AMC Entertainment : Letter from Vice Chancellor Zurn re Pre-Hearing Questions

COURT OF CHANCERY
	OF THE
STATE OF DELAWARE
MORGAN T. ZURN	LEONARD L. WILLIAMS JUSTICE CENTER
VICE CHANCELLOR	500 N. KING STREET, SUITE 11400
	WILMINGTON, DELAWARE 19801-3734
	June 20, 2023
Michael J. Barry, Esquire	Raymond J. DiCamillo, Esquire
Grant & Eisenhofer P.A.	Richards, Layton & Finger, P.A.
123 Justison Street, 7th Floor	920 North King Street
Wilmington, DE 19801	Wilmington, DE 19801
Thomas Curry, Esquire	Gregory V. Varallo, Esquire
Saxena White P.A.	Bernstein Litowitz Berger & Grossman LLP
824 North Market Street, Suite 1003	500 Delaware Avenue, Suite 901
Wilmington, DE 19801	Wilmington, DE 19801
Theodore A. Kittila, Esquire	Anthony A. Rickey, Esquire
Halloran Farkas + Kittila LLP	Margrave Law LLC
5801 Kennett Pike, Suite C/D	3411 Silverside Road
Wilmington, DE 19807	Baynard Building, Suite 104
	Wilmington, DE 19810

Katherine J. Sullivan, Esquire

Wilks Law, LLC

4250 Lancaster Pike, Suite 200

Wilmington, DE 19805

RE: In re AMC Entertainment Holdings, Inc. Stockholder Litigation, Consol. Civil Action No. 2023-0215-MTZ

Dear Counsel,

I write in advance of the settlement hearing in this action with some questions for the parties' counsel. Given the pace of this matter, I wanted to give the parties an opportunity to respond in writing before the hearing instead of afterwards.

"[C]lass certification involves a 'two-step analysis.' The first step, a prerequisite for class action certification, is that the action satisfy each of the four

In re AMC Entertainment Holdings, Inc. Stockholder Litigation, Consol. Civil Action No. 2023-0215-MTZ

June 20, 2023

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requisites of [Court of Chancery] Rule 23(a)."1 For a class to be certified under Rule 23(a), "(1) the class [must be] so numerous that joinder of all members is impracticable, (2) there [must be] questions of law or fact common to the class,

1. the claims or defenses of the representative parties [must be] typical of the claims or defenses of the class, and (4) the representative parties [must] fairly and adequately protect the interests of the class."2 Baked into this class certification analysis are questions of standing.3 Rule 23(a) also contains an "implicit prerequisite-the representative of the class must be a member of the class."4 Settlement proponents bear the burden of establishing standing and each class certification element.5

1. Leon N. Weiner & Assocs., Inc. v. Krapf, 584 A.2d 1220, 1224 (Del. 1991) (quoting Nottingham P'rs v. Dana, 564 A.2d 1089, 1094 (Del. 1989)).
2. Ct. Ch. R. 23(a).
3. 7AA Charles Alan Wright, Arthur R. Miller & Mary Kay Kane, Federal Practice and Procedure § 1785.1 (3d ed.) ("When those [Rule 23(a)] prerequisites are met, standing also generally will be found to exist. Nonetheless, the courts must consider standing and mootness as additional prerequisites when determining the propriety of class certification." (footnotes omitted)); see also TransUnion LLC v. Ramirez, 141 S. Ct. 2190, 2208 (2021) ("Every class member must have Article III standing in order to recover individual damages. 'Article III does not give federal courts the power to order relief to any uninjured plaintiff, class action or not.'" (quoting Tyson Foods, Inc. v. Bouaphakeo, 577 U.S. 442, 466 (2016) (Roberts, C. J., concurring))); Buttonwood Tree Value P'rs, L.P. v. R. L. Polk & Co., 2022 WL 2255258, at *3 (Del. Ch. June 23, 2022) ("Judicial interpretation of the Federal Rules respecting class actions . . . [is] persuasive authority for the interpretation of Court of Chancery Rule 23." (alterations in original) (internal quotation marks omitted) (quoting In re Countrywide Corp. S'holders Litig., 2009 WL 846019, at *12 n.84 (Del. Ch. Mar. 31, 2009))).
4. Glosser v. Cellcor Inc., 1995 WL 106527, at *1 (Del. Ch. Mar. 10, 1995); accord Baker v. Providence & Worcester Co., 364 A.2d 838, 843 (Del. Ch. 1976) (stating "the prerequisites of [Rule 23] subdivision (a)" include "the existence of a class and that the named representative is a member thereof" (quoting 3B James Wm. Moore et al., Moore's Federal Practice § 23.02[2] at 23-153 (2d ed.))), rev'd on other grounds, 378 A.2d 121 (Del. 1977).
5. Dieter v. Prime Comput., Inc., 681 A.2d 1068, 1071 (Del. Ch. 1996) ("A plaintiff has the burden of satisfying the Court it has met the requirements of Rule 23." (citing Rosen v. Juniper Petroleum Corp., 1986 WL 4279, at *1 (Del. Ch. Apr. 11, 1986))); Dover Hist.

