Sign Delaware Banking Claim Later

Industry sign banking delaware claim later

[Music] even students of corporate law probably know generally what the charles dickens novel bleak house is about a lawsuit jar dice and jarnice that lasted for 40 years consuming an entire estate and legal expenses students of corporate law also know about the case of cd versus technicolor although they may not fully appreciate its similarities to the lawsuit in bleakhouse so let's look at cd versus technicolor by the numbers duration of the litigation over 22 years from 1983 to 2005. two trials the first one lasting 47 days the second nine days or 56 days in all six appeals to the delaware supreme court 5 resulting in reversal at stake 201 200 shares merger price 23 dollars per share final valuation 28 dollars and 41 cents per share for a net recovery of 5.41 cents per share total recovery in addition to the merger price and without interest about 1.1 million dollars estimated legal fees and expenses 20 million dollars the two delaware lawyers at the forefront of the technicolor litigation tom allingham of skadden arp slate mar and phlom council for technicolor and arthur dent of potter anderson and karun counsel for the plaintiff cinerama were just young lawyers when they got involved with the case so tom how did you end up involved in this case i was afraid you'd ask me that um i i i came to delaware at morris nichols because it was the only job offer i had coming out of law school as a function of my poor law school performance um and i was there for six years and then joined skaden in february late february of 1983 i was hired by a partner named steve rothschild um and i don't know my third or fourth day at skadden he walked into my office and said well you better start getting to work here's this case technical or i don't know very much about it so it was my first case in delaware as a scada lawyer so the the merger took place uh the facts giving rise to the merger took place in the fall of 1982 and it was uh the transaction closed and the the merger closed in january of 1983 and i think the appraisal petition was filed sometime in the spring i was i started law school in 1983 and i graduated took the bar in 1986 and started at the firm right after labor day by that point much of the discovery and events that we're going to talk about today had had occurred gary greenberg from new york lawyer had teamed up with bob payson and and peter sigloff from my firm and have been engaged in that discovery against tom and and his folks so i started in in the fall of 1986. in january i think it was january of 1987 so i was brand new that's when i got involved i remember peter sigloff coming to my office i'm going to say january early february and asking if i would like to get involved in this case and that's how i got involved this is now years after tom had been involved of course and so you started essentially as a first year associate and lived the whole rest of the case yes i started after the case had been around for four years and just stuck around with the next 20 for the 17 or 18 years after that mr dent's co-counsel from new york gary greenberg led the case on the cenorama side from the beginning he exemplified the intensity of this long-simmering case in his dealings with the trial judge chancellor william t allen and opposing counsel i also think that that my sense was there was not a great dynamic between the chancellor and gary um i never really got the sense the chancellor was all that fond of gary and gary is he could be off-putting at times and i think he sort of got under the chancellor's skin and i don't think that helped us so we were talking tell me the story of the last day of trial this is very delaware we finished the 47th day of trial and i had promised dave margulies who was the senior associate on the case that his will he and his wife and my wife and i would go to dinner at the silk purse i'd take them out to dinner and we so we walked into the restaurant and sat down and we were having a couple of cocktails and the door opens and in walked gary greenberg arthur dan sylvia silver shapiro shapiro and uh pizza and they sat down at a table that was 10 feet away which was maybe a little uncomfortable but fine but i think everyone was glad the trial was over and had a few cocktails and gary got up at some point and walked over the table and i introduced him to my wife and said this gary greenberg you've heard so much about and gary looked at my then wife and said we all love tom even though he is a no good lying so much and i you asked me and i've never been sure whether that was a joke or not it was a long trial on the other side the man who engineered the acquisition of technicolor by mcandrews and forbes ronald does not describe himself as a soft touch i am the world's most tenacious human being on the planet on the planet and probably the most impatient and late to get things done quickly and and smartly and very rarely reach the point of giving up my first wife once said to me you kick a dead horse and tell it to get its ass up moving and i think that that one comment described me more accurately than anything else they've ever heard about me still the case that cenorama and its principles james cotter and michael foreman initiated was hardly a full-scale attack it was just an appraisal case a simple dispute about value and maybe not even much of a dispute about that why did it start as an appraisal petition do you know what what how the case came to be the way it started my recollection is that gary and jim cotter called bob sometime reasonably close to the date of the the shareholder meeting which would have been late january he was i don't think bob was called uh until you know relatively less to the vote so i don't know looking at it cold back then there was a sense that there was anything there other than a potential appraisal action i do know that folks thought that the one-hour photo sort of venture that board cameraman had led the company into within the year before the transaction had had a big impact on the price to press the price um and i think there was a sense that um in an appraisal um the the value of the company would be to be significantly higher i don't think i don't think then we had an inkling of of potential liability from our perspective though there is there is there's the question of appraisal or liability case there's also the question of why you would file an appraisal at all right there was a cryptic handwritten note in the record and i'm dredging this this up from 20 something years ago um but which we believed and i and there was someone on our side that i talked to about this uh the note appeared to suggest that either jim cotter or mike foreman the cinerama guys had told somebody on our side that they were happy with the price but they wanted to get long-term capital gains and that the only way he could do that was by filing an appraisal to delay the receipt of the proceeds whatever cinerama's motivation might have been for starting the litigation the case didn't seem a likely target for asserting breach of fiduciary duty as chancellor allen explained the important thing to remember about this case well almost nothing but at the time the important thing to remember about this case was it was a an arms length transaction and it was accomplished prior to the date when revlon was decided no one had an incentive not to get the best price and indeed the ceo was an active intelligent guy who was invested in the company it was not an mbo transaction it was selling for nines he'd gotten 23 or 24. on a superficial analysis this was a pretty good deal uh if you're starting from fundamentals you should say this was a business judgment case and for almost three years the case continued as an appraisal case with