Settled: November 06, 2014
On March 14, 2014, the court appointed Labaton Sucharow as co-lead counsel to co-lead plaintiff, State-Boston Retirement System in this shareholder case against ArthroCare Corporation (ArthroCare) and its board of directors.
Plaintiffs allege breach of fiduciary duty claims against the ArthroCare board of directors in connection with the acquisition of ArthroCare by Smith & Nephew, Inc. The case also involves claims against JPMorgan, Smith & Nephew's financial advisor in the merger, in aiding and abetting those breaches, as JPMorgan's private equity arm, One Equity, was a substantial investor in ArthroCare.
This case arises from a variety of conflicting motives that led the ArthroCare Board to agree to an inadequately priced sale of the company to Smith & Nephew. Most prominent among those conflicts was JPMorgan's desire to "triple dip" by simultaneously: (1) cashing out of its highly successful private equity investment in ArthroCare; (2) securing a substantial fee for advising Smith & Nephew in connection with the deal (after JP Morgan's request to serve as ArthroCare's financial advisor was denied); and (3) garnering lucrative fees for providing the loan that is being used to finance the transaction. Moreover, JPMorgan's involvement as Smith & Nephew's financial advisor and deal financing source violated the terms of the securities purchase agreement that One Equity entered into with ArthroCare at the time that One Equity made its distressed-equity investment in the company.
On April 9, 2014, following expedited discovery, Labaton Sucharow and co-lead counsel secured a recovery of $12 million with defendants. The plaintiffs' efforts also secured material revisions to ArthroCare's proxy statements that allowed company stockholders to cast a fully informed vote.
The case is In re ArthroCare Corp. Stockholder Litigation, No. 9313-VCL (Del. Ch.). The plaintiff is State-Boston Retirement System. The defendant is ArthroCare Corporation and its board of directors.