his wife Priscilla Chan announced the birth of their first child. They announced that they were forming a charitable vehicle, called the "Chan-Zuckerberg Initiative" (CZI) and that they intended to give away 99% of their wealth during their lifetime.

    The Special Committee ultimately agreed to the reclassification, after negotiating certain governance restrictions on Zuckerberg's ability to leave the company while retaining voting control. We alleged that these restrictions were largely meaningless. For example, Zuckerberg was permitted to take unlimited leaves of absence to work for the government. He could also significantly reduce his role at Facebook while still controlling the company.

    At the time the negotiations were complete, the reclassification allowed Zuckerberg to give away approximately $35 billion in Facebook stock without his voting power falling below 50.1%. At that point Zuckerberg would own just 4% of Facebook while being its controlling stockholder.

    We alleged that the reclassification would have caused an economic harm to Facebook's public stockholders. Unlike a typical dividend, which has no economic effect on the overall value of the company, the nonvoting C shares were expected to trade at a 2-5% discount to the voting class A shares. A dividend of class C shares would thus leave A stockholders with a "bundle" of one class A share, plus 2 class C shares, and that bundle would be worth less than the original class A share. Recent similar transactions also make clear that companies lose value when a controlling stockholder increases the "wedge" between his economic ownership and voting control. Overall, we predicted that the reclassification would cause an overall harm of more than $10 billion to the class A stockholders.

    The reclassification was also terrible from a corporate governance perspective. We never argued that Zuckerberg wasn't doing a good job as Facebook's CEO right now. But public stockholders never signed on to have Zuckerberg control the company for life. Indeed at the time of the IPO that was nobody's expectation. Moreover, as Zuckerberg donates more of his money to CZI, one would assume his attention would drift to CZI as well. Nobody wants a controlling stockholder whose attention is elsewhere. And with Zuckerberg firmly in control of the company, stockholders would have no recourse against him if he started to shirk his responsibilities or make bad decisions.

    We sought an injunction in this case to stop the reclassification from going forward. Facebook already put it up to a vote last year, where it was approved, but only because Zuckerberg voted his shares in favor of it. The public stockholders who voted cast 80% of their votes against the reclassification.

    By abandoning the reclassification, Zuckerberg can still give away as much stock as he wants. But if he gives away more than a certain amount, now he stands to lose control. Facebook's stock price has gone up a lot since 2015, so Zuckerberg can now give away approximately $10 billion before losing control (up from $6 billion). But then he either has to stop (unlikely, in light of his public pledges), or voluntarily give up control. There is evidence that non-controlled companies typically outperform controlled companies.

    KTMC believes that this litigation created an enormous benefit for Facebook's public class A stockholders. By forcing Zuckerberg to abandon the reclassification, KTMC avoided a multi-billion dollar harm. We also preserved investors' expectations about how Facebook would be governed and when it would eventually cease to be a controlled company.

    KTMC represented Sjunde AP-Fonden ("AP7"), a Swedish national pension fund which held more than 2 million shares of Facebook class A stock, in the litigation. AP7 was certified as a class representative, and KTMC was certified as co-lead counsel in the case. The litigation at KTMC was led by KTMC attorneys Lee Rudy, Eric Zagar, J. Daniel Albert, Grant Goodhart, and Matt Benedict.

  • On October 5, 2021, Vice Chancellor Glasscock of the Delaware Court of Chancery approved a $110 million settlement against John Malone and other former members of GCI Liberty Inc.’s board of directors in a case involving a challenge to the telecom holding company’s merger with its affiliate, Liberty Broadband Corp.  The outstanding result was in addition to substantial equitable relief obtained via the parties’ November 21, 2020 settlement of plaintiffs’ suit to preliminarily enjoin the merger.

    On behalf of plaintiff Sheet Metal Workers’ Local Union No. 80 Pension Trust Fund, KTMC had brought a class action alleging that Malone and CEO Greg Maffei used their super-voting shares to opportunistically merge the companies in an all-stock deal at a time when the exchange ratio was tilted in their favor due to market volatility created during the Covid-19 pandemic.  After weeks of expedited discovery, the defendants issued new disclosures and drastically altered the previously announced terms of the deal by agreeing to convert the super-voting shares into shares of one-vote common stock, so that Malone and Maffei would no longer obtain special treatment resulting in outsized control of the post-merger company.  Subsequently, plaintiffs amended their complaint and successfully pursued monetary relief to correct for the unfair merger price that resulted from Malone’s previously undisclosed, improper leveraging of his control position.

    KTMC counsel were Eric Zagar, Matthew Benedict, and Daniel Baker.
     

  • In 2006, the Wall Street Journal reported that three companies appeared to have “backdated” stock option grants to their senior executives, pretending that the options had been awarded when the stock price was at its lowest price of the quarter, or even year. An executive who exercised the option thus paid the company an artificially low price, which stole money from the corporate coffers. While stock options are designed to incentivize recipients to drive the company’s stock price up, backdating options to artificially low prices undercut those incentives, overpaid executives, violated tax rules, and decreased shareholder value.

    Kessler Topaz worked with a financial analyst to identify dozens of other companies that had engaged in similar practices, and filed more than 50 derivative suits challenging the practice. These suits sought to force the executives to disgorge their improper compensation and to revamp the companies’ executive compensation policies. Ultimately, as lead counsel in these derivative actions, Kessler Topaz achieved significant monetary and non-monetary benefits at dozens of companies, including:

    Comverse Technology, Inc.: Settlement required Comverse’s founder and CEO Kobi Alexander, who fled to Namibia after the backdating was revealed, to disgorge more than $62 million in excessive backdated option compensation. The settlement also overhauled the company’s corporate governance and internal controls, replacing a number of directors and corporate executives, splitting the Chairman and CEO positions, and instituting majority voting for directors.

    Monster Worldwide, Inc.: Settlement required recipients of backdated stock options to disgorge more than $32 million in unlawful gains back to the company, plus agreeing to significant corporate governance measures. These measures included (a) requiring Monster’s founder Andrew McKelvey to reduce his voting control over Monster from 31% to 7%, by exchanging super-voting stock for common stock; and (b) implementing new equity granting practices that require greater accountability and transparency in the granting of stock options moving forward. In approving the settlement, the court noted “the good results, mainly the amount of money for the shareholders and also the change in governance of the company itself, and really the hard work that had to go into that to achieve the results….”

    Affiliated Computer Services, Inc.: Settlement required executives, including founder Darwin Deason, to give up $20 million in improper backdated options. The litigation was also a catalyst for the company to replace its CEO and CFO and revamp its executive compensation policies.

  • Served as lead counsel on behalf of the Mississippi Public Employees’ Retirement System in an action alleging that the Board of Directors of Viacom, Inc. (Viacom) breached its fiduciary duties by paying excessive and unwarranted compensation to Executive Chairman and CEO, Sumner M. Redstone, and co-COOs Thomas E. Freston and Leslie Moonves, at a time when the company was suffering record losses.

    Specifically, in 2004, when Viacom reported a net loss of $17.46 billion, the Board improperly approved compensation payments to Redstone, Freston, and Moonves of approximately $56 million, $52 million, and $52 million, respectively. Under a settlement reached in 2007, Executive Chairman and controlling shareholder Redstone agreed to a new compensation package that substantially reduced his annual salary and cash bonus, and tied the majority of his incentive compensation directly to shareholder returns.

Publications

A Review of Options Backdating Settlements and Corporate Governance, 2 Journal of Securities Law, Regulation & Compliance 236 (2009)