no suggestion of liability for breach of fiduciary duty the appraisal petition filed in march 1983 the fiduciary the fraud case filed in january 1986 and it was the discovery that changed the change the the nature of it this is before you before you joined the firm but what so from your standpoint and then and then art from from what you know what happened you have a plain old appraisal case going doing a lot of discovery but so there were three depositions that i think mattered one was fred sullivan's deposition in which facts that arthur's client thought led to conclusions of insider trading and a fee originally scheduled to come from mcandrews but which at the very late in the deal was changed to come from technicolor so that was one um but i think both of those facts i'm now dredging up my memory i think both of those facts were disclosed in the proxy statement but i think gary gary appeared excited when he when he got the testimony about that the second one um was mort cameron the ceo um that was not so much exciting to gary because there was some self-interest in fact cameraman's interest aligned very well and with the shareholders he had a lot of shares in technicolor um but cameraman was not happy to be in the deposition and presented himself as it's not going too far to say an arrogant or patronizing witness not a personality type that is going to mesh well with gary who could on his own be arrogant or patronizing from time to time well yeah we see in the in the cinerama briefs mention the cameraman would rather been swimming or he did at one point during the deposition say um i think gary said is there some problem mr cameron and he said on the whole i'd rather be swimming he also at one point said the truth is transitory which was prominently fake it wasn't everyone ever breathed i think it was in fact it was a frontal piece anyway um but i don't think and arthur can correct me but i don't think the the liability case would have been filed without the third deposition which was the last director taken charles simone and it was one of the worst experiences of my professional life the story of the deposition of charles simone one of technicolor's directors is central to how the technicolor case mushroomed into delaware's version of jarndyce and jarndice and tom allingham recounted it in painful detail i think it was taken in december of 1985. i had been told by several partners that i was on track to be made partner when skadden makes partners on april fool's days which is i'm sure symbolic in some way but um but everything is fine and so i'm i'm defending these direct these director depositions and thinking to myself well you can't screw that up it's an appraisal case um but the last deposition was charles simone so i called him and said i'd like to come and prepare you for your deposition and he said no i don't think that would be a good idea and i said well you know i could let you know what the other directors have been asked and give you a sense of how the process goes and he said no thank you i thought okay so uh at the time gary's offices he shared offices with his sister who i think was a designer or something like that and the offices were in a beautiful old new york department store i think it was bergdorf's but a beautiful old building but the conference room in their office was a tall cylindrical room that i've always referred to when i described it as a missile silo you walk in and there was a circular stone table and these and everything echoed because it was circular so i was sitting there by myself thinking i just got to get through this one and then i'll turn to something else and the door opened and gary walked in with charles simone which i thought was not a good eye not not a good sign for me and the first question was do you recall the events of october 29 1982 which was the day of the board meeting and simone said yes i do and i have a statement that i would like to read into the record and i thought well this is not going as well as i hoped so he then read a statement into the record that described the board meeting in terms that were stunning he said the entire transaction was a shock to every person in the room that he had protested that he knew lots of people who would like to buy technicolor that he had been told to sit up and shut sit down and shut up um uh that he didn't know half the people in the room that no one introduced themselves to him that all of a sudden after he was told to sit down and shut up someone he didn't know who called for a vote and everyone raised their hands and said yes except i charles simone said i oppose this transaction at which point the doors at the end of the room burst open and pearlman walked into the room looking like a mafia chieftain or something i don't know and said we have with his hands in the air we have one we have won and to celebrate this great victory i invite you all to lunch at lucerk so it's okay and this took quite a while i mean it was a long big legal path so gary said no further questions [Music] so i said well you know it's getting on toward 11 o'clock why don't we break for lunch and ran across the city of new york and called steve ross child who had not been involved in the case for a couple of years and said you're not going to believe this here's what happened what should i do and there's a little pause and then he said i think you should cross-examine so i ran back across to bergdorf and went back to the missile silo and cross-examined so moan and it turned out that there was a lot to cross-examine him about the minutes of the october 29 meeting recorded that he had voted for the transaction the minutes of the next meeting recorded that he had voted to approve the minutes of the october 29 meeting he testified that he had reviewed the proxy statement and saw that it was a unanimous vote but he had decided he was going to bring that up at the shareholder meeting not correct them in the proxy a lot of things and then he also testified about some stuff that was a little crazier like he either off the record or on the record i can't remember but i think it was on the record he testified that he had been awarded the french legion of honor medal for helping to end the war in vietnam he had a lot of documents with him as he prepared his written statement which he would not give to me and when we concluded the first session of the deposition i said to gary you know you got it he's got to give me these documents because this is this is a written statement that he probably used right into the record and gary called me the next day and said okay you can have a new deposition of charles but it has to be at his house in cold spring harbor on long island um so we all trooped up to cold spring harbor and the great story about that deposition was that we got there at i don't know 10 o'clock in the morning and the door door opened a beautiful gracious um he simone was i think 80. but his wife opened the door and said please come in welcome to our home we sat sat down i still remember this beautiful chippendale dining room table um and mrs simone said would anyone like some coffee tea or a bloody mary and one of one of the lawyers who shall remain nameless and keep them coming and with that remarkable turn of events charles simone's testimony turned a relatively small stakes appraisal case into a lawsuit that would last almost 20 more years and importantly defined the law of fiduciary duty we thought there was a real legitimate issue here about whether or not charles voted against it and and the reason that was so important and it's laid out in the opinions but the reason it's so important was there was a super majority provision in the technicolor charter that required as i recall two-thirds vote for a merger if it was unanimously approved by the board if