In re AMC Entertainment Holdings, Inc. Stockholder Litigation, Consol. Civil Action No. 2023-0215-MTZ

June 20, 2023

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Earlier today, I granted Mr. Munoz's counsel's motion to withdraw and his coplaintiffs' motion to dismiss him from this action.6 A few questions concerning each remaining plaintiff follow.

1. Anthony Franchi

On February 20, 2023, the Allegheny County Employees Retirement System ("Allegheny") filed a complaint in this action alleging two counts, one for breach of fiduciary duty and another for breach of 8 Del. C. § 242 ("Section 242").7 The Section 242 claim alleges the defendants violated that statute by "fail[ing] to seek approval from the common stockholders as a class for the creation and issuance of the Preferred Stock."8 Also on February 20, Messrs. Munoz and Franchi filed a complaint in an action styled Usbaldo Munoz, et al. v. Adam M. Aron, et al., C.A. No. 2023-0216-MTZ, alleging one breach of fiduciary duty claim.9

On March 2, I entered an order consolidating the two matters into the instant action and designated "[t]he Munoz Complaint" operative.10 I also asked counsel to confirm "whether the statutory claim asserted in the Allegheny Action" would be included in the consolidated action.11 On March 13, the plaintiffs' counsel filed a letter representing to the Court that the statutory claim "willbe included as a basis for Plaintiffs' motion for a preliminary injunction in this consolidated action."12 The plaintiffs never filed a consolidated complaint.

Soc. v. City of Dover Plan. Comm'n, 838 A.2d 1103, 1109 (Del. 2003) ("The party invoking the jurisdiction of a court bears the burden of establishing the elements of standing." (citing Lujan v. Defenders of Wildlife, 504 U.S. 555, 561 (1992))).

1. Docket Item ("D.I.") 507.
2. D.I. 1.
3. Id. ¶ 102.
4. Usbaldo Munoz, et al. v. Adam M. Aron, et al., C.A. No. 2023-0216-MTZ,D.I. 1 (Del. Ch. Feb. 20, 2023) [hereinafter "Op. Compl."].
5. D.I. 20 ¶ 7.
6. Id. ¶ 8.
7. D.I. 34 at 1-2 (emphasis in original).

In re AMC Entertainment Holdings, Inc. Stockholder Litigation, Consol. Civil Action No. 2023-0215-MTZ

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The defendants created and issued the APEs in August 2022.13 Anthony Franchi has sworn he is "the beneficial owner of shares of AMC Entertainment Holdings, Inc. common stock and ha[s] held such shares continuously since November 8, 2022."14

In her objection, Ms. Izzo asserts Mr. Franchi did not own AMC stock "'at the time of the wrongs complained of'-including, for instance, the issuance of APEs-in his complaint."15 In response, the plaintiffs argue Mr. "Franchi did not allege that the issuance of the APEs was 'a wrong,' nor did he assert a [Section] 242(b) claim."16

Mr. Franchi's own complaint fairly alleged the defendants breached their fiduciary duties in August 2022, months before Mr. Franchi purchased his AMC common stock.17 At the time of filing, Mr. Franchi swore he was a "continuous

13 D.I. 201, Transmittal Affidavit of Kevin Gallagher, Esq. in Connection with Defendants' Brief in Support of [the] Proposed Settlement, at Exs. M and P (attaching AMC's Forms 8-K dated August 4, 2022 and December 19, 2022, respectively).

