Grant D. Goodhart III

Current Cases

• CBS Corporation

  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

• Fannie Mae/Freddie Mac

  CASE CAPTION	In re Fannie Mae/Freddie Mac Senior Preferred Stock Purchase Agreement Class Action Litigations
  COURT	United States District Court for the District of Columbia
  CASE NUMBER	Misc. Action No. 13-mc-01288 (RCL)
  JUDGE	Honorable Royce C. Lamberth
  PLAINTIFF	Joseph Cacciapalle
  DEFENDANTS	Federal Housing Finance Agency (“FHFA”), the Federal National Mortgage Association (“Fannie Mae”), and the Federal Home Loan Mortgage Corporation (“Freddie Mac”)

  KTMC represents shareholders in a lawsuit against the Federal Housing Finance Agency (“FHFA”), the Federal National Mortgage Association (“Fannie Mae”), and the Federal Home Loan Mortgage Corporation (“Freddie Mac”) regarding their conduct in connection with the implementation of the Third Amendment to the Senior Preferred Stock Purchase Agreements between Fannie Mae, Freddie Mac, and the United States Treasury, dated August 17, 2012. 

  On September 6, 2008, the FHFA placed Fannie Mae and Freddie Mac into conservatorship.  Acting as conservator, the FHFA then agreed to a Senior Preferred Stock Purchase Agreement (“PSPA”) between each company and the Treasury.  Under each PSPA, Fannie Mae and Freddie Mac issued Senior Preferred Stock to the Treasury in exchange for the Treasury’s commitment to provide funding up to a specified cap.  The principal value of the preferred stock in each of Fannie Mae and Freddie Mac was equal to $1 billion (in exchange for the commitment) plus any dollars actually invested into the company.  The PSPAs generally gave Treasury a dividend equal to 10% per year (if paid in cash) of the amount Treasury invested in the company paid out quarterly with senior priority plus a fee for Treasury’s commitment to invest additional funds if needed.

  Four years later, on August 17, 2012, the Treasury and FHFA agreed to the Third Amendment to the PSPAs (the PSPAs were previously amended twice) under which the 10% dividend was converted into a “Net Worth Sweep” that required Fannie Mae and Freddie Mac to pay the full amount of their net worth to Treasury every quarter. 

  As a result of the Third Amendment to the PSPAs, Plaintiffs allege that it became impossible for private shareholders to ever receive any dividend or liquidation distribution from Fannie Mae and Freddie Mac, regardless of the profitability of the companies.  Plaintiffs allege that the Third Amendment was implemented just as the housing market was recovering and the companies were returning to robust profitability and that the Defendants’ conduct in agreeing to the Third Amendment just as Fannie Mae and Freddie Mac were returning to profitability violated the contractual implied covenant of good faith and fair dealing inherent in Plaintiffs’ stock certificates.

  The case is titled In re Fannie Mae/Freddie Mac Senior Preferred Stock Purchase Agreement Class Action Litigations, No. 13-mc-1288 (RCL) and is pending in the United States District Court for the District of Columbia. 

   A ten-day jury trial is set to begin on October 17, 2022.

Landmark Results

• Alon USA Energy, Inc.

  On October 29, 2021, Chancellor McCormick of the Delaware Court of Chancery approved a $44.75 million settlement to resolve class action litigation concerning the July 1, 2017 acquisition of Alon USA Energy by its controlling stockholder, Delek US Holdings.  Representing the Arkansas Teacher Retirement System, Kessler Topaz brought this class action on behalf of former stockholders of Alon against Delek and Alon’s board of directors.  Through years of discovery, Kessler Topaz built a record demonstrating that Delek abused its power over Alon to secure an unfairly low price in the acquisition.  The case settled just weeks before a June 2021 trial was set to commence.
   

• Apple REIT Ten, Inc.

  This shareholder derivative action challenged a conflicted “roll up” REIT transaction orchestrated by Glade M. Knight and his son Justin Knight. The proposed transaction paid the Knights millions of dollars while paying public stockholders less than they had invested in the company. The case was brought under Virginia law, and settled just ten days before trial, with stockholders receiving an additional $32 million in merger consideration.

• Facebook, Inc.

  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. 

• Kessler Topaz Secures Major Legal Victory in CBS Merger Litigation

  January 29, 2021
• Facebook and Founder Mark Zuckerberg Capitulate To KTMC On Eve Of Trial

  September 22, 2017