it was not unanimously approved there was an even super majority a 90 requirement and even with the share the lock shares that were that the company agreed to sell to perlman and the directors agreed to sell their shares to perlman even with all those shares he only got about 89 percent of the shares and so if in fact charlie simone voted against under the technicolor charter the transaction was void because they didn't get the 90 percent that would have been required in in the situation where the board was not unanimous so it was a critical fact and we believe charlie cinorama's lawyers also felt that the discovery revealed other flaws in the merger and the stockholder vo e involving technicolor's ceo mort cameron and its president art ryan when you coupled that with sort of the testimony with regard to you know word cameraman's testimony and he didn't remember anything but what we did get out of the other discovery was was that he negotiated the price he did it on his own he didn't have any input from goldman sachs at the time it was you know he asked for 25 when ron said 20 so without any without any reference to sort of any sort of uh he didn't ask the bank he didn't have a banker yet he didn't get a banker to go in and tell him here's where we should end up sort of a thing when you couple that and a lot of the other evidence we really thought we had a good liability case even if we even if we didn't succeed on the void of an issue argument which was true also tom mentioned the depositions the other deposition i would add that we thought was pretty important was art ryan um because we really thought art ryan's testimony really bolstered a lot of what we were saying about cameraman being sort of difficult running the show and not letting anybody just having had it it was his way of the highway sort of thing and there was a huge rift between ryan and and cameraman so cameron i mean ryan's testimony was very helpful we also thought the testimony from ryan really demonstrated that there really was he really had an interest that was undisclosed in the in the you know in the in the proxy with regard to in information he was getting from the back channel that would lead you to conclude lead him to think he had a chance of running technicolor after the fact which he did and self-interest wasn't the only arrow in cinerama's quiver with some reservations it vigorously drew on the recent precedent in smith versus van gorkum to make a case that technicolor's directors breached their duty of care so a year later was there a conscious effort do you think to to pattern this in a van gorkum sort of way for the court the fiduciary action i think it's probably fair to say we compared it the case to van gorkum and we believed that this case was um the facts were were strong a stronger case than van gorkman um so we had that road map um and it sort of it helped sort of uh help helped sort of us outline sort of where we wanted to go but i mean the facts were the facts right um so we had directors who came to a meeting not knowing what it was about we had mort cameron negotiating price before talking to anybody else we had sullivan negotiate conducting insider trading as soon as he knew first time he met with with perlman about a potential transaction we had sullivan trying to angle to get sort of a finders fig at least that's how we we saw it um you know we had there were enough facts there to you know and we had a meeting that took place in you know in two hours the company wasn't shopped the the legal advisor said what he wanted he thought he would like to see it chopped and it wasn't we had goldman sachs prepared lbo analyses um at a number that was uh higher than the 23 cameraman didn't want to do an lbo and just tamp that down from our perspective so we had a lot of those facts some of those facts were similar to the van gorkum situation i will tell you that i we were all concerned although van gorkum in a way sort of gave us a road map it also gave us a lot of pause because what happened with van gorkum 102b7 and the you know a lot of people were really really concerned after van gorkham that was the first time where the court had imposed liability on directors and there was there was this hue and cry in delaware even as they knew a young associate i was feeling that liability on non-self-interested directors and so our fear was that even though we had what we thought was a case that was as good as if not better than transunion van gorkum the fear was going to be the court was going to say we can't do this again so soon and so no matter how good our case was we feared that there was going to be this real reluctance to you know to to do this again because there was such a negative reaction around the country from that decision which again ultimately led to the 102b7 statutory provision one of the oddities of the technical or fiduciary duty case is that it was brought solely on behalf of cinerama which at least theoretically made the case easier to settle than a case brought on behalf of the class of all technicolor minority stockholders and one oh this is hopefully near the end of the questions before you appear on the scene why wasn't the fraud action filed as a class action today we would expect a merger challenge like that to be a class action i don't know why it wasn't originally i know there was an effort to find a class action plaintiff someone the reason that i know the reason why we didn't our client we didn't file as a class action on behalf of our folks we thought because we had filed an appraisal action we would not be deemed an adequate class representative and we thought we weren't going to take the chance of of getting kicked out on that basis we did look as a young associate i remember having this conversation with gary and peter there was another lawyer in town who i won't mention but another firm in town that we talked to about trying to find someone they thought they might have someone we wanted to find someone who had been a stockholder but didn't seek appraisal um and and didn't end up didn't end up coming up with uh with a plaintiff i don't know how much effort was put into it but i know that it was discussed and i know that we talked to somebody here did anyone reach out to the sort of big players i don't know the answer to that but there was discussion about it um but that's why we didn't choose to to bring in as a class action on behalf of the people we already represented from our perspective it was interesting it seemed to us that the threat of a class action was much better for arthur's client than a class action because once a class action was filed it would be much harder to settle individually with cinerama and so the danger from our perspective was that um some class action would get filed which would make it impossible to settle the cinerama and would open us up to the to the very real possibility of having to pay a premium to everybody of course the case never did settle and after the first of six decisions by the delaware supreme court ruling that the case could proceed simultaneously as an appraisal case and a breach of fiduciary duty case the case went to trial in october of 1989 for 47 days a record for the court of chancery that still stands so why was the trial 47 days long uh un undisciplined novice council on the technical side uh um i think actually i think in a nicer way i think that is look most of us had didn't try cases in those days um it was a very unusual occurrence for um trials to occur at all in chancery i think and and um i don't know about arthur but it was my first i when i started morris nichols i did a lot of personal injury work my first year and i did a bunch of trials but they were nothing like this um and i don't think i tried a case i tried one case after that so that was you know this