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In re the Bear Stearns Companies, Inc. Shareholder Litigation, C.A. No. 3643-VCP (Del. Ch. April 9, 2008)

April 9, 2008

Plaintiff stockholders filed substantially similar complaints in New York state court and the Delaware Court of Chancery challenging the proposed merger of Bear Stearns Companies (“Bear Stearns”) and JP Morgan Chase & Co. (“JP Morgan”). Defendants in the Delaware action moved to dismiss or stay the Delaware complaints in favor of the actions filed in New York. Though the complaints filed in Delaware were filed three days after the complaints filed in New York, the Court considered them to be contemporaneously filed and analyzed the defendants’ motion pursuant to the well-known forum non conveniens standard. In deciding to stay the Delaware actions in favor of the actions filed in New York, the Court found most relevant the fact that the New York actions had already been consolidated and scheduled for a preliminary injunction hearing. The Court also found relevant the unique circumstances and parties involved in this matter, such as the involvement of the New York Federal Reserve Bank and the national importance of certainty in this transaction. In opposing the stay, plaintiffs cited cases such as In re the Topps Co. S’Holders Litig., 924 A.2d 951 (Del. Ch. 2007) and Ryan v. Gifford, 918 A.2d 341 (Del. Ch. 2007) where the Court of Chancery refused to stay Delaware actions in favor of similar actions pending elsewhere on the grounds that the issues presented were novel and would have widespread application and therefore implicated Delaware’s interest in adjudicating the dispute. The Court declined to follow the same path here, stating that “the claims asserted in the Complaint only require the application of well-settled principles of Delaware law to evaluate the deal protections in the merger and the alleged breaches of fiduciary duty. There is no dispute that these principles will be applied by some court.” The “paramount” concern identified by the Court here was “that this Court not contribute to a situation that might cause harm to a number of affected constituencies, including U.S. taxpayers and citizens, by creating the risk of greater uncertainty.” Given that (i) the New York litigation had already been scheduled for a preliminary injunction, (ii) the issues required the application of established Delaware law to an unusual set of facts that were unlikely to recur, and (iii) the Court desired to avoid a “collision course” with the New York court by entertaining a parallel action in Delaware, the Court decided that the defendants had met their burden of showing “overwhelming hardship” and granted a stay of the Delaware action.

The full opinion is available here