Securities Regulation Daily Objection to disclosure-only settlement came too late
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Monday, July 17, 2017

Objection to disclosure-only settlement came too late

By Anne Sherry, J.D.

A Fifth Circuit panel could not help a unitholder who failed to timely object to a disclosure-only settlement. The unitholder, who was not a party and did not intervene, waived his right to appeal by filing an untimely, procedurally deficient objection. Supreme Court precedent allows a nonnamed class member to secure the right to appeal by filing a timely objection, but does not address untimely objections; here, the unitholder waived his appeal and offered only "lame" excuses for his tardiness (Aron v. Crestwood Midstream Partners L.P., July 17, 2017, Jolly, E.).

Disclosure-only settlement. The district court for the Southern District of Texas approved a zero-dollar settlement in a lawsuit stemming from a merger between two Delaware limited partnerships. The settlement secured attorney fees for counsel but disclosures only for the class. Such "disclosure-only" settlements have attracted some controversy, with Delaware’s chancery court finding in Truliathat a settlement lacked consideration. The chancery court vowed to scrutinize the "give" and "get" of disclosure settlements more closely in the future, and the Seventh Circuit followed suit with Walgreen.

The settlement here secured disclosure of financial projections that had been omitted from the proxy statement; it also entitled the class representative to conduct discovery and terminate the settlement if he determined it was not fair. Finally, the LPs agreed not to oppose the class representative’s application for attorney fees of up to $575,000. In return, the class representative agreed to a release of claims. The district court set a fairness hearing and required that notices be sent to class members. The court’s order specifically stated that it would consider only objections submitted in accordance with the procedures detailed therein.

Settlement approved despite late objection. No objections were filed prior to the objection deadline. The appellant filed his objection about two weeks past the deadline and asserted good cause for its untimeliness: that he received the notice two months after it was dated and the objection deadline coincided with his European vacation. He urged the district court to follow Trulia and Walgreen to reject the settlement. The fairness hearing focused on this objection, and the district court interrogated counsel at length about concerns over disclosure-only settlements, but the court approved the settlement, concluding that "everybody believes that the attorneys’ fees are fair and warranted in this particular case."

Waived appeal. The appellant timely appealed, but the Fifth Circuit concluded that it lacked appellate jurisdiction. Devlin v. Scardelletti(U.S. 2002) carved out an exception to the rule that only parties (or intervenors) to a lawsuit may appeal an adverse judgment. Under this exception, nonnamed class members who timely objected to approval of the settlement at the fairness hearing may bring an appeal without first intervening. The Court stated that its holding does not apply to untimely objections, which "implicates basic concerns about waiver." Indeed, the Fifth Circuit determined that the appellant waived his right to appeal by filing an untimely, procedurally deficient objection.

The fact that the district court considered the merits of the objection did not cure the waiver problem. While it examined the subject matter of the objection, the court did not indicate that it was overlooking the objection’s procedural defects and certainly did not hold that the appellant had good cause for failing to timely object. Furthermore, waiver of appellate rights does not turn on how a district court handles a late or deficient objection.

The appellant also failed to convince the court that the class representative was required to move to strike the objection. The case on which he relied did not touch on the rights of a nonparty to appeal a district court’s judgment, nor did it address appellate jurisdiction as such in any other way. "In sum," the court concluded, the appellant’s "reasons for his several failures are lame." Taking his vacation "may well have seemed like a good idea at the time," but "choices have consequences." Only those who file timely objections can take advantage of the exception carved out by Devlin.

The case is No. 16-20742.

Attorneys: Thomas Emerson Bilek (Bilek Law Firm, L.L.P.) for Isaac Aron. Michael Conrad Holmes (Vinson & Elkins LLP) for Crestwood Midstream Partners, L.P. and Crestwood Midstream GP, L.L.C.

Companies: Crestwood Midstream Partners, L.P.; Crestwood Midstream GP, LLC

MainStory: TopStory MergersAcquisitions Proxies LouisianaNews MississippiNews TexasNews

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