was 19 [Music] 11 years after i graduated from law school so i had not tried very many cases i don't think gary had tried very many cases but i don't know and the chancellor was not i don't believe experienced in trying cases so we all came into it this is again just my opinion but we came into it with the chancery court's customer service mindset um you know i will do whatever the parties and the and the lawyers think need to be done and we'll get it done right and we'll do a great job and i think bill allen was the epitome of that kind of a model of look i'm not gonna i'm not i'm not gonna break any nonsense but if i think that you're sincerely and in good faith asking for something i'll try to give it to you and from our perspective this the case had been fought very very hard and fought on the facts very very hard and there were a lot of issues and two separate actions being tried at the same time with at least six maybe seven experts um with some very lengthy crossings i mean the torkelson cross-examination at trial took i don't even remember three or four days i was going to say a week a very long time and it was because there was you know you're cross-examining on the nature of multivariate regressions you're cross-examining on i don't remember anymore but all kinds of econometric models that none of us really had known anything about until this report came in so i was trying to educate the chancellor the chancellor was trying to absorb what was going on and and he was disinclined to cut us short it's funny nowadays when you have a a new trial and you're trying to get a schedule one of the first things you do is you get the scheduling order and the court puts in the day the trial is going to start what time and how many days you get it's usually if you get five you're lucky right maybe you get two weeks if you're really really lucky if you get the right judge um i don't i have not in preparation for this i didn't go back and look but i'm guessing that the pre-trial order were not the previous there was never any schedule in place that said how long the trial was going to be i'm guessing it was open-ended the capacious trial included many witnesses some persuasive some not so much and both of you mentioned meredith brown in in positive terms and and he does show up throughout the opinion some block quotes of his testimony uh meredith brown came in he was a deb of voice he he was the the deal lawyer for technicolor um and again at the time he was writing on a slate that had not not yet been written because this was before all the big cases were decided um you know in in your views how did he how did he handle the process which admittedly was not what we normally see today but what about meredith brown well two things i thought that one of the strongest points during the trial for our side was meredith brown's testimony he was eloquent about the state of the law as eminent practitioners like he was understood it at the time of the board meeting at the time of the deal and he said i don't think that that the fundamental nature of the duties of the board of directors have changed but case law has fleshed it out revlon says that except in unusual circumstances if you're selling the company you should you should shop around that was not in meredith's view the law at the time and he said i advised the board that they needed to be fully informed about the value of the company but i told them that they did not need to shop the company if they felt otherwise well informed and he explained why he thought that had been the law and why that was the understanding of the of the corporate m a bar at the time and he was very strong about that now having said that he was not retained very far in advance of the board meeting this deal was put together quite quickly and quite quickly relative to what we would think of now so some of the flaws in the process that were articulated by the court [Music] were not aspects of the process that meredith brown had anything to do with he was a good witness a terrific witness for your side no question about it he he um he he wanted he was pressing more cameraman to shop the company he wanted more cameraman shot of the company but as tom said ultimately he said it's up to the board if it has enough it feels it has enough information it can proceed and they did but it's clear from his notes he had a a notepad i remember we got that was a discovery thing we got the original was like under cover of darkness one night i think we met gary met you or peter met you out on the street when i got the original copy of them so he was he and that was clear he was pressing um cameraman to shop the company but cameraman didn't want to shop the company and cameraman's it was cameron's way i thought from i agree that from your perspective from your side meredith brown was probably your best witness i thought at the time i thought gary's cross with cameraman was great and point and demonstrated the cameraman was he was a terrible witness i thought um because all of a sudden he had all this information this knowledge that he didn't have he had none in his depositions and he did come across as as arrogant and i you know so i thought that was i thought that went well cinerama's main valuation witness however didn't fare so well either when we got the expert report which it was the damage calculation for the fraud case and it was the appraisal report basically i mean they didn't characterize it that way but that's what it was um i thought it was possibly the best gift we could have gotten and there were three reasons for that one was 6275 versus a nine dollar to eleven dollar price was he was just for public company was just off the charts the second and equally important part of it was that it that number came from an elaborate statistical econometric model with multiple um you know multivariate regressions and all kinds of very very complicated stuff that was unnecessary i mean if you wanted to do a dcf you could do a dcf you could do it using the company's projections and john torkelson who was the the cinerama expert didn't do that he constructed his own set of projections that flowed from this black box the third piece of it which was also important was that critical inputs to the black box came from two industry experts that cinerama hired both of whom well one of them had testified before congress a month before the deal directly contrary to what he said in his testimony and we had the congressional testimony and the other expert a guy from variety magazine who wasn't he was a well-regarded industry expert had contributed a chapter to a book that was directly contrary to what he said to generate the torkelson input and and so you know we were looking at this 6275 number looking at it relative to 9 to 11 looking at it relative to the extraordinarily complicated model that had generated it and then thinking about the cross-examinations of those two industry experts that i was sure even i could do well you know we thought this is a home run and you think about cases i think i said earlier you know i try to think about cases organically if you can get the court to doubt some really big fact from the other side then you you're a long way there toward getting him to believe what you wanted to believe as technicolor's council surmised cinerama's aggressive valuation contention 62.75 per share for stock that had traded below 10 per share shortly before the deal backfired at least with chancellor allen and thinking again about these the uh cd technicolor saga and i know we could be here all evening if we went into it in in more detail but uh again uh having having spoken uh to some of the attorneys involved uh on the on the plaintiffs side uh did you feel that by coming in at such a high value uh 60 70 dollars uh per share that