14 D.I. 206, at Affidavit of Anthony Franchi in Support of Proposed Settlement, Application for Attorneys' Fees and Expenses, and Incentive Award for Plaintiffs [hereinafter "Second Franchi Aff."], ¶ 2. But see Usbaldo Munoz, et al. v. Adam M. Aron, et al., C.A. No. 2023-0216-MTZ, D.I. 1 (Del. Ch. Feb. 20, 2023), at Affidavit and Verification of Anthony Franchi in Support of Verified Stockholder Class Action Complaint [hereinafter "First Franchi Aff."], ¶ 1 ("I am a plaintiff in the above-captioned action and a continuous holder of AMC Entertainment Holdings, Inc. ('AMC') common stock at the time of the wrongs complained of in the Verified Stockholder Class Action Complaint (the 'Complaint').").

15 D.I. 450, at Exhibit 2 to the Corrected Transmittal Affidavit of Thomas Curry in Support of Plaintiffs' Reply in Further Support of Settlement, Award of Attorneys' Fees and Expenses, and Incentive Awards [hereinafter "Izzo Obj."], at 43 (quoting First Franchi Aff. ¶ 1).

1. D.I. 450, at Plaintiffs' Reply in Further Support of Settlement, Award of Attorneys' Fees and Expenses, and Incentive Awards [hereinafter "PRB"], at 43.
2. E.g., Op. Compl. ¶ 16 ("What the Board failed to sufficiently disclose when creating the Preferred Stock and transferring it to Computershare is that the Board gave a voting instruction to Computershare that would allow the Board to dictate the outcome of any proposal, as long as they could entice holders of APEs to support amending the Certificate."); id. ¶ 22 ("Like Agamemnon leaving a horse outside Troy's walls, the

In re AMC Entertainment Holdings, Inc. Stockholder Litigation, Consol. Civil Action No. 2023-0215-MTZ

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holder of AMC Entertainment Holdings, Inc. ('AMC') common stock at the time of the wrongs complained of" in that complaint.18 And while Mr. Franchi may not have personally asserted a Section 242 claim, his counsel and the Notice of Pendency of Stockholder Class Action and Proposed Settlement Hearing, and Right to Appear (the "Notice") represented that was one of the two claims the "Lead Plaintiffs" pursued.19

Board had set in motion its end-run around AMC's stockholders' votes."); id. ¶ 164 ("As alleged above, Defendants breached their fiduciary duties by creating and issuing Preferred Stock and APEs, entering into the Deposit Agreement with Computershare, and entering into the various agreements described herein with Antara, all of which are coercive, will sway the outcome of the Certificate Proposals, and are designed to circumvent the franchise rights of the Class. The Board's actions are plainly intended to push through the Certificate Proposals notwithstanding the previous, repeated opposition of the Class."); id. ¶ 165 ("Moreover, as alleged above, by creating and issuing Preferred Stock and APEs, Defendants have caused and will continue to cause significant dilution and economic harm to the Class. Moreover, if the Certificate Proposals carry and the APEs convert into shares of Common Stock, the Class will suffer further economic harm and dilution.").

I note Plaintiffs' Opening Brief in Support of Settlement, Award of Attorneys' Fees and Expenses, and Incentive Awards is fairly read to cabin the breach of fiduciary duty claim to December 2022 and onward. E.g., D.I. 206, at Plaintiffs' Opening Brief in Support of Settlement, Award of Attorneys' Fees and Expenses, and Incentive Awards [hereinafter "POB"], at 6 (arguing "[p]laintiffs' core claim" under Blasius is based on the December 2022 "Antara Transaction" which is "improper vote-buying");id. at 33-34 (same); id. at 7 ("In assessing Plaintiffs' injunction application, the Court would examine the December 2022 timeframe to assess the merits of Plaintiffs' claims."); id. at 35 (focusing their argument "at the time of [the defendants' alleged] breaches in December 2022"); id. at 39 ("[A]ny claim concerning APEs did not arise until Defendants weaponized them alongside the Antara Transaction."). I also read that brief to state the request for injunctive relief was "principally" based on the Section 242 claim, and that the benefits of the proposed settlement should be evaluated in view of the benefits that could have been negotiated upon obtaining a preliminary injunction based on that Section 242 claim. Id. at 6-8, 38, 40.

1. First Franchi Aff. ¶ 1.
2. D.I. 34; D.I. 185, Ex. 1 [hereinafter "Notice"] ¶ 25.