In re Bear Stearns Litigation

In a widely reported decision, the Supreme Court of the State of New York granted summary judgment, dismissing consolidated class-action lawsuits filed in New York and Delaware by Bear Stearns shareholders after J.P. Morgan Chase & Company ("JPMorgan") agreed on March 16, 2008, to buy Bear Stearns in a deal brokered by the U.S. Federal Reserve. The suits claimed that JPMorgan's offer to purchase Bear Stearns was "unfair and inadequate," and that Bear Stearns' directors breached their fiduciary duties by failing to get the highest possible price. The decision is seen as a strong endorsement of the protections that the business judgment rule affords directors faced with the challenges posed by the ongoing credit crisis.

JPMorgan counsel Wachtell, Lipton, Rosen & Katz retained Analysis Group to help address the issue of whether Bear Stearns' shareholders would have done better in a bankruptcy than through the sale to JPMorgan. Our academic affiliate -- a nationally known bankruptcy expert -- was supported by an Analysis Group team led by Chairman Bruce E. Stangle, and Managing Principals Mark Howrey, Gaurav Jetley, and Richard M. Starfield.

Our affiliate reviewed numerous SEC filings, security analyst and ratings agency reports, and other documents in preparation of an expert report and subsequent affidavit rebutting the plaintiffs' three experts. The Court cited the affidavit extensively in opining that "Bear Stearns' only alternatives were to accept the offer proposed by [JPMorgan] or to file for bankruptcy [in which case] its bondholders would not have received payment in full and the shareholders would have suffered a total loss." Our expert also concluded that Bear Stearns was "liquidity insolvent" as of certain dates.

Relying in part upon our expert's reply affidavit, Justice Herman Cahn noted that plaintiffs' expert's affidavits "fail[ed] to provide any basis to question whether the Bear Stearns board's election of a merger was within the 'range of reasonableness' or otherwise fair to the shareholders." The Court also noted that plaintiffs' expert's estimates of Bear Stearns' stock value were "highly qualified and completely speculative."

Justice Cahn concluded that the aggressive dispute of the plaintiffs' "assumptions and conclusions" regarding share valuation and the possibilities of asset sales and DIP financing raised "substantial" doubts about the plaintiffs' position.

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