they lost credibility with you or was it just a function as you said of when you do discounted cash flow analyses and you move a discount rate well you can get a range as white as texas as as a judge once once said judges in delaware they they know the areas you know and and unless if there's no problem with the market and technically there was an active market in the shares nobody has to believe in the efficient market hypothesis uh to nevertheless believe that unless there's some unusual explanation of course any plaintiff's lawyer will find oh my case is as usual you know that it's that is a hundred percent wrong is one thing that the price of ten dollars a share should be 20. uh maybe something the market didn't know but that the price of ten dollars a share in an actually traded market should really be 70 is almost incredible i mean there could be a fact that you know there was actually uranium underneath the plant or something like that but generally what they do in those cases is the plaintiffs think they're creating a bargaining range so they go as high as they can think the court will slice the baby cinerama was claiming the fair price of technical it was somewhere in the 62 62 75 range right how did that affect as you marched toward trial i think it had a ignificant negative impact on the way the court assessed our case i think that looking back on it when you look at a public company it's one thing to say you know this company is undervalued by 20 it's another thing to say it's undervalued by 300 percent and i think 600 percent nevertheless cinerama did have a story to tell about why the merger price of 23 dollars per share significantly undervalued technicolor that story rested in no small part on the fact that ron perlman and mcandrews and forbes having bought technicolor in 1983 for around 105 million dollars sold it about five years later before the trial started for about 780 million dollars a big issue then was whether to look at technicolor as it existed before its acquisition in 1983 under mort cameron's leadership or as what it became after the acquisition under ron perlman's leadership mr pearlman felt that the right approach was to look at the company as it was when he bought it and not what it became i think the concept of of looking backwards rather than uh forwards as we have found ourselves in and valuing the the price that we're going to pay the video processing unit became a very very profitable part of the business which nobody had any clue of a lot of the the focus was on how that business developed years later you know uh and i think that's the wrong way to look at a transaction you know you got to look at it from the moment that that you're making the decision to buy and what it looks like and with the knowledge that's that's available and and nobody had any idea what home entertainment was going to be even worse for cinerama testimony from one of its industry experts about the future of video processing called into question the aggressive forecasts it presented in support of its valuation contention from the technical side was there a lot of worry about the about the carlton sale and the effect of the 780 million dollars being out there um the answer is sure i mean it was a hugely different company in that a lot of assets had been sold and a a either a home run or a a black hole business one hour photo had been disposed of but the single biggest driver of that huge price was video cassette duplicating which had exploded like a neutron bomb and in a way that not even steve roberts the industry expert [Music] we made that argument we we said that that was happening and i think technicolor's argument you had a couple of arguments one of which was there was no evidence to support it and roberts's testimony congress suggested otherwise one of the other arguments was that it could have been video disc and that might have been taken off because that was sort of around the same time frame and we all know video just went nowhere um but we're in an appraisal again you're putting on blinders and so we felt really strongly about video by the time we got to trial we knew what had happened with video but you're trying to put yourself in the position that you were years before and you know and the congressional testimony was did not suggest that something different might happen the guy who testified that video cassette duplicating was going to explode testified before congress that the rental market was a ravaging steamroller threatening to eradicate video duplicating businesses and his first explanation for that at trial was well i wasn't under oath which the chancellor did not did not appreciate not get excited about it as he explained earlier chancellor allen was decidedly unexcited about cinerama's valuation contention in his october 1990 appraisal opinion he concluded that the fair value of technicolor stock at the time of the 1983 acquisition was 21.66 per share even less than the 23 merger price that valuation conclusion was critical to the chancellor's subsequent decision in june of 1991 to reject cinerama's parallel claims of breach of fiduciary duty a decision that disappointed but didn't surprise senorama's lawyers so chancellor allen's 1991 fiduciary opinion comes out what's your reaction [Music] i mean you appealed but did you think the case was over how did you he decided the appraisal first right so once the appraisal decision came out we waited another it was months but that was we were waiting for the other shoe to drop we knew that when he found 21 his price was 21 whatever 21 and some changed 2160 i think yeah we knew then that he wasn't going to find liability so so that was not a surprise that didn't surprise at all we were disappointed but we wanted to get that decision so we could appeal them both we knew we were going to lose so we weren't we weren't at all surprised we were surprised in the enough we were so much surprised as we were disappointed in the fair value we really didn't see how you could get that company you know if you valued the permanent plan we didn't see how you could you could get to that number and but he didn't value the permanent plan the first in his appraisal he valued the cameraman plan um we didn't we thought we were right on value because under the statute the statute says you value the company on the date of the merger we thought this is really pretty clear and we thought you have to at least give us the benefit of the planned asset of the investitures that that perlman is one of the banks that he's going to do um so we thought we would get that and we and so we were really disappointed when the number came in where it did but it came in where it did largely because he we thought he got the law wrong so the stage was set for oral argument and the second and arguably most important appeal to the delaware supreme court cinerama appeals what was the oral argument like well that gary made it from our side so i'll let gary speak to the argument i i had a reaction if that's going to talk well i'll tell you two things one was um it was the shortest of my prepar prepared remarks i ever got through i said your honor i'm tom allingham and with me at council table is and justice moore interrupted me and said you wrote an article about our opinion in weinberger which has been proved to be wrong isn't that correct and i never got back to my to my argument that i'd written out not surprisingly our evaluation of the argument was that we were going to lose it was very hostile to our side led by justice moore and justice horsey uh the authors of weinberger on justice moore's part and van gorkum on justice horsey's part and they seemed to have some real [Music] irritation or hostility with the chancellor's treatment of those cases in in the opinion so we were we were pretty confident that we were heading back to the chancery court but i have to say i did not did not expect a lot of what came out in the supreme court's opinion i like to think that they were reacting to sort of the a lot of the facts that even the chancellor uh found with regard to directors not knowing about them what you know beforehand and cameraman negotiating the price and those kinds of things which we made you know which we played up on and i think that was the kind of thing that you we sort of envisioned justice moore being offended by and i think it had that react it had that sort of result so you weren't surprised well were either of you surprised when the supreme court's opinion came out i don't think you guys were surprised for you we weren't we were up we were cautiously optimistic we really thought that we thought the argument went well and cinderama's council was right to be optimistic the supreme court's 1993 opinion known as cd2 caustically criticized chancellor allen's judgment and found that technicolor's directors were grossly negligent based on findings that the chancellor had assumed solely for sake of argument a move that rankled technicolor's lawyers and the chancellor himself and we weren't surprised the outcome but we were furious it's not too strong a word at the and i don't like to say this but i'll but i'll say it since we're in an archive situation um i thought that the conversion of assumed facts into findings of fact by the chancellor was um intellectually dishonest and it was and i thought it was the underpinning of a lot of what happened thereafter including arthur's i think rightful um optimism about the ultimate resolution of the case it made it impossible for that case to resolve it was and it was not you know the chancellor was did not make those findings and to adopt findings that aren't made i thought it was wrong talking about the supreme court and sometimes differing from from your views uh i was reminded that there was a moment in uh cd technicolor when i you you said in one of your opinions something along the lines of i'll assume arguendo gross negligence but nevertheless and then the supreme court said the court of chancery assumed gross negligence the supreme court said found found i'm sorry yeah just intellectual dishonesty i i can't say i can't put more of a i mean maybe maybe you can't read uh that was again justice horsey i think we wrote that i mean they do they there's there's a discipline in in the trial court or in the intermediate appeal court that any supreme court doesn't have that is they don't get reviewed and for the for the strong judge the intellectually strong judge she will not have to play games with the record but for for some they write what they want in order to justify their opinions the delaware supreme court's opinion also controversially criticized chancellor allen's reliance on the case of barnes versus andrews for the proposition that a plaintiff who proves negligence still has to prove that the negligence resulted in some harm to the plaintiff the one thing that the chancellor did do that the supreme court criticized was using the barnes case and the quote from the supreme court is criticism for finding quote authority for its requirement of proof of injury in a 70 year old decision that none of the parties had relied on or felt pertinent so neither of you i guess had cited it but i certainly thought it was pertinent but we cited lots of cases that were like it and it's an opinion from learn at hand it was hardly chop liver and i don't think that it's unusual for a trial court to send a clerk off to find support for a proposition that the court thinks is relevant to his analysis so i i thought the criticism was again unfair and i it it was one of the things that led me to think that there was animosity between the two courts and that it was going to be part of my job on reman to try to tamp that down so that i got as much of a plane that i wanted to win obviously on rayman but so that the terms and language of the rehm and opinion were as plain vanilla as possible yet another failure on my heart i always thought what the supreme court was saying with that was though that you didn't you shouldn't have gone to new york law this was a delaware law issue we don't defer to new york this is delaware and that's a very different rule applied in the traditional negligence context and it really has no application in a corporate fiduciary situation so i never really thought they were being so critical of the fact that he found a case that we didn't cite so much as they were being critical of him going to new york law to begin with and finding something that was so i think so inconsistent with delaware law and then basically saying okay that case says that now that you've proven that these people were asleep at the switch you still now have to go on and you have the burden of proving damage and your harm and and i think that was what they were saying that's just not consistent with delaware law whether it was or wasn't they they they didn't think you should be deferring to do you work on that that's how i read it but i do when you look at it and it you know when you read it it does seem to suggest that they were offended by him finding something relying on something nobody cited i don't think that's what they meant in cd2 the delaware supreme court also criticized the parties for not addressing the effect of section 144 of the delaware general corporation law and criticized chancellor allen for using a reasonable person standard for determining the materiality of a given director's self-interest in a challenged corporate transaction yet the lawyers for both cinerama and technicolor felt that these criticisms were either inconsequential or irrelevant much of the supreme court's opinion deals with the reasonable person standard and whether that was well right or wrong but that didn't really have much of an effect in the case going forward did it i don't think it did yeah i don't think and i don't think the the findings of uh self-interest would have been changed by the you know the whatever it is the subjective standard i don't think it would have mattered yeah i think you could would come out we from our perspective we would come out the same way whatever whichever standard you would apply we would have we believe we could would have demonstrated that the directors that we thought were being disloyal or disloyal we spent probably too much time at trial or in the briefs arguing about that standard we were arguing reasonable director's standard just because we thought the alternative was just cumbersome and as a policy matter unwieldy but it wouldn't matter and the supreme court took took the parties and and the chancellor to task for not addressing section 144 or the requirement of director unanimity but neither of those really played a part in your views well no once that once the um i mean an interested director can vote as long as the interest is disclosed so we didn't see and i don't think that gary and arthur saw any impact of the self-interest issue on the unanimity issue and once the simone issue was resolved the unanimity charter provision didn't really apply right and section 144 didn't apply the parties didn't brief it and the chancellor didn't address it because it on its face it wasn't applicable what the 1993 cd2 opinion did however was leave the litigants with very different views about how the case would come out on remand so ensuing settlement talks between barry schwartz for mcandrews and forbes and jim cotter for cinerama were probably doomed from the start so what happened well obviously there was a remand wha what were your approaches to the remand well i'll tell you we we were afraid that um tom was going to go in and want to introduce additional evidence new have new evidence to try to stat to meet his burden of of demonstrating the transaction was entirely fair because we thought under this record when you've got these directors if you've got now a finding from the supreme court that these directors breached their duty of care you've got a finding that cameraman sort of set the price on this and you've got a finding that some of these directors didn't know all the things that went to the sort of the do care thing um and you've you've got a you've got a mooted appraisal you know so you don't have a number without somebody coming and testifying about what you know entire fairness what the numbers should be um we thought we were we were very confident we were we didn't think we didn't think that the uh defendants could could establish entire fairness the other thing was we understood the the chancellor had said we argued all along that there was a lock up here and when you read when you read the first when you read the post trial decision our interpretation was chancellor allen was saying it was a structural lockup and we thought you know with that fact and there was a you know there was a no shop they didn't shop it they had no fiduciary out we thought this was a we thought we were going to win and i think that was the context in which barry schwartz and jim cotter got together for lunch to have a settlement conversation and i don't know how they came about i think you may have been into i think i called gary and said the parties wanted my guys wanted to have a meeting but going into the meeting i was asked you know is there what do you think i mean is there is there a path to the end zone and i said i think there is i do not think um that the court will ignore the appraisal valuations i think we can still reference them and i still think that i don't think they can back off the 6275 number because it's out there no and they you know i think they're wedded to it and so i think all the credibility issues that i thought drove the first opinion i think are going to be in play in the second opinion i'm not telling you this is an easy task but i don't i don't think that we are you know fighting a losing battle here and and i think from the other side uh jim cotter was hearing something very different from that and so the report i got back was that they weren't even close they weren't even in the same zip code yeah my recollection of what i heard at the time was i think it was barry schwartz that went out and met with jim cox and the message that i heard was barry said to jim you think you've won this but you haven't we'll give you a dollar a dollar yeah a dollar over the deal and i think um what i heard was cotter's then saying something along the lines of well then you're going to pay for lunch but that's then that was the last of the settlement discussions the remand of the court of chancery to determine if the technicolor acquisitions satisfied the stringent entire fairness standard of judicial review posed a novel issue until cd-2 until when i think of it's technical or two um the question of whether the business judgment rule or entire fairness applied was i think pretty widely regarded as case dispositive if you got entire fairness you were going to lose and so cd2 was the first and the appeal of the remand was the first case that i know of where the parties engaged on the question of whether a case could be into a deal could be entirely fair in the face of a flawed process that is to say in the balance of the question of fair price and fair dealing whether you could have a very high quantum of one and that would solve a deficiency in the other and i think that the court acknowledged that that is possible and that that changed the way certainly at least in in my litigation career it changed the way i thought about deal litigation and about whether i'd rather try a case or you know settle the case it i think it offered defendants some leverage that didn't exist before as it turned out the ray of hope that technicolor's lawyer saw turned out to be a blaze of glory with chancellor allen deciding in 1994 that the transaction satisfied the entire fairness standard and the delaware supreme court affirming that ruling in cd3 less than a year later developments that stunned cinorama so chancellor allen finds it entirely fair that was your hope and and you never thought that would be a possibility we're stunned to put it mildly we were um at that point i mean the only fear we had was that chancellor allen was just so wedded to the you know the other side's case that he was going to ignore all reason but we were very confident that when he applied you know the law we were going to win and then we lost we were just stunned and how about so then you appeal again and anything different that was the appeal you said where there were no questions my recollection is there was not as there were no questions that's correct we went through you know we had whatever we had i think we had 20 minutes each or written there were reasonably long long arguments and i i went through my entire argument and i was done in you know 18 minutes and i said thanks not a question from the bench i've never had that happen before since after having been he eviscerated the first time around but then the supreme court affirms we yeah and obviously we never completely i still can't understand how that could be i mean the supreme court did certain things in that opinion that we so the way we read the chancellor's opinion on remand was he said remember i said there was a structural lock up what i really meant was it was locked up because the price was so good and so that was inconsistent with and we we really were optimistic that the supreme court would say no that's not it was a lock up and you you know there was no that you know the twenty three dollars or the 2160 or whatever the number was he found is no longer relevant we thought we you know we didn't think that they could affirm it but they did were you more surprised by the chancery opinion on remand or the supreme court affirmatives we were uh as disappointed in each i don't know if we were more surprised because alan you at least probably more surprised in the supreme court because we really thought from the tone of justice horse's opinion at cd2 um and and the arguments we we you know we really believed the arguments so i guess we probably were more surprised by the supreme court but again equally disappointed of course the case continued as an appraisal case just as it started out 12 years earlier and it continued for over 10 years more after two more supreme court reversals and a new trial on valuation the court of chancery now in the person of chancellor william chandler returned in 2003 with a judgment of 21.98 cents per share just pennies more than chancellor allen's original valuation but in the sixth and final appeal in 2005 the supreme court again reversed mandating use of a lower discount rate and a lower figure for corporate debt and extending the duration of the very favorable rate of pre-judgment interest of 10.32 compounded annually those mandated adjustments resulted in a valuation of 41 28.41 per share a long long way from the 62.75 cents that cinerama argued for but considerably higher than the merger price of 23 per share belatedly then the question arose would that higher valuation have precluded a finding of entire fairness the one thing i would say though is i think the way i think it would the reason it would come out differently in my view today is i think in large part ultimately the chancellor determined the transaction was entirely fair um in reference to or by reference to the number he had found in the appraisal case which had had already had been mooted in an earlier appeal in the supreme court and then we of course went back and had the appraisal but he he did he found entire entire fairness in large part in by reference to um his about uh his fair value determination which ultimately was set aside so i think if you if you actually tried them together given the fact that ultimately the fair value determination was something like 20 and change years later in the subsequent appraisal i think that would that would dictate that the transaction would not survive entire fairness and you see that the chancellor's reliance on the deal prime and as you mentioned earlier his reliance on the price that he found first you know come through in all of his fiduciary opinions yeah that's always the thing that that's always nagged at me because when you go back and you read the decision on remand following cd2 and the chancellor really does in my opinion find the transaction entirely fair in large part by reference to the what he found to be you know what he thought was a very fair price and before that the supreme court had said because of what we're doing in cd2 the appraisal appeal which we had appealed at the same time was moot right um and then they the supreme court then affirmed him on the entire fairness and as a consequence they said now the appeals no longer move so then we had another how many more years another 12 years of litigating on the appraisal and ultimately the supreme court found the fair value to be significantly higher than that than than the value that the chancellor had found so you really have to say well does that entire fairness finding on riemann really withstand an alice is because the fundamental underpinning of that has now been knocked out but it's really sort of sort of an academic question i think at this stage it is an academic question but it's an interesting one i think that the ultimate finding of value and we argued this in a motion to re-argue after the supreme court's last decision i think that the supreme court's clear intent that the chancellor chandler had found the value to be 21 something 20 60 years 30 or 60 or something and i think that the supreme court intended to make a little tweak in the value and nudge it upward a little bit i think they would have been shocked before the fact if they had learned that it bumped the value up 20 it was a tweak to the cost of capital i think or something there's also a discount rate too because i think discount rate was determined to be law of the case and and that changed yeah yeah but but i don't think they thought it was going to be a big deal and it turned out it was it was a significant deal in fact it pushed the valuation above the deal price this is all conjecture i don't know i was going to say this will not surprise you to hear me say i don't agree different different view but the question certainly became moot after the sixth and final delaware supreme court ruling the case was resolved for good after 22 years of litigation both sides saw at least some good news in the final result we never accepted that this was entirely fair but obviously that it's it was deemed to be so by the courts i think we ultimately felt vindicated in the appraisal so i mean i think there's it's one of those rare cases where both sides can see some vindication confined vindication um our client was thrilled with the ultimate award thanks to the compound interest award um and vindicated that our number was i mean a big part of it in the last dozen years a big part of the after the liability case was over a big part of it was sort of principle we we were determined to establish that this was worth more than 23 dollars notwithstanding the fact that we had argued 62.75 we truly believed it was worth substantially more than that and felt like we were vindicated there but for a long time it was hard to get over the finding the entire fairness and the transaction that we felt so you know we were so um committed to we we just felt was just not a fair transaction well we weren't 100 satisfied with the with the final decision and you and the judgment but um on balance we um we proved entire fairness we proved that the transaction was entirely fair which meant no direct reliability that was a really big thing and that was something that nobody had ever done before so we felt very good about that we we had twice valued the company at below the deal price and appraisals and we felt very good about that we thought that the supreme court had just made a mistake but that was just our our guess but that's what everybody on our side thought so we thought um and you know it was 22 years of you know it was 46 million at 52 or whatever in terms of interest but it was 20 22 years that we were holding the six million dollars so you know that's what interest is for and although 10.32 was high in in some of the periods during that 22 years it was probably low during other periods so on balance we thought it was a good result even if each side saw some good news it was striking and disappointing to mr pearlman that after 22 years of litigation and an estimated 20 million dollars in legal fees and expenses 46 million dollars of the 52 million dollar judgment was interest the other thing that was about most bothersome was we kept winning the the cases the lower court cases and then it was sent back by the supreme court to be reviewed again and ultimately the value that was determined to be the right price was less than we paid but in delaware they had the ability to get interest from the moment that the the offer became uh live uh until they got paid at a very attractive rate very attractive rate yeah so it became an investment vehicle the court rather than a determinant of fact or law or value and [Music] i think that it is and was very unfair so uh we ended up uh paying you know 25 i'm making this up 25 cents less than the offer price but we paid 50 million dollars in interest which was just silly and you know the um the plaintiffs knew that you know and this started out the plaintiff started out as just wanting to roll from one year to the next and so it would be okay if if we took our money and you know so they started this action to justify that and then they realized hey this is a you know pretty good investment vehicle you know that's not what the court should be more precisely and as observed when we started this narrative was the 1.1 million dollar recovery over and above the merger price worth 22 years of litigation and 20 million dollars in expenses the question becomes particularly poignant when we learned about how close the case came to settling when it first began in nineteen eighty three all i heard is i heard from steve rothschild that the case got within two hundred thousand dollars of settling at a lo at a price level of order of magnitude 31 or two dollars a share so you know you're talking about a two or three percent delta that would have gotten the case settled back in march or april of 1983 in a case that ultimately probably generated gosh i don't know 20 million dollars in fees maybe i'm sure i'm sure certainly an amount of fees that dwarf the deltas not surprisingly given the duration of the technicolor litigation most of the key players in the case you've heard about here have retired or passed away tom ellingham and art dent are both now retired john torkelson pleaded guilty in 2008 to perjury for concealing contingent fee agreements for serving as an expert witness charles simone died in 1990 in the middle of the litigation morton cameraman died in 2006. meredith brown died in 2018. just as andrew gt moore ii died in 2018. justice henry horsey died in 2016. chancellor william allen died in 2019. gary greenberg died in 2008 a little more than two years after the technicolor litigation ended like life litigation is unpredictable and there's hardly a better example of that than cd versus technicolor [Music] [Music